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p. 6 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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V. Conclusions and Recommendations

Retro 2003 reviewed the economic analysis practices in 2003 with the view to provide a preliminary assessment of how the recommendations of Retro 2002 had been addressed. Retro 2003 also critically examined how project rationale and analysis of alternatives could be strengthened. Key findings and recommendations are summarized in the following.

Efforts to Improve Economic Analysis Need Further Strengthening

Overall, awareness of the need to adopt a broader perspective on economic analysis is growing. There are also notable initiatives in regional departments, responding to specific recommendations made in Retro 2002. For example, a few country economists now provide estimates of country economic prices. Several sector divisions pay closer attention to sector analysis in the processing of new projects. More project proposals present an explicitly detailed basis for quantitative analysis including financial sustainability and fiscal impact analysis.

More active and conscientious efforts are called for to improve the quality of economic analysis, since many of the major weaknesses that were identified in 2002 have remained in 2003. Good initiatives must be sustained and good practices widely applied. In this regard, we note that regional departments recently introduced various measures for quality enhancement early in project preparation. It is hoped that such department-wide initiatives become the norm to improve the quality of projects at entry.

Rationale and Alternative Analysis is a Critical Link… yet still a Weak Link

Articulation of project rationale and consideration of alternatives are critical links in the sequence of economic analysis and constitute the groundwork for subsequent analysis. Retro 2002 concluded that this part was a weak link in the analysis chain. Many proposals do not clearly demonstrate why public sector involvement is called for, why a particular set of interventions is proposed as the chosen option, or why a particular form of aid is adopted. Where alternatives are considered, they primarily refer to technical, structural and capital investment options. Other plausible (and non-structural) options are not explicitly examined. There are cases where project proposals do not distinguish rationale, objective and justification—three building blocks for a project proposal. Drawing on the project proposals reviewed during 2003, Retro 2003 maintains the previous Retro’s assessment, while recognizing good practice examples from 2003.

The key to strengthening the articulation of project rationale and improving alternative analysis lies in systematic and careful problem diagnosis. Project identification and preparation have to address explicitly a series of analytical inquiries. What are the social problems? What are the real causes? What are the critical areas that require public sector involvement? What are the plausible options to address the real causes? How can ADB support the public sector involvement?

Strengthen the Link between Project Level Analysis and Country/Sector Studies

The suggestion for systematic problem diagnosis does not imply overloading the stage of project preparation, although that is what has been happening. The experience indicates that insufficient country- and sector-level analysis and overloaded project preparation are not a satisfactory situation and it has to be redressed. It calls for strengthening economic studies at country/sector level that identify social problems, research the causes of the problems, investigate options, and provide the basis for analysis at project level. Sector level analysis should analyze the institutional appropriateness, politicaleconomy issues, and feasibility for project operations.

The recommendations to scale up the economic analysis at country and sector level are not new. In fact, the same recommendations were highlighted in the “Report of the Task Force on Improving Project Quality” issued in January 1995. The project-level findings in this retrospective once again underscore that ADB should undertake a comprehensive and critical review of the quality of country strategy and sector studies. The results of this ADB-wide review will determine how such studies could be undertaken more effectively in the future to inform project identification and support project-level analysis. As ADB continues to evolve in adopting country-focused programmatic approach to development assistance, the need to strengthen country/sector studies that underpin project operations cannot be overemphasized. Clearly, all these will significantly contribute to fulfilling the renewed development agenda of managing for results.

Back IV. Further Improving EREA's Service Delivery	Economic Analysis Retrospective: 2003 Update