Countries and Regions

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p. 4 of 4 BACK | NEXT I. Development Situation II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Lending Level

Country Strategy and Program Update 2002-2004: Papua New Guinea

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IV. Country Performance and Lending Levels

A. Lending Level Proposed

1. Asian Development Fund Lending Levels

28. After a review in 2000, PNG’s graduation from Category B2 to Category C has been deferred. (Another review will be undertaken in two years.) The implications are that PNG will have access to some Asian Development Fund allocation, and that the cost-sharing limit will be 60 percent.

29. The level of ADF funds allocated to PNG will be linked to agreed-upon standards (“triggers”) of achievement in policy, institutional reform, and portfolio management, while Government performance will be assessed based on the implementation of the recently adopted wide-ranging reforms. The upcoming elections introduce an element of uncertainty into the entire situation. If the momentum for reform increases after the election, ADB will work with the Government to accelerate ADF lending.

30. As detailed in Appendix 6, the key parameters for ADF assistance will be progress in administrative management, measured by progress in

1. public sector reform, which encompasses (a) improving management of the public sector to enhance service delivery, (b) strengthening good-governance institutions, and (c) devolving responsibilities and capacities to provincial and local governments; and
2. economic management, which encompasses (a) continued strengthening of fiscal management, including prioritizing of expenditures and linking of recurrent and development budgets; (b) continued improvement of the environment for private sector activities; and (c) continued strengthening of the private sector environment.

31. The base case assumes that the recent modest pace of improvement in economic management and governance is maintained, with no acceleration of reforms, and that ADF assistance will be about $50 million in 2002–2004. The low case assumes that the recent gains in economic management and governance are reversed. Clearly, the volume of ADF assistance would depend on the circumstances. However, assuming that performance is not disastrous, an indicative level of ADF lending under the low scenario would be about $40 million in 2002–2004. In contrast, the high case assumes rapid and successful implementation of the existing reform program and expansion of the reform agenda. Under the high case, absorptive capacity would slowly increase, justifying a modest increase in ADF and overall assistance. ADF assistance would total about $65 million in 2002–2004. The indicators and the threshold triggers will be kept under review and will be adjusted if necessary to reflect changing circumstances.

2. Overall Lending Level

32. On the basis of past ADB program performance (and assuming the base case of moderate reform), PNG’s absorptive capacity for projects is limited. Considering this limitation as well as the availability of external assistance for PNG, a relatively modest program is envisaged. Assuming the base case, a total of about $180 million is envisaged for the three-year programming period, including about $130 million ordinary capital resources and $50 million from ADF. Significant cofinancing is envisaged to capitalize on possible synergies. Flexibility will remain essential.

B. Loan Program

33. The proposed program comprises 3–4 loans totaling about $60 million each year. The loan program is presented in Appendix 6 and the underlying economic and sector work is in Appendix 7. Project details are in Appendix 8.

C. Technical Assistance and Economic and Sector Work Program

34. The indicative TA program for 2002–2004 amounts to $9.0 million ($3.0 million per year), of which $6.2 million is for project preparation. Project details are in Appendix 9. The advisory TA and the envisaged economic and sector work will focus on poverty reduction. The poverty analyses, begun in 2001, aim to develop a poverty reduction strategy upon which all parties can agree. Rebuilding statistical systems will be a priority, as will be strengthening monitoring and evaluation capacity as the basis for planning. Economic sector work will include (i) continuing investigation of road sector cost recovery and management options, (ii) examination of constraints to informal sector activity, (iii) conduct of road sector policy studies, and (iv) drawing up of policy frameworks and institutional options for road and sea transport.

D. Summary of Changes

35. The present program is only slightly different from the earlier plans, mainly with respect to timing. This relative stability reflects the fact that the ADB strategy for PNG remains substantially unchanged. A more general rural development project has replaced the rural sector linkages project to allow for further development of agricultural strategy. In the social infrastructure area, a new project has been included to address gender and population issues.

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