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p. 2 of 6 BACK | NEXT Foreword I. Introduction II. Economic Analysis in 2003: An Overview III. Project Rationale and Analysis of Alternatives: Further Assessment IV. Further Improving EREA's Service Delivery V. Conclusions and Recommendations

Economic Analysis Retrospective: 2003 Update

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I. Introduction

Economic analysis retrospectives present an assessment of how well economic analysis is applied in the identification and development of projects and programs. The retrospective’s purpose is to promote learning and knowledge sharing among ADB staff for conducting meaningful analysis that will inform project design and implementation. Indeed, economic analysis should influence ADB operations to do the right thing and do it the right way—two critical aspects of project quality-at-entry.

Economic Analysis in 2002: A Retrospective (Retro 2002)¹ provided a comprehensive review of economic analysis practices in 2002. It emphasized adopting a broad perspective of analysis that goes beyond mere rate of return estimations. To enhance the value of analysis, Retro 2002 highlighted that economic reasoning should be applied early in the project cycle. Accordingly, it presented specific recommendations for improving both the content and conduct of project economic analysis.

The Economic Analysis Retrospective: 2003 Update (Retro 2003) provides an updated assessment. It draws on insights from EREA’s interactions with regional departments during reviews of public sector loan proposals, as well as Country Strategy and Program (CSP) papers, sector studies, and Project Preparatory Technical Assistance (PPTA) reports during 2003. This update brings out two fundamental messages. First, it reiterates a point strongly emphasized in the Retro 2002 that economic analysis goes well beyond rate of return estimation. Economic analysis extends through all stages of the operational cycle. Country- and sector-level appraisal is an essential step to identify key problems, their causes and effect, and consequently the basic rationale for a project and its objective. Subsequently, project-level appraisal helps to revalidate the project rationale and assess project feasibility and economic viability. Second, and as a corollary, strengthening quality-at-entry requires significant improvements in analysis at both country/ sector level and project level. Indeed, project-level appraisal is preconditioned on the choice of a particular operation, hence the importance of country- and sector-level appraisal to help identify options for solving problems. The more clearly defined a problem and its causes are at the country and sector appraisal stage, together with the objective for a possible project, the more focused project appraisal is likely to be.

Retro 2003 is organized into five sections. Section II summarizes the main features of the cohort of loan proposals reviewed in 2003 and presents a preliminary assessment of the responsiveness so far to the recommendations made in the Retro 2002. The main finding is that the recommendations of Retro 2002 remain relevant to 2003’s projects. Section III focuses critically on how well project rationale was articulated and how thoroughly were alternatives considered. Ascertaining the economic rationale and exploring plausible options are among the necessary and crucial first steps to the overall quality of project analysis. The main recommendation is that project analyses should focus on the real underlying problems, and not take investment solutions for granted. Section IV reports findings from focus group discussions of regional department staff in February 2004 and on measures to continue improving the quality of EREA’s service delivery. The discussions emphasized that EREA should focus on increasing the relevance and value-added of its work. Section V concludes and provides recommendations that stress the scaling up of economic analysis at country and sector levels. The key recommendation of this retrospective review of 2003’s operations is that ADB should strengthen its economic studies at the country and sector levels, focusing more on identifying social problems and their causes, investigating all feasible solutions, and providing the basis for further study at the project level.

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