ASIAN DEVELOPMENT BANK Operations Evaluation Department

COUNTRY ASSISTANCE PROGRAM EVALUATION

FOR

SRI LANKA

In this electronic file, the report is followed by Managements response and the Board of Directors Development Effectiveness Committee (DEC) Chairs summary of a discussion of the report by DEC.

Evaluation Study

Country Assistance Program Evaluation 26194 August 2007

Sri Lanka Inclusive Development and Conflict Resolution: Major Challenges in the Future

Operations Evaluation Department

CURRENCY EQUIVALENTS Currency Unit Sri Lanka rupee/s (SLRe/SLRs) At Country Operational Strategy 19931997 (July 1993) SLRe1.00 = $0.0205 $1.00 = SLRs48.71 At Country Operational Strategy 19982003 (December 1998) SLRe1.00 = $0.0147 $1.00 = SLRs68.06 At Country Operational Strategy 20042008 (June 2003) SLRe1.00 = $0.0103 $1.00 = SLRs97.07 At Country Assistance Program Evaluation 2007 (as of 01 August 2007) SLRe1.00 = $0.0089 $1.00 = SLRs111.78

ABBREVIATIONS ADB CAPE CEB EIRR GDP NGO NWSDB OED SLFP SLRM SOE TA UNP Asian Development Bank country assistance program evaluation Ceylon Electricity Board economic internal rate of return gross domestic product nongovernment organization National Water Supply and Drainage Board Operations Evaluation Department Sri Lanka Freedom Party Sri Lanka Resident Mission state-owned enterprise technical assistance United National Party

NOTE In this report, $ refers to US dollars.

KEYWORDS asian development bank, development effectiveness, country assistance program evaluation, privatization, poverty reduction, sri lankan agriculture sector, sri lankan development policy, sri lankan education, sri lankan governance, sri lankan transport, sri lankan water supply

Director General Director Team Leader Team Members

B. Murray, Operations Evaluation Department (OED) R. K. Leonard, Operations Evaluation Division 1, OED N. Bestari, Principal Evaluation Specialist, Operations Evaluation Division 1, OED H. Tucker, Senior Portfolio Evaluation Specialist, Operations Evaluation Division 1, OED R. Schenck, Evaluation Specialist, Operations Evaluation Division 2, OED A. Morales, Evaluation Officer, Operations Evaluation Division 1, OED H. Win, Young Professional, Operations Evaluation Division 1, OED C. J. Mongcopa, Senior Operations Evaluation Assistant, Operations Evaluation Division 1, OED Operations Evaluation Department, CE-15

CONTENTS Page EXECUTIVE SUMMARY MAP I. INTRODUCTION A. Background B. Report Structure and Content C. Objectives, Scope, Approach, and Methodology DEVELOPMENT CONTEXT AND GOVERNMENT PRIORITIES A. Evolving Social, Political, and Economic Settings in Sri Lanka B. Millennium Development Goals in Sri Lanka C. Development Priorities of Sri Lankas Governments over the Last Two Decades POSITIONING OF ADB COUNTRY STRATEGIES LOAN AND TECHNICAL ASSISTANCE PORTFOLIO A. Loan and Technical Assistance B. Portfolio Performance EVALUATION OF SECTOR AND THEMATIC ASSISTANCE A. Overview of Findings on ADB Assistance B. Agriculture and Natural Resources Sector C. Education Sector D. Power Sector E. Transport Sector F. Water Supply and Sanitation Sector G. Thematic Assistance/Special Topics iii xiii 1 1 1 1 2 2 5 5 7 11 11 11 14 14 15 19 22 25 28 32

II.

III. IV.

V.

The guidelines formally adopted by the Operations Evaluation Department (OED) on avoiding conflict of interest in its independent evaluations were observed in the preparation of this report. Brenda Katon and Jennifer Simon were the consultants who provided substantial analytical inputs to this report throughout the evaluation process. Brenda Katon collaborated with the team leader in guiding the evaluation in accordance with OEDs evaluation guidelines and practices. Short-term consultants collaborating intermittently with the evaluation team included Seneka Abeyratne (economist), Peter Darjes (transport economist), Swarna Jayaweera (education specialist), David Parish (financial analyst, power sector), and Tilak Siyambalapitiya (power sector specialist). Grace Alindogan (consultant research associate) was responsible for processing and analyzing the Sri Lanka Resident Mission perception survey. Various draft reports of this evaluation were shared with the Sri Lanka country team of the Asian Development Bank for review and comments. To the knowledge of the management of OED, there were no conflicts of interest of the persons preparing, reviewing, or approving this report.

ii VI. VII. PERCEPTION ASSESSMENT OF THE SRI LANKA RESIDENT MISSION OVERALL RATING, CONCLUSIONS, AND RECOMMENDATIONS A. Overall Rating and Conclusions B. Key Challenges C. Recommendations

43 45 45 47 49 51 54 60 93 100 112 129 130

APPENDIXES 1. Evaluation Methodology 2. Key Economic, Poverty, and Social Indicators; and Millennium Development Goals of Sri Lanka 3. Country Strategies and Programs for Sri Lanka 4. Programs and Projects (Loans) 5. Technical Assistance to Sri Lanka 6. Portfolio Analysis 7. Economic, Sector, and Thematic Studies 8. Sri Lanka Resident Mission Perception Survey SUPPLEMENTARY APPENDIXES: EVALUATION WORKING PAPERS A. Agriculture and Natural Resources Sector Assistance Evaluation

Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Agriculture-Natural-Sector.pdf

B. C. D. E.

Education Sector Assistance Evaluation

Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Education-Sector.pdf

Power Sector Assistance Evaluation

Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Power-Sector.pdf

Transport Sector Assistance Evaluation

Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Transport-Sector.pdf

Water Supply and Sanitation Sector Assistance Evaluation

Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-WaterSupply-SanitationSector.pdf

F.

Evaluation of Operations in Conflict-Affected North and East

Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Operations-ConflictAffected.pdf

G. H.

Evaluation of Policy-Based Lending in Sri Lanka

Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Policy-Based-Lending.pdf

Evaluation of Thematic Governance Assistance

Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Thematic-GovernanceAssistance.pdf

Attachments:

Management Response DEC Chair Summary

EXECUTIVE SUMMARY This is the first country assistance program evaluation (CAPE) for Sri Lanka by the Operations Evaluation Department of the Asian Development Bank (ADB). The evaluation period covered the two decades 19862006, with more emphasis on the more recent decade. The main objectives of the evaluation were to assess the performance of ADBs operations in Sri Lanka and to identify forward-looking lessons for the preparation of the next country strategy. Development operations in Sri Lanka have taken place in a challenging environment, marked by a civil conflict that has lingered with varying intensity over more than two decades, shifts in political coalitions, complex political and social structures, and variations in development agendas. Two major political partiesthe United National Party and the Sri Lanka Freedom Partyhave alternately governed Sri Lanka. Although both have supported state interventions in economic activity, they have differed in their stance on the extent of state intervention. Consequently, policy reforms have tended to follow swings in the political pendulum. The structures and dynamics of the conflict are complex and manifest themselves in social policies, language, education, and ethnic issues. At the time of the ceasefire in 2002, an estimated 65,000 lives had been lost and 800,000 people displaced due to the conflict; more than 300,000 remained displaced at the end of 2005. These numbers exclude the toll of the tsunami (26 December 2004) that killed 35,000 people and displaced over half a million. With renewed fighting, at least another 200,000 people have been displaced since April 2006, with more than 3,000 killed in 2006. The economic consequences of the conflict have been severe: (i) a reduction in economic growth by 23% annually, (ii) 40% less per capita income than what could have been achieved without the conflict, and (iii) foregone foreign investment. The Institute of Policy Studies in Sri Lanka estimates the total cost of the conflict at 170% of the gross domestic product (GDP) in 19841996. The conflict has contributed to fiscal deficits (typically about 10% of GDP), which raised the public debt to more than 100% of GDP in the early 2000s. Although the public debt has declined, it remained high at 93% of GDP in 2006. With stalled peace negotiations, budgeted defense spending rose slightly from 2.5% of GDP in 2006 to 2.7% of the projected GDP for 2007. Since Sri Lanka borrows to finance its public investment budget and part of its recurrent expenditure budget, the high public debt and large fiscal deficits can undermine its capacity for public sector investments. Despite these difficulties, the economy of Sri Lanka has remained resilient, largely due to liberalization reforms that began in the 1970s and to the opening up of the trade economy. These reforms catalyzed the transition from a state-controlled economy to a market-based onea major milestone in Sri Lankas development history. A decade after the onset of economic liberalization, privatization became state policy in 1987. By then, unprofitable stateowned enterprises (SOEs) had become fiscally unsustainable, with budgetary transfers to these entities averaging 10% of GDP. Privatization came in two waves: (i) 19891994, when 43 commercial SOEs were divested; and (ii) 1995 and thereafter, when several public utilities and services, including telecommunications, were divested. During 19772006, the countrys real GDP growth averaged 45% per year. Since 2001, services (mainly telecommunications and financial services) have led the countrys economic growth. Sri Lanka has faced significant development challenges in the last few years, including the sharp increase in the international price of oil, drought, floods, the 2004 tsunami, and the civil conflict. The economy is accustomed to operating in difficult situations. Its private sector offers diversified services with overseas

iv connections. At present, Sri Lanka has the lowest tariff barriers in South Asia and is the second most open economy in the region after the Maldives. ADB has been Sri Lankas development partner for four decades. Cumulative loan approvals since 1968 amount to $3.7 billion for 130 loans. Most of this was in the last two decades (90 loans worth $3.3 billion, of which 84% came from the Asian Development Fund and 16% from ADBs ordinary capital resources). Over the same period, lending was supported by 195 technical assistance (TA) grants totaling $87.6 million$48.8 million for 122 advisory TA grants and $38.8 million for 73 project preparatory TA grants. Private sector operations have been relatively limited (11 transactions for $86.6 million). The country strategies in the last decade were generally relevant and responsive to development challenges at the time they were formulated. However, the changing political economy context since April 2004, conflict resurgence, and shifting government policies have diminished the relevance of the current country strategy (20042008). A strategic repositioning is called for in formulating the new country strategy. Although the poverty reduction thrust of past and existing country strategies continues to be relevant to national priorities and to ADBs overarching goal of poverty reduction, several key components of the existing strategy (sector restructuring, deregulation, and privatization of SOEs) have fallen out of line with the new economic policies of the Government. Another thrust of the current strategyreconstruction and development in the North and Eastwas based on a peace dividend and postconflict assumptions that are no longer realistic due to conflict resurgence in July 2006. ADBs assistance programs for Sri Lanka were consistent with the declared strategies in the past, but overall performance was partly successful. This rating underscores the need to reassess sector and crosscutting interventions for future development assistance, and to identify the factors that have enabled or deterred performance. Across sectors, performance has been mixed. Sectors in which the assistance program has been successful in the last two decades include (i) transport (mainly roads), (ii) education, and (iii) water supply and sanitation. Sustained and uninterrupted ADB engagement in these key sectors has generated positive results. Performance has been rated less than successful in (i) finance (policy-based); (ii) power; (iii) law and economic management; (iv) agriculture; and (v) multisector projects, which have been related mostly to irrigation, urban development, and assistance to disaster- and conflict-affected areas. Key factors contributing to success have included responsiveness to development needs, a clear understanding of the objectives and expected results, and shared commitment and ownership from the design stage to the implementation stage. By contrast, deterrents to successful operations have included the resurgence of the civil conflict, changes in government policies that compromised earlier gains, the complex political economy of decision making, insufficient analysis of reform options, inadequate support for sector restructuring, shortfalls in stakeholder participation during design and implementation, unsatisfactory performance of contractors, complex procurement procedures, and deficient maintenance of certain facilities after project completion. On ADBs part, staff turnover, lack of consistent engagement and sector focus, incomplete assessment of the absorptive capacities of executing agencies, and lack of technical skills in some areas have hampered implementation. ADBs policy-based lending operations in Sri Lanka have been partly successful, which draws attention to (i) caution in the future in using this modality, (ii) strengthening the design and implementation of policy-based programs, and (iii) more concerted efforts to explore alternative options for achieving the same objectives. Complex political and social structures, along with civil strife and a strong commitment to a welfare state, have hampered policy reforms. Policybased programs are potentially powerful for implementing difficult reforms, but there is the

v downside risk of policy reversal and wavering commitment to reforms when changes occur in the Government and in political coalitions. A careful assessment of reform options and readiness is crucial for policy-based programs. The positioning of ADBs governance strategy in Sri Lanka after 1995 has been satisfactory, but the performance of the related assistance will likely be partly successful. Improving governance is crucial for the Governments economic management agenda and policy reforms. Consistent with macroeconomic stabilization policies and structural reforms, ADB supported public enterprise reform, public sector management, local government strengthening, and regulatory and policy reforms during 19952003. The subsequent governance strategy (20042008) is anchored on the broader goals of poverty reduction, reconstructing conflict-affected areas, and development. The 20042008 strategy highlights the mainstreaming of governance in sector investments and the formulation of a service delivery policy framework. To sustain outcomes from governance and anticorruption efforts, however, further mainstreaming of equitable access to services and anticorruption in ADB operations is important, complemented by measures to strengthen accountability and transparency. Governance outcomes will likely be moderately susceptible to such risks as politicization of the public service, shifts in economic policies, proliferation of the number of ministries with fragmented functions, and potential macroeconomic destabilization from high fiscal deficits and high public debt. Risk management in the longer term is important. After the approval of the Anticorruption Policy (1998), ADBs country strategies and programs for Sri Lanka provided support to anticorruption efforts. Anticorruption measures after 1998 have been pursued through (i) compliance with procurement guidelines for ADB-financed operations, (ii) auditing of annual financial statements, (iii) use of management information systems to minimize fraud, (iv) ADB investigations of allegations of fraudulent practices, and (v) inclusion of measures to mitigate corruption risks. ADBs Office of the Auditor General responds to complaints about and allegations of corruption. Recently, ADB included commendable mitigation measures to address corruption risks in the Tsunami-Affected Areas Rebuilding Project and the North East Community Restoration and Development II Project. Corruption risk assessments and formulation of risk management plans, however, have yet to progress from the project level to the sector level, which is now mandatory under ADBs Second Governance and Anticorruption Plan. Although Sri Lanka is perceived as relatively less corrupt than Bangladesh, Pakistan, Nepal, and several other countries in the Asia and Pacific region, opportunities exist for supporting further anticorruption efforts. Transparency Internationals corruption perceptions index in 2006 indicated that Sri Lanka has a score of 3.1, where 0 indicates highly corrupt and 10 highly clean. On balance, the contribution of ADBs assistance program to development impacts has been modest. Poverty in Sri Lanka remains high, despite the decline in the proportion of the population living below the national poverty line from 26% to 23% during 19902002. Reducing poverty and regional disparities and achieving sustainable outcomes from inclusive social development and governance, given the ongoing civil strife, will continue to be major challenges. Overall, the performance of ADBs country assistance program in Sri Lanka is rated partly successful. This rating is derived from a combined rating of (i) top-down assessment, which includes country strategy positioning, contribution to development impacts/results, and ADB performance; and (ii) bottom-up assessment of the sector assistance programs, which is based on the five evaluation criteria of relevance, effectiveness, efficiency, sustainability, and impact.

vi Fighting poverty and bringing about the conditions for higher inclusive economic growth offer opportunities for development assistance. The current Government prioritizes reducing regional disparities, mainly by improving connectivity and infrastructure; developing small- and medium-scale enterprises; and supporting rural development and social protection. ADBs Second Medium-Term Strategy may serve as a guide for several strategic priorities but needs to be contextualized. Specific focal areas and options need to be worked out carefully, given the constraints posed by the resurgence of armed conflict and its effects. The following recommendations are proposed as directional inputs for Management consideration during the formulation of the next ADB country strategy in Sri Lanka. The inclusion of sectors/subsectors in a more focused portfolio will depend on (i) client demand and preferences, (ii) staff and TA resource availability, (iii) analytical work that identifies binding constraints, (iv) ADBs strategic priorities, (v) the programs of other development partners, and (vi) experience showing what has worked and what has not. These evaluation findings are merely a component of the analytical work that should determine the new country strategy. Therefore, this evaluation should not be considered prescriptive concerning the shape of the future program. However, these results are important, because most of the resources being provided have to be paid back. If ADB decides to engage in a sector or subsector with a low historical success rate, clear evidence must be provided that the reasons for low success have been determined and a plausible strategy has been put in place to deliver better results in the future. In addition, ADB should take on only those sectors in which its input will be substantial, sustained, and backed up with the required resources for analysis, design support, and supervision. The following table summarizes the recommendations, with indications of responsibility and time frame. Summary of Recommendations
Recommendations Responsibility 1. ADB should review its development assistance to conflict- South Asia Regional affected areas in the North and East from the perspectives of conflict sensitivity. The challenge for ADB Department is to explore options, modalities, and partnerships to provide assistance within the in-conflict and fragile environment. Options for ADB to consider include temporary suspension and changes of scope of ongoing development assistance with a view towards efficiency and effectiveness, particularly when rising costs and security risks can outweigh the expected benefits. ADB should also explore options for outsourcing and partnering with agencies having specialized capabilities, and specialized administrative and management systems that can respond rapidly to changing conditions. Options are detailed in Supplementary Appendix F. South Asia 2. ADB should review the focus of its development Regional assistance, particularly within sectors that have fallen Department short of achieving significant results (e.g., agriculture, power, policy-based programs) but are extremely important for poverty reduction and economic growth. This review should consider the provision of continued support for sector assistance programs that have performed well (e.g., education, transport, and water supply). It should take into account the findings of the evaluations of sector assistance (Supplementary Appendixes AE). In redefining sector strategies in the context of the new Time Frame Formulation stage of the new country partnership strategy and continuing

Formulation stage of the new country partnership strategy

vii
Recommendations country partnership strategy, ADB should consider the sector recommendations made by the CAPE. Responsibility Time Frame

South Asia 3. ADB should be prepared to remain engaged in policy dialogue during difficult times, when the implementation of Regional ongoing programs is slow and may even stall. The nature Department and scope of the existing policy-based programs require continuity and involvement of experienced staff. Greater attention to identified lessons is required. A careful assessment of reform options is crucial for policy-based programs. Resources are needed to continue the dialogue. In this context, ADB should review its resources, skills base, and staff configuration to allow itself to play its role more effectively. A business plan to identify the human and financial resources required to implement the country strategy may be necessary. 4. ADB should provide assistance to Sri Lanka for resultsSouth Asia based monitoring and development evaluation to promote Regional development effectiveness. This will complement the Department Governments ongoing efforts to strengthen its monitoring and evaluation capacity at the Ministry of Plan Implementation. 5. ADB should assess the Sri Lanka Resident Missions roles and functions in order to strengthen its capacity to (i) disseminate lessons and good practices from ADB operations in other countries, (ii) enhance its services in various areas of concern as identified through the perception survey, and (iii) provide timely decisions and technical support to project administration. This assessment should take into account the findings of the ongoing review of resident mission operations by the Strategy and Policy Department. South Asia Regional Department Strategy and Policy Department

Formulation stage of the new country partnership strategy

Formulation stage of the new country partnership strategy

A soon as possible during 20072008

ADB = Asian Development Bank, CAPE = country assistance program evaluation.

Bruce Murray Director General Operations Evaluation Department

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I. A. Background

INTRODUCTION

1. This report, prepared by the Operations Evaluation Department (OED) of the Asian Development Bank (ADB), presents the findings of a country assistance program evaluation (CAPE) of ADBs operations in Sri Lanka. This is ADBs first CAPE for Sri Lanka. The period covered is the two decades 19862006, with more emphasis on the more recent decade. The CAPE is designed to contribute to the formulation of a new country strategy for Sri Lanka. 1 The ADB-Sri Lanka partnership has existed for 40 years since lending began in 1968. B. Report Structure and Content

2. This main text of the report is divided into seven chapters: (i) introduction; (ii) development context and government priorities; (iii) positioning of the country strategies of ADB; (iv) loan and technical assistance portfolio; (v) evaluation of sector and thematic assistance; (vi) perception assessment of the Sri Lanka Resident Mission (SLRM) of ADB; and (vii) overall rating, conclusions, and recommendations. There are also several supporting appendixes: (i) evaluation methodology (Appendix 1); (ii) key economic, poverty, and social indicators; and Millennium Development Goals (Appendix 2); (iii) ADBs country strategies and programs for Sri Lanka (Appendix 3); (iv) programs and projects (Appendix 4); (v) technical assistance (Appendix 5); (vi) portfolio analysis (Appendix 6); (vii) examples of economic, sector, and thematic studies (Appendix 7); and (viii) perception survey of SLRM (Appendix 8). This report is supported by working papers on five sectors (agriculture, education, power, transport, and water supply and sanitationSupplementary Appendixes AE) and three themes (operations in conflict-affected areas, policy-based lending, and governanceSupplementary Appendixes FH). These provide a more in-depth review of the context, positioning, and performance of ADBs strategies and assistance. C. Objectives, Scope, Approach, and Methodology

3. This evaluation assesses the performance of ADBs operations in Sri Lanka and identifies forward-looking lessons for preparing the next country strategy. Specifically, the evaluation seeks to answer four key questions: (i) Have the country strategies been relevant and responsive to the development challenges facing the country? (ii) Were the strategies aligned with national priorities and harmonized with the assistance provided by development partners? (iii) Has ADBs actual program delivery been consistent with its declared strategies? (iv) Has ADBs assistance (lending and nonlending) achieved its desired development results effectively and efficiently, and are the outcomes sustainable? 4. The evaluation focuses on sectors in which ADB has been most active in its operations over the last 10 yearsnamely, agriculture, education, power, roads, and water supply and sanitation. Law, economic management, and public policy are dealt with in the context of the thematic evaluation of governance. The evaluation covers special topics: (i) operations in the conflict-affected North and East of Sri Lanka, and (ii) policy-based lending. This report does not cover private sector operations because of limited ADB-financed operations in this area. 2 While
1

ADBs country strategies and programs for Sri Lanka and their updates, from 2002 onwards, are available at http://www.adb.org/Documents/CSPs/SRI/default.asp ADB has provided Sri Lanka with 11 private sector transactions totaling $86.6 million since 1968. The first loan was in 1988 ($10.3 million) while the last was in 2001 ($0.36 million).

