Regions and Countries

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p. 3 of 6 BACK | NEXT I. Current Development Trends and Issues II. The Government's Development Strategy III. ADB's Development Experience IV. ADB's Strategy V. ADB's Assistance Program VI. Risks and Performance Monitoring and Evaluation

Country Strategy and Program 2006–2010: Uzbekistan

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III. ADB's Development Experience

A. Impact of Past Assistance

55. Objectives of the Last Country Operational Strategy. The Uzbekistan COS endorsed by the Board in April 2000 had an ambitious agenda: (i) enable transition and support its social costs; and (ii) enhance the potential for growth through regional cooperation, investment in the rural sector, and direct support for the private sector. It proposed involvement in eight sectors: agriculture, education, health and nutrition (for early childhood development [ECD]), energy, transport, urban social infrastructure, enterprise development, and finance. It also identified a number of options for private sector operations without government guarantee. Since the COS was endorsed by the ADB Board, there have been three CSP updates.

56. COS Lacked Monitorable Indicators. Assessing the impact of assistance in the absence of clearly defined indicators for ADB performance is difficult, but positive results in some areas are evident:

1. Improvement of living standards put on the Government’s development agenda. The Living Standards Strategy (para. 43 and footnote 21) marked an important breakthrough in putting poverty reduction on the Government’s agenda. It also provided the basis for preparing the I-WISP.
2. Moderately successful pilot reform of state procurement system in agriculture. Lower quotas and the introduction of a system for encashing net surplus under the Ak Altin Agriculture Development Project have improved producer incentives, though the state procurement system could be liberalized further. Extension services and access to new farm machinery have improved yields.
3. More textbooks for basic education. ADB’s Basic Education Textbook Development Project introduced private participation in textbook production and made textbooks more available to poor students through the textbook rental scheme.
4. Strengthened framework for enterprise governance. The TA for corporate governance reform helped develop a decree²⁶ that redefines the authority and responsibilities of (a) state trustees and trust managers in joint stock companies, and (b) production trade associations.
5. Legal and policy framework for foreign investment developed. ADB helped the Ministry of Justice develop a medium-term foreign investment strategy covering the legislative and regulatory framework, the institution and procedure framework, and the economic policy framework.
6. Legal framework for microcredit. The Law on Credit Unions was a direct consequence of policy dialogue during the processing of the Small and Microfinance Development Project.

57. Areas where ADB’s assistance has worked less well include the following:

1. Senior secondary education. ADB’s experience has been mixed. The borrower was primarily interested in equipment that could be procured with the loan, and less so in ADB’s emphasis on capacity building.
2. SME credit lines. The performance of SME credit lines extended by ADB has been mixed, with the portfolio of two participating banks deteriorating. This suggests that constraints other than availability of financial resources are major impediments to SME development.
3. Regional energy development. The Regional Power Transmission Modernization Project was terminated 30 months after Board approval.

58. Findings of the Operations Evaluation Department (OED). OED has independently assessed²⁷ ADB’s assistance program to Uzbekistan since country operations commenced in 1996. OED found the country strategy well focused and designed to achieve ADB’s corporate objectives of economic growth and social development. The strategy was rated “good” in terms of advancing ADB’s corporate goals of promoting economic growth and social development. However, the report observed that the strategy had little to say on how ADB could advance good governance. Sector programs other than the private sector’s were rated “above average”. With regard to PSD, OED found that credit lines were provided before ensuring that conditions were in place to allow credit to work effectively. The report noted that in program implementation, the focus had expanded beyond the strategy’s original intentions. All projects except two were better than average for relevance and efficacy. The report recommended that (i) Strategy formulation and program management need to be improved; (ii) ADB should identify niches where the Government would welcome ADB playing a leading role in helping the transition to a market economy by strengthening the governance system; (iii) ADB should improve the management of the TA program and the results achieved; (iv) ADB should become a better development partner by avoiding the imposition of ADB-driven conditions and taking a long-term view of Uzbekistan’s transition to a market economy; and (v) ADB should define a larger role of the Uzbekistan Resident Mission, building on its proven strengths, and revise the balance of resources between the Resident Mission and ADB headquarters.

59. OED’s recommendations (Appendix 2) are generally supported. However, governance and institutional development impinge on all sectors. As such, ADB support for governance cannot be a “niche” or compartmentalized type activity and should be woven into project design. This is likely to be a more effective way of building a critical mass of changes at the sectoral level than a stand-alone governance strategy that could run into political hurdles.

