Regions and Countries

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p. 5 of 5 BACK | NEXT I. Country Strategy II. Current Development Trends and Issues III. Implementation of the Country Strategy and Program IV. Portfolio Management Issues V. Country Performance and Lending Levels

Country Strategy and Program Update 2004-2006: Vanuatu

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V. Country Performance and Lending Levels

A. Lending Program

35. Consistent with ADB's policy on performance-based allocation of Asian Development Fund (ADF) funding, the indicative allocation of ADF funds for Vanuatu is linked to both supply and demand aspects. From the demand side, the Government has indicated that (i) its continuing budget deficit and concern over the flow of debt will constrain its ability to undertake further borrowing from ADB and other agencies over the next 2-3 years and (ii) it will be difficult to mobilize counterpart funds. In the fiscal year 2003 budget, the Government set a target of external borrowing of $5 million from all sources. From the supply side, ADB applies performance triggers related to progress in (i) economic and fiscal management, (ii) efficiency of the public service, (iii) improvement in the quality and timeliness of statistics, (iv) creating a favorable investment climate, and (v) satisfactory portfolio management. The share of ADF allocation also depends on population and per capita income. The supply-side calculation indicates that Vanuatu would be eligible for a base-case lending program of $6.0 million over the period 2004-2006, while the demand-side analysis suggests that either no lending or at best a minimal program involving perhaps one loan is likely. No ADF lending is presently proposed for 2003. ADB has urged the Government to focus on economic growth issues, and improve fiscal management in order to be able to pay down some of the domestic debt.

36. Accordingly, a minimal lending program is indicated for 2004-2006, essentially involving the deferred OIIDP in 2005 for a loan of $3.8 million. Other loan projects that have been prepared but not further processed (Rural Finance and TVET) are not currently included in the program, pending further assessment by the Government. As the preparation for the OIIDP dates back to 1999, there is a need for a small-scale TA to review the scope of the Project, with a view to updating the design, costing and priority of specific components. ADB will request the Government to reconfirm its commitment to the project before proceeding with the TA. The Government has indicated it will request funding from other funding agencies for consultants for project management and construction supervision. A concept paper for the OIIDP is in Appendix 3.

B. Nonlending Program

37. Ongoing TAs include advisory TA on the policy framework and capacity building for TVET, capacity-building assistance to Parliament, institutional strengthening of the National Statistics Office, performance improvements to service delivery units, and finalizing assistance to central agencies for the CRP. Future assistance will narrowly focus on private sector development with a cluster TA spread over the period 2004-2006, building on a diagnostic study for improving access to credit in 2003. This will be followed with development of the legal and regulatory framework for secured transactions in 2004, a feasibility study of a credit reference facility in 2005, and establishment of a registration system for secured transactions in 2006. In addition, there will be a TA for rural financial services in 2003, followed by TAs during 2004-2006 for rural productive skills development, capacity building in infrastructure management, and strengthening development policies. As there is limited scope for lending, the only project preparatory TA over this period will be for redesign of OIIDP in 2004. Concept papers for nonlending products are in Appendix 4. Roadmaps for the transport and private sectors are in Appendix 5.

C. Summary of Changes to the Lending and Nonlending Program

38. The above program, which focuses on creating a suitable enabling environment for the private sector, is quite different from the program envisaged in prior years. OIIDP will be deferred to at least 2005, and perhaps later. Lending for the private sector and agriculture is unlikely to eventuate in the planning period. Consequent to this move away from a lending program to an emphasis on ADB's knowledge products and services, project preparatory TAs proposed earlier for private sector, agriculture, and urban sanitation projects and their related capacity-building TAs are unlikely to proceed. The program will be tightly focused around private sector development, with a view to demonstrating concrete outcomes, including an economic growth rate in excess of the population growth rate by 2007.

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