2 the evaluation does not specifically cover the financial sector, financial sector program loans are covered under the evaluation of policy-based lending. 5. This evaluation generally follows OEDs guidelines for the conduct of CAPEs. 3 The evaluation team prepared an evaluation approach paper that was approved by OED management in July 2006. 4 The evaluation uses both bottom-up and top-down assessments (Appendix 1). The bottom-up assessment evaluates the performance of ADBs assistance programs using the criteria of relevance, effectiveness, efficiency, sustainability, and impact. At the country level, the top-down assessment takes a broad view of the positioning of ADBs strategies, contribution to development results, and ADB performance. In terms of development results, the evaluation identifies ADBs contribution rather than doing the detailed analysis necessary to reflect attribution. Assessing attribution is impractical, as there are many actors involved in the achievement of results. The overall performance assessment is a weighted combination of the bottom-up and top-down assessments. II. A. DEVELOPMENT CONTEXT AND GOVERNMENT PRIORITIES

Evolving Social, Political, and Economic Settings in Sri Lanka

6. The social, political, and economic settings of Sri Lanka described herein have influenced the positioning of ADBs country strategies and the performance of its assistance program. The context of the country assistance program has evolved over time. This report is not designed to evaluate the performance of the Government of Sri Lanka. 7. Sri Lanka is a conflict-affected middle-income country with high achievements in social indicators, including the Millennium Development Goals. Sri Lanka does not fall into mainstream classifications of conflict-affected countries used by multilateral agencies, which characterize such countries as having low levels of income and human development, and weak governance systems. 5 The causes of the conflict relate primarily to ethnic issues, historical interpretations, language, education, employment, and land. These issues are manifest in language, education, and social policies. The conflict structures and dynamics are complex, 6 and various interpretations of the history and causes of the conflict exist. In 1983, the conflict broke out into civil war. While the Government succeeded in quelling the southern rebellion, 7 the conflict in the North and East has lingered over more than two decades. 8 On 22 February
3

4 5

7 8

ADB. 2006. Guidelines for the Preparation of Country Assistance Program Evaluation Reports. Manila. Available: http://www.adb.org/Documents/Guidelines/Country-Assistance-Program/guide-peparation-0206.pdf Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-NBESTARI-71406-complete.PDF (i) The World Bank refers to low-income countries under stress as fragile states characterized by a debilitating combination of weak governance, policies, and institutions. (ii) ADB uses the term weakly-performing states in its strategy (November 2006): Achieving Development Effectiveness in Weakly Performing Countries (The Asian Development Banks Approach to Engaging with Weakly Performing Countries). Available: http://www.adb.org/Documents/Papers/Achieving-Development-Effectiveness/Achieving-dev-effectiveness.pdf (i) International Centre for Ethnic Studies. Bibliography: Ethnicity and Conflict in Sri Lanka. Available: http://www.ices.lk/sl_database/ethnic_conflict/bibliography.shtml (ii) Goodhand, J., B. Klem, D. Fonseka, S.I. Keethaponcalan, S. Sardesai. 2005. Aid, Conflict, and Peace Building in Sri Lanka 2000 2005. The Asia Foundation. Colombo. Available: http://www.asiafoundation.org/Locations/srilanka_publications.html (iii) Palmer, N. 2005. Defining a Different War Economy: The Case of Sri Lanka. Berghof Research Center. Berlin. Available: http://www.berghof-handbook.net/uploads/download/dialogue3_palmer.pdf Sri Lanka faced two violent insurrections in 1972 and 1989 in the South. The North and East have faced a protracted armed conflict, high poverty incidence estimated at 6090% in some areas, and depressed economic and social development. The combined contribution of the North and East to the

3 2002, a ceasefire agreement was signed between the Government of Sri Lanka and the Liberation Tigers of Tamil Eelam. 8. After 4 years of relative peace, the conflict resurged in July 2006, with the ceasefire agreement remaining intact only on paper. However, neither side has declared a formal end to the 2002 ceasefire agreement. The emergence of paramilitary groups has created further instability. The conflict has destabilized communities, with allegations of abductions, forced conscription of adults and children, and human rights violations. The Government has established a Commission of Inquiry and an International Independent Group of Eminent Persons to observe the work of the Commission of Inquiry. In response to terrorist attacks in the country, Parliament reinstated provisions of the Prevention of Terrorism Act in December 2006. Observers have noted significant negative effects of the conflict on governance, human rights, and media freedom. 9 9. The resurgence of armed conflict has resulted in displacement of people, weak social cohesion, food insecurity, loss of livelihoods, and disruption of services in affected areas. It has also inhibited economic development. The Central Bank of Sri Lanka reported that the conflict reduced the countrys economic growth by about 23% annually. Per capita income was 40% less than what could have been achieved without the conflict. The Institute of Policy Studies estimated the cost of the conflict from 1984 to 1996 at 170% of the gross domestic product (GDP). 10 When the conflict escalated into civil war, private sector confidence fell, and the GDP growth declined to 3.4% per annum during 19841989. Other costs of the conflict include (i) a rising share of defense expenditures, reaching over 20% of total government expenditures in the late 1990s; (ii) resultant curtailed public expenditures on education as a percentage of GDP (Appendix 2, Table A2.1); (iii) high fiscal deficits, typically around 10% of GDP; (iv) a compromised investment climate, which dampens foreign direct investment; (v) downturns in tourism and loss of earnings; (vi) damage to infrastructure and facilities; and (vii) reduced interconnectivity due to road closures and access restrictions from and to conflict-affected areas. With stalled peace negotiations, budgeted defense spending in 2007 rose to 2.7% of the projected GDP from 2.5% a year earlier. 10. Sri Lanka has witnessed a changing political and economic context. The United National Party (UNP) and the Sri Lanka Freedom Party (SLFP) have alternately governed Sri Lanka. The UNP-led coalition gained power in 1977 and was responsible for initiating major economic liberalization reforms. In late 1994, its 17-year rule came to an end with the election of the Peoples Alliance, a coalition led by the SLFP. This posed a challenge to the fragile political coalition under the incoming President Kumaratunga. To keep the coalition together, the Government expanded ministerial posts and privileges, effectively making the executive presidency the central focus of national policymaking. President Kumaratunga was reelected in 1999, and the Peoples Alliance won the general elections in 2000. A year later, several key members of the Peoples Alliance crossed over to the UNP, which led the President to dissolve parliament and call for new elections. Following parliamentary elections, the UNP returned to power in December 2001 with Prime Minister Ranil Wickremasinghe. This engendered a difficult period of political cohabitation between the Government and President Kumaratunga. By late
national gross domestic product was estimated at 8.2% in 2003, much lower than the 1520% pre-conflict contribution in 1982 and 1983. During the war, areas under cultivation in the North and East fell by 5080% and its share in rice production fell from 33% in 1980 to only 3% in 2000. 9 Centre for Policy Alternatives. 2007. War, Peace and Governance in Sri Lanka: Overview and Trends. Colombo Available: http://www.cpalanka.org/research_papers/War_Peace_Governance.pdf 10 Arunatilake, N., S. Jayasuriya, and S. Kelegama. 2000. The Economic Costs of the War in Sri Lanka. Institute of Policy Studies. Colombo.

4 2003, the cohabitation led to a crisis, and a new SLFP-led government was formed after the April 2004 elections. Following the presidential election in November 2005, Mahinda Rajapaksa was sworn in as the fifth executive President of Sri Lanka. In October 2006, the SLFP and the UNP signed a memorandum of understanding to work together on electoral reforms, governance, social development, and conflict in the North and East, but this cooperation was short-lived. Several UNP members crossed over to the SLFP-led Government and accepted ministerial positions. Despite the crossover, the UNP remains the largest opposition party. On 28 January 2007, a cabinet reshuffle resulted in the appointment of 52 cabinet ministers, 33 noncabinet ministers, and 19 deputy ministersthe largest number of ministerial positions in the history of Sri Lanka. 11. Sri Lanka had inward-looking and state interventionist policies from the 1950s up to the mid-1970s. It had unprofitable state-owned enterprises (SOEs) characterized by overstaffing, mismanagement, and pervasive government interventions. In 1977, the Government embarked on an economic liberalization program, which helped to dismantle currency and price controls, set a single exchange rate, lower import tariffs, ease restrictions on foreign investment, and deregulate the financial sector. A majority (80%) in Parliament helped push the reforms forward. Resurgence in growth followed, fuelled by a public investment program. GDP grew by 6% per annum during 19781983, compared with 3% during 19711977. A decade later, further reforms addressed privatization, the labor market, redesign of social security, and initiatives to reduce poverty. 12. The economy of Sri Lanka has been resilient, largely due to the liberalization reforms begun in the 1970s and the reduction of trade barriers that helped open up the economy. Real GDP growth averaged 45% per year (19772006). This compares favorably with the performance of other South Asian countries such as Pakistan and Bangladesh. Since 2000, Sri Lanka has faced significant development challenges, including sharply higher world oil prices, drought, floods, the 2004 tsunami, and the resurgence of armed conflict. The economy is accustomed to operating in difficult situations, having a diversified private sector with overseas connections. Currently, Sri Lanka has the lowest tariff barriers in South Asia. It is also the second most open economy in the region after the Maldives, with its trade accounting for about 82% of GDP. Services have been leading the countrys economic growth since 2002, especially telecommunications and financial services, followed by industry. 13. In its 2006 Annual Report, the Central Bank of Sri Lanka cautioned that the increasing recurrent expenditure poses risks for the economy. The high recurrent expenditure is partly associated with increases in expenditures on (i) salaries and wages, and (ii) pension payments and transfers to households and public corporations and institutions. Tax revenue increased for the third consecutive year, amounting to 15.3% of GDP in 2006, mainly due to reforms in tax administration and timely enactment of legislation. These positive outcomes took place amid a difficult working environment where tax administration has become increasingly complex due to tax exemptions, increased value-added tax bands, and lack of a computerized refunding mechanism for value-added tax. Apart from high recurrent expenditures, persistent fiscal issues include high borrowing from the banking system and high public debt burden. These factors tend to negate the gains in revenues, as expenditures on these three items absorb about two thirds of total revenue. The Central Bank estimated that the government debt amounted to 93% of GDP in 2006 (Appendix 2, Table A2.2).

5 B. Millennium Development Goals in Sri Lanka

14. Sri Lanka is a high achiever in relation to the human development index, ranking 93rd among 177 countries in 2006. 11 It was one of the first developing countries to invest in human resources and to promote gender equality. Sri Lanka is primarily on track to achieve most of the Millennium Development Goals (Appendix 2, Table A2.3) including primary school enrollment, gender parity in primary and secondary school enrollment, and provision of reproductive health services. The country has reduced mortality rates of infants and under-fiveyear-old children, maternal mortality rates, and the incidence of malaria since the 1990s. The prevalence in the country of human immunodeficiency virus/acquired immune deficiency syndrome is generally low, and the Government has initiated programs to control its spread. 15. But Sri Lankas social achievements have not been accompanied by significant poverty reduction. From 1991 to 2002, the country achieved a marginal reduction (3 percentage points) in the incidence of income poverty. 12 Reduction in poverty was uneven across sectors: urban poverty fell by half between 1990 and 2002; rural poverty declined by 5 percentage points; and poverty in the estate sector increased by 9 percentage points, making this sector the poorest in the country. 13 The skewed pattern of poverty reduction reflects uneven regional growth. 14 Economic growth throughout the 1990s up to the early 2000s significantly benefited the Western region, particularly Colombo and surrounding districts. Provinces that rely mainly on agriculture experienced marginal reduction in poverty. Consequently, the incidence of poverty in rural areas remained at 25% (2002). Poverty tended to be prevalent among households that were dependent on agricultural wages. Poor access to economic opportunities by rural and plantation estate households contributed to unequal poverty reduction. Inadequate connectivity to markets and growth centers, lack of electricity and transport facilities, and uneven access to quality schools were correlated with poverty incidence. Poor urban areas exhibited poor housing and inadequate access to clean water, sanitation, and electricity. C. Development Priorities of Sri Lankas Governments over the Last Two Decades

16. A decade after the initiation of economic liberalization reforms, privatization became a government priority in 1987. The Government built on earlier economic reforms, which catalyzed the transition from a state-controlled to a market-based economy. This was a major turning point in Sri Lankas development history. Supported by the International Monetary Fund and the World Bank, the Government pursued structural adjustments. Sri Lanka focused on short-term stabilization and medium-term structural adjustment during 19881995, guided by private sector-driven growth. The program promoted enhanced credit policies, a reduction of subsidies, divestment of government interests in SOEs, a freeze on the hiring of civil servants, and staff reduction in the public sector. Privatization had a slow start, partly because of the use of SOEs as instruments of political patronage and employment protection. The sale of SOEs gained momentum after 1989. Steps taken to reduce the fiscal deficit were largely negated by increased government expenditures, including for defense and internal security. Efforts to reduce the size of the public service diminished. By 1995, measures to scale down the civil
11

The human development index is a composite index of life expectancy, adult literacy, school enrollment, and income per capita. Available: http://hdr.undp.org/hdr2006/statistics/ 12 According to the Department of Census and Statistics, the percentage of households below the national poverty line rose to 28.8% during 1995/1996 from 26.1% in 1990 due to a severe drought that struck most parts of the country in 1996. By 2002, this percentage had declined to 22.7%. 13 The conflict-affected North and East were excluded from these estimates because of the unavailability of data. 14 World Bank. 2007. Sri Lanka Poverty Assessment Engendering Growth with Equity: Opportunities and Challenges. Washington, DC.

6 service had been reversed. Currently, Sri Lanka has the highest number of civil servants per 100,000 people in South Asia. 15 17. Finding solutions to poverty reduction and unemployment has been at the center of the Governments development agenda. The vision of faster economic growth to reduce poverty had earlier hinged on (i) macroeconomic stabilization and exchange rate competitiveness; and (ii) structural reforms to dismantle protectionism, regulatory barriers, and public sector privileges that curbed competition. After the 1994 change of government, support continued for economic liberalization, and public investment in physical infrastructure was prioritized to facilitate private sector expansion. The Government promoted public enterprise reform, financial reforms, agricultural productivity enhancement, labor skills upgrading, and environmental management. 18. With the change in government in December 2001, the Government renewed its commitment to economic policy reforms, private sector-led growth, and further economic liberalization. At the core of the Governments economic strategy was faster economic growth by removing barriers to increased productivity, mainly by (i) accelerating privatization of state interests in commercial activities, (ii) reforming the legal and regulatory system, and (iii) improving the efficiency of government functions and fiscal management. Central to the poverty reduction policies were initiatives to support macroeconomic stability, reduce the effects of the conflict on poverty, create economic opportunities for the poor, invest in people, strengthen governance, and implement an effective monitoring and evaluation system. 16 In 2003, the Government and the International Monetary Fund signed a Poverty Reduction and Growth Facility. The Government called for fiscal consolidation, reduction of subsidies, and welfare support programs. This strategy became vulnerable to criticism. Critics argued that (i) in the absence of tangible short-run benefits, and given the sizeable reduction of subsidies and welfare programs, the poor would be disadvantaged; and (ii) the growth strategy had an urban bias that could further set the Western region apart from the rest of the country. 19. A new government came to power in April 2004 and subsequently underscored a prominent role for the public sector in development. This marked some departure from past policies and priorities. The Governments current policy is shaped by the presidential manifesto, the Mahinda Chintana, which prioritizes social protection, development of small and medium enterprises, infrastructure, and rural development to address regional disparities. 17 The Government has emphasized that it will not pursue privatization as a way of improving the performance of SOEs. Instead, efficiency improvement initiatives will be pursued for SOEs. The development thrust aims at accelerating growth, with due regard for equitable development and the participation of the public sector. Subsidies were increased and incentives were provided to promote agriculture, support food security, and raise farm incomes. In its Ten-Year Horizon Development Framework (20062016), the Government has targeted a GDP growth rate of 8% over the next 6 years and 910% thereafter. 18 Promoting a favorable investment climate, stable security situation, and sound development management are crucial in this regard.

15

After a freeze of civil service recruitment in 20022003, 40,000 graduate trainees were regularized as civil servants in 2005 and 2006. In May 2007, the Government announced the recruitment of 20,000 graduates. In June 2007, Parliament approved a supplementary budget of nearly $6 million to finance the creation of seven new ministries. 16 Government of Sri Lanka. 2002. Regaining Sri Lanka: Vision and Strategy for Accelerated Development. Colombo. 17 Available: http://www.mahindarajapaksa.com/MahindaChinthanaEnglish.pdf 18 Ministry of Finance and Planning. 2006. Mahinda Chintana, A Vision for a New Sri Lanka: Ten-Year Horizon Development Framework 20062016 Discussion Paper. Colombo.

7 III. POSITIONING OF ADB COUNTRY STRATEGIES

20. The positioning of ADBs country strategies 19 was assessed using several criteria: (i) relevance and alignment of the strategies with country and ADB priorities, including country ownership; (ii) basis for strategy and program formulation; (iii) ADBs comparative advantage and strategy coordination with development partners; (iv) focus/selectivity and synergies; (v) long-term continuity; and (vi) risk assessment and monitoring mechanisms to achieve envisaged results. 21. In the last decade, ADBs country strategies for Sri Lanka evolved in response to the principal challenge of poverty reduction. From the 1990s to the early 2000s, these strategies viewed the acceleration of the structural transformation process as a major strategy in reducing poverty, mainly through (i) policy and institutional reforms to create an enabling environment for private sector-led growth, (ii) human resource development to respond to the need for people to have marketable skills, (iii) improving infrastructure, (iv) improved natural resource management, and (v) mitigation of social costs and environmental impacts associated with economic development and transformation. Before the 2002 ceasefire agreement, ADBs country strategies in Sri Lanka acknowledged the existence of the conflict but did not specifically address its causes and effects. With the shift since 2001 toward greater inclusion of the conflictaffected areas in development and a more optimistic outlook on peace at that time, the subsequent strategy (20042008) underscored support for reconstruction in addition to poverty reduction, guided by the three pillars of pro-poor economic growth, social development, and good governance. ADBs related assistance during this period covered six core sectors: (i) agriculture, (ii) transport (roads and ports), (iii) energy (primarily power), (iv) education, (v) water supply and sanitation, and (vi) finance. Thematic priorities covered governance; gender; environment; private sector development; and, to a lesser extent, regional cooperation. 22. ADB is a leading provider of assistance to Sri Lanka in the form of loans and grant assistance (see Figure). During 20012005, ADB was Sri Lankas second largest source of development assistance in terms of fund disbursements (22%) after Japan (31%). 23. ADBs strategies in the last decade were responsive to Sri Lankas priorities at the time they were prepared, but the current country strategy is now less relevant. The country strategies focused on economic reforms to promote an enabling environment for private sector-led economic growth, and emphasized the importance of better infrastructure, human development, creation of opportunities for the poor, and better governance. These strategies have been consistent with ADBs corporate polices on poverty reduction, education, energy, private sector development, gender, governance, and anticorruption. 20 However, several developments have made the current strategy less relevant: (i) the resurgence of the conflict has posed critical challenges to the rehabilitation of the North and East; (ii) postconflict assumptions have become irrelevant due to the renewed fighting; (iii) the Governments current development agenda has changed from previous economic policies, according low priority to restructuring, rejecting privatization of SOEs, and placing greater emphasis on the role of the public sector in economic development; and (iv) the escalation of conflict has to some extent diverted the Governments attention from economic management.

19

The country strategy and program integrated the earlier country operational strategy and country assistance plan. For purposes of this document, the term country strategies is used to simplify the discussion. 20 ADB policies and strategies are available at http://www.adb.org/Development/policies.asp.

Figure: Disbursements by Development Partners, 20012005 ($ million)

300 250 200 150 100 50 0 2001 ADB Other Bilateral 2002 2003 World Bank Other Multilateral 2004 2005 Japan Other Sources

Note: Other sources include commercial banks and export creditors. Source: Foreign Aid Review 2005, Department of External Resources, Ministry of Finance and Planning.

