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p. -1 of 18 BACK | NEXT Executive Summary I. Introduction II. Long-Term Vision and Strategy for ADF III. Operational Priorites IV. Use of ADF VII Resources to Date V. Financial Management VI. Conclusions

Asian Development Fund VII: Progress Report (1999)

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B. Effectiveness of ADF

1. responsiveness (setting appropriate goals in relation to borrowers' needs and the Bank's institutional priorities);
2. relevance (devising the right instruments and deploying them in proper sequence to achieve agreed goals, e.g., best practice in policy and institutional reform); and
3. quality (assuring that services delivered to DMCs meet or exceed Bank policies and standards).

23. Responsiveness. Donors emphasized that the country focus in ADF allocations must be accompanied by a careful review of each economy's performance record in poverty reduction, economic and social development, and in its supporting policy environment. Where performance is not satisfactory, efforts to accelerate growth would be less effective in attaining the ultimate objective of poverty reduction, and may prove to be unsustainable over the longer term. Therefore, a key element in determining country allocations of Bank resources is a borrowing country's strong commitment to address poverty and cross-cutting concerns, including adequate allocation of resources to and effectiveness of the relevant policies and programs. With the Bank placing increasing emphasis on a sound policy environment in the DMCs, the correspondence between the Bank's policy concerns and its actual lending commitments needs to be reinforced. This was highlighted by donors who urged the Bank to examine the possibilities of:

1. introducing a more formal allocation system, and
2. strengthening the link to more rigorous performance evaluation based on measurable indicators.

1. identifying indicators for measuring country performance and needs; and
2. linking the indicators to arrive at a composite formulation that provides guidelines for relative and differentiated allocations among countries that have access to ADF resources.

The framework responds, in particular, to the donors' vision of Bank concessional operations in which scarce resources are carefully targeted at DMCs that need the resources most and are most likely to use them effectively. Specifically, while the allocation framework that is being adopted maintains the validity of the existing allocation criteria (per capita GNP, population, performance, and absorptive capacity), the linkage between these criteria and actual allocations is strengthened as follows:

1. In previous practice, there was no explicit linkage between per capita GNP and allocation. The newly adopted framework ensures a negative relationship between GNP per capita and planned allocations.
2. Other factors being the same, a DMC with a larger population will generally get a higher total allocation but a lower per capita allocation.
3. A more formal assessment of country performance will be adopted so that allocations are increasingly performance driven.

25. For purposes of performance assessment, the Bank's framework uses measurable or assessable indicators of short-term macroeconomic management; longer term economic management with focus on structural issues; progress in alleviating human deprivation including poverty reduction, human development, and improving the status of women; progress in protecting the environment; and Bank portfolio performance. In this context, country performance is evaluated in terms of the effort made by a government to strengthen its policies and institutions. Governance aspects are taken into account across all components of country performance and receive due emphasis in country performance evaluation. The Bank's governance policy¹⁰ affirms the direct relevance of governance issues to development performance. All of the Bank's country assistance plans (CAPs), which cover three-year rolling program time frames and represent the core business planning documents of the Bank, now start with a section on country performance assessment. In the interest of accountability and transparency, the Bank's CAPs are now available on the worldwide web.

26. Relevance. Donors appreciated the fundamental refocusing of Bank operations, reflecting and reinforcing the transformation of the Bank from a mere project financier supporting specific capital investments to an overall development catalyst and agent for change. Donors strongly supported this wider operational agenda, and urged the Bank to strengthen the emphasis on policy reform and capacity building in all operations. In this context, donors emphasized that the catalytic and leveraging role of the Bank constitutes one of its major strengths, and is a key distinctive characteristic vis-à-vis commercial sources of capital as well as other external agencies. Donors urged the Bank to further emphasize its catalytic role and impact throughout its operations.

27. Keeping the above in mind, the Bank has mainstreamed programs to support policy reform and capacity building into the increasingly broad spectrum of its development services, which today include non-lending activities such as upstream country economic and sector work as well as downstream TA and lending projects. In its ongoing redesign of operational business processes, which have significantly increased in relevance to DMC needs since a strong country focus was adopted as a key operating principle, policy support and governance and capacity building are key considerations and components of country operational strategies, sector assessments, country assistance programs, project selection and preparation, detailed project design, and project implementation. Taking account of each DMC's particular circumstances, needs, and absorptive capacity, the Bank's CAPs give due significance to medium-term strategies for sectoral policy support and capacity building in arriving at the lending and TA programs.

28. The relevance of ADF operations is also being ensured by a significantly increased degree of stakeholder participation in the Bank’s business processes. The Bank’s adopted framework for mainstreaming participatory development processes guides how participatory processes are being systematically incorporated into Bank practices.¹¹ As a major step in its commitment to the participatory approach, the Bank held a regional workshop involving high-level government officials as well as representative NGOs from the DMCs in early 1999 in Manila, to identify concrete and realistic ways to enhance DMC stakeholder inputs in the Bank’s planning process and project cycle.

29. Quality. Donors recognized that the Report of the Task Force on Improving Project Quality was a milestone in Bank operations.¹² The recommendations of the task force have been incorporated in the Bank’s operational processes and procedures, with increased emphasis on borrower ownership and capacity building, improved feedback from postevaluation, greater incorporation of participatory approaches, and increased attention to project implementation and results. Together, these initiatives have resulted in a marked shift in emphasis, from project approvals and lending volume to the quality of Bank-financed projects, their relevance to beneficiary needs, and their actual impact in the field. Donors commended this shift in emphasis, and urged the Bank to sustain and reinforce efforts to improve the quality and development impact of its operations. In this context, and in the light of the serious impact of the Asian financial crisis on several DMCs, the Bank will consider as an indicator of quality the sustainability of social gains from its operations and their robustness to withstand the pressures of financial cycles and shocks.

30. An issue to which donors attached great importance was how to measure the development impact of Bank operations. This issue is common to all multilateral and bilateral development agencies, and had been highlighted by the Development Committee Task Force on Multilateral Development Banks. Donors urged the Bank to work with other agencies to develop common performance indicators for development impact. Accordingly, at the project level, the Bank has recently introduced a project performance management system (PPMS) to serve as a management tool for designing, planning, monitoring, managing, and evaluating progress and impact during the entire project cycle. The goal of PPMS is to lift the success rate of projects. It is a system, based on the project logical framework, that generates critical management information on projects so that it is possible to know whether a project is capable of achieving its expected outputs and impacts (both short and long term), and if not, to stimulate management action in time to remedy the problem. The PPMS includes preparation of the project performance report, a new approach to reporting on ongoing projects based on the project’s logical framework. It includes a revised approach to rating a project’s overall performance, an approach that combines implementation progress with indicators of development impact. The PPMS and its performance reporting framework will be applied to Bank programs as well as projects.

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