Independent Evaluation

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Annual Report on 2008 Portfolio Performance
Completed: 2009

This report presents data from ADB operations and assesses ADB portfolio performance in 2008, along with trend analyses that mostly cover the 5-year period from 2004–2008. It also contains insights from the findings of three evaluation studies in 2008 that reveal quite a few similar factors related to project design and implementation. These studies are (i) a case in real-time independent review of the Emergency Rehabilitation of Calamity Damage Project in Viet Nam; (ii) a sample study updating the earlier evaluation focusing on effectiveness of midterm review missions on projects; and (iii) follow-on evaluation study on empirical analysis of project review missions and selected aspects of project preparation.

  Summary of Findings

Sovereign Loan Operations:

• At the end of 2008, ADB’s sovereign loan portfolio consisted of 513 ongoing loans valued at $40.7 billion for the financing of 427 projects and programs.
• Eighty three loans were approved in 2008 to finance 69 sovereign projects and programs for a total amount of $8.7 billion which was 5.7% below the 2007 approvals.
• Loan sizes have increased steadily over the last 3 years. Larger loans are particularly associated with projects in the infrastructure and finance sectors. Both sectors account for about 60% of ADB’s total lending.
• An aggregate value of $5.7 billion in multitranche financing facility (MFF) for 12 programs was approved in 2008 compared to $4.0 billion in 2007.
• The major themes by volume of new lending in 2008 were sustainable economic growth (83%), capacity development (39%), inclusive social development (37%), governance (35%), and private sector development (28%).
• The major sectors by volume of new lending in 2008 were transport and communications (29%); law, economic management, and public policy (22%); multisector (18%); and energy (16%). These four sectors accounted for as much as 85% of the total lending for the year.
• In 2008, 106 loan cancellations covering 94 projects amounted to $426 million.
• At the end of 2008, the project performance rating for the large majority of projects was satisfactory or better for implementation progress (95%) and the likelihood of attaining the development objectives (98%).

Technical Assistance:

• In 2008, ADB processed 337 technical assistance (TA) projects amounting to $274.5 million. Of these, 275 valued at $223.8 were processed by the regional departments and the remaining 62 for $50.7 million by nonoperational departments. The year 2008 saw a decade-high with 102 regional TA projects approved for $116.7.
• As of December 2008, ADB had cumulatively approved $3.5 billion in TAs: $2.6 billion in advisory and project preparatory TA and $0.91 billion in regional TAs. The distribution of TAs by sector in 2008 was more balanced than in 2007. Five sectors, i.e., agriculture and natural resources; education; industry and trade; transport and communication; and water supply, sanitation, and water management received higher allocations than in 2007.
• The primary sources for TA have been ADB’s Technical Assistance Special Fund and the Japan Special Fund. In addition, a number of trust funds have been established with ADB by bilateral and other agencies to earmark TA resources for areas of special interest. The Climate Change Fund was introduced in 2008.

Grant Portfolio:

• In 2008, ADB funded 57 grant projects for $811.5 million. The bulk (87%) of the projects had been financed from Asian Development Fund (ADF). The transport and communication sector accounted for 21% of grant financing during the year, followed by law, economic management, and public policy (15%), and multisector (32%).
• The largest contributors to the grant portfolio were the ADF IX (43%), Asian Tsunami Fund (14%), United Kingdom (8.3%), Netherlands (7.3%), JFPR (7.2%), and European Commission (4.8%).
• Agriculture and natural resources, education, multisector, and transport and communication were the leading sectors in terms of number of grants and collectively accounted for nearly three fourths of the grant operations.

Nonsovereign Operations:

• ADB approved 15 projects worth $2.25 billion in 2008. These comprised $1,555 million in loans, $123 million in equity investments, a $10 million political risk guarantee, and $565 million in complementary financing scheme.
• At the end of 2008, ADB's total nonsovereign portfolio comprises 143 projects, and total exposure of $3.8 billion is up from $3.0 billion in 2007, an increase of more than 24%. This is an all-time high, in terms of both the number of projects and their value.
• The nonsovereign portfolio in 2008 comprised 116 projects spread across 22 developing member countries (DMCs), and 27 regional nonsovereign operations. The largest nonsovereign operations exposure was in India (25.8%), followed by People's Republic of China (12.8%), Indonesia (10.6%), and Kazakhstan (10.1%). Regional nonsovereign operations accounted for 7.3% of the total and increased from 24 projects in 2007 to 27 in 2008.
• ADB’s total private sector portfolio exposure reached an all-time record of $3,765 million at the end of 2008. The portfolio exposure was 62% in infrastructure; 24% in the financial sector; 12% in funds and capital markets; and 2% in agriculture, manufacturing, and other projects.
• The bulk (81%) of the nonsovereign portfolio continues to be satisfactory or better based on the risk assessment system of the Private Sector Operations Department, 18% bordered on marginal, and 1% were rated substandard.

Special IED Studies in 2008 Related to Portfolio Performance:

• A Case in Real-Time Independent Review. Emergency assistance needs to be provided in a systematic basis keeping short- and long-term goals in view.
• Role of Midterm Review (MTR). The MTR is an important tool for improving portfolio health. There is a need to revamp and reinforce the midterm review.
• Improving Project Performance. Resident missions have resulted in the altered pattern of review missions. The project administration instructions need to be updated. Lessons from project completion reports need to be systematically documented according to sectors and DMCs.

Issues

• Project Cost Underruns and Overruns. Project cost underruns and portfolio cleanups continued to result in significant loan cancellations at nearly $1 billion per annum. Project cost overruns also continued, reaching an all-time high of 12 instances in 2008. It is important to ensure that cost estimates and financing plans are prepared in detailed and rigorous fashion.
• Delays in Project Start-up and Implementation. Slow start-up is a chronic problem that has defied solution for years. Resolution of this issue may require strict adherence to undertaking loan approval of only "comprehensively prepared and ready" projects by ADB.
• Better System to Effectively Monitor Nonsovereign Operations. In recent years, nonsovereign operations have grown rapidly. The arrangements for ensuring quality-at-entry, capability to sustain the burden of project administration and supervision, and monitoring risk are limited.
• Unclear Project Classification. The classification of project lending into different sectors and themes is not quite clear. This is in contrast to ADB's results framework that emphasizes clear identification of ADB operations, output, and outcomes.

Recommendations

• Improve design and implementation of projects by
  • avoiding overly complex project designs with multi-components, multi-executing, and/or implementing agencies
  • preparing more realistic implementation period and properly synchronizing ADB and DMC approval and implementation procedures
  • increasing diligence during project preparation and processing, particularly more rigorous project costing and financial management
  • ensuring comprehensive readiness of project before Board approval
  • addressing the start-up problem
• Expand the monitoring and reporting arrangements for nonsovereign operations
• Comprehensively revise and restructure midterm review