24. Since 1998, ADB has adopted participatory processes to formulate the country strategies. ADB country teams interacted with government entities, nongovernment organizations (NGOs), the private sector, development partners, and other stakeholders through a series of workshops and meetings during the strategy formulation process. The 19982003 strategy was prepared in cooperation with a government focal group that contributed to, and reviewed, the contents at various stages of preparation. The process used to formulate the 20042008 country strategy included a stock-taking meeting at the outset to define the rationale and directions, followed by consultations with stakeholders throughout the formulation process. Interviews with stakeholders and a perception survey of SLRM confirmed that ADB had paid adequate attention to country context and priorities. 25. ADB identified appropriate opportunities for development assistance. The country strategies drew insights from (i) existing development challenges, and the countrys economic policies and development priorities; (ii) ADBs corporate policies and strategies; (iii) economic, sector, and thematic studies; (iv) multilevel consultations; (v) experience and lessons drawn from ADBs lending and nonlending operations; (vi) operations of development partners; and (vii) continuity in policy dialogue. There is sufficient evidence to indicate that from 1998, the strategic choices in the strategies drew on economic analyses at the sector level (such as agriculture, education, transport, water supply, power, and economic management) and analysis at the thematic level (governance, gender, private sector development, and poverty). 26. ADB has coordinated its programming of development assistance with development partners through regular and agenda-specific consultations. ADB supported sector development, while the International Monetary Fund focused on structural adjustment and macroeconomic stabilization in the 1990s. ADB coordinated its sector assistance with the World Bank, especially in promoting liberalization in the agriculture and industry sectors, and in addressing constraints in infrastructure and finance. Consultations were undertaken regularly

9 with bilateral organizations in sectors where ADB was active. 21 ADBs participation in joint needs assessments provided opportunities to coordinate development assistance with key partners, increasing relevance and responsiveness to the countrys priorities. 22 27. The overall thrust on economic growth and poverty reduction provided coherence to the country strategies. Policy and regulatory reforms to accelerate economic growth were accompanied by measures to advance social development and deliver services to the population. Support for good governance lent synergy, mainly by improving the effectiveness and efficiency of service delivery institutions and promoting better public resource management. The 19931997 and 19982003 strategies generally focused on the promotion of appropriate policies and the provision of infrastructure and services for economic growth. The existing 20042008 country strategy calls for (i) improving infrastructure (roads, power, and water supply), (ii) raising the quality and relevance of education, (iii) increasing access of the poor to social services, (iv) rebuilding conflict-affected areas and reintegrating them into the economy, (v) removing legislative and regulatory barriers to private investment, (vi) promoting enhanced rural livelihoods and commercialization, and (vii) improving governance. 28. ADBs lending and nonlending instruments covered many sectors and subsectors. Instruments included project loans; policy-based programs; TA grants; and economic, thematic, and sector studies. Policy-based programs complemented investment loans for sector development by aiming to (i) reduce market distortions, (ii) remove obstacles to private sector development, (iii) promote public enterprise reform, (iv) encourage fiscal management reform, and (v) develop the financial markets. ADB provided TA to support project formulation; promote capacity development; improve service delivery; and prepare sector, policy, and issues-oriented studies. Although the composition and spread of ADB assistance responded to the Governments priorities, the diversity of the assistance programs overstretched ADBs capacity to become an effective partner in all sectors. 29. The country strategies had long-term continuity. The strategies built on preceding strategies and programs and provided continued support for sector policy and regulatory reforms. Appendix 3 illustrates the major thrusts of ADBs country strategies over time (including sector and thematic priorities). 30. The strategies assessed implementation risks. Prior to 1998, risk assessments were not part of ADBs country strategy requirements. Subsequently, the country strategies identified potential risks to efficient implementation and provided monitoring mechanisms to track implementation progress through country strategy updates, economic reviews, sector reviews,
21

For example, in 2003 the Japan Bank for International Cooperation organized a joint strategy seminar, in which ADB and the World Bank participated to exchange views on their respective strategy formulation. The presence in Sri Lanka of a large bilateral source (Japan) presented a strategic opportunity for ADB to enter into joint or parallel financing in sectors such as power and roads, and to pursue economic policy reforms through policy-based programs. ADB was also active in mobilizing official cofinancing (grants and concessionary sources) for its operations. 22 The conflict-related joint needs assessment (2003) identified financing needs of about $3 billion for relief, reconstruction, and rehabilitation of the North and East, of which $780 million was required for immediate and $1.2 billion for medium-term interventions. The joint tsunami needs assessment (2005) identified rebuilding needs of about $1.5 billion for Sri Lanka; most of the resources required in the short term were for housing, transportation, institutional and community infrastructure, livelihood restoration, and small and micro enterprise assistance. A joint needs assessment in 2005 was undertaken by ADB, the World Bank, Japan, and the United Nations system in cooperation with the Government and the Task Force for Rebuilding the Nation. For tsunami aid coordination at the global level, ADB also organized a high-level coordination meeting in Manila (March 2005) including development partners, governments of affected countries, civil society, and private sector representatives.

10 and performance reports on projects. 23 The 19982003 strategy identified five implementation risks: (i) security/civil conflict; (ii) the possible return to power of the opposition party, which could result in policy changes; (iii) effects of the Asian financial crisis, which could affect macroeconomic stability; (iv) relaxation of fiscal discipline; and (v) procurement difficulties and project implementation delays. The country strategy indicated that, if properly monitored, these risks were manageable. The subsequent enactment by the Government of the Fiscal Management Responsibility Act (2004) provided a safeguard against the relaxation of fiscal discipline, with its targets to reduce the budget deficit and total debt, and to promote fiscal transparency and accountability. The subsequent 20042008 country strategy noted five main risks: the dilution or deferment of the Governments reform program, the civil conflict, external shocks, shortfalls in project design and targets, and social consequences of the reforms (labor law, land law, and privatization). 31. Overall, the positioning of ADBs country strategies at the time they were prepared is assessed as satisfactory. Table 1 summarizes the ratings for each strategy and the overall positioning. Table 1: Rating of the Positioning of Sri Lanka Country Strategies
Criteria for Positioning Relevance/ Alignment with Priorities and Country Ownership 2 (S) 2 (S) 2 (S) Risk Assessment ADBs and Comparative Monitoring Sufficient Advantage and Focus/ Mechanisms Basis for Strategy to Achieve Strategy and Coordination with Selectivity and Long-Term Envisaged Program Development Synergies Continuity Results Formulation Partners 1 (PS) 2 (S) 2 (S) 2 (S) 1 (PS) 2 (S) 2 (S) 2 (S) 2 (S) 2 (S) 2 (S) 2 (S) 2 (S) 2 (S) 2 (S)

Country a Strategy Average 19931997 1.67 (S) 19982003 2.00 (S) 20042008 2.00 (S) (when first issued) 20042008 1 (PS) 1 (PS) 2 (S) 1 (PS) 2 (S) 1 (PS) 1.33 (PS) (current context) ADB = Asian Development Bank, HS = highly satisfactory, PS = partly satisfactory, S = satisfactory, US = unsatisfactory. a Note: HS = 3, S = 2, PS = 1, and US = 0. An equal weight is applied to each of the six criteria for positioning. The ratings are as follows: (i) HS > 2.5, (ii) 2.5 S 1.6, (iii) 1.6 > PS 0.6, and (iv) 0.6 > US.

32. The changing context since 2004, including the April 2004 change of government, new development policies (Mahinda Chintana), and the resurgence of conflict, have made the positioning of the existing 20042008 country strategy partly satisfactory. The 20042008 country strategy did not anticipate the 2004 change of government, the coalition politics that emerged, and the ensuing implications for the countrys development policies and economic management. These developments provide compelling reasons for ADB to reposition its country strategy and assistance.

23

In addition, supportive measures, including the strengthening of the project directors forum, development of action plans, creation of a procurement bureau, and active involvement of SLRM in coordination, were meant to improve implementation performance of projects and TA grants.

11 IV. A. LOAN AND TECHNICAL ASSISTANCE PORTFOLIO

Loan and Technical Assistance

33. ADB began lending to Sri Lanka in 1968, and the country is among ADBs top 10 borrowers. By 2006, ADB had approved 130 loans ($3.7 billion) for 110 projects (Appendix 4). Of the 90 loans during 19862006, 77 loans for $2.7 billion (84%) were financed from the Asian Development Fund and 13 loans for $0.53 billion (16%) were financed from ADBs ordinary capital resources. ADB categorizes Sri Lanka as a Group B1 country, which borrows primarily from the Asian Development Fund, with limited amounts from ordinary capital resources. In the last two decades, the largest share of loans went to agriculture (19%), transport (18%), and finance (10%). 34. ADB had also provided 236 TA grants ($93.9 million) to Sri Lanka by 2006 (Appendix 5). During 19862006, $87.6 million financed 195 TA grants, of which 122 (56%) were advisory ($48.8 million), and 73 (44%) for $38.8 million were project preparatory. Agriculture received the largest share (26%) in amount of approved TA grants, followed by transport (16%), economic management and public policy (12%), and finance (9%). Sri Lanka participated in at least 84 regional TA activities during 19932006. B. Portfolio Performance

35. The trend per decade shows that portfolio performance improved over time, as the proportion of projects and programs rated successful or better increased from 43% in the 1970s to 50% in the 1980s to 62% in the 1990s (Table 2). During the CAPE period (19862006), 56% of projects and programs were rated successful or better. This was 6% higher than the success rate of projects and programs (50%) before the CAPE period. For sectors with at least four rated projects during the CAPE period, agriculture and natural resources (33%) and multisector projects (25%) achieved the lowest success rates, while education (75%) and transport (75%) registered the highest. 24 To date, only one of the five (20%) policy-based program loans has been rated successful, lower than the ADB-wide average of 51%. This poor performance is attributed mainly to a complex policy environment marked by policy changes and inconsistencies. A detailed analysis of the performance of policybased program loans to Sri Lanka is found in Supplementary Appendix G. 36. These project and program performance ratings exclude the performance of ongoing projects and programs approved since 1996; only six had been completed and rated by December 2006. The ratings are one of the inputs into the sector performance rating developed and used for this evaluation. To arrive at the overall sector ratings, the evaluation also considered the findings of the operations evaluation missions of September 2006 and December 2006, which included actual field visits and interviews with various stakeholders for both completed and ongoing projects under the evaluation period. The performance of TA grants was also assessed and considered in the sector ratings. However, it is limited to sectors where a full-blown analysis was made. These sector ratings are discussed in Chapter V.

24

The target success rating for program/project completion reports and program/project performance evaluation reports is 80%. Although some sectors achieved this standard, the small number of rated projects in those sectors during the CAPE period precludes a firm conclusion. Among the five multisector loans during the CAPE period, three could be classified as predominantly agriculture, while two were mainly water supply projects. If the five loans are reassigned to those sectors, agricultures success rate during the CAPE period is reduced from 33% to 29%, and water supply from 100% to 50%.

12 Table 2: Performance Ratings of Projects and Programs in Sri Lanka by Sector

196070s 1980s By Decade 1990s 2000s Total By CAPE Period (19862006) 19681985 19862006 Total

Sector

Total S Total S Total S Total S Total S Total S Total S Total S Rated (%) Rated (%) Rated (%) Rated (%) Rated (%) Rated (%) Rated (%) Rated (%) 28 75 86 57 100 80 50 33 80 100 54

Agriculture and Natural Resources 6 17 13 23 6 50 25 28 13 23 12 33 25 Education 2 50 2 100 4 75 4 75 4 Energy 3 100 2 100 2 50 7 86 4 100 3 67 7 Finance 1 0 2 100 4 50 7 57 3 67 4 50 7 Health, Nutrition, and Social Protection 1 100 1 100 2 100 1 100 1 100 2 Industry and Trade 2 50 1 100 2 100 5 80 2 50 3 100 5 Law, Economic Management, and Public Policy 1 0 1 100 2 50 2 50 2 Mutisector 1 0 1 100 4 25 6 33 2 50 4 25 6 Transport and Communications 1 100 1 0 3 100 5 80 1 100 4 75 5 Water Supply, Sanitation, and Waste Management 1 100 1 100 2 100 2 100 2 Total 14 43 24 50 26 62 1 100 65 54 26 50 39 56 65 CAPE = country assistance program evaluation, S = successful. Note: For projects with both project completion report (PCR) and project or program performance audit report (PPAR) ratings, the PPAR rating was counted instead of the PCR rating. The ratings do not include ongoing projects.

37. Other key findings on Sri Lankas portfolio performance are summarized below (see Appendix 6 for details): (i) The apparent increase in the number of loans in Sri Lankas portfolio during 20002005 was driven largely by the approval of ordinary capital resources loans beginning in 2000 combined with the number of closed loans (96%) needing extensions from 1997 to 2006. The standard time required from loan approval to signing is 30 days. The average time from loan approval to signing, for both active and closed loans was 2.2 months in 19982006, better than the ADB performance of 3.5 months in the same period. The benchmark for the time required from loan signing to effectivity is 90 days. Loans became effective after 4.5 months during 19982006. In 2006, loans became effective after 5 months, longer than the average for South Asia (4.8 months) and ADB (4.5 months). The period for TA approval to signing of the letter of agreement in Sri Lanka (1.9 months) was better than the ADB average (3 months) in 19982006. Sri Lanka portfolio remained unfocused. By 2006, ADB had operated in nine sectors with an average of five loans per sector. Building on the analysis of previous OED reports, the measures of dispersion for 2006 using the HirschmanHerfindal Index are estimated at 0.15 each for the number and value of loans. This implies that the portfolios sector focus was heterogeneous. The 3-year moving averages for both contract awards and disbursements have improved since 2001 due to the inclusion of program loans.

(ii)

(iii)

(iv) (v)

(v)

13 (vi) In the last 4 years, the average supervision intensity 25 for Sri Lanka (23.8) was slightly lower than the regional (27.4) and ADB-wide (25.6) intensity levels. The number of project administration missions fluctuated during 20032006 to reflect the increasing number of projects for review.

38. Based on an analysis of the performance of ADBs sector assistance programs in Sri Lanka, the underlying factors explaining portfolio performance, both positive (enablers) and negative (deterrents), include the following: (i) Enablers: (a) clear understanding across stakeholders of the objectives and expected results of programs, projects, or TA; (b) alignment of ADB assistance with the Governments evolving development agenda; (c) shared commitment and ownership from the design stage through implementation; (d) sound and flexible project design; (e) responsiveness of the executing agency; (f) competent project management; (g) team effort and harmonious interagency coordination; (h) capacity development; (i) speedy procurement; and (j) observance of good business practices in service delivery institutions. (ii) Deterrents: (a) complexity of the political economy, 26 which affected readiness and willingness to undertake major reforms; (b) inadequate analysis of reform options, and impracticality of recommended actions; (c) difficult macroeconomic environment; (d) limited capacity of the Government to manage reform processes; (e) lack of broad-based support and consensus building for sector restructuring reforms (power and financial sectors); (f) poor public awareness program; (g) inconsistent or shifting government policies; (h) political and security instability and resurgence of the civil conflict; (i) inadequate cost recovery (power, water, and education); (j) weak institutions and political interference; (k) complex interagency setup; (l) lack of readily available technical expertise; (m) lack of stakeholder consultation during project design and implementation; (n) procedural bottlenecks or lengthy tendering and procurement procedures; (o) land acquisition issues (roads); (p) unsatisfactory performance of contractors; and (q) lack of maintenance of facilities and infrastructure after project completion (roads and educational facilities). On ADBs part, staff turnover, lack of consistent engagement and sector focus, incomplete assessment of the absorptive capacity of the executing agency, and lack of technical skills in some areas hampered implementation. 39. Portfolio performance could be further improved by (i) learning from the experience of completed and ongoing ADB projects; (ii) shortening the time gap between loan signing and effectivity by identifying risks and emphasizing better quality at entry of projects; (iii) practicing sector selectivity (given that ADBs assistance is currently dispersed across nine sectors); (iv) supporting efforts to strengthen the objectivity of the project performance reports system (i.e., project performance report training, periodic reviews); (v) revisiting staff allocation (to include supervision intensity and delegation of loans) across sectors and their corresponding performance; (vi) reviewing the appropriateness of ADBs processes and conditions to minimize loan extensions; and (vii) influencing portfolio performance by supporting results-based monitoring and development evaluation to promote development effectiveness, which will

25 26

This refers to total staff-days for missions divided by the number of projects. Political economy refers to interrelationships between political and economic institutions and processes as they relate to policy decisions and reforms.

14 complement the Governments ongoing efforts to strengthen its monitoring and evaluation capacity at the Ministry of Plan Implementation. V. EVALUATION OF SECTOR AND THEMATIC ASSISTANCE

40. This chapter highlights the key findings on ADBs sector and thematic assistance. In line with the evaluation guidelines (Appendix 1), it presents a two-pronged approach: (i) it assesses the positioning of ADBs strategies in Sri Lanka at the sector and thematic levels, and (ii) it reviews the performance of the assistance program based on the evaluation pillars of relevance, effectiveness, efficiency, sustainability, and impact. This chapter lays some of the building blocks for the final chapter of this report, which presents a countrywide rating. A. Overview of Findings on ADB Assistance

41. The overall positioning of ADBs sector and thematic strategies in the last decade is rated satisfactory at the time of their formulation. This is based on the six positioning criteria in Chapter III that were used earlier to assess strategies at the country level. The sector and thematic strategies were basically a response to identified needs and challenges, and generally sought to improve service delivery, provide infrastructure facilities (roads, water supply, and power), and develop marketable skills. Complementary policy and institutional reforms were meant to improve the enabling environment, enhance sector performance, and support the Governments economic management agenda. The strengths of ADBs sector and thematic strategies generally lay in their (i) combined use of economic, thematic, and sector studies (see Appendix 7 for examples); multilevel stakeholder consultations; policy dialogue; and lessons from past lending and nonlending operations; (ii) alignment of the assistance program with government priorities at the time of strategy formulation as well as with ADBs corporate policies and poverty reduction strategy; (iii) long-term continuity, mainly by building on earlier initiatives; (iv) coordination of ADBs assistance program with development partners; and (v) incorporation of results-based monitoring mechanisms to track progress. 42. These sector and thematic strategies, however, fell short of (i) conducting risk assessments, (ii) formulating risk management plans, and (iii) assessing the absorptive capacity of the sector. While various economic, political, and security risks were identified at the country strategy and project/program levels, similar efforts were lacking at the sector and thematic levels. Governance and corruption risk assessments were also non-existent in sectors where ADB was active. Now that such assessments and risk management plans are mandatory under ADBs Second Governance and Anticorruption Plan, future sector strategies need to explicitly address these dimensions. 43. Overall, the performance of ADBs sector and thematic assistance to Sri Lanka is rated partly successful. Table 3 presents the ratings by sector and by thematic assistance. The better performing sectors in the last two decades include transport (mainly roads), education, and water supply and sanitation, which the evaluation team rates successful. The rest of the sectors are rated partly successful/likely to be partly successful. Thematic assistance to governance and conflict operations will likely be partly successful. Generally underlying the partly successful ratings are partial achievement of expected outcomes, existence of sustainability risks that undermine gains from the assistance program, and likelihood of a modest impact in the long term. The highlights are discussed in the subsequent sector summaries.

15 Table 3: Summary of the Performance of Selected Sector and Thematic Assistance

Category Relevance A. Sector Assistance Transport Highly Relevant Education Water Supply and Sanitation Power Highly Relevant Highly Relevant Highly Relevant During Strategy Formulation Relevant Evaluation Criteria Effectiveness Efficiency Sustainability Effective Effective Effective Efficient Efficient Less Efficient Likely to be Sustainable Likely to be Sustainable Likely to be Sustainable Less Likely to be Sustainable (the sector is insolvent) Less Likely to be Sustainable Impact Substantial Likely to be Substantial Substantial Overall Rating Successful Successful Successful, On the Low Side Partly Successful

Less Effective

Efficient

Substantial (mainly in terms of rural electrification) Modest to Substantial

Agriculture

Less Effective

Efficient

Partly Successful Bordering on Unsuccessful Likely to be Partly Successful Likely to be Partly Successful, On the Low Side

B. Thematic Assistance Governance Highly Relevant Assistance to ConflictAffected Areas Highly Relevant During Strategy Formulation

Likely to be Less Effective Likely to be Effective (and possibly to Become Less Effective)

Likely to be Efficient Likely to be Less Efficient

Likely to be Sustainable Less Likely to be Sustainable

Likely to be Modest Likely to be Modest

Source: Evaluation team. Note: The rating system is given in Appendix 1 (Evaluation Methodology).

Readers who are interested in detailed discussion of the sectors and themes covered in this chapter should refer to the respective working papers footnoted in each section. B. Agriculture and Natural Resources Sector 27

44. Agriculture is important to Sri Lanka. Agricultures contribution to GDP declined from 26% in 1990 to 17% in 2006, but it remains relevant to rural employment, engaging a third of the countrys labor force. Nearly 80% of the population resides in rural areas. Several factors have deterred agricultural development: (i) low productivity, mainly due to inadequate research, extension, and other support services; (ii) a restrictive land policy; (iii) lack of rural infrastructure; (iv) high production costs; (v) limited use of modern technology; (vi) post-harvest losses (25% 40%) and mishandling of storage and transportation; and (vii) inadequate access to power, water supply, telecommunications, financial services, and other facilities in rural areas. 45. ADBs positioning of its agriculture sector strategies in the last decade (1996 2006) is rated satisfactory. Various initiatives to improve the performance of agriculture provided long-term continuity to the sector strategies. These included crop productivity
27

ADB. 2007. Sri Lanka CAPE: Agriculture and Natural Resources Sector Assistance Evaluation. Manila. Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Agriculture-Natural-Sector.pdf

16 improvements, crop diversification, policy and institutional reforms, support services improvement (marketing, research, extension, input supply, and access to credit), and private sector participation. Sustaining the natural resource base to support employment has been a major concern in the last decade. 28 The agriculture sector strategies accorded priority to perennial crops, mainly to capitalize on past ADB experience in plantation privatization and smallholder development. Support for productivity improvements 29 was meant to promote efficiency and to improve the social conditions of plantation workers. The sector strategies encouraged private sector participation in research, extension, marketing, financial services, and technological applications to respond to market opportunities. The privatization of plantation companies provided opportunities to promote good practices in contract farming and processing of agricultural outputs for organized smallholders. Overall, the agriculture sector strategies were relevant to the sector challenges. Strategy formulation was based on the Governments development agenda, ADBs Medium-Term Strategy, dialogue with development partners, and past experience. Starting in 1998, economic, thematic, and sector studies provided a strong foundation for strategy formulation, combined with stakeholder consultations, policy dialogue, and poverty assessment. Reducing rural poverty has been a major concern of ADBs agriculture sector strategy. As reflected by a comparison of the 19982003 and 20042008 country strategies, ADB had improved its sector strategies by taking into account country ownership, absorptive capacity, subsector selectivity, and assessment and monitoring of risks. 46. Despite satisfactory positioning, the overall performance of the agriculture sector assistance program is rated partly successful bordering on unsuccessful. Overall, the agriculture sector assistance program was relevant, less effective, efficient, and less likely to be sustainable. Although there were some positive impacts that would probably not have happened without ADBs involvement, the overall impact of ADBs sector assistance is deemed modest to substantial. The sector assistance program was relevant due to the following reasons: (i) the choice of agriculture projects responded to the countrys development challenges and priorities; (ii) the choices were relevant to ADBs corporate objectives; (iii) policy-based programs complemented the development initiatives of investment projects; (iv) the assistance program supported environmental sustainability; (v) the program was consistent with ADBs policies on water, forestry, and the environment, as well as with ADBs poverty reduction strategy; (vi) stakeholder participation in strategy formulation strengthened the ownership of the agriculture sector strategy; and (vii) the program was aligned with the programs of development partners. However, issues related to lack of focus and selectivity at the subsector level, risks related to institutional weaknesses, complex policy environment, and political economy factors were not adequately identified and mitigated, thereby reducing relevance somewhat. 47. The sector assistance program was less effective. The agriculture strategies and assistance were adequately reasoned, but their outcomes were mixed. Of the three agriculture program loans, the program completion reports rated two successful (Agricultural Inputs Program and Agriculture Program Loan) and one partly successful (Second Agriculture Program). The subsequent project performance audit reports, however, rated all these loans partly successful, mainly due to inconsistent government policies that negated earlier gains, unfavorable world prices of agricultural commodities, and a few policy reversals. For investment projects, there were several design flaws that could be attributed to inadequate stakeholder participation. Political interventions had hampered plantation reforms and affected privatization
28

The Governments State of the Environment Report (2001) identified five key environmental issues: (i) land degradation due to soil erosion, (ii) inadequate disposal of solid and liquid waste in urban areas, (iii) pollution of inland waters, (iv) loss of biodiversity, and (v) degradation of coastal resources. 29 Productivity improvements called for replanting, rationalization of land use within the plantations, promoting an enabling policy and regulatory environment, and fostering broader commercialization of the sector.

