Evaluation

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Annual Report on 2006 Portfolio Performance
Completed: 2007

The Annual Report presents data from ADB operations during 2006, along with trend analyses that for the most part cover the period from 2002 to 2006. It also presents an assessment of ADB's portfolio performance. This year's report focused on the way management for development results is currently practiced in portfolio management and provides recommendations on how the quality of project performance monitoring and management can be improved.

  Summary of Findings

Sovereign Loan Operations:

• At the end of 2006, ADB’s sovereign loan portfolio consisted of 529 active loans, together committing $37.3 billion for the financing of 446 projects and programs.
• The main products were project loans, program loans, and sector loans. Most notable development was the convergence of project and program lending, with the share of program loans in the total 2006 portfolio at 46%, slightly below that of project loans with almost 49%.
• In 2006, 71 loans were approved for 68 sovereign projects/programs for a total amount of $6.82 million which was 15% above the 10-year average and was 2nd highest for the decade.
• From 2002 to 2006, 10 major borrowers, with average annual loan approvals of $100 million and above per borrower, accounted for slightly below 90% per year of ADB’s total lending for the period. People’s Republic of China, India, Indonesia, and Pakistan were the largest borrowers, together accounting for 74% in ADB’s total sovereign lending operations.
• The major themes by volume of new lending in 2006 were: sustainable economic growth (83%), governance (30%), inclusive social development (30%), environmental sustainability (25%), gender and development (24%), and private sector development (12%).
• The major sectors by volume of new lending in 2006 were: finance (23%), transportation and communications (20%), energy (15%), and multisector (13%).
• During 2006, 44 loans for $2,739 billion were closed, of which $488 million (17.8%) was cancelled, as compared to an average of 17.9% cancellations for the decade.
• Of the loans closed from 2002 to 2006, an average of 14% were closed early or on schedule, while 86% required extensions of their closing dates by an average of 1.4 years.
• At year-end 2006, 38.6% of the active loans were being administered by ADB’s resident missions, up from 31.4% a year earlier.

Technical Assistance Grants:

• During 2006, ADB approved 260 TAs worth $241.6 million, comprising 73 project preparatory TAs, 98 advisory and operational TAs, and 89 regional TAs.
• The composition of the portfolio changed little over the last 5 years, with advisory TA accounting for more than 50%, followed by regional TA with 27% and project preparatory TA with 21%.
• During the decade 1997-2006, ADB’s TA Special Fund provided 44% of TA funding, the Japan Special Fund provided 32%, and other funds provided 24%; however, there was a shift in 2006 when the TA Special Fund provided 38% of TA funding, the Japan Special Fund provided 24%, and other funds provided 38%.

Grant Portfolio:

• As of end 2006, ADB has carried out 213 grant operations, with funds coming from 20 different sources. The largest contributors to the grant portfolio were the Tsunami Fund (22%), Asian Development Fund IX (20%), United Kingdom (12%), Netherlands (12%), Japan Fund for Poverty Reduction and Japan Fund for Information and Communication Technology (10%), and the European Commission (7%).
• Agriculture and natural resources; multisector; and health, nutrition, and social protection are the leading sectors in terms of number of grants and collectively accounted for 62% of all grants. Education, transport, and finance accounted for another 24%.
• Twenty countries have received grants from ADB. The average grant allocation per country between 1992 and 2006 was $109.4 million. However, the distribution of grants was relatively uneven, with Afghanistan, Bangladesh, Indonesia, Pakistan, and Sri Lanka together accounting for almost 70% of the grant funds.

Private Sector Investments:

• During 2006, ADB approved 21 investments worth $1,415 million, comprising 41% loans, 18% equity, 32% complementary financing schemes, and 9% guarantees.
• At year-end 2006, the portfolio exposure reached an all-time high of $2,586 million, when there were 121 ongoing private sector investments, including 97 investments spread across 17 countries, plus 24 regional investments.
• Since 1983, ADB approved 268 private sector transactions worth investments worth $7,135 million, but the full cancellation of 26 investments and partial cancellation reduced the net commitments by 17.2% to $5,906 million.
• At year-end 2006, private sector investments continue to have risk ratings of satisfactory or better each year. This rate exceeds the 80% standard that ADB uses as benchmark for satisfactory performance.
• The share of companies that were in arrears each year in their payments to ADB varied from a high of 13.2% in 1999 to a low of 4.1% in 2006.

Key Issues

• The effectiveness of efforts to achieve development results depends in the first instance on the quality of managing the performance of the implementation process. The high aggregate performance ratings generated by the ADB monitoring systems give rise to the concern that not all risky and problem projects are being identified.
• Results of the assessment on the project performance report (PPR) system carried out in conjunction with the preparation of this report showed that 44% of projects were found lacking the basis to measure progress towards impacts and outcomes. The corresponding share of unsupported implementation progress ratings was 11%.
• PPR ratings were found to be overly optimistic. When compared with the results of project completion reports, a significant gap emerged, with the share of ratings less than satisfactory (successful) significantly higher in project completion reports than in PPRs. Problems identified by project completion reports should have been tracked by the PPRs, considering that the time interval between them is relatively short.
• There is inherent danger in expecting the PPR to be a management tool to steer the implementation process and in using it as a measure of portfolio performance. While the line between the two aspects may be fluid, the difference is important. Over time, the state-of health aspect has become dominant, evidence for which is the use of PPR ratings as an indicator in the formula for allocation of the Asian Development Fund and other resources. This defeats the purpose of an early-warning device as a management tool to mitigate imminent risks.

Recommendations

• The principal shortcoming of the PPR system is its inability to monitor progress towards impacts and outcomes during implementation. A revision of the system is envisaged in the context of the ADB-wide Project Processing and Portfolio Management (P3M) initiative. It is recommended that the P3M working group consider the suggestions in this report for a revamp of the PPR.
• It is recommended that Management develop an alternative measure of portfolio health and focus on using the PPR only as an early warning device to help improve portfolio management
• Notwithstanding the considerable efforts and progress made, the quality of design and monitoring frameworks still does not provide an adequate basis for performance assessment. It is recommended that the Task Force on Project Performance Management be asked to undertake a stock taking of progress made and issues and, if deemed useful, prepare a new action plan for improving design and monitoring framework quality.
• Delays in the implementation of loan projects/programs, TA, and grant operations are the rule rather than the exception. It is recommended that Management prepare a plan to address the issue of the unrealistic estimation of implementation schedules during project/program formulation.