Countries and Regions

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p. 4 of 5 BACK | NEXT I. Country Strategy II. Current Development Trends and Issues III. Implementation of the Country Strategy and Program IV. Portfolio Management Issues V. Country Performance and Lending Levels

Country Strategy and Program Update 2003-2005: Federated States of Micronesia

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IV. Portfolio Management Issues

A. Portfolio Performance

38. Since joining ADB in 1990, total ADB assistance to the FSM has consisted of six loans with a total amount of $56.136 million and 31 TAs totaling $19.585 million, of which five loans⁷ of $35.4 million and 4 TAs of $1.9 million were active at the end of 2001. Sixty percent of the FSM portfolio was in the at risk category compared with the ADB-wide average of 24% mainly due to delayed project implementation. Two loans were considered to be problems compared with one from the preceding year, and one loan was a potential problem. Three new loans⁸ have not yet been declared effective. As such, FSM performance in 2001 was worse than the regional average and unfavorable with the ADB-wide average. The contract award ratio as of 31 December 2001 reached 4.7%, lower than the ADB-wide average of 14.9%. Actual contract awards total $916,000, or 11% of projections in 2001, compared with 92% of projections in 2000. In 2001 the disbursement ratio was 46.6%, higher than ADB-wide average of 20.5%. The actual disbursements of $2.505 million, or 25% of projections in 2001, compare unfavorably with 98% of the projection for 2000. Details of portfolio performance and status are shown in Appendix 2, Tables A2.6 and A2.7.

39. Of the four currently active loans, only one project loan for the WSS is in an advanced stage of implementation, while the BSS and the two PSDP loans are not yet effective. The next steps for loan effectiveness include authorizing legislation by the state legislatures, execution of relending agreements, and the legal opinion from the FSM Attorney General’s Office. The WSS loan will close by the end of October 2002. The extensive and complex system of government that allows each state a high degree of autonomy is a major factor affecting project implementation.

40. Of the 4 active TAs, most activities under the TA for Improving Access to Laws have been completed, while inception of the ERCAP I TA was done recently and is progressing well. The TA for IPBM has made progress in identifying the areas needing attention and will be used to strengthen the performance budgeting and financial management systems.

B. Performance Monitoring and Evaluation

41. While counterpart funding has thus far not been a major issue, it has contributed to some implementation delays. In the context of the FSM, the main concern is the spillover effect on the fully compliant governments in the event any one of the five governments fails to comply with agreed counterpart funding contributions.

42. Based on the latest economic performance evaluation by ADB the overall rating of the FSM is slightly lower than the average for the Pacific developing member countries. The achievement of overall budget balance in 2000 was a positive development after years of fiscal strain. However, two of the four states faced significant fiscal problems in 2001 and 2002. The main macroeconomic issues are management of the public sector budget, the need to raise more local revenue, and development of the private sector. A more effective governance framework is also needed for public enterprises, including regulatory arrangements for monopolies. However, public enterprise reform has been the weakest of all elements of the reform agenda.

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