17 efforts. Natural resource management suffered from institutional issues related to multiple agencies with overlapping functions, staff capacity constraints, and competing concerns. Coordination of policies, strategies, and program or project implementation in agriculture has been difficult and less effective because of the proliferation of government ministries and agencies and agency changes in the course of project implementation. Integrated rural development projects have posed coordination challenges and resulted in an imbalance among selectivity, focus, and coverage of project components. The performance of projects in the North and East has been undermined by the resurgence of armed conflict, while outcomes of projects in some coastal areas were negated by the effects of the tsunami. 48. Overall the sector assistance program was efficient. The economic internal rates of return (EIRRs) on investments were about 12% for a number of completed and evaluated projects. However, the projects took about 7 years to complete, with an average delay of 2 years, partly due to difficulties with certain policy processes (legal and regulatory). Lack of familiarity of the executing agency personnel with procurement procedures affected project implementation. In some ways, poor coordination and high staff turnover dampened gains from capacity and institutional development. 49. The sector assistance program is assessed as less likely to be sustainable. Generally, the operating environment (as influenced by policies and the political economy context) has posed serious challenges to performance. Specific risks to the sustainability of the assistance program include (i) operation and maintenance of reforestation and coastal stabilization projects; (ii) frequent institutional changes; (iii) lack of capacity and resources among executing agencies to sustain project outcomes, particularly after project completion; (iv) resurgence of the conflict in the North and East that has affected outcomes in conflict-affected areas; (v) instances of policy reversals; and (vi) conflicting government programs in some areas. The improved relationship between extension staff and the communities has enhanced natural resources management, but the lack of funds to support operation, maintenance, and extension services will likely undermine the gains from such partnerships. 50. The impact of the sector assistance program has been modest to substantial. Positive long-term contributions to development were evident in (i) improved living conditions of estate workers in selected areas; (ii) broader income opportunities for tea smallholders and farmers; and (iii) improved natural resource management practices, and relationships between extension workers and local communities (Box 1). Based on evaluation studies and project evaluations, 30 and on the observations of key informants, these development results could not have been achieved without external assistance, including ADB support. 51. The success rate of agriculture projects approved prior to 1986 was low at 23%. Although it improved to 33% for projects and programs approved after 1986, it was still low compared with other sectors. However, projects focusing on plantation reforms and development have averted a possible collapse of the tea industry, the major lifeblood of the Sri Lankan economy. This has also led to improvement of the living conditions of estate workers, who are part of the poorest segments of society. The very positive results achieved in this important area 31 offset to some extent the disappointing results achieved by other interventions. The evaluation team observed during its field visits that the implementation of ongoing and
30

(i) ADB. 1996. Impact Evaluation Study of Bank Assistance to the Industrial Crops and Agro-Industry Sector in Sri Lanka. Manila. Available: http://www.adb.org/Documents/PERs/IE38.pdf (ii) ADB. Project Performance Audit Reports. Various years. Available: http://www.adb.org/Evaluation/reports 31 The plantation sector is the largest agroindustrial sector Sri Lanka, accounting for 4.8% of GDP; 70% of foreign exchange earnings from agricultural exports; and employing, directly or indirectly, 1.5 million workers.

18 recently completed projects had been satisfactory. If these trends continue, the performance of sector assistance could be upgraded in the future. Nevertheless, ADB needs to be selective in this sector, given the operating environment that has led to the stagnation of agriculture. ADB should examine the number of subsectors it assists.

Box 1: Illustrative Impacts of ADBs Assistance to the Agriculture and Natural Resources Sector in Sri Lanka Improving agricultural productivity has been the thrust of ADB assistance. However, in the last 10 years, the agriculture sector registered an annual growth of 1.0%, and only 0.4% per annum in the last 5 years in constant prices. The minimal growth was due to many factors, including inconsistent government policies, subsidies that led to market distortions, environmental problems, shortcomings in optimizing private sector participation, and natural disasters. Despite this difficult operating environment, ADBs sector assistance contributed to the following outcomes: Plantation Crops: (i) Socioeconomic conditions of plantation estate workers were improved through better housing, sanitation, and recreation facilities; (ii) privatization of state-owned estates exposed them to the banking sector and professional management, and subsequently reduced the Governments fiscal burden; (iii) increased productivity contributed to improved profitability of several estates, although some are still not profitable; (iv) for private tea smallholders, workers housing improvements resulted in improved attendance and management-worker relations; (v) technical training for tea extension workers translated into better extension service delivery; and (vi) improved roads reduced travel time and reduced tea leaf damage, leading to better market prices for small tea farmers, but road maintenance remains a major concern.

52. Lessons from ADBs operations in this sector are crucial in defining continued sector support and improving sector performance. The identified lessons include the following: (i) a good understanding of political and legislative processes, including policy and regulatory environments, is a key requisite in Perennial Crops: (i) Better access to credit and support services project preparation and improved farmer productivity and incomes; (ii) increased crop diversification and nonplantation crops opened new avenues for implementation; (ii) the rapid value addition and commercialization; (iii) access to credit led to divestment of SOEs tended to cultivation of additional lands, which created incremental sacrifice transparency and due employment opportunities for the landless; and (iv) new diligence; (iii) investing in opportunities emerged for private sector involvement in extension services. awareness campaigns to improve beneficiary participation is vital; Natural Resources Management: (i) Some improved natural (iv) current staffing practices for resources management practices were adopted in soil and cropping project management and systems, forestry, protected areas, and tea plantations, all of which promoted ecological balance and sustainability; and (ii) implementation units need to be improvements of beachfronts through coastal stabilization programs revisited to ensure retention of supported tourism, which generated employment and incomes for staff and corporate memory; (v) local residents. The tsunami affected coastal improvements. continued stakeholder support for Scarcity of funds to sustain resource management initiatives after policy reforms is essential to project completion will continue to challenge the sustainability of outcomes. sustain the reform process; (vi) monitoring changes in the macro Source: Interviews and research by the evaluation team. context influencing the sector is necessary, particularly the incentive environment for private sector participation; (vii) assessing the institutional and management capacity of executing agencies is extremely important; (viii) the complexity and diversity of the sector should be matched by flexible and robust project designs that can meet evolving needs; and (ix) developing a project management and information system should be prioritized for effective project implementation. 53. Identified challenges (Supplementary Appendix A) should be taken into account in planning future operations in the agriculture sector. Rural infrastructure enhancement and improvement of the agribusiness climate are possible options for promoting rural-urban economic connectivity to reduce poverty. Achieving a balance between agricultural development and ecological safeguards continues to be important, considering the critical role of ecosystems

19 as life support to both marine and terrestrial species. Innovations should be encouraged to promote sustainable resource use to support poverty reduction efforts. C. Education Sector 32

54. Investment in education has been a central pillar of Sri Lankas development policy for decades. Successive governments have regarded education as crucial for promoting equity and social mobility, enhancing human development, and contributing to economic growth. Education opens social, economic, and political doors, and increases access to income and employment opportunities. The government decision to introduce free education in 1945, along with subsequent education reforms, enabled Sri Lanka to achieve a high adult literacy rate of 91% in 2001. Sri Lanka has been an early achiever in meeting the Millennium Development Goal of universal primary education, having reached a net primary enrollment ratio of nearly 100% in the mid-1990s. Notwithstanding its achievements in literacy, gender equity in education, and universal primary education, several challenges have persisted: (i) lack of responsiveness of the education system to labor market requirements; (ii) disparities in access to quality education; (iii) lack of effective linkages between secondary and tertiary education, and between general education and technical education/vocational training; (iv) shortcomings in sector management capabilities that constrain decentralization; (v) inadequate teacher deployment and management; (vi) declining government expenditures on education as a percentage of GDP from 3.0% to 2.6% during 19902005; and (vii) limited public-private partnerships. 55. Addressing the mismatch between the skills acquired through the education system and the requirements of the labor market has been a priority in the last decade. This mismatch led to situations in which high unemployment among school leavers coexisted with a growing need for skilled and semiskilled workers. The traditional focus on the certification function of education in screening and selection for both higher education and the job market had generally made the teaching-learning process subservient to passing the examinations. Consequently, most of the young school leavers found themselves unprepared, having neither enough academic nor vocational training to fit into the job markets. The 1997 education reforms sought to change this situation. 56. This positioning of ADBs education sector strategies in the last decade was satisfactory. The clear focus on marketable skills development provided selectivity and coherence to the strategies. This justified a phased education investment program that capitalized on earlier efforts and supported education sector reforms. The 19982003 country strategy, in particular, clearly identified marketable skills development as an area where ADB could play a distinct role. Improving the quality of secondary education, technical education and vocational training, and distance learning in tertiary education called for a long-term effort, alongside improving the internal and external efficiency of the system. The education sector strategies during 1996-2006 had a sufficient basis for their formulation, taking into account (i) economic, sector, and thematic studies; (ii) poverty assessment; (iii) government policies for human and social development; (iv) multilevel stakeholder consultations; (v) pertinent ADB policies and strategies such as the Poverty Reduction Strategy (2002) and Education Policy (2002); and (vi) operations of development partners in the sector. ADB excluded support for primary education to avoid duplicating assistance from development partners in this area. The education sector strategies specified their expected outcomes and impacts. However, they fell
32

ADB. 2007. Sri Lanka CAPE: Education Sector Assistance Evaluation. Manila Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Education-Sector.pdf

20 short of an in-depth assessment of absorptive capacity and risks that were specific to the sector. ADBs education sector assistance program, as delivered, was consistent with the declared sector strategies. 33 Of the total amount of project loan approvals ($270.8 million), 43% went to secondary education, 28% to technical education and vocational training, and 24% to tertiary education. 57. The overall performance of the education sector assistance program is rated successful. It was highly relevant to, and consistent with, the countrys evolving priorities and ADBs corporate policies. The Government has been committed to improving quality, access, and student competencies throughout the countrys education system. Sector assistance capitalized on ADBs strengths in technical education and vocational training. This was coordinated with development partners in secondary and tertiary education. The education sector assistance program is assessed as effective. Various outcomes were achieved that responded to improving the quality of education and its responsiveness to the labor market (Box 2). However, actions on certain TA recommendations were delayed, such as those relating to the enactment of the New University Act (2000), the promulgation of the policy on private education, and the establishment of the Commission on Private Education. Allowing private universities to emerge has yet to gain political acceptance.
Box 2: Key Outcomes of the Education Sector Assistance Program Secondary Education Improved pass rates during 20012004 from 37% to 47.3% at the ordinary level national examination, and from 50.5% to 55.0% at the advanced level Relatively high qualification rates for entry to higher level education: 72.7% of the students who received scholarships under the Secondary Education Modernization Project I qualified for entry to Grade 12, and 58.1% to university education Access to senior secondary education (grades 1013) by nearly 50,000 children from economically disadvantaged families Access of students, teachers, and administrators to information and communication technology Technical Education and Vocational Training Planned development has replaced ad hoc interventions in national policy A clear sense of direction has been seen in (i) an institutionalized competency-based training, starting with 45 trades, (ii) a national vocational qualifications system that offers a career path and an alternative avenue to higher education, and (iii) accreditation of vocational training centers by the Tertiary Education and Vocational Commission Self-employment for graduates of the entrepreneurship development program who benefited from 823 loans Tertiary Education Access to tertiary education through distance learning Quality assurance for distance learning Employment rate of 71.5% for graduates of the ADB-assisted science and technology institutions in 2002, based on tracer studies Sources: Interviews and research done by the evaluation team.

58. The education sector assistance program is assessed as efficient in the processes involved. There was no major problem with cost overruns. The project design and implementation process involved multilevel consultations with stakeholders and recognized the shortfalls of past projects to improve performance. On average, ADB-assisted education projects in the last two decades experienced a 2year delay due to (i) changes in project scope, (ii) delays in procuring goods and services, (iii) lack of counterpart funds, and (iv) delayed appointment of project staff. Underutilization of some facilities for technical education and vocational training affected cost effectiveness to some extent. To address underutilization, ADB provided advisory TA in 1996 to redistribute physical assets and staff.

33

ADB financed 9 education projects ($270.8 million), 7 advisory TA grants ($2.6 million), and 10 project preparatory TA ($4.2 million).

21 59. Overall, the education sector assistance program is assessed as likely to be sustainable. The executing agencies have pursued various measures to safeguard sustainability and to reduce the budgetary burden on the Government. Under the Skills Development Project, for example, these measures included (i) a financial and managerial scheme, which provides autonomy to two technical colleges; (ii) a performance contracting scheme that allows qualified private institutions and NGOs to take over facilities of poorly performing technical colleges; (iii) implementation of district resource rationalization plans to promote synergies among training providers; and (iv) improvement of administrative systems of vocational training institutions. The Technical Education Development Project, which became effective in April 2006, is expected to build on the achievements of the Skills Development Project and to establish the University of Vocational Technology to provide students and personnel with a new pathway for upward mobility. In secondary education, some computer learning centers have started to implement cost recovery measures. Schools in poorer areas, however, may encounter difficulty in charging fees. For the Distance Education Modernization Project, future sustainability will depend on (i) continued access to computer technologies and facilities, (ii) affordability to the rural sector of the technology for distance learning, (iii) the cost of accessing the program, (iv) mechanisms for quality assurance, and (v) continuing capacity development for preparing web-based curriculum materials and for interactive teaching and learning. These issues are being addressed. 60. The contribution of the education sector assistance program to the countrys socioeconomic development is likely to be substantial. Key informants indicated that, had ADB not provided assistance to the education sector, it would not have been possible to introduce important innovations. ADBs distinctive contributions are summarized in Box 3. During 19902005, unemployment among the educated who had passed the advanced level national examinations declined from 29% to 14%. This reduction in unemployment among the educated is noteworthy. Although it cannot be Box 3: Distinctive Contributions of the Education Sector attributed solely to the ADB Assistance Program assistance program, gains have been Technical Education and Vocational Training attained by introducing a more Streamlined technical education and vocational training market-responsive curriculum, under the Ministry of Vocational and Technical Training, strengthening linkages between which brought multiple and fragmented institutions under a training providers and industry, and single umbrella improving access to quality education. Establishment of a national vocational qualifications 61. The lessons identified from ADBs operations in the education sector cover three subsectors: (i) secondary education, (ii) technical education and vocational training, and (iii) tertiary education (mainly distance learning). In secondary education, the lack of conceptual clarity arising from equating proficiency in basic computer skills with computer-assisted learning has affected the development of programs integrating the use of computer skills in curriculum development and in the teaching-learning process. The use of teacher education institutions that are
framework, which has served as a unifying policy mechanism for bringing coherence to the sector and for formulating qualification standards Introduction of competency-based training Strengthened Tertiary and Vocational Education Commission as a policymaking and regulatory body Secondary Education Establishment of computer learning centers and a school network. Provision of multimedia equipment and promotion of interactive learning Tertiary Education Elevated recognition at the national level of the importance of distance education Distance education opened up to different educational providers, both public and private. A quality assurance framework to address standard setting Source: In-depth interviews by the evaluation team.

22 responsible for this function needs to be optimized. Timely recruitment and development of staff and provision of equipment must complement school infrastructure programs. In proposals for cost recovery to ensure sustainability, the relatively high poverty incidence and socioeconomic disparities in the country must be considered. In technical education and vocational training, more social marketing programs are necessary to change the negative attitudes of private sector employers, parents, and students toward state-run technical education and vocational training institutions. While education policies have been gender sensitive, concomitant motivation programs to encourage women to enroll in technical training programs are crucial. For vocational training graduates, support services must complement the provision of loans for self employment, and more tracer studies of graduates must be conducted for future planning. In distance learning, more awareness programs are necessary to promote readiness for online learning as well as to expedite the participation of nonstate agencies. Priority must be given to increasing the matching grant for small professional bodies and upgrading the capacity of public sector institutions. A revolving fund will enable participants from non-affluent families to acquire computers for distance learning. Across the education subsectors, results-based monitoring and evaluation must be promoted to track achievements over time. 62. In preparing the new country strategy, ADB should take into account the challenges and findings presented in the sector evaluation (Supplementary Appendix B). ADB should consider options to continue support for equitable access to quality education to strengthen inclusive social development, and expansion of access to tertiary education through public-private partnerships to diversify skills and increase competitiveness. D. Power Sector 34

63. Sri Lankas power sector struggled through the late 1980s, 1990s, and early 2000s to meet the growing demand for electricity. The power crises in 1996 and 20012002 drew attention to more investment in new generating plants to meet growing demand and to the vulnerability of hydropower plants to rainfall fluctuations and severe droughts. Since 1996, the Government has allowed private independent power producers to build, own, and operate thermal power plants to encourage private sector participation in meeting power supply requirements. In recent years, power shortages have been due mainly to inadequate expansion of thermal capacity and the demand for power growing at about 8% per year. At the root of the power sector crisis are (i) the inability of the Ceylon Electricity Board (CEB) in the past two decades to implement plans for setting up large-scale, low-cost power generation plants and to make the best use of the existing hydropower units; (ii) the existence of low-capacity thermal generating plants, operated mostly by independent power producers, all of them using costly petroleum fuels; (iii) the inability of CEB to increase tariffs commensurate with increases in capital costs and operational costs; and (iv) institutional weaknesses. Electricity tariff adjustments have not kept pace with increased costs due to complex tariff approval procedures. To some extent, system losses have added to the problem. 64. The overall positioning of ADBs power sector strategies in the last decade was satisfactory. The sector strategies recognized that uninterrupted electricity supply is a fundamental element in the enabling environment for private sector investment in industries and services. The strategic focus on power infrastructure, complemented by institutional strengthening and power sector reforms, provided coherence to the sector strategies. The 19982003 strategy retained the emphasis of the previous sector strategy on providing the
34

ADB. 2007. Sri Lanka CAPE: Power Sector Assistance Evaluation. Manila Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Power-Sector.pdf

23 required power infrastructure but abstained from financial support for public sector power generation projects (such as thermal electricity generation), as private sector financing could be attracted for such projects. Discussions during the preparation of the 19982003 sector strategy identified opportunities for ADB to engage in policy dialogue on restructuring the power sector to increase its technical and financial viability. Subsequently, the 20042008 sector strategy centers on power sector restructuring, rural electrification, and private sector participation. The 20042008 sector strategy, however, falls short of recognizing that the independent power producer strategy has been making headway only with oil-burning power plants. Sri Lanka ventured into this strategy with no base load capacity in place, in contrast to other countries (e.g., India, Malaysia, and Thailand) that had base load plants and used arrangements with independent power producers to make incremental contributions. The independent power producer strategy did not reduce the dependence of power generation on oil-burning power plants. Politically, it was not possible to keep raising electricity tariffs to make CEB viable. World oil prices per barrel increased substantially from $49 to $66 during 20052006. 65. Over the last two decades, support for rural electrification provided continuity to the power sector strategies. The strategies since the late 1990s were results-oriented to some extent. They indicated that success in the medium term would be measured in terms of reform implementation and the extent to which power sector entities became financially viable. These strategies, however, fell short of an in-depth assessment of absorptive capacity and of the risks arising from shifting political coalitions, which could affect readiness and willingness to carry out major reforms. Political opposition from within the ruling coalition and from powerful labor unions eventually led the reform process to a standstill. In hindsight, this was a political risk that was difficult to foresee, given a consistent policy commitment to power sector reform despite three changes in government (late 2001, 2003, and 2004). 66. The power sector assistance program in the last two decades was consistent with the declared sector strategy. ADB supported the establishment of a 40-megawatt power plant at Sapugaskanda in the 1990s, and then a private sector 163-megawatt power station in 2000. ADB also supported the development of transmission and distribution facilities, institutional strengthening of CEB and the Lanka Electricity Company (Private) Limited, and power sector reforms. ADB approved loans for six power projects ($345.1 million, of which 92% went to five public sector loans and 8% to a private sector loan), seven advisory TA grants ($3.2 million), and four project preparatory TA grants ($1.6 million). 67. The performance of the power sector assistance program in the last two decades is rated partly successful. The program contributed to notable gains in making power available to consumers through rural electrification but fell short of completing the reform program and achieving financial solvency. While the preparation for restructuring have taken place to the extent possible through the Power Sector Development Program, the political economy dimensions of reform and the dynamics of change processes in the Sri Lankan context have posed serious challenges to the viability and sustainability of the power sector. The power sector assistance program, at the time of formulation, was generally highly relevant to the needs of Sri Lanka, appropriately aligned with government priorities on rural electrification and improving power sector efficiency, and consistent with ADB policies. In particular, it was consistent with the review of ADBs Energy Policy (2000), which supported sector restructuring and advocated measures to improve the efficiency of energy supply and use, including reducing technical and nontechnical power losses. 35 The assistance program was also in accord with
35

ADB. 2000. Energy 2000: Review of the Energy Sector Policy of the Asian Development Bank. Manila. Available: http://www.adb.org/Documents/Policies/Energy/energy-review.pdf

24 ADBs Governance Policy (1995) 36 in promoting an enabling environment to foster transparency and predictability of decision making. Moreover, it was coordinated with the efforts of major development partners. 37 With the change in economic policy that accompanied the change of government in April 2004, the relevance of power sector restructuring has diminished (but not rural electrification). The current Government is planning to submit to Parliament in the second half of 2007 a new Sri Lanka Electricity Bill for Regulatory Reforms, which departs from the previous track of unbundling the power sector institutions into generation, transmission, and distribution. Under this proposed bill, CEB is expected to retain its identity but it will be subject to the regulatory jurisdiction of the Public Utilities Commission, particularly with respect to licensing and tariff setting. 68. The power sector assistance program, however, was less effective due to mixed performance. Box 4 summarizes the key outcomes. ADBs assistance enabled the development of the power sector through a mix of generation, transmission, and distribution infrastructure. However, the financial position of the utility deteriorated after 1999 due largely to the politically driven tariff setting that precluded full cost recovery. TA was designed to support the lending program for the power sector. However, the Government has not fully carried out the TA recommendations. For example, the sector restructuring plans generated important recommendations but has not led to the unbundling of the power sector, as envisaged.
Box 4: Outcomes of the Power Sector Assistance Program Rural Electrification The Lanka Electricity Company (Private) Limited reduced its system losses from 21.2% in 1986 to 8.4% in 1998 and then to 5.3% in 2005. The Lanka Electricity Company (Private) Limited succeeded in connecting 75,585 new consumers and improving services to 53,888 consumers in previously electrified areas during the implementation of Loan 870SRI: Secondary Towns Power Distribution Project II. Two subsequent power projects resulted in 292,805 new consumer connections: (i) 116,310 by CEB through Loan 1021-SRI: Power System Expansion Project, and (ii) 176,495 through Loan 1414-SRI: Second Power System Expansion Project. Power Sector Restructuring Largely because of policy changes adopted by the new Government, painstaking efforts to carefully put in place the building blocks for power sector restructuring have not succeeded in taking the reform process forward to its implementation stage. Unbundling the sector into separate companies for power generation, transmission, and distribution has not materialized due to opposition from the Janatha Vimukthi Peramuna, a nationalist Marxist party, and from its affiliated trade unions.

