Evaluation

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Special Evaluation Study on Program Lending
Completed 2001

Program lending has been the main instrument through which the Asian Development Bank has supported policy reforms of developing member countries. However, its overall impact has been smaller, and less clear, than anticipated.

This special evaluation study assesses the effectiveness of program lending in promoting policy reforms in the developing member countries (DMCs), and identifies generic measures that could further enhance its effectiveness.

   Summary of Findings

• Program lending has and will continue to have a high level of relevance to the needs of DMCs. The program loan modality has proved a very useful instrument in the context of the Asian financial crisis. Modifications to the modality have already been made, but further changes are needed to allow greater flexibility in implementing policy reforms.



• Program lending has supported substantial legislative and policy changes, and a very high proportion of program conditionalities has been met. Nevertheless, the proportion of 86% of programs rated partly successful and unsuccessful is much greater than the proportion of 42% for partly successful and unsuccessful projects. The design and implementation of programs can be characterized as attempting to achieve a lot in a short time. Policy reform packages tend to focus on changes in the formal rules of sector operation. There has been insufficient understanding of the informal rules that characterize all economic structures, and insufficient analysis of the incentive structure for those whose behavior has to change.



• It is difficult to assess the efficiency of program lending. Despite being more complex and requiring different skills than project lending, approval of programs has been achieved with the same level of resource use. Given this, programs have probably been formulated and implemented with fewer resources than would be desirable.



• Programs have not always led to sustainable outcomes. Some reforms have not been fully implemented, and a few have been reversed. Support for policy changes needs to be built up through analysis of the costs of not changing, and dissemination of information on the problems that the policy changes are addressing. Greater attention to the distribution of risks in program design and implementation would point to measures aimed at mitigating the impacts on the "losers" from reform.



• While many of the programs have had a substantial impact on the economy, trade, prices and public sector performance, in other cases development impacts have not been clearly identified or monitored. Institutional development and capacity building have generally lagged behind requirements. The overall impact of program lending has been smaller and less clear than anticipated.

   Recommendations

• There are several options for program loan design. Programs should involve multiple tranches where appropriate, and there should be greater flexibility in deciding about the continued relevance and appropriate timing of conditions. Floating tranches should be introduced into some cases, to be released upon implementation of significant legislative or other actions. In other cases, the single-tranche design may be appropriate. In all cases, a justification should be provided for the number of tranches and the program period.



• Government authorship of the reform package needs to be complemented by participation of affected groups and sectors in program formulation. The costs of not reforming should be analyzed and publicized along with the benefits of the program, through extensive publicity drives to disseminate information relating to proposed policy changes.



• DMC governments should use a significant amount from the counterpart funds for program loans for building their capacity for designing, implementing, monitoring and evaluating policy reform.



• Program design and implementation should be assessed internally by a small peer review group. Staff consultants, particularly consultants from the Asian and Pacific region with direct experience of implementing sector reform programs, should be involved in the peer review process.