Description

Background

This country assistance program evaluation (CAPE) report presents an evaluation of ADB’s financial and technical assistance to Bhutan in the amount of $317 million that was ongoing or completed during 2001–2009. ADB support for inclusive development sought to (i) extend growth and social development to rural areas through rural connectivity projects; (ii) facilitate the absorption of rural migrants through the provision of basic infrastructure in major urban centers; and (iii) create conditions for economic growth through assistance for strengthening financial resource mobilization and intermediation, the development of micro and small and medium enterprises, economic management, and private sector participation in hydropower development.

Overall assessment

The overall rating for ADB country operations and programs in Bhutan is successful, which is based on the composite ratings of satisfactory for strategic positioning, relevant, effective, efficient, less likely sustainable, and modest to substantial impact. The performance of ADB assistance for the energy sector, urban development, and public sector management was successful, while assistance for the transport sector and finance and private sector development has been partly successful so far.

Key findings

ADB has made major contributions to rural electrification; the commercialization of the power sector; the preparation and application of a public–private partnership model for hydropower projects; the development of basic infrastructure in two major centers; the establishment of a legal, regulatory and institutional framework for the financial sector; and the development of capacity for debt management, road planning, road safety, and construction management. Ongoing assistance will likely result in further outcomes including a financial regulatory framework based on best practices, the new Southern East–West Highway that will facilitate trade and development of southern Bhutan and the expansion of urban infrastructure for another 60,000 persons.

Rural connectivity projects have helped increase income levels in rural areas, mainly due to improved prices for agricultural products and/or increased opportunities for non-farm income. The effects were larger in areas that were comparatively better off prior to the infrastructure project in question because of other economic factors such as tourism-related income, the availability of extension services, and closer proximity to economic centers.

The sustainability of infrastructure projects has been affected by a lack of adequate resources and systems for maintaining assets, including those financed by ADB.

Resource efficiencies need to be carefully assessed for rural connectivity projects, considering their comparatively high cost nature and limited number of beneficiaries in a sparsely populated country.

Implementation efficiency, although still above the ADB average, has been declining in recent years, possibly due to the increasing size of projects and complexity of project designs, frequent project design changes, and increasing work volumes coupled with limited capacity of domestic contractors. Given rapidly growing volume of financial assistance, these issues need to be addressed.

Recommendations

• Improve results orientation of ADB strategies and programs through assistance for the development of results-based government sector investment and institutional development strategies.
• Enhance the effectiveness of support for capacity development through comprehensive assessments of institutional capacity development needs at central and local government levels in key sectors of ADB operations, and incorporation of identified capacity development requirements in results-based sector assistance strategies and programs.
• Improve mainstreaming of thematic concerns through adequate incorporation of gender concerns in ADB-assisted projects, additional assistance for private sector development, assistance for strengthening capacity for environmental impact assessments and management, and support for service-delivery at local government level.
• Enhance the economic efficiency of future rural connectivity projects through review and adaptation of the economic analysis for rural roads in line with country conditions, consideration of alternatives to electricity grid-connections based on comprehensive cost-benefit analysis, and coordination with complementary support programs for increasing rural productivity and income opportunities.
• Improve the sustainability of ADB operations through systematic policy dialogue on adequate budget provisions or self-financing mechanisms for operation and maintenance of infrastructure, as well as adequate technical assistance for building institutional capacity at central and local levels, and ADB financing of maintenance equipment.
• Improve implementation efficiency through establishment of an in-country presence and capacity development support for domestic construction industry.

Contents

• Executive Summary
• Introduction
• Government Development Priorities and ADB Assistance
• Evaluation of ADB Assistance
• Key Findings, Lessons, Issues, and Recommendations
• Appendixes