69. The power sector assistance program was generally efficient. Based on program completion reports, EIRRs of 1120% were achieved for rural electrification, which generally Source: Interviews and research by the evaluation team. exceeded appraisal estimates. TA and the policy-based program loan for power sector restructuring were less effective, and the intended reforms were not implemented. However, fewer resources have gone into sector reform 38 when compared with the resources that have been invested in successful projects. In terms of processes, the design of power projects generally adopted stakeholder consultations.
36

ADB. 1995. Governance: Sound Development Management. Manila. Available: http://www.adb.org/Documents/Policies/Governance/govpolicy.pdf 37 The World Bank has concentrated its recent efforts on petroleum sector reforms and lending to the renewable energy sector. ADB was the principal dialogue partner of the Government concerning power sector reforms. It focused on restructuring CEB while the World Bank concentrated on setting up the Public Utilities Commission as the independent multisector regulator. ADB also collaborated with the Japan Bank for International Cooperation in policy dialogue and in cofinancing the program loan for restructuring the power sector. 38 This involved $60 million from the program loan and $1.03 million from the TA for sector restructuring. Subsequently, about $30 million was cancelled from the total approved amount of $60 million due to noncompliance with conditions for the release of the second tranche.

25 In the last two decades, ADB-supported power projects had an average delay of 22.5 years due to procurement delays, changes in project scope, and poor contractor performance. Politicized processes and opposition from powerful labor unions have been a serious impediment to power sector reforms. 70. The power sector assistance program is less likely to be sustainable. Although Sri Lanka has a pool of experienced and trained managers who are capable of maintaining the investments that ADB has funded, the current financial crisis in the power sector is likely to have adverse effects on operation and maintenance of the transmission and distribution facilities. Many power lines and transformers are becoming overloaded. This will inevitably result in rising maintenance costs, deteriorating performance, and higher technical losses. There are major risks to the sustainability of the power transmission and distribution system over the next 35 years. 71. The contribution of the power sector assistance program to sector development has been substantial, particularly in terms of rural electrification and institutional strengthening. Key informants indicated that, had ADB not been involved, it would not have been as easy for the Lanka Electricity Company (Private) Limited to achieve managerial, technical, and financial development milestones. ADB supported the development of management systems and procedures for commercial operations and for expansion of the distribution network, helped reduced system losses, and promoted a customer-driven focus. The national electrification ratio rose remarkably from 10.9% in 1986 to 50.5% in 1998 and to 76.7% in 2005. ADBs contribution to this achievement was significant. However, these achievements are subject to significant risks that may undermine their sustainability. The power sector is insolvent. Adverse political decisions have affected compliance with ADBs loan covenants to safeguard financial sustainability. 72. Several lessons can be drawn from ADBs operations in the power sector. Power sector restructuring is a dynamic and complex process with enormous challenges. It calls for a deep understanding of the political economy; broad-based ownership of reforms; a comprehensive sector road map that recognizes pressing needs, such as least-cost power generation, other than reforms; and measures to knit reforms into a broader articulation of public interest. Conveying the costs and benefits of the reforms versus alternative measures is important. Work is necessary on all fronts, not only in putting in place a legal framework or an improved market structure, but also in building constituencies for reform. Where public and political resistance is likely to hinder reform implementation, provision should be made for increasing public awareness of the reform agenda and reaching a consensus on the means for achieving objectives. 73. In preparing the new country strategy, ADB should take into account the challenges and findings presented in the sector evaluation (Supplementary Appendix C). The power sector is insolvent, and reform is at a standstill. Several key aspects should be considered: (i) restructuring the short-term debt of CEB, (ii) improving operating performance, and (iii) updating and implementing a least-cost power generation plan to ensure access to cheaper electricity in the medium term. E. 74.
39

Transport Sector 39 The condition of the transport network in Sri Lanka is a constraint on social and

ADB. 2007. Sri Lanka CAPE: Transport Sector Assistance Evaluation. Manila Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Transport-Sector.pdf

26 economic development. While the existing transport network provides spatial connectivity by road and railways to all major towns and centers, the standards and conditions of the transport system have become inadequate to keep up with the growing freight and passenger traffic. Challenges include (i) the absence of multimodal planning and development, partly due to the multiplicity of ministries and agencies involved in the sector; (ii) lack of delineation of transport sector responsibilities between the public and private sectors; (iii) resource allocation that has not promoted economic efficiency and performance; (iv) problems related to maintenance of the existing asset base and inability to expand capacity in step with demand; and (v) lack of a cost recovery mechanism. 75. The positioning of ADBs strategies for the transport sector was satisfactory. The strategic thrust of ADBs sector strategies was centered on overall improvement of road sector performance. ADBs strategies have evolved over time and gone beyond the rehabilitation of physical infrastructure and ad hoc policy engagement that characterized ADBs sector involvement in the 1980s and early 1990s. Over the last decade, ADB paid greater attention to networks, connectivity, and sector reforms. ADBs 19982003 strategy emphasized the need for greater private sector participation and policy dialogue to promote sustainable project investments. The subsequent 20042008 strategy reiterates ADBs support for policy and institutional reforms and underscores the importance of (i) policy, regulation, and planning to enable strategic management of the road network; (ii) promotion of public-private partnerships in road investments (particularly expressways); (iii) development of a sustainable funding mechanism for road operation and maintenance; (iv) preparation of a road sector master plan; and (v) enhancement of preconstruction processes. The sector strategies were well positioned, taking into account ADBs extensive experience in the transport sector. ADBs sector assistance program, as delivered, was consistent with the principles defined under the strategies. Risk factors were not explicitly defined at the sector level but were identified on a project-to-project basis. For performance monitoring, the strategies identified benchmarks to be used, including the accomplishment of policy and institutional reform action plans, private sector participation, improved road conditions, bus transport services, and road safety. 76. ADBs transport sector strategies have been sensitive to the countrys political economy. For example, the exclusion of Sri Lanka Railways from most of ADBs transport sector strategies reflected a concern that the Government might not support major restructuring because of the political context of railways, including the opposition to reforms by trade unions. Considering the role of railways as a major public employer and the social implications that the restructuring of Sri Lanka Railways would have brought, the Government preferred to maintain the status quo, notwithstanding the substantial inefficiencies that came from it. With no credible prospects for reform to make railways more efficient, ADB decided not to engage in railway development. In the context of transportation planning, multimodal transportation issues and interface problems should have been emphasized. In hindsight, ADB could have made greater use of its strategic positioning by engaging the Government in a dialogue to address multimodal transport issues. 77. Coordination among development partners in the transport sector was carried out well. In 2002, ADB initiated a road sector development framework that other development partners such as the Japan Bank for International Cooperation and the World Bank fully supported. This framework covers (i) institutional strengthening, (ii) sustainable road maintenance funding, and (iii) domestic private sector development. The sector strategies were based on good sector knowledge, which was developed through sector studies financed by development partners. Complementary development assistance initiatives and their synergies have made it difficult to claim any attribution to individual ADB-financed TA grants, given the

27 long period for the uptake of recommendations and continuing assistance from development partners. 78. Overall, the performance of the transport sector assistance program is rated successful. ADBs assistance to Sri Lankas transport sector was highly relevant. Projects and TA responded to critical sector needs and addressed physical, institutional, and policy constraints. Overall, the sector assistance program is assessed as effective. While outcomes in some cases fell short of expectations, all completed road projects resulted in (i) reduced user costs, (ii) improved accessibility and connectivity, and (iii) broad social and economic benefits to the poor. Efforts to strengthen capacity for (i) investment planning through formulation of a road sector master plan, (ii) preparation and implementation of social and environmental safeguards in road projects, and (iii) establishment of public and private partnerships for roads have been kept on track and are expected to generate positive results. However, a TA for improving passenger transport services was ineffective due to its failure to deliver an outcome. Another TA for reengineering road sector institutions was undermined by absorptive capacity constraints, lack of ownership, and inappropriate follow-up actions. Overall, TA could have produced more lasting effects had it been more focused and implemented over a longer period. Several TA activities have not made progress beyond recommendations due to resource constraints, policy changes, lack of political ownership, and changes in government. 79. The transport assistance program was efficient. The key indicator of efficiency is the EIRR of the projects. ADB-financed road projects mainly rehabilitated existing roads. The robustness of the EIRRs was confirmed by reevaluation at project completion and postevaluation. The assumptions for the ex-ante estimates of EIRRs and the economic reevaluations were reasonable. In almost all cases, the recalculated EIRRs were higher than 18%. Notwithstanding the positive returns, the assistance program could have been more efficient had there been fewer problems relating to implementation delays, cost overruns, and reduction in project scope. Overall, the outcomes are likely to be sustainable. Risks and future challenges lie in securing reliable funding for maintenance, maintenance management, and institutional capacity. 40 The Road Development Authority completed a comprehensive road network survey and put a pavement management system in place, which can provide inputs to the preparation of needs-based annual road maintenance programs. Given budgetary constraints, the demand for government counterpart funds for externally funded infrastructure projects competes with and crowds out maintenance funds. Externally funded projects exacerbate the funding scarcity for maintenance. The overall balance among maintenance, rehabilitation, and new investments is sometimes overlooked. Another risk is the inadequate institutional capacity for maintenance of roads by local authorities. These risks are manageable and can be mitigated with measures to strengthen capacity and with funding for maintenance. 80. In the case of the Southern Transport Development Project, noncompliance with ADBs own operational policies affected performance. This project was subjected to a compliance review in 2005 in response to a request from the Joint Organization of the Affected Communities of the Colombo-Matara Highway. 41 The Compliance Review Panel found that
40

In 2006, the Government provided more than $30 million for road maintenance, representing 75% of the full requirement. The amount allocated to road maintenance was based on road conditions, and according to plan, this would be increased to achieve a fully maintained network by 2010. 41 The requesters claimed that the Report and Recommendation of the President to the Board of Directors for the Southern Transport Development Project was for a trace known as the Combined Trace, and at least 40% of the Combined Trace had been altered to form the Final Trace, for which the required studies and consultations had not been conducted according to ADB policies. The requesters claimed to be suffering from harm, including loss of homes, loss of livelihoods, damage to the environment, degradation of wetlands, dispersion of integrated communities, damage to five temples, negative effects of resettlement, and human rights violations.

28 there were lapses in compliance with ADBs operational policies and procedures in several areas: environmental considerations, gender and development, benefit monitoring and evaluation, formulation and implementation of loan covenants, incorporation of social dimensions in ADB operations, involuntary resettlement, and project administration instructions on change in project scope. 42 ADBs compliance review procedures were transparent and effective, and enabled ADB and stakeholders to address the reported noncompliance. 81. The contribution of the transport sector assistance program to development impact is rated substantial. Adequate levels of traffic have used completed roads, and traffic growth reflects economic growth. Evaluation case studies 43 found that rehabilitated roads contributed to (i) income generation, as farming and other forms of employment are closely tied to access to roads and transportation; (ii) creation of employment options, as roads and transport services enable households to engage in mobile trading as part of their occupation choices; (iii) improved quality of life, as better roads reduce physical isolation; (iv) improved access to health services; and (v) increased social capital. The poor have benefited from rural roads through better access to services such as health, education, agricultural extension, and provision of information. The most significant contribution of ADB assistance was the creation of the road maintenance trust fund. This achievement was not due to ADB alone. It came after a dialogue that lasted almost two decades. The road maintenance trust fund, nevertheless, has been contentious from the standpoint of public revenue and expenditure management because of the earmarking of tax proceeds from the sale of gasoline and diesel for road maintenance. This earmarking represents only a fraction of the public revenues accruing from road transport. 82. Several key lessons were identified from ADBs operations in the transport sector. In the context of sector reforms, country ownership and political will for implementing the reform agenda are requisites for which ADB assistance cannot serve as a substitute. Advancing policy and institutional changes requires champions and coherent support from within the country. Policy initiatives can take a long time to materialize, and such initiatives require sustained support. Change management calls for an understanding of the reasons for resistance, and ways of overcoming impediments. Moreover, continuing efforts are needed to arrest the decline in the capacity of sector institutions to implement projects, mainly due to problems with recruiting and retaining qualified staff. An improvement in the incentive and reward system is important. 83. In preparing the new country strategy, ADB should consider the challenges and findings presented in the sector evaluation (Supplementary Appendix D). ADB has supported primarily road development and maintenance, and more recently, port expansion. Greater attention should be given to intermodal transport planning. Appropriate funding for the maintenance of prioritized road networks is required to improve the sustainability of investments. F. 84.
42

Water Supply and Sanitation Sector 44 One of the goals of Sri Lankas poverty reduction strategy is to make safe water

(i) Compliance Review Panel. 2005. Final Report to the Board of Directors on CRP Request No. 2004/1 on the Southern Transport Development Project in Sri Lanka. Manila. (ii) Compliance Review Panel. 2006. Annual Monitoring Report 20052006 to the Board of Directors on CRP Request No. 2004/1 on the Southern Transport Development Project in Sri Lanka. Manila. 43 ADB. 2002. Impact of Rural Roads on Poverty ReductionA Case Study-Based Analysis. Manila. Available: http://www.adb.org/Documents/IES/Regional/ies-reg-2002-15/rural-roads.asp 44 ADB. 2007. Sri Lanka CAPE: Water Supply and Sanitation Sector Assistance Evaluation. Manila Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-WaterSupply-Sanitation-Sector.pdf

29 supply and improved sanitation accessible to all. Despite progress in improving access to safe water, wide disparities in access across provinces and between urban and rural populations have persisted. In response to the Millennium Development Goal, the Government renewed its commitment to making water supply and sanitation accessible to all as part of its poverty reduction strategy. The specific goals include (i) provision of safe drinking water to 85% of the population by 2015 and 100% by 2025, (ii) provision of piped water supply to 40% of the total population by 2011, (iii) achievement of national standards for service levels and quality of water in both the urban and rural contexts, (iv) access to adequate sanitation by 93% of the population by 2015 and 100% by 2025, (v) provision of piped sewerage systems in major urban areas and selected centers, and (vi) standard on-site sanitation to be available to those who are connected to a sewerage system or sanitation scheme. Several factors have hampered the achievement of these goals: (i) inadequate cost recovery; (ii) limited private sector participation; (iii) limited capacity of local governments to finance, manage, and operate water supply and sanitation schemes; (iv) absence of appropriate policies to guide investment strategies to achieve coverage, service quality, and cost recovery objectives; and (v) lack of an effective mechanism for water resource management. 85. The positioning of ADBs sector strategies in the water supply and sanitation sector was satisfactory. Initially, ADB positioned its assistance program in secondary towns and rural areas. With the introduction of national water tariffs, new opportunities emerged for ADB to deepen its presence. 45 While ADBs sector strategy continued to be guided by the priorities of the Government in the early 1990s, the strategy also paid attention to external developments. 46 The key elements of ADBs water supply and sanitation sector strategy included (i) promotion of comprehensive water resource management; (ii) conservation of water through the introduction of demand management and reduction of unaccounted water; (iii) integration of water supply and sanitation; (iv) improving the financial viability, operational efficiency, and sustainability of water utilities; (v) promoting more equitable access to water, especially among the poor; and (vi) recognizing water as an economic and social good. The 19931997 sector strategy responded to new challenges, but it was based on an insufficient analysis of the sociopolitical context that could influence the direction of institutional and sector policy reforms, which were at the heart of the sector strategy. Recognition of this shortcoming was the strength of the subsequent sector strategies. 47 The Millennium Declaration in 2000 and the government development strategy in 2002 provided much of the rationale and justification for ADBs 20042008 country strategy. The sector strategy benefited from the cumulative experience of past water supply and sanitation projects, economic and sector assessments, and policy dialogue with the Government. Stocktaking of development assistance and coordination with development partners sharpened ADBs strategies. The sector strategy was coherent and responsive to the growing demand for sanitation and sewerage services in large urban areas as well as to the water supply and sanitation needs of conflict-affected North and East. 86. The performance of the sector assistance program for water supply and sanitation is rated successful. Sector assistance has been consistent with the declared sector strategies. The thrust centered on ensuring sustainability of service delivery, and improving
45

Major development partners in the sector in the 1980s and 1990s included the Danish International Development Agency, Japan Bank for International Cooperation, Japan International Cooperation Agency, United States Agency for International Development, and World Bank. 46 This included the International Conference on Water and the Environment (January 1992), the World Bank/UNDP International Conference on Water Utilities (May 1992), and the evaluation results of 20 years of World Bankfunded water supply projects (June 1992). 47 For example, the 19982003 sector strategy and program maintained its focus on secondary urban centers and institutional strengthening at the local level, but highlighted the need for sector analysis. Performance monitoring of the sector was established for the first time.

30 sector performance through investments in sector reform and institutional development. The assistance was highly relevant because it was responsive to the needs of the sector, aligned with government priorities, and coordinated with the sector strategies and assistance of development partners. The sector assistance program was effective. Box 5 summarizes key outcomes in terms of service coverage, capacity development, and sector reform.
Box 5: Key Outcomes of the Assistance Program for the Water Supply and Sanitation Sector Service Coverage Provision of safe water to 2.2 million people under three water supply and sanitation projects Access to sanitation services for 30,000 people under the Second Water Supply and Sanitation Project About 969,000 people expected to gain access to safe water and 171,500 people to benefit from improved sanitation under the ongoing Secondary Towns and Community-Based Water Supply and Sanitation Project Capacity Development Upgraded project management capacity of the National Water Supply and Drainage Board Functional financial reporting and management systems Improved financial and operational efficiency through (i) private sector outsourcing of metering, billing, and tariff collection in Greater Colombo; (ii) staff rationalization; and (iii) adoption of commercial practices Improved capacity of community-based organizations to manage water supply schemes Sector Reform A policy to recover recurrent costs plus debt service and depreciation costs Source: Interviews and research by the evaluation team.

87. Based on the EIRRs and least-cost options at appraisal, all projects were considered economically viable. However, cost overruns reduced the efficiency of projects. Thus, the sector assistance program became less efficient. In the case of the Water Supply and Sanitation Project, cost overruns reduced the number of subprojects. The Third Water Supply and Sanitation Project and the Secondary Towns and Community-Based Water Supply and Sanitation Project experienced substantial cost overruns, and their reevaluated EIRRs were lower than the estimated EIRRs at appraisal (12%17%). Implementation delays affected the efficiency of output delivery, partly due to (i) inadequate feasibility assessments, (ii) procedural bottlenecks during preconstruction, (iii) delayed approval of contract awards, (iv) occurrence of the tsunami, and (v) conflict resurgence in the North and East. 88. Overall, the outcomes of the sector assistance program are likely to be sustainable. To sustain operations and ensure the financial viability of the National Water Supply and Drainage Board (NWSDB), the corporate strategy included actionable measures to (i) improve the quality and level of service, (ii) reduce nonrevenue water and the staff-to-connection ratio, (iii) improve energy efficiency, (iv) improve collection efficiency, and (v) ensure adequate training and water conservation campaigns. There are provisions in the NWSDB Act (1974) for levying charges for the supply of water and sewerage services. 48 However, water tariffs were not introduced in Sri Lanka until 1982. 49 Since 1982, several tariff revisions have been progressively effected, albeit with politicized processes. 50 Nonetheless, the tariff revisions reflect consciousness of the need for cost recovery. ADB has reviewed performance indicators and discussed various ways to
48 49

This is stated under Section 84, Part IV of the Act. The Act under Section 25 has a provision for the free use of water, although this refers only to standpipe sources and only for domestic purposes. With regard to tariff setting, the Act states that NWSDB from time to time, with the approval of the Minister, may fix the rates and charges to be levied. 50 The first tariff revision was effected in April 1990, followed by major tariff revision in January 1994. Subsequently, two tariff revisions followed in 1997, and one revision each in 1998, 1999, 2001, and 2002. The most recent revision to the water tariff was made in March 2005.

