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Country Strategy and Program Update 2003-2005: Sri Lanka

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III. Portfolio Management Issues

A. Portfolio Performance

26. As of 31 December 2001, ADB had approved 105 loans, including private sector loans, valued at $2.7 billion, and 189 TAs worth $74.4 million. As of the same date, there were 27 ongoing public sector loans valued at $999.5 million (Appendix 1, Tables 1.6-1.9). Of this, net undisbursed funds amounted to $718.8 million or 72% of the ongoing portfolio. Seven loans were not effective yet: two were within the original loan effectivity date, four were approved in October or December 2001 and had not been signed, and one was still not effective due to delayed compliance with conditions for loan effectiveness.

27. Contract awards for 2001 totaled $99.6 million against a projected $183 million, while disbursements reached $91.4 million, also less than annual projected $118.2 million. The contract award ratio for ongoing loans was 15.1 percent, and the disbursement ratio on all loans was 15.1 percent against the ADB-wide average of 20.5 percent. These ratios reflect the delayed release of the second tranche of the Private Sector Development Program Loan, approved in 2000, and slow contract awards in the education, natural resources, and infrastructure sectors.

28. During 2001, the lack of counterpart funds constrained project implementation, affecting procurement for ongoing contracts and new contract awards, and compensation for resettlement. Although local funds were sufficient by the end of 2001, their release was sometimes delayed (e.g., Science and Technology Personnel Development Project). As of 31 December 2001, only the Urban Development and Low-Income Housing Project, approved in 1998, lacked adequate counterpart funding. Given the Government’s tight fiscal position, counterpart funding requires close monitoring to ensure timely provision of the required local resources for efficient and effective project implementation with firm budget allocations.

B. Performance Monitoring and Evaluation

29. In 2001, only one project⁷ was rated unsatisfactory for implementation progress due to a delay in loan effectiveness pending finalization of an effectiveness condition related to involuntary resettlement. All other ongoing projects were rated as satisfactory for implementation progress and achievement of development objectives. Five project loans were delayed by more than 20 percent. All these were the key elements in the assessment of monitoring indicators and lending scenarios (Appendix 1, Table 1.10) as discussed in para. 31.

30. In 2001, four project completion reports and one project performance audit report were completed. They provided valuable insights into project performance and highlighted critical country- and sector-specific issues related to project implementation. Areas of concern were identified by the country portfolio review mission (CPRM) in 2001, including (i) inordinate delays in contract awards, (ii) delays in establishment and appropriate staffing of project management units and project implementation units, (iii) time-consuming procedures for land acquisition and resettlement, (iv) lack of authority and responsibility given to the project director, and (v) inadequate budget allocations for counterpart funding. To address these concerns, a time-bound action plan was agreed upon with the Government during the 2001 CPRM, focusing on encouraging the timely fulfillment of conditions for loan effectiveness.

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