B. Portfolio Performance and Status

60. Since 1996, ADB has approved 21 loans for 19 projects totaling $914.7 million to Uzbekistan. The largest share of lending went to the education sector (34.7%), followed by agriculture (21.3%), water supply and sanitation (15.6%), and transport (11.0%). TA amounting to $32.0 million for 62 projects was provided over this period. (Indicators of progress in portfolio performance are in Appendix 1, Tables A1.6–A1.8.)

61. The portfolio experienced implementation problems in the past. A joint World Bank and ADB portfolio and procurement assessment²⁸ undertaken in 2002 concluded that common problems impacting their respective portfolios included (i) lack of political will to carry out reforms; (ii) unclear ownership of projects; (iii) over-complex design and ambitious policy frameworks; (iv) time-consuming internal decision making procedures within Government; and (v) weak local project preparatory, coordination and management capacity. The review highlighted the problem of incompatibility of national procurement legislation and procedures with procurement guidelines of international financial institutions as well as problems of timeconsuming contract registration requirements and post contract approval price verification and negotiation. Additional portfolio implementation issues included lack of decision making autonomy of project implementation units, shortage of qualified staff and excessive bureaucratic administrative procedures.

62. Improved Portfolio Performance in the Last 3 Years. The ADB portfolio presently comprises 15 public sector loans, including two from the Asian Development Fund (ADF) for a total of $633.6 million. The average age of the current portfolio is about 3.3 years. At the end of December 2005, the portfolio had no projects “at risk”, compared with three at the end of 2004 and four at the end of 2002. In the last year, one project²⁹ was terminated in July 2005, while the other two are now rated satisfactory in terms of development objectives and implementation performance. The disbursement ratio at the end of December 2005 was 20.7% compared with 17.8% in 2004. The contract award ratio reached 26.3% compared with 23.7% in 2004. These ratios have steadily improved since 2002. The improved performance is a result of the Government’s closer supervision and monitoring of ongoing projects as well as ADB efforts in portfolio management and greater delegation to and follow-up by the resident mission.

63. The 2005 country portfolio review concluded that while performance had improved over previous years there remained portfolio performance issues as follows:

1. Startup performance. The total time taken from loan approval to loan signing (averaging 5.2 months) and from loan signing to loan effectiveness (5.6 months) remains too long, mainly because of the time taken to approve the requisite Government project resolutions.
2. Procurement performance. Project implementation progress continues to be impacted by delays in the registration of contracts caused by the price verification exercise undertaken for each contract that in turn negatively impacts disbursements. Other problems include the difficulties some projects face in getting tender committees to meet, and some agencies’ insufficient procurement capacity.
3. Other Project implementation performance. Several projects continue to experience staffing problems. Low, noncompetitive salaries continue to impede recruitment and retention of qualified staff. There are often delays in fielding consultants.
4. Submission of audited project accounts and agency financial statements. There are often delays in submission and problems in quality of audited project accounts and agency financial statements.

C. Conclusions and Lessons for the Country Strategy and Program

64. Staff assessment of the 2000 COS and the subsequent CSP updates highlights the following lessons for the new CSP:

1. Focus on broader sharing of the benefits of growth. Since the last COS, more reliable information has become available about Uzbekistan’s poverty profile and the growth–poverty link. The benefits of growth have clearly not been sufficiently broadly based. Thus, it is important not only to “unlock the potential for growth” but also to ensure that growth creates jobs for the poor so that they can participate in and benefit from accelerating growth.
2. Be realistic in identifying the critical mass of policy reforms and time frame needed for the transition. The COS’s goals were broad-brush and ambitious— no less than managing the transition to a market economy. ADB, in coordination with other development partners, needs to work with the Government in identifying a coherent reform program with appropriate sequencing of measures.
3. Link results-orientation with monitorable indicators to ADB interventions. Strong efforts are needed to link long-term country goals with outcomes that ADB can realistically be expected to achieve during the CSP period. The indicators used to track CSP performance should be related to ADB interventions and should be monitorable and integral to portfolio management and project administration systems.
4. Recognize that supporting an enabling environment for PSD has implications for public sector reform. ADB assistance should aim to shift public administration’s approach to PSD away from controlling it to minimizing officials’ discretionary actions.
5. Systematically address governance improvement in all CSP interventions. Governance and institutional issues impact all sectors and is proposed to be built into ADB interventions. To ensure that efforts are not fragmented, the results matrix will be used to mainstream governance and institutional concerns.
6. Be selective. This involves prioritizing limited resources for stronger development impact and could entail using the following criteria:
1. The sector is highly relevant to reducing poverty and creating the basis for more sustained and equitable growth.
2. The policy and institutional environment is supportive, and the Government has a good track record of policy and institutional development in the sector.
3. Good potential exists for value addition by ADB taking into account activities of other development partners.
4. There is a reasonable likelihood of achieving expected outcomes and managing the risks of ADB involvement.
Applying these criteria across existing and potential areas of ADB engagement yields a range of strategic choices (Table 3): (a) “do more of”—scale up existing engagement or plan new entry into an area because of its high relevance, supportive policy and institutional environment, potential value addition by ADB, and a reasonable likelihood of achieving expected outcomes; (b) “do less of”— plan a phased exit from the area of engagement because of insufficient absorptive capacity, limited value addition, and/or the presence of other partners; (c) “stop doing”—plan the exit earlier rather than later because of mixed portfolio performance, combined with a weak policy and institutional environment; (d) “do not do”—do not plan entry because ADB lacks comparative advantage and other partners are providing assistance.
7. Design a series of linked interventions. Development impact can be enhanced through a series of linked project and TA interventions within a sector and thematic area, simpler project designs, and realistic time frames. TA clusters could be used.
8. Conditionalities in ADB assistance. Conditionalities should be relevant to the goals of the intervention and support the achievement of its objectives. They should be reasonable, mutually agreed upon, and within the Government's capacity to implement.
9. Mitigate potential sources of startup delays in project implementation. Startup delays in project implementation must be reduced to ensure delivery of investment and TA under the CSP.