31 achieve midterm targets: (i) operational efficiency measures, such as reductions in nonrevenue water and improved service levels; (ii) reduced staff-to-connection ratios, improved energy efficiency, and enhancement of treatment process efficiency; (iii) improved collection efficiency and reduction in accounts receivable; and (iv) increased frequency of training and public awareness campaigns. These efforts are aimed at improving the efficiency and sustainability of water supply and sanitation systems. Considerable progress has been achieved under two ongoing projects in strengthening the capacity of community-based organizations and local authorities to manage water supply schemes. 89. The slow progress in the reform process and the highly politicized environment in which public utility services operate may undermine sustainability. Interference in the management of water supply services at the system level is pervasive. 51 Progress in policy reform has been modest since the commencement of reform discussions in the early 1990s. This modest progress has been influenced by changes in government and the concomitant changes in their policy stance. 52 The Public Utilities Commission, a multisector regulator for electricity, petroleum, and water, was established by Parliament in 2003. However, regulations for the water sector within the framework of the Public Utilities Commission are yet to be put in place. The Government uses NWSDB as a development agent to provide water supply to the public and provides capital investments through concessional loans. The administration and management have undergone progressive transformation aimed at achieving greater operational efficiency at regional support centers. 53 90. The contribution of the sector assistance program to development impacts is assessed as substantial. Based on an evaluation study conducted in 2003, water supply and sanitation projects in Sri Lanka have achieved considerable success and have raised the standard of living of beneficiaries. 54 The study highlighted the benefits of improved household access to safer water through piped water supply. The program completion report on the first water supply project indicated that the population served by household connections increased by 44%. Water quality was found to be satisfactory as a result of improved water treatment. Water supply, however, is not yet available 24 hours a day to most people. 91. Lessons associated with ADBs operations in the water supply and sanitation sector include the following: (i) a community-based approach to rural water supply systems can be effective in enhancing customer roles in project planning and implementation and in promoting greater ownership; (ii) handover of management of water schemes to local authorities and community-based organizations requires continued support during the transition and followup periods to enhance the sustainability of such schemes; (iii) without continuing commitment
51

There are cases where water systems are expanded beyond their technical capacities, apparently in response to demands made by local authorities and political figures. 52 Major policy areas that have been discussed include (i) rationalizing water tariffs and establishing an independent regulatory authority; (ii) strengthening the capacity of local authorities to perform their devolved mandates, particularly for the delivery of water supply and sanitation services; (iii) establishing policies and procedures for the allocation of water rights; and (iv) increasing participation of the private sector in the provision and management of water supply and sanitation services. 53 Operational functions (including planning and design of development works) have been gradually delegated to regional support centers. While overall revenue collections are managed at the NWSDB head office, financial administration and management are gradually devolved to the regional support centers, which independently administer their operation and maintenance budgets. Billing and metering are decentralized to the district offices. There are plans to promote greater accountability and efficiency at the regional support center level, with a management information system capable of tracking expenditures and revenues for each of the water supply systems. 54 ADB. 2003. Impact Evaluation Study on Water Supply and Sanitation Projects in Selected Developing Member Countries. Manila. Available: http://www.adb.org/Documents/IES/Water/Water-Supply-Sanitation-Projects.asp

32 from the Government, ensuring cost recovery and financial viability through ADBs loan covenants can be effective to some extent only; (iv) least-cost options for planning water supply and sanitation projects should consider an integrated approach, including supply and demand factors, to achieve more sustainable resource use; and (v) benchmarking can be an effective tool for improving the operational performance of water supply service providers. 92. In preparing the new strategy, ADB should take into account the challenges and findings presented in the sector evaluation (Supplementary Appendix E). ADB should consider development assistance options to include expansion of service delivery to underserved areas, support for decentralized service delivery and accountability, capacity development to improve operating efficiencies, and cost recovery. Continued efforts are needed to improve the self-financing performance of operating entities through the implementation of sector reforms covering regulations, cost recovery, commercial discipline of service agencies, and domestic resource mobilization. G. Thematic Assistance/Special Topics 1. Operations in Conflict-Affected North and East 55

93. The implementation of projects has been disrupted by the resurgence of armed conflict in the North and East, which has made humanitarian and development operations difficult. In some areas, established and rehabilitated infrastructure and facilities have been damaged during the renewed fighting. Physical access to conflict-affected areas is controlled by the armed forces. Transportation of people, materials, and supplies is restricted. Government embargos on selected construction materials, scarcity of materials, spiraling costs of goods and services, escalating risk premiums, and the falling number of contractors willing to work in conflict-affected areas have posed significant obstacles to project implementation. Security issues have affected project implementation in a number of ways. In Liberation Tigers of Tamil Eelam-controlled areas, it is simply not feasible for projects to start or continue, given the renewed fighting. Communication channels and logistics systems needed for project implementation have been disrupted. Consequently, subprojects (planned or being implemented) in these areas have been stopped or left at a standstill. Completed infrastructure subprojects (such as roads and power grids/transmission) are at risk of collateral damage or deterioration from the inability to maintain them because of the deteriorating security situation. In parts of government-controlled areas, where situations were reported to be volatile, ADBfinanced subprojects were making slow progress and facing considerable difficulties. With restrictions in movement, there is likely to be increasing lack of control over project implementation and quality as monitoring and supervision frequency declines. 94. Initial ADB assistance in conflict-affected areas was timely and relevant, but greater attention to changing contexts and challenges is required. With the signing of the ceasefire agreement in 2002, ADB capitalized on its long-term presence in Sri Lanka with its prompt entry into and assistance to the North and East. This proactive, on-the-ground presence facilitated ADBs assumption of a lead role in rehabilitation planning for the North and East, mobilizing local management teams, and establishing project implementation structures on which subsequent projects could build. ADBs operations in infrastructure rehabilitation were subsequently expanded and extended from the first North East Community Restoration and Development Project. With the breakdown of the peace process and the resumption of conflict, this program now faces a multitude of barriers to implementation. The assistance program lacks
55

ADB. 2007. Sri Lanka CAPE: Evaluation of Operations in Conflict-Affected North and East. Manila. Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Operations-Conflict-Affected.pdf

33 (i) systematic conflict risk assessments during project implementation; and (ii) a clear mechanism for stakeholders to substantively review, discuss, and respond to changing circumstances and challenges affecting the projects. The changing context requires implementation arrangements that can easily allow reallocations of resources and restructuring/redirection of subprojects to respond to emergent conflict situations. 95. ADB assistance was aligned with national priorities, supporting the Governments rehabilitation and development agenda for the North and East. The Governments development and rehabilitation strategy has remained largely the same on paper regardless of the political party in power. However, with changes in the conflict dynamics, the application of development policies in the North and East has varied. ADB needs to consider the political factors and their ramifications on programming development assistance. 96. The continued relevance of ADBs assistance program needs to be reviewed due to the renewed fighting. With the exception of the first project, which started in 2001, subsequent conflict- and tsunami-related ADB assistance has been based on multidonor joint needs assessments, which allow the allocation of resources according to identified needs and coordination of assistance with development partners. With the deteriorating conflict situation, the needs and contexts have changed in many dimensions, with increasing shifts in priorities towards humanitarian and relief needs. The existing ADB-financed projects continue to revolve around geographically specific physical infrastructure. ADBs overriding focus on rehabilitation and construction of physical infrastructure needs to be reassessed in terms of its feasibility and sustainability under deteriorating security conditions. Although aid coordination and joint planning were strong during initial stages, such coordination among development partners with divergent mandates has become increasingly difficult under the prevailing political climate. 97. The projects generated immediate benefits, but the conflict and its effects undermine prospects for sustainability. Against a backdrop of the conflict-affected communities struggling to rebuild lives in the days immediately following the ceasefire agreement, the timeliness and relevance of the first project to meet the needs of people had visible, immediate effects. After the ceasefire, all ADB-financed projects in the North and East generally adopted do-no-harm principles, with sensitivity to local tensions and equity issues. People interviewed by the Operations Evaluation Mission confirmed their perceptions of the benefits of ADB assistance. Sustainability issues are equally valid in other parts of Sri Lanka under nonconflict situations. Constraints to sustainability include (i) difficulties in maintenance of infrastructure and facilities; (ii) repeated displacement of resettled communities; (iii) local capacity constraints in management, operational logistics, and human resources; and (iv) challenges facing partnerships and trust in a politically sensitive environment. 98. The positioning of ADBs past strategies for the conflict-affected North and East was satisfactory, but a new strategy is required to cope with current circumstances. There was sufficient basis for the strategy, government ownership, coordination with development partners, and strong prospects for long-term continuity. Risk assessment and monitoring mechanisms to achieve envisaged results were partly satisfactory. Given the stalled peace process and the resurgence of armed conflict, ADB needs to redefine its strategy for its operations in conflict-affected areas. While past strategies were suited to postconflict assumptions, essentially a peace dividend, current and future engagement requires a new strategy that can accommodate scenarios including in-conflict situations. 99. Much distrust and many negative perceptions by the different stakeholders exist about other key actors (international NGOs, Sri Lankan NGOs, and community-based

34 organizations). The provision of aid can inadvertently exacerbate existing tensions and rivalries. Some observers pointed out that the high visibility of postceasefire development assistance to the North and East may have contributed to resentment and tension concerning aid distribution. Likewise, assistance that is perceived to be aimed primarily at development that excludes the North and East may also contribute to fuelling political tensions on aid and benefit distribution. There has been an unprecedented international response to the tsunami (including the conflict-affected areas that were hit by the tsunami) with large sums of money for livelihood recovery, reconstruction, and rehabilitation. While the availability of resources can rapidly replace lost assets, it can also create tensions. 100. ADBs assistance program for the North and East Sri Lanka is likely to be partly successful. The evaluation found that ADBs assistance program was highly relevant, likely to be effective (becoming less effective as the operational context deteriorates), likely to be less efficient, less likely to be sustainable, and with likely modest impacts. The resurgence of conflict reduces the probability of success. This performance may change depending on the situations influencing the operating environment for delivery of development assistance. 101. There is a need for reviewing immediate options for managing ADB operations under current conditions. These include the need to (i) assess the locations in the North and East where ADB assistance can be effectively delivered and feasibly implemented; (ii) allow greater flexibility to deal with emergent situations, including options for changes of scope and temporary suspension of development assistance with a view towards efficiency and development effectiveness; (iii) consider reorienting assistance to improve self-reliance of the affected communities, with a livelihoods approach and engagement with community-based organizations and NGOs for service provision; and (iv) reconsider the geographical coverage of ADBs development assistance, including adjusting the coverage areas of ongoing projects to include adjacent and less at-risk districts. ADB should also consider reorienting approved components under tsunami-related assistance in the conflict-affected North and East that can no longer be implemented under present conflict conditions. 102. ADB should review its presence in the North and East to respond to the emergent needs of the affected communities. Recognizing that the delivery of assistance does not need to wait for the conflict to end, and that communities do carry on with their lives within the conflict environment, the challenge for ADB is to continue to explore innovative options, modalities, and partnerships to continue assistance within the in-conflict environment. If conflict persists in the North and East, a scaled-down development assistance in terms of small subprojects to a level similar to those under the first North East Community Restoration and Development Project, may be more appropriate than mid-sized to large-scale subprojects. When the conflict deescalates, and security conditions improve with the resumption of a credible peace process, rehabilitation assistance under postconflict conditions may continue with careful attention to (i) monitoring political changes affecting the project context, and (ii) recognizing that the sustainability of large-scale investments to stimulate regional economic growth would necessitate conditions of more permanent peace with an enduring political solution. Agility to respond to a changing operating environment is required. 2. Policy-Based Lending 56

103. ADB financed 10 policy-based loans ($569 million) during the past two decades (19862006), which accounted for 18% of ADBs total lending to the country. Four of these
56

ADB. 2007. Evaluation of Policy-Based Lending in Sri Lanka. Manila Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Policy-Based-Lending.pdf

35 loans were approved during 19861991, when the country faced macroeconomic instability, which stemmed largely from a growing budget deficit, loss-making SOEs, and market distortions. These policy-based loans built on earlier economic liberalization efforts that began in 1977, sought to remove obstacles to private sector development, and provided needed fiscal support. Initially, ADB supported reforms in the agriculture sector that aimed to revitalize the sector and divest agricultural SOEs. Complementary financial sector reforms followed to reduce the cost of financial intermediation and develop capital markets. No policy loans were approved during 19921999 due to unfavorable political conditions for major reforms. A new round of policy-based lending occurred during 20002004 to support (i) the promotion of a private sectordriven growth, (ii) public enterprise reform, (iii) rural finance, (iv) fiscal management, and (v) the development of financial markets. 104. Compliance with policy conditions had been reasonable amid a complex political economy. At the time of the respective program completion or loan closing, 80% of the 191 conditions were complied with, and 9% partly complied with. The others were either assessed as not complied with (9%) or amended (2%). Difficulties were experienced in enacting and implementing measures that called for sector restructuring and pension reforms, particularly when the reforms were politically sensitive. Enacting regulatory measures on finance, in contrast, proved easier. 57 Certain policy reversals occurred in agriculture and industry. 58 All four program performance evaluation reports rated the policy-based programs partly successful (Table 4). These ratings reflected (i) mixed outcomes, (ii) inconsistent government policies that negated earlier gains, and (iii) policy reversal. One completed policy-based program was rated successful in the program completion report; similar reports have not yet been prepared for two other completed program loans. Three ongoing programs address fiscal management reform and financial sector reform. Table 4: Performance Ratings of Completed Policy-Based Programs
Title PCR Rating PPAR/PPER Rating Agricultural Inputs Program S PS Agriculture Program Loan S PS Second Agriculture Program PS PS Financial Sector Program No rating PS Private Sector Development Program S NA (no PPER yet) Small and Medium Enterprise Sector No PCR yet NA Development Program 1929 Power Sector Development Program No PCR yet NA NA = not available, PCR = program completion report, PPAR = program performance audit report, PPER = program performance evaluation report, PS = partly successful, S = successful. Loan Number 0820 0994 1127 1051 1800 1894

105. Several factors made reforms difficult. These included (i) the complexity of the political economy of decision making and changes in government; (ii) inadequate analysis of
57

Some examples of legislation enacted in Parliament in compliance with conditions for the policy loans in the finance sector included (i) amendment to the Finance Companies Act to permit leasing companies to transfer assets to special purpose vehicles for securitization of assets, (ii) enactment of the anti-money laundering bill, (iii) amendment to the Inland Revenue Act to harmonize tax incentives, (iv) amendment to the Banking Act and Monetary Law, (v) establishment of the Insurance Board of Sri Lanka through the Regulation of Insurance Industry Act, (vi) amendment to the Securities and Exchange Commission Act to extend the jurisdiction of the commission, and (vii) enactment of the Fiscal Management Responsibility Act. Outside of finance-related measures, Parliament also enacted the Consumer Affairs Authority bill and amended the Termination of Employment of Workmen Act. 58 Policy reversals included the following: (i) after program completion, the Peoples Alliance-led Government reintroduced the fertilizer subsidy (1994) as part of fulfilling its pledge to farmers and the need to help rice farmers reduce their production cost; and starting in 2006, it has provided a fertilizer subsidy to smallholders of tea, rubber, and coconut; (ii) the Government reduced the interest rate subsidy for the purchase of tea bagging machinery from 75% to 50% in 1994 but reinstated it a year after before eliminating it in 1999; and (iii) the stamp duty was reintroduced in 2006, one year after program completion.

36 reform options, and the impracticality of recommended actions; (iii) difficult macroeconomic environment; (iv) labor disputes and legal challenges to divestment of SOEs; (v) limited capacity of the Government to manage the reform processes; (vi) limited efforts to inform and educate political leaders, decision makers, and the general public about the objectives, costs/benefits, and expected results of policy reforms; (vii) lack of broad-based support for reforms involving sector restructuring (opposition from labor unions); (viii) lack of continuity of government policies; and (ix) unstable political and security situation. Many of the challenges encountered in Sri Lanka have also been encountered elsewhere. 59 In areas where reforms were successfully implemented, the enabling factors included (i) political stability, (ii) a clear understanding across stakeholders of the reform objectives, (iii) shared commitment to reforms and ownership of the reform program, (iv) close government involvement in policy dialogue, and (v) defining the policy objectives in accordance with the Governments development agenda. 106. The timetable for carrying out the reforms was sometimes unrealistic, particularly major legislative changes that take more time to accomplish than is typically provided for in a program loan period. Often, the lack of majority in Parliament has undermined the Governments ability to make policy decisions. Preserving the stability of the governing political coalition, in a country faced with a two-decade conflict, sometimes took precedence over reforms. The political economy context affects policy formulation, timing, reform acceptance, and implementation. In some cases, it may not be realistic to expect that the Government would be able to implement fundamental reforms of the type that ADB would typically support with program loans. 107. Key lessons have emerged from ADBs policy-based lending operations in Sri Lanka. Policy-based lending requires a careful assessment of the reform environment and reform readiness. Country ownership and political will are fundamental. Policy reforms that are built on an apolitical process and a lack of understanding of the countrys history are bound to fail. Policymaking is often complicated by elections. Certain calls for economic reforms may not be heeded, particularly during the rise to power of political coalitions that have differing agendas. A balance must be achieved between setting the pace of reforms and ensuring social and political stability. Thus, the vulnerability and sensitivity of policy reform must be understood in program design and implementation. 108. Moreover, ADB needs to consider more flexible ways of formulating tranche release conditions, since these conditions can be achieved in different ways. Alternative approaches to effect change must be sought, along with consideration of their costs and benefits. Policy conditions should not go beyond the Governments capacity to manage reforms, monitor change, and prepare the groundwork for future efforts. Capacity development must accompany reform initiatives. In addition, obtaining continued support from stakeholders for policy reforms is essential for sustaining the reform process. While consultations are necessary during the formulation of a policy reform program, such a program should also provide resources for continued consultation. Well-targeted TA can support policy dialogue. Perseverance to remain engaged in policy dialogue is critical. 3. 109.
59

Governance Assistance 60

Good governance is one of the three pillars of ADBs poverty reduction strategy.

ADB. 2001. Special Evaluation Study on Program Lending. Manila. Available: http://www.adb.org/Documents/PERs/sst-stu-2001-16/default.asp 60 ADB. 2007. Evaluation of Thematic Governance Assistance. Manila Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Thematic-Governance-Assistance.pdf

37 Governance is defined as the manner in which power is exercised in the management of social and economic resources for development. 61 In broad terms, it is about the institutional environment in which the government, the private sector, and civil society interact. Forming part of ADBs broader effort on governance and capacity development are anticorruption efforts. The Anticorruption Policy (1998) defines corruption as the abuse of public or private office for personal gain and builds on the cornerstones of quality and effectiveness of public administration. 62 Sri Lanka is a signatory to the United Nations Convention against Corruption and a member (since 2006) of the Anticorruption Initiative sponsored by ADB and the Organisation for Economic Co-operation for Development. Among the countries included in the worldwide governance indicators developed by Kaufman, Kraay, and Zoido-Lobotan of the World Bank, 63 Sri Lanka was positioned in the midrange (between the 40th and 60th percentile ranks). The only exceptions were political stability and absence of violence, where Sri Lanka was ranked in the bottom 20%. The 2006 corruption perceptions index of Transparency International ranked Sri Lanka as the 84th least corrupt among 163 countries. 64 While it was perceived as less corrupt than Nepal, Pakistan, Bangladesh, Viet Nam, Philippines, and Indonesia, it ranked behind Singapore, Hong Kong, Japan, Bhutan, Republic of Korea, Malaysia, Thailand, Peoples Republic of China, and India. On a scale of 0 (highly corrupt) to 10 (highly clean), Sri Lanka had a score of 3.1, implying that opportunities exist for supporting anticorruption efforts. 110. The positioning of ADBs governance strategy in Sri Lanka after 1995 has been satisfactory. Improving governance was closely related to the Governments economic management agenda and policy reforms. In line with this, ADB supported public enterprise reform, public sector management, local government strengthening, and regulatory and policy reforms during 19952003. The subsequent governance strategy (20042008) was anchored on the broader goals of poverty reduction and reconstruction of conflict-affected areas and was based on a comprehensive governance assessment of Sri Lanka. 65 It focused on (i) pro-poor service delivery, (ii) improved public sector expenditure management, (iii) resource mobilization, (iv) decentralization of public service delivery, (v) corporate governance of SOEs, and (vi) regulatory framework (public utilities, banking, and finance). Moreover, it highlighted the mainstreaming of governance in sector investments and the formulation of a service delivery framework, and supported community-based decision making processes to promote equitable access to services. To sustain results from governance, nevertheless, further mainstreaming of equitable access to services and of anticorruption in ADB operations is important, complemented by measures to strengthen accountability and transparency. 111. ADBs governance assistance has been in accord with the declared strategies. Major regulatory reforms after 1995 have been pursued through six policy-based programs, of which three are ongoing. The rest of the governance-related assistance covered service deliveryoriented projects. Economic management assistance was coordinated with the World Bank, particularly in removing market impediments, and with bilateral organizations in relation to private sector development and public service delivery. The country strategies noted certain
61

ADB. 1995. Governance: Sound Development Management. Manila. Available: http://www.adb.org/Documents/Policies/Governance/govpolicy.pdf 62 ADB. 1998. Anticorruption Policy. Manila. Available: http://www.adb.org/Documents/Policies/Anticorruption/anticorruption.pdf 63 These indicators rely on 31 sources of surveys and polls from 25 different institutions. Definitions of the indicators and discussions on methodology are available: http://www.worldbank.org/wbi/governance/govdata/. 64 Transparency International. 2006. Corruption Perceptions Index. Berlin. Available: http://www.transparency.org 65 ADB. 2004. Review of Governance and Public Management in Sri Lanka. Manila. Available: http://www.adb.org/Governance/sri_report.pdf

