South Asia

ADB’s assistance to the region further strengthened with the approval of $1 billion—ADB’s largest single loan from regular resources in 8 years—to make affordable financial services available to India’s rural poor. The Rural Cooperative Credit Restructuring and Development Program involves a comprehensive reform of the cooperative credit structure to improve poor farmers’ access to credit in five Indian states. The German Bank for Reconstruction and Development, which has worked with ADB in designing the project, will provide parallel financing of €140 million.

In its medium-term strategy and action plan for South Asia, ADB has proposed to be more selective and focused in its operations in each developing member country to achieve greater development results and impact. ADB approved 18 loans for $2.0 billion for South Asian developing member countries, with 21.5% of this amount financed from ADB’s concessional window, the Asian Development Fund (ADF) (Table 21, Figure 7). These loans support rural credit provision, primary and secondary education, rural roads, urban infrastructure, and the financial sector. Cumulative lending for the region amounted to $31.1 billion (Table 20). In addition, ADB assistance to South Asia in 2006 included equity investments of $72.6 million, grants of $164.9 million, technical assistance of $64.4 million, and four multitranche financing facilities of $1.6 billion.

Regional Cooperation

ADB approved its first regional cooperation strategy and program for South Asia (2006–2008). ADB’s strategy focuses on five key operational objectives: improve connectivity, facilitate trade and investment, develop regional tourism, facilitate cooperation in energy, and promote private sector cooperation.

The South Asia Subregional Economic Cooperation Program, which brings together Bangladesh, Bhutan, India, and Nepal, gained new momentum with the identification and implementation of projects as well as closer coordination with the South Asian Association for Regional Cooperation and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation. ADB supported the dialogue of various South Asia Subregional Economic Cooperation working groups. These working groups prioritized four loan projects that will establish a hub and a training and research center on information and communications technology, develop tourism infrastructure, establish a transport link, and build trade facilitation infrastructure.

ADB further strengthened its cooperation with the South Asian Association for Regional Cooperation by implementing measures to improve regional multimodal transport connectivity and by exploring an investment financing mechanism. A $1 million regional technical assistance was approved to facilitate energy sector dialogue and develop the capacity of the energy center of the South Asian Association for Regional Cooperation.

ADB also stepped up support to the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation to enhance transport and logistics in the region. A regional technical assistance for $960,000 will help countries that are part of this initiative identify measures to enhance transport infrastructure, improve logistics, reduce transport time, and lower transport costs. This initiative will strengthen links between South Asia and Southeast Asia.

An important development in regional cooperation in South Asia was the ratification of the South Asian Free Trade Agreement, effective 1 January 2006. The agreement marks an important milestone for the region and is a key step toward greater regional integration and the formation of a South Asian economic union. Through the trade agreement, customs tariffs for goods will be reduced to 0–5% by 2016 and a free trade area established in South Asia.

Knowledge Management

ADB recognizes the critical importance of economic, thematic, and sector work as knowledge products that are fundamental to the preparation, design, implementation, and ultimate impact of ADB lending and nonlending to South Asia. Knowledge management initiatives in South Asia included the publication of Annual Report: SARD Economic, Thematic and Sector Work, 2005, which contains abstracts of 103 studies completed in 2005, and the creation of an intranet website that features an online economic, thematic, and sector work library and the latest economic indicators for South Asian countries, as well as recent external research and studies on South Asia.

In December 2006, the third annual economists’ conference brought together ADB’s South Asia country economists to discuss papers on the South Asia development model and the regional trade and integration in South Asia. The Australia–ADB South Asia Development Partnership Facility is providing $320,000 grant assistance for further research on intraregional trade and investment in South Asia.

Another important initiative is South Asia Economic Report, a series of biannual reports on economic and development issues in South Asia that provides a unique regional perspective. Against the background of increasing awareness of a regional identity, this series discusses common regional trends as well as differences among South Asian countries in socioeconomic development. Publication of South Asia Economic Report received wide attention in the international print and TV news media.

Portfolio Management

Focusing on results, ADB enhanced portfolio performance in South Asia by improving project readiness, strengthening procurement and public financial management, and introducing a results reporting system. New record levels were reached in contract awards and commitments ($2.3 billion, a 38% increase over 2005) and disbursements ($1.3 billion, a 13% increase over 2005) (Table 19, Figure 8).

Despite the challenging political situation in Bangladesh, portfolio performance was improved through ADB’s concerted efforts with the Government to reduce start-up delays, prepare project proposals on time, and ensure project readiness during processing. Disbursements for sovereign loans increased to the highest level for Bangladesh over the past 10 years. A joint country portfolio review mission was conducted with the joint strategy and program partners, and an action plan was prepared in close consultation with the Government to improve portfolio performance.

Joint efforts by ADB and the Government of India resulted in improved project readiness, project implementation, and overall portfolio performance. A cluster technical assistance facility was created to prepare projects and develop capacity so that projects in the program for 2007–2009 are ready to award contracts by the time they become effective. Sector-focused, tripartite portfolio review meetings are held regularly with executing agencies, and implementation problems are discussed upfront, resulting in a marked improvement in contract awards and disbursements. Sovereign public sector loan disbursements increased to the highest level for India since ADB commenced lending operations in 1986.

The results-based country portfolio review for Nepal adopted a portfolio management strategy that provided a number of effective measures that clearly improved portfolio performance. Specific actions included improving project readiness, harmonizing with donors on procurement, intensively engaging with the Government, improving financial management, and intensive spring cleaning.

The Sri Lankan portfolio weakened mainly because of the security situation in the north and east of the country, which has slowed down reconstruction in all uncleared areas, and because the post-tsunami reconstruction boom continues to use up available construction materials and skilled labor. Government ministries are also confronted with increasingly scarce human resources to supervise and administer complex projects.