Table 3: Making Choices

Theme	Level of Engagement
Rural Development	Take a holistic approach.70% of the poor are from rural areas, so rural development is key to poverty reduction. Synergies are to be gained from linking interventions across sectors in the rural space.
· Agricultural productivity and growth	Do more.Given agriculture’s central role in the economy and significant remaining growth potential, deepen operations that encourage productivity.
· Rural nonfarm enterprise (RNFE) development	Do more. RNFE has forward and backward links with agriculture and can absorb labor released from agriculture. Conduct complementary analytical work to identify constraints on RNFE.
· Infrastructure
- Water supply	Do more.Uzbekistan risks missing the MDG on access to safe drinking water because of inadequate coverage in rural areas. Access to safe water supply and sanitation services is a powerful link between environmental improvement and poverty reduction, with an especially strong impact on maternal and child health.
- Renewable energy	Start doing.Help increase rural access to energy and protect the environment.
Urban Development	Do less.Giving greater priority to rural development will mean limiting engagement in urban development, specifically urban social infrastructure services, where ADB has one ongoing operation. Participation by other development partners in municipal services is high.

Theme	Level of Engagement
Human Development	Continue to do.Achieving MDGs will require support for critical human development subsectors, balancing sustainability of financing with access to affordable quality services.
·    Early childhood development (ECD)	Start doing.Given ECD’s linkage with MDGs 2 and 4, and given falling preschool enrollments with the decline in the availability and quality of ECD’s services, invest in ECD.
·    Health (other than ECD-related)	Do less.Participation by other development partners is high.
·    Basic education	Continue doing.The policy and investment needs in basic education are significant and ADB has a comparative advantage in the field. Investment focus should be on resource-poor rural schools.
·    Senior secondary education	Stop doing.ADB cannot be involved in all levels of education. Its comparative advantage is in basic education. Experience with senior secondary education has been mixed. Focus on capital investments in senior secondary education may be diverting budget resources from basic education.
·    Social protection	Do not do. ADB lacks comparative advantage in this field and cannot spread its resources too thinly. Analytical work on social protection issues, however, should be pursued.
Regional transport and customs transit	Continue doing.Consistent with ADB’s comparative advantage and the Regional Cooperation Strategy and Program for Central Asia, with focus on market access, reduce transaction costs to transport and customs transit.
·    Customs modernization	Do more.Harness synergy between activities promoting facilitation of regional trade and regional transport.
·    Regional transport	Do more.Provide assistance as part of regional transport corridor initiatives.
Energy	Hold reentry.First regional energy trade project was cancelled. Enabling environment for regional energy trade is a prerequisite for ADB reentry.
Private sector development	Assistance from the public and private sector windows for PSD should be complementary.
·    Public sector window
-    Governance and institutional support	Do more.Support an enabling environment for SMEs and future private investment with focus on institutionalizing business regulatory reforms.
-    SME credit lines	Do less.Hold back on new credit linesuntil the enabling environment for SMEs and portfolio performance improve.
-    Financial sector	Do lessuntil there is tangible progress on planned reforms to remove sector distortions and increase transparency.
·    Private sector window	Do more. Help improve theinvestment climate, catalyze private investment flows, support privatization planning and specific privatization transactions.
Public administration	Do not do. ADB lacks a comparative advantage in this field. Other external partners are active.
Public financial management	Do not do. Other external development partners are active.

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