38 risks that could affect governance assistance: (i) dilution of public administration reforms due to opposition from political parties and vested interests, (ii) resumption of hostilities, and (iii) social consequences on the poor of the Governments reform package and overambitious package. However, the strategies did not articulate corresponding risk management plans. 112. After ADB adopted its Anticorruption Policy (1998), the Sri Lanka country strategies and programs provided support for anticorruption efforts. Anticorruption measures were pursued through (i) compliance with procurement guidelines for ADB-financed operations, (ii) regular auditing of annual financial statements, (iii) auditing of the use of statements of expenditures for loan disbursement applications, (iv) use of management information system to minimize fraud, (v) ADB investigations of allegations of fraudulent practices, and (vi) inclusion of measures to mitigate anticorruption risks. The Office of the Auditor General of ADB responded to complaints and allegations of corruption. From 1998 to 2006, 61 cases related to Sri Lanka were filed with ADBs Office of the Auditor General, representing about 5.8% of the 1,048 total cases filed. 66 Recently, ADB included commendable mitigation measures in project design to address potential corruption risks in the TsunamiAffected Areas Rebuilding Project and the Second North East Community Restoration and Development Project. 67 113. Overall the performance of ADBs governance assistance was rated likely to be partly successful. It was highly relevant at the time of formulation because it was (i) commensurate with the challenges in the country; (ii) consistent with ADBs governance and anticorruption policies; (iii) consistent with the Governments vision of establishing transparent, accountable, and responsive public services; and (iv) coordinated with the assistance of development partners. Most governance-related projects and TA activities are still ongoing, but overall, governance assistance is likely to be less effective due to mixed outcomes and policy reversals that accompanied changes in government. Initial outcomes have included (i) dismantled state monopolies (airlines, telecommunications, insurance, and petroleum distribution); (ii) partial retirement of the public debt by using privatization proceeds; 68 (iii) opening up, during the divestment process, of opportunities for rent seeking due to asset underpricing and inadequate safeguards in terms of monitoring and regulatory arrangements; 69 and (iv) opposition from powerful vested interests to reforms that aim to improve cost recovery, efficiency, and service quality in the power and water supply sectors. Prospects for achieving the expected outcomes of ongoing programs/projects are mixed. Service delivery-oriented
66

When only project cases are counted, the number of Sri Lanka cases filed from 1998 to 2006 reached 54 cases out of a total of 757 cases. Of the 54 Sri Lanka cases, 52 had been concluded and 2 cases were still open at the end of 2006. Of the closed cases, two cases resulted in sanctions by the Integrity Oversight Committee. 67 Corruption mitigation measures include (i) providing legal assistance services in the regions to help tsunami victims; (ii) establishing a decentralized mechanism for tsunami victims for private dispute resolution and grievance review against public officials, including working with the Commission to Investigate Allegations of Bribery and Corruption; (iii) training and awareness programs in the regions, as well as television clips on anticorruption; (iv) promoting accountability and transparency; (v) reestablishing identity registration for tsunami victims; (vi) special and random financial and performance audits; (vii) establishing community participation in planning, implementation, and monitoring; (viii) attaching corruption sentinel officers to each of the Regional Legal Aid Commission officers under the project, which is the first instance of a formalized corruption sentinel system in Sri Lanka at the regional level; and (ix) penalizing corruption. 68 Based on the program completion report, the Private Sector Development Program generated proceeds of SLRs24.5 billion over 20002004 from the sale of SOEs (telecommunications, insurance, petroleum distribution, national airline, etc.). Public debt as a percentage of GDP declined from 103.2% to 93.0% over 20012006. 69 For example, exclusivity provisions without adequate monitoring and regulatory arrangements in the divestment of telecommunications, gas, and airlines, and underpricing of assets became part of the Governments privatization strategy. Knight-John, Malathy. Privatization and Regulation. In Saman Kelegama, editor, Economic Policy in Sri Lanka: Issues and Debates. Colombo: Institute of Policy Studies.

39 projects, particularly those outside of the conflict-affected areas, are likely to achieve their expected outcomes. The fiscal management reform program is likely to improve revenue administration, streamline processes, and bring about increased transparency and accountability and results-based budgeting. The Government regards it as a flagship program and fully supports the reforms. Notwithstanding initial improvements in the ratio of total revenue to GDP, several drawbacks have occurred such as (i) high recurrent expenditures, (ii) high borrowings from the banking system, and (iii) a high public debt burden that can threaten macroeconomic stability. Many regulatory reforms in the financial sector are likely to occur, but ongoing restructuring reforms will remain a challenge, including restructuring the Peoples Bank, due to the current government policy stance that is opposed to privatization of SOEs. Governance-related TA performance has also been mixed. 70 114. Overall, governance assistance is likely to be efficient. In general, more resources have been allocated to service delivery-oriented projects, where implementation bottlenecks are less likely to be more difficult than those of politically sensitive policy reforms. Based on project performance reports, the implementation pace has been generally satisfactory, particularly for service delivery-oriented projects that are being implemented outside of the conflict-affected zones. For ADB-assisted programs and projects, close interaction with government officials is maintained, and review missions contribute to keeping implementation on track. 115. Some outcomes of governance assistance will likely be sustainable, particularly those relating to deregulation of the telecommunications industry (now a rapidly growing industry in Sri Lanka and one of the most deregulated in Asia) and streamlining of revenue administration processes. However, in the long run, service delivery improvements in the social sector might be moderately susceptible to risks (see Box 6), given the politicization of the public service and the blurring of accountabilities of ministries with fragmented mandates. Looking out for workable ways to address complex governance challenges will continue to be a challenge.
Box 6: Risks to Sustainable Governance Outcomes Politicization of the public service Lack of continuity of some economic policies Expansion of the number of ministries with fragmented and unclear mandates, roles, and functions Potential macroeconomic destabilization from high fiscal deficits and high public debt Shortcomings in accountability and transparency of public sector operations Inadequate enforcement of penalties on perpetrators of corruption

116. Overall, it is too early to assess the Source: Evaluation team. contribution of governance assistance to development impact. Most of the programs and projects are still ongoing. In broad terms, the anticipated impacts include (i) equitable and effective service delivery; (ii) reduced poverty; (iii) reduced fiscal deficit; (iv) transparent, efficient, and effective revenue administration and
70

The TA completion report (2001) rated TA 2950-SRI: Establishing the Sri Lanka Tender Bureau generally successful. It led to an operational Procurement Support Bureau and to the implementation of revised guidelines on government tender procedures. Similarly, TA 1900-SRI: Management Strengthening of the National Water Supply and Drainage Board was rated generally successful. It improved the Boards management capacity in financial management, accounting, inventory management, and monitoring and helped put in place computerized systems to improve service delivery. However, other TA grants did not lead to significant outcomes. For example, the realignment of ministerial portfolios in mid-1997, which was addressed by TA 2616-SRI: Public Administration Reform, was accepted at the highest executive level of the Government, but the implementation process lost momentum due to resistance from vested interests. TA 3263-SRI defined the mandate and directions of the Ministry of Provincial Councils and Local Government, but the TA completion report indicated that the contribution to the devolution process was limited. The Ministry tended to focus on staffing and fund releases. Moreover, many of the provincial councils have not followed through in approving statutes for levying the relevant devolved taxes, resulting in dependency on the center.

40 public resource management; (v) an improved enabling environment for private sector participation in divested industries; and (vi) reduced anti-money laundering and improved control of monetary flows. Although there is a downward trend in the fiscal deficit (from 10.1% to 8.4% of GDP over 19952006), the fiscal deficit is still higher than the target set by the 2004 Fiscal Management Responsibility Act. 71 The likely risks to sustainability could affect the achievement of impacts. If these risks persist, the overall impact of governance assistance will likely be modest. Risk management over the longer term is important. 4. Other Thematic Assistance a. Capacity Development

117. ADBs country strategies in Sri Lanka have recognized that weak capacity constrains implementation and limits the absorption of development assistance. Consequently, several capacity development interventions were carried out at the institutional and beneficiary levels. In the education sector, for example, ADB provided support through investment projects, mainly by (i) improving school management, curricula, physical infrastructure, and equipment, (ii) providing education materials, and (iii) promoting information and communication technology in schools through computer learning centers, which helped build school networks and partnerships with private enterprises. In the transport sector, capacity development activities were pursued as components of projects or advisory TA grants. Four advisory TA grants in the roads subsector sought to strengthen the capacity of various departments within the Road Development Authority for planning, road maintenance budgeting and expenditure control, technical audit, and environmental and social monitoring. Further efforts promoted private sector participation in road contracting; established a trust fund for road maintenance; and supported sector policy formulation, interagency cooperation, and partnerships. In the water supply and sanitation sector, capacity development initially focused on NWSDB, mainly through training in project management and financial management. Subsequently, capacity development included actions aimed at (i) strengthening beneficiary and end-user participation in selecting, designing, implementing, and operating local water supply systems; (ii) strengthening the capacity of local authorities to develop and manage such systems; and (iii) assisting beneficiaries in managing and maintaining water supply systems. These efforts have shown promising results, but institutional issues such as water supply regulation, independent tariff setting, and private sector participation continue to impede improvements in organizational effectiveness. 72 118. ADBs capacity development assistance has produced mixed results. In the tree crops subsector, for example, measures at the beneficiary level produced positive outcomes mainly due to knowledge gained from training and the provision of complementary support services (extension and credit). In the transport sector, however, the contribution of capacity development has been relatively modest. While the capacity to plan projects has improved, the capacity to implement projects has declined due to the difficulties in recruiting and retaining qualified staff (see Box 7).

71

The objectives of the Fiscal Management Responsibility Act include (i) ensuring that the budget deficit at the end of 2006 would not exceed 5% of the estimated GDP, and ensuring maintenance of such levels thereafter; (ii) prudent management of fiscal risks, paying attention to changing economic circumstances; (iii) adoption of policies on government spending and taxation with a reasonable degree of stability and predictability; (iv) ensuring that at the end of 2006, the total liabilities of the Government would not exceed 85% of GDP; (v) in 2013, the total liabilities of the Government would not exceed 65% of the estimated GDP; and (vi) ensuring that government policy decisions pay attention to the financial impact of such decisions on future generations. 72 ADB. 2007. Study of Capacity Development in South Asia (draft). Manila.

41

Box 7: Illustrative Capacity Development Outcomes

Agriculture and Natural ResourcesTree Crops Subsector Training, complemented by credit and extension services, leading to the replanting of about 4,300 hectares under the Tea Development Project, which subsequently increased tea yields by 33% and real incomes of participating smallholders by 21%. Improved services from extension service providers Education Students qualifying at national examinations (ordinary level) for entry to Grade 12 from 37% in 2001 to 45% in 2004 Students qualifying for admission to universities from 51% in 2001 to 55% in 2004 Improved access of students, teachers, and administrators to information and communication technology Partnerships with private enterprises in operating computer learning centers Water Supply and Sanitation Improved capacity of NWSDB to implement projects Operating financial reporting and management systems Functioning community-based water supply and sanitation schemes (about 880 schemes) Transport Participation of domestic private companies in road contracting due to the closure of the Road Construction and Development Company in 2004 Improved preconstruction processes Increased capacity to address social and environmental concerns arising from road development Increased capacity to plan, manage, and monitor road maintenance and road capital investments Source: Interviews and research by the evaluation team.

119. An earlier OED study indicated that ADBs capacity development assistance to Sri Lanka could be made more effective by adhering more closely to key operating principles: (i) fostering ownership; (ii) a clear commitment by ADB to capacity development by staying engaged under difficult circumstances; (iii) strengthening a strategic approach to capacity development; (iv) selective sector and crosscutting focus; (v) integrating inputs into national priorities, processes, and systems; (vi) building on existing capacities; and (vii) remaining accountable to ultimate beneficiaries. 73 b. Gender Development

120. The egalitarian approach to the provision of education and health services has enabled Sri Lankan women to attain a favorable gender development status among South Asian countries. The Human Development Report indicated that the Gender Development Index for Sri Lanka in 2004 was 0.749, higher than those of India (0.591), Bangladesh (0.524), Pakistan (0.513), and Nepal (0.51). Despite these advances, a number of issues continue to adversely affect Sri Lankan women. Women still face inequitable access to productive assets and resources, job discrimination, and wage disparities. 74 A majority of women are trapped in lowskill, low-income jobs, mainly as unpaid family workers in agriculture or as factory workers.

73

ADB. 2006. Special Evaluation Study on Lessons in Capacity Development: Sectoral Studies in Sri Lanka. Manila. Available: http://www.adb.org/Documents/Reports/Evaluation/sst-sri-2006-04/ses-sri.pdf 74 ADB. 2004. Country Gender Assessment for Sri Lanka. Manila. Available: http://www.adb.org/Documents/Reports/Country-Gender-Assessments/sri.asp

42 121. Consistent with ADBs gender and development policy (1998), 75 country strategies after 1998 have provided for preferential access by women to skills training, extension services in agriculture, microfinance/credit, and market information, and have promoted a gender mainstreaming approach to integrate gender equity considerations in ADB operations. Projects focusing on the conflict-affected North and East have integrated gender-related interventions. The resurgence of conflict has contributed to womens vulnerability due to the disruption of income-generating activities and to an increase in the number of female-headed households in which women have become the principal income earners. The Tsunami-Affected Areas Rebuilding Project and the North East Community Restoration and Development Project II reflect gender-inclusive features (see Box 8).
Box 8: Key Gender-Related Features of the Tsunami-Affected Areas Rebuilding Project and the North East Community Restoration and Development Project II Restoration of livelihood and economic activities for women and men, while paying special attention to support for livelihood and enterprise activities for widows and female-headed households in the conflictaffected areas Equal participation of women and men in urban planning, village reconstruction, and development activities and processes Equal access of women and men to infrastructure activities in relation to planning, construction, and maintenance Involvement of women and men in environmental management and coastal resource management

Source: ADB. 2005. Report and Recommendation of the President to the Board of Directors on Proposed Loans and Grants to the Democratic Socialist Republic of Sri Lanka for the Tsunami-Affected Areas Rebuilding Project and North East Community Restoration and Development Project II. Manila.

122. Other projects have addressed gender equity in access to training and services. The Skills Development Project, for example, promoted new areas for skills development including technology-oriented courses and entrepreneurship training, and provided financial assistance to women who opted to establish and manage their own enterprises. In agriculture, the ongoing Aquatic Resource Development and Quality Improvement Project gives importance to women in training (leadership, entrepreneurial skills development, inland fisheries and aquaculture management, credit, and bookkeeping) and access to microcredit schemes. Through the strengthening of fishers associations, it also offers equitable opportunities for womens membership and representation, and for leadership functions. The Rural Finance Sector Development Program has addressed gender concerns through (i) gender awareness training to promote a gender balanced client outreach; (ii) encouraging rural financial institutions to formulate business plans, which include quantifiable targets for gender outreach, especially in conflict-affected areas; and (iii) allocation of 75% of the rural enterprise development credit to female clients of rural financial institutions. The Small and Medium Enterprise Sector Development Program has given special consideration to women entrepreneurs, and is expected to positively affect women, who traditionally account for nearly half of production workers in the small and medium enterprise sector. In general, ADBs gender assistance has been responsive to issues faced by women. Over time, improving the level of womens education, increasing their access to productive resources and credit, and providing them with basic infrastructure and social services are expected to contribute positively to poverty reduction and to womens empowerment.
75

ADB. 1998. Gender and Development Policy. Manila. Available: http://www.adb.org/Documents/Policies/Gender/gender-policy.pdf

43 c. Regional Cooperation

123. Fostering regional integration and cooperation is important for Sri Lanka, principally for realizing the countrys potential as a regional hub for shipping, aviation, financial services, and tourism. Overall, ADBs regional cooperation strategy in South Asia aims to help the region realize its potential in economic and social development, and to enable South Asia to play an effective part in wider Asian integration. 76 It seeks to improve connectivity, facilitate trade and investment, develop regional tourism, facilitate cooperation in energy, and promote private sector cooperation. 124. ADB has provided regional TA grants to support the activities of the (i) South Asia Association for Regional Cooperation; (ii) South Asia Subregional Economic Cooperation; (iii) South Asia Co-operative Environment Program; and (iv) Bay of Bengal Initiative for Multisectoral, Technical, and Economic Cooperation. In November 2005, the South Asia Subregional Economic Cooperations Tourism Working Group welcomed Sri Lanka as a member, mainly as a result of earlier TA grants. 77 To further support tourism development in the region, ADB provided assistance for human resource development, capacity development, and preparation of the South Asia Subregional Economic Cooperation Tourism Development Project. Given the resurgence of conflict in Sri Lanka, however, promoting tourism in Sri Lanka is likely to be difficult due to security risks. ADB, moreover, has supported the South Asia Co-operative Environment Program and Clean Air Initiative for Asian Cities, along with development of a protocol on air quality management. Other assistance included (i) a workshop on the reconstitution of the South Asia Development Fund into the South Asia Association for Regional Cooperation Development Fund, 78 (ii) an energy sector dialogue and an Energy Center Capacity Development Project, which are expected to create an enabling environment for optimizing the supply of and demand for energy in the region; and (iii) a TA grant to the Bay of Bengal Initiative for Multisectoral, Technical, and Economic Cooperation, which is expected to lead to the establishment of an efficient regional transport and logistics network. Regional cooperation in South Asia is still evolving, and opportunities exist for ADB to make a tangible contribution. VI. PERCEPTION ASSESSMENT OF THE SRI LANKA RESIDENT MISSION

125. The evaluation included a perception survey to gain insight into the relevance, effectiveness, and efficiency of SLRM, and to identify areas for improving client responsiveness (Appendix 8). The survey targeted persons who had had interaction or involvement with ADB operations in Sri Lanka. Major observations from the survey results are described below. 126. Most of the respondents believed that SLRM knows the country. The vast majority of respondents (96%) indicated that SLRM staff members know Sri Lanka well, are people with
76

ADB. 2006. South Asia (2006-2008) Regional Cooperation Strategy and Program. Manila. Available: http://www.adb.org/Documents/CSPs/South-Asia/2006/CSP-SA-2006.pdf 77 (i) ADB. 2002. Technical Assistance for Exploring Sri Lanka's Subregional Economic Cooperation Potential. Manila (TA 6079-REG, for $60,000, approved on 18 December 2002). (ii) ADB. 2002. Technical Assistance for Exploring the Maldives Subregional Economic Cooperation Potential. Manila (TA 6081-REG, for $60,000, approved on 18 December 2002). This TA was designed to identify economic cooperation potential between the Maldives and other South Asian countries, particularly Pakistan and Sri Lanka. 78 The framework for the South Asia Association for Regional Cooperation Development Fund was approved in July 2006 and the Board was subsequently constituted. The Fund has several windows. The social window covers poverty reduction and social development. The infrastructure window deals with energy, power, transportation, telecommunications, tourism, and other infrastructure areas. The economic window is primarily devoted to noninfrastructure.

44 whom they can express their opinions openly (93%), and have good communication skills (91%). Respondents generally believed that SLRM staff are accessible when needed (82%) and that SLRM staff treat them as development partners and/or colleagues (81%). Although still a majority, responses that SLRM staff know the relevant sector issues in the country (70%) and have strong technical expertise (65%) were significantly lower. Responses to the latter two categories may have implications for the set of skills needed when future staffing decisions are made at SLRM. 127. More than 70% of the respondents indicated that SLRM is an effective development partner and responds to the countrys development needs. This is consistent with the findings of a separate survey of opinion leaders and stakeholders in which more than three quarters of the respondents reported that the services offered by ADBs field offices or resident missions in the South Asia region had been helpful in assisting countries to meet their development goals and objectives. 79 A slight majority (60%) of the current respondents believed that SLRM is receptive to changing conditions of the country and sensitive to country-specific circumstances. There is room for improvement in these areas, as supported by respondents comments that SLRM should develop closer relations with partners, and be more responsive to the countrys needs to improve its delivery of products and services. 128. Only 36% of the respondents felt that SLRM has enough delegated authority. This was confirmed during interviews with key informants, who raised issues concerning SLRMs dependence on ADB headquarters about matters related to project implementation, procurement, policy dialogue, resource allocation, and programming in specific sectors. While this has implications for the way that the South Asia Regional Department delivers services in Sri Lanka, the ability to address this issue will be, in part, determined by ADBs broader business practices. 129. Fewer than half of the respondents (43%) agreed that SLRM provides valuable lessons and practices from other countries. This is consistent with observations made during discussions with government officials and respondents, who expressed the need for SLRM to disseminate lessons and to enhance its role as facilitator for learning from ADBs experience in other countries. 130. The majority (78%) of the respondents believed that SLRM adequately considers the development issues and priorities of the country. However, fewer respondents felt that SLRM (i) involves interest groups in policy discussions (59%), (ii) adequately explains the rationale for ADBs country strategies (54%), and (iii) provides policy advice based on practical insights (46%). The 2006 Multilateral Organisations Performance Assessment Network survey indicated that ADB plays a central role in policy dialogue, and has a close working relationship with the Government because of its relatively large contribution to the countrys official development assistance. About two thirds of the current respondents stated that SLRM (i) supports the Governments leadership role in policy formulation, (ii) focuses policy dialogue on the most important development needs, and (iii) provides advice sensitive to human development goals. 131. Key informant interviews with government officials revealed a desire for SLRM to be more attentive to alternative views and options. On project design, more than 70% of the respondents agreed that SLRM adequately considers social and environmental aspects, country
79

ADB Perceptions Survey: Multinational Survey of Opinion Leaders 2006. Prepared by the Princeton Survey Research Associates International for the Asian Development Bank. October 2006, p. 9.

45 and sector contexts, and experience from previous projects. Fewer respondents agreed that SLRM listens to alternative views (62%) or considers options proposed by stakeholders (62%). 132. Less than 40% of the respondents agreed that SLRM effectively provides inputs to development policy formulation in the country. However, technical support provided by SLRM was primarily (65%) perceived to make a tangible contribution to development effectiveness. Similarly, more than half (52%) of the respondents agreed that technical support is well focused on key capacity needs of the country, although some respondents (government officials) disagreed. More than half of the respondents (57%) agreed that technical support uses approaches that effectively fit the country situation. On the other hand, fewer respondents agreed that SLRM provides technical support that is accurately targeted (35%) and appropriately timed to support project implementation (48%). 133. According to about 60% of the respondents, SLRM staff members work closely with project directors to resolve issues and help reconcile differences between ADB and the Government. SLRM effectively manages the loan portfolio and keeps partners informed of progress and issues. Based on the respondents perceptions, the more problematic areas of project administration relate to procurement issues and staff flexibility to consider options when a standard solution does not work. 134. Nearly 70% of the respondents believed that SLRM provides timely responses to inquiries. Compared with other aid agencies with which the respondents were familiar, a majority of respondents (60%) felt that SLRM is more responsive to country needs. However, fewer respondents believed that SLRM is better than other aid agencies in terms of striving to achieve tangible results (37%) and speed in delivery of services (31%). More than three quarters of the respondents reported that they were satisfied with SLRM-based services, with the majority of the responses coming from government agencies and development partners. 135. Overall, while the respondents perceptions of ADB in Sri Lanka were generally positive, several areas require more attention by ADB to improve its client responsiveness. There is an overall demand for ADB to delegate more authority to SLRM to make decisions in the country. During interviews, respondents often complained about the slow delivery of services as something related to SLRMs inability to take decisions without resorting to repeated exchanges with ADB headquarters. This recommendation is in accord with the proposed recommendations under the ongoing review of resident mission operations, which supports the delegation of authority to resident missions based on country-specific circumstances and requirements. VII. A. OVERALL RATING, CONCLUSIONS, AND RECOMMENDATIONS

Overall Rating and Conclusions

136. The overall performance of ADBs country assistance program in Sri Lanka is rated partly successful. This overall rating was derived from a combined rating of (i) topdown assessment, which included country strategy positioning, contribution to development impacts/results, and views on ADB performance; and (ii) bottom-up assessment of the sector assistance programs for key sectors (see Table 5). Not included in the bottom-up assessment were the health, nutrition, and social protection sector and the industry and trade sector, which had relatively minimal shares in ADBs lending and nonlending portfolio.

46 Table 5: Overall Rating of ADBs Country Strategies and Assistance

Item Rating Description Score (Points) A. Top-Down Assessment, Countrywide 1. Positioning of Country Strategies in the Last Decade Satisfactory 6 2. Contribution to Development Impacts/Results (Pro-Poor Modest 4 Growth, Inclusive Social Development, and Good Governance) 3. ADB Performance (Based on the Perception Survey) Satisfactory 6 Countrywide Ratinga Successful (on the low side) 16 B. Bottom-Up Assessment, Sector Assistance Programb Partly Successful 13 Overall Ratingc Partly Successful 29 a The countrywide performance was rated as follows: highly successful = 20 points, successful = >15 and <20 points, partly successful = >10 and 15 points, and unsuccessful = 10 points. b The aggregate sector performance was rated as follows: highly successful = 20 points, successful = >15 and <20 points, partly successful = >10 and 15 points, and unsuccessful = 10 points. The total sector performance score was subjected to a weighted index (Wi) and was computed as: (Wi * Sector performance score)/ Wi, where Wi is equivalent to 2 for major sectors and 1 for minor sectors in the context of ADB operations in the last two decades. c This combined top-down and bottom-up assessments, with equal weights. It was rated as follows: highly successful = 40 points, successful = 3039 points, partly successful = 2029 points, and unsuccessful = 19 points. Sources: ADB. 2006. Guidelines for the Preparation of Country Assistance Program Evaluation Reports. Manila. Country Assistance Program Evaluation Team.

137. ADBs country strategies the last decade were generally relevant and responsive to development challenges at the time they were formulated. However, the changing political economy context since April 2004, conflict resurgence, and new government policies have diminished the relevance of the current country strategy (20042008). A strategic repositioning is called for in formulating the new country partnership strategy. Although the poverty reduction thrust of the strategy continues to be relevant to national priorities and ADBs poverty reduction strategy, several components of the existing strategy (e.g., sector restructuring, deregulation, and privatization of SOEs no longer rank high on the current Governments development agenda. Measures to improve the efficiency of SOEs (other than through privatization) have become more important. The changed political landscape means that some projects and programs are no longer consistent with the new economic policies. Thus, country ownership of the strategy has fallen. Another thrust of the current strategy is on reconstruction and development in the North and East. This was based on postconflict assumptions that are no longer realistic due to renewed fighting. The incorporation of in-conflict scenarios and greater flexibility to deal with emergent situations now warrants significant attention. 138. ADBs assistance, as delivered, has been consistent with the declared strategy and program, but performance across sectors has been mixed and, overall, is rated partly successful. This highlights the need for reassessing sector and crosscutting interventions for future development assistance, and learning from past experience to identify the factors that have enabled or deterred performance. Greater efforts are needed to improve quality at entry, identify and mitigate risks in project design, devote adequate resources to portfolio management, and work with executing agencies to identify and resolve problems during implementation. Sectors in which the assistance program has been successful include (i) transport (mainly roads), (ii) education, and (iii) water supply and sanitation. Sustained and uninterrupted ADB engagement in these sectors has generated positive results in terms of service delivery. In other sectors, the performance of the assistance program has been less than successful: (i) finance (policy-based), (ii) power, (iii) law and economic management, (iv) multisector projects, and (v) agriculture. 139. The partly successful performance of ADBs policy-based lending operations in

47 Sri Lanka calls for (i) caution in the future in using this modality, (ii) increased efforts in designing and implementing policy-based programs, and (iii) more concerted efforts to explore alternative options for achieving the same policy objectives. Complex political and social structures, along with civil strife and a strong commitment to a welfare state, have made it difficult for many successive governments to push through unpopular but necessary policy reforms and structural changes. A careful assessment of reform options and reform readiness is essential for policy-based programs. Several requisites enhance the effectiveness of policybased programs: (i) the program must be country-driven, suited to the countrys political and social conditions, and based on a broadly supported reform agenda within national constituencies; (ii) the objectives must be clearly defined, and the reforms clearly sequenced, prioritized, and grouped in manageable proportions; (iii) performance indicators must be clearly identified; (iv) adequate flexibility must be provided to respond to changes in the operating and external environments; (v) realistic implementation schedules must be developed that recognize that policy and institutional reform are lengthy processes requiring a continuous review of options and consensus-building among decision makers; (vi) the political leadership and the public need to be informed about the purpose and expected effects of reforms; and (vii) a sound macroeconomic environment and supportive policies must be recognized as an essential complement to sector reform efforts. Policy-based programs have the potential to be a powerful tool to support difficult reforms, but there is the downside risk of policy reversal and variation of support for reforms when changes occur in the Government and in political coalitions. 140. Fighting poverty and bringing about the conditions for higher economic growth offer opportunities for development assistance. Equitable regional development, inclusive social development, infrastructure provision, and sustainable environmental management are vital, and should be complemented by macroeconomic stability and peace. The current Government has prioritized the reduction of regional disparities, mainly by improving infrastructure, developing small- and medium-scale enterprises, promoting rural development, and providing social protection. Specific focal areas and options for ADB assistance need to be worked out carefully in consultation with the Government, taking into account the constraints posed by the resurgence of armed conflict and its effects. B. Key Challenges

141. The resurgence of conflict in the North and East has made development operations there difficult. With the growing threat to security in many areas, government attention to economic management and economic reforms will likely be diverted to conflict management and resolution. The situation warrants a reassessment of ADB operations and conflict sensitivity in dealing with emergent situations. Although coordination among development partners has been strong, coordination of development assistance among aid agencies with divergent mandates is becoming increasingly difficult. There is increasing concern among bilateral donors about the lack of progress in the peace process. Communities have become more vulnerable to access restrictions, security deterioration, and loss of employment. Distrust, dissatisfaction, and frustration have emerged among those who are affected by the conflict. The situation has become increasingly restrictive on the operations of international and national NGOs. A system involving periodic conflict assessments could lead to more conflictsensitive projects. However, reliance on project implementers for informal assessments and inherent sensitivity to conflict dynamics may undermine objectivity. In-conflict situations often come with issues related to trust, prejudice, and suspicion. Placing the responsibility of conducting conflict assessments on project personnel may expose them to risks. A periodic external review of conflict risks and their effects on project implementation may help improve the relevance of conflict risk assessments.

48 142. The overriding focus of subprojects on physical infrastructure rehabilitation in the North and East needs to be reassessed in terms of their feasibility under deteriorating security conditions. It is important to recognize that not all problems resulted from the conflict escalation. Projects have faced challenges of working in an already complex environment: (i) shortage of qualified contractors; (ii) shortage of building materials, aggravated by the rising demand for the tsunami reconstruction; and (iii) implementation delays and issues related to staff retention. The effects of the conflict on the operating environment impose further risks to sustainability. 80 143. The political economy of Sri Lanka precludes a rapid restructuring of state agencies. Given the politicized nature of tariff setting and the unlikely prospects for significant tariff increases, measures must be taken in the power and water supply sectors to reduce system losses and improve operational efficiency. Achieving financially viable and sustainable operations continues to challenge the power, water supply, and education sectors. Full cost recovery for public services is difficult, as the Government has a range of social and welfare objectives to meet. Initiatives in the water supply sector to increase tariffs gradually and reduce operational losses need to be sustained. In the power sector, a review of options to address the financial indebtedness of CEB and to improve sector efficiency is imperative. In education, avenues for feasible public-private partnerships should be further explored to reduce dependence on the government budget. 144. Notwithstanding improvements in access to water supply, rural electrification, and secondary education, disparities in access to basic services across regions still exist. Poorer regions continue to suffer from inadequate services. For example, in education, continuing problems of teacher deployment to poorer areas work against equitable service delivery. In water supply and sanitation, further attention to decentralized service delivery is needed to reach underserved areas. 145. Improving governance is fundamental to making institutions more transparent and accountable, and less prone to corruption. Governance and anticorruption initiatives should be mainstreamed in sector operations. Part of the challenge lies in strengthening economic management, improving the quality of public service, and reforming public financial management through fiscal discipline, strategic resource allocation, and establishment of results-based reporting systems. 81 Notwithstanding initial improvements in fiscal management, several challenges remain in public financial management: (i) high recurrent expenditures, (ii) high borrowings from the banking system, and (iii) high public debt burden. This requires a public debt management strategy, with due regard for the countrys borrowing approach and ability to service debt. 146. The multiplicity of ministries, with dispersed responsibilities and accountabilities, poses challenges to policy coherence, coordination of sector assistance programs, and effective sector development. Creative ways of bringing various offices and groups to work together to achieve a common goal comprise a formidable challenge. The increasing
80

Sustainability issues include potential destruction of physical assets from the fighting, difficulties in maintenance of infrastructure and facilities, repeated displacement of resettled communities, and local capacity constraints. 81 The Governments Ten-Year Horizon Development Framework (20062016) highlighted inadequacies in several areas: (i) systemwide accountability and transparency in the conduct of government business, (ii) public policy management, (iii) client orientation in the delivery of public services, (iv) management of public resources, (v) matching of task demands with available human resources, and (vi) horizontal consultation and engagement in decision making. Ministry of Finance and Planning. 2006. Mahinda Chintana: Vision for a New Sri Lanka. A TenYear Horizon Development Framework 20062016. Discussion Paper. Colombo. Available: http://www.treasury.gov.lk/EPPRM/npd/pdfdocs/budget2007/MahindaChintanaTenYearDevelopmentPlan.pdf

49 politicization of the civil service and of SOEs will likely hamper effective service delivery, efficient operations, and harmonized policymaking. 147. In terms of curbing corruption, examples of the types of efforts needed include the following: (i) policy, procedural, and institutional reform to reduce the opportunities for corruption; (ii) awareness raising (promoting zero tolerance towards corruption); (iii) prevention (establishing the administrative rules and procedures, separation of functions, and conflict of interest rules to limit opportunities for corruption); (iv) detection (establishing internal controls and administrative complaint mechanisms as a precursor to judicial review); and (v) ensuring prosecution of corruption, including sanctions and disciplinary measures. Coordination among the independent constitutional commissions (including the Commission to Investigate Allegations of Bribery and Corruption), strengthening capacity, providing legal assistance, addressing legal loopholes, enforcing penalties, mobilizing civil society participation, and pursuing complementary measures are essential to increase accountability. These are opportunities for ADB to actively support the Governments anticorruption agenda. C. Recommendations

148. Several recommendations are put forward as directional inputs for Management consideration during the formulation of the next Sri Lanka country strategy. Decisions about which sectors or subsectors to include in a more focused portfolio depend on factors such as (i) client demand and preferences, (ii) staff and TA resource availability, (iii) analytical work that identifies binding constraints, (iv) ADBs strategic priorities, (v) the programs of other development partners, and (vi) experience showing what has worked and what has not. The CAPE findings are just one part of the analytical work that should determine the new country partnership strategy. Therefore, the CAPE should not be prescriptive about the shape of the future program. However, results are important, particularly since most of the resources being provided have to be paid back. If ADB decides to engage in a sector or subsector with a low historical success rate, clear evidence must be provided that the reasons for low success have been determined and a plausible strategy has been put in place to deliver better results in the future. In addition, ADB should take on only those sectors in which its input will be substantial, sustained, and backed up with the required resources for analysis, design support, and supervision. Table 6 summarizes the recommendations, with indications of responsibility and time frame. Table 6: Summary of Recommendations
Recommendation Responsibility 1. ADB should review its development assistance to conflict- South Asia Regional affected areas in the North and East from the perspectives of conflict sensitivity. The challenge for ADB Department is to explore options, modalities, and partnerships to provide assistance within the in-conflict and fragile environment. Options for ADB to consider include temporary suspension and changes of scope of ongoing development assistance with a view towards efficiency and effectiveness, particularly when rising costs and security risks can outweigh the expected benefits. ADB should also explore options for outsourcing and partnering with agencies having specialized capabilities, and specialized administrative and management systems that can respond rapidly to changing conditions. Options are detailed in Supplementary Appendix F. Time Frame Formulation stage of the new country partnership strategy and continuing

50
Recommendation Responsibility South Asia 2. ADB should review the focus of its development Regional assistance, particularly within sectors that have fallen Department short of achieving significant results (e.g., agriculture, power, policy-based programs) but are extremely important for poverty reduction and economic growth. The review should consider the provision of continued support for sector assistance programs that have performed well (e.g., education, transport, and water supply). It should take into account the findings of the evaluations of sector assistance (Supplementary Appendixes AE). In redefining sector strategies in the context of the new country partnership strategy, ADB should consider the sector recommendations made by the CAPE. 3. ADB should be prepared to remain engaged in policy dialogue during difficult times, when the implementation of ongoing programs is slow and may even stall. The nature and scope of the existing policy-based programs require continuity and involvement of experienced staff. Greater attention to identified lessons is required. A careful assessment of reform options is crucial for policybased programs. Resources are needed to continue the dialogue. In this context, ADB should review its resources, skills base, and staff configuration to allow itself to play its role more effectively. A business plan to identify the human and financial resources required to implement the country strategy may be necessary. South Asia Regional Department Time Frame Formulation stage of the new country partnership strategy

Formulation stage of the new country partnership strategy

4. ADB should provide assistance to Sri Lanka for resultsSouth Asia based monitoring and development evaluation to promote Regional development effectiveness. This will complement the Department Governments ongoing efforts to strengthen its monitoring and evaluation capacity at the Ministry of Plan Implementation. 5. ADB should assess the Sri Lanka Resident Missions roles and functions in order to strengthen its capacity to (i) disseminate lessons and good practices from ADB operations in other countries, (ii) enhance its services in various areas of concern as identified through the perception survey, and (iii) provide timely decisions and technical support to project administration. This assessment should take into account the findings of the ongoing review of resident mission operations by the Strategy and Policy Department. South Asia Regional Department Strategy and Policy Department

Formulation stage of the new country partnership strategy

A soon as possible during 20072008

ADB = Asian Development Bank, CAPE = country assistance program evaluation.

Appendix 1

51

EVALUATION METHODOLOGY 1. This study followed the Asian Development Banks (ADB) country assistance program evaluation (CAPE) guidelines. 1 It drew extensively from a broad range of evaluation methods, including (i) literature review of studies, reports, policies, strategies, and references from ADB, the Government, and independent sources; (ii) in-depth interviews with key informants from government and nongovernment organizations, private sector entities, academe, development partners, ADB staff, in-country experts and observers, beneficiary organizations, and other stakeholders; (iii) perception survey of the performance of ADBs Sri Lanka Resident Mission (SLRM); (iv) interactive meetings and consultations throughout the CAPE process; (v) field observations of selected projects; (vi) presentation of sector performance results to country stakeholders through workshops; (vii) dissemination of the draft CAPE report (including working papers) on Sri Lanka to the country team, ADB operations staff, executing agencies, government officials, and other groups for their review and comments; and (viii) triangulation. An innovative feature of the CAPE process was information sharing with and dissemination of the CAPE evaluation working papers to the public, mainly by posting draft papers on the website of ADBs Operations Evaluation Department (OED). 2. Assessment of the Positioning of Sectors and Thematic Assistance. The CAPE for Sri Lanka assessed the positioning of five sectors (agriculture and natural resources, education, power, transport, and water supply and sanitation) and of two thematic areas (governance and assistance to conflict-affected provinces in the North and East). This was done to determine the degree of coherence of the strategies and programs at the sector and thematic levels. Six criteria guided the assessment of positioning: (i) ownership and alignment with country and ADB priorities, (ii) basis for formulating the strategies and programs, (iii) ADBs comparative advantage and strategy coordination with development partners, (iv) focus and/or selectivity and synergies, (v) long-term continuity, and (vi) risk assessment and monitoring mechanisms to achieve envisaged results. 2 Table A1.1 presents a four-point scale to assess positioning, along with the overall rating. Table A1.1: Assessment of the Positioning of Sector and Thematic Assistance
Criteria for Positioning ADBs Comparative Advantage and Ownership/ Risk Assessment Alignment Strategy and Monitoring with Coordination with Basis for Focus/ Mechanisms to Country Formulating Other Selectivity Achieve and ADB the Strategy Development and Rating Long-Term Envisaged a Synergies Continuity Average Partners Description Priorities and Program Results HS 3 3 3 3 3 3 S 2 2 2 2 2 2 PS 1 1 1 1 1 1 US 0 0 0 0 0 0 Overall Rating:a (i) HS > 2.5, (ii) 2.5 S 1.6, (iii) 1.6 > PS 0.6, and (iv) 0.6 > US. ADB = Asian Development Bank, HS = highly satisfactory, PS = partly satisfactory, S = satisfactory, US = unsatisfactory. a This overall rating of positioning can be translated to an equivalent scale of (i) HS = 8 points, (ii) S = 6 points, (iii) PS = 4 points, and (iv) US = 0 point, for purposes of subsequently aggregating the overall performance score of the ADB assistance program at the country level. This equivalent scale harmonizes it with the top-down rating system in Table A1.3.
1

ADB. 2006. Guidelines for the Preparation of Country Assistance Program Evaluation Reports. Manila. Available: http://www.adb.org/Documents/Guidelines/Country-Assistance-Program/guide-peparation-0206.pdf ADB. 2006. Country Assistance Program Evaluation for Lao Peoples Democratic Republic. Manila. Available: http://www.adb.org/Documents/CAPES/LAO/cap-lao-2006-05.pdf

Appendix 1

52

3. Overall Assessment of the ADB Assistance Program. Consistent with the prescribed guidelines for the overall assessment of the ADB country assistance program, the CAPE for Sri Lanka involved (i) a bottom-up assessment of the performance of the sector assistance program and (ii) a top-down assessment that rated ADBs overall positioning of its country strategies and programs in the last decade, the contribution of the assistance program to development results, and the quality and responsiveness of ADBs services. The performance of the sector assistance program was evaluated against five criteria: (i) relevance, (ii) effectiveness, (iii) efficiency, (iv) sustainability, and (v) impact. Twice as much weight was given to effectiveness, sustainability, and impact to highlight the importance that ADB accords to making a durable contribution to development results. A performance rating of the sector assistance program was derived by adding up the scores accorded to each criterion. The next step was to use a weighted index of 2 for major sectors and 1 for minor sectors to obtain the aggregate sector performance rating (Table A1.2). Major sectors are those sectors in which ADB either was the lead development partner, had an extensive portfolio of lending and nonlending operations, or provided assistance that has generated major development results. Subsequently, the scores derived from the bottom-up and top-down assessments were added up and given equal weights to arrive at the overall assessment of the ADB country assistance program (Table A1.3). Table A1.2: Bottom-Up Assessment of the Sector Assistance Program
Evaluation Criterion Relevance Description Relevance refers to the alignment of ADBs sector strategy and program with evolving development challenges and priorities of the developing member country, and with the mission, policies, and strategies of ADB. Effectiveness refers to the extent to which the outcomes of the assistance program were achieved. Rating Highly Relevant Relevant Partly Relevant Irrelevant Highly Effective Effective Less Effective Ineffective Highly Efficient Efficient Less Efficient Inefficient Most Likely Likely Less Likely Unlikely High Substantial Modest Negligible Score (Points) 3 2 1 0 6 4 2 0 3 2 1 0 6 4 2 0 6 4 2 0

Effectiveness

Efficiency

Efficiency describes the extent to which ADBs resources were used to achieve results. Measures include cost effectiveness, economic internal rates of return, and the degree to which the benefits of the assistance program have reached the poor, among others. Sustainability focuses on the likelihood that the achievement of sector results will be sustained into the future and will prove resilient to identified risks. Sustainability has important fiscal, social, political economy, and environmental dimensions. Impact refers to ADBs contribution to long-term changes in development conditions, including attainment of the Millennium Development Goals, goals of the ADB assistance program, and improved institutional capacity. The performance rating of the sector assistance program is derived by adding up the scores given to each evaluation criterion (relevance, effectiveness, efficiency, sustainability, and impact).

Sustainability

Impact

Performance of the Sector Assistance Program

Highly Successful 20 Successful 15 and <20 Partly Successful >10 and <15 Unsuccessful 10

Aggregate Sector Aggregate sector performance score = (Wi * Sector Performance performance score)/ Wi, where Wi is equivalent to 2 for major sectors and 1 for minor sectors.

Highly Successful 20 Successful 15 and <20 Partly Successful >10 and <15 Unsuccessful 10 Source: ADB. 2006. Guidelines for the Preparation of Country Assistance Program Evaluation Reports. Manila.

Appendix 1

53

Table A1.3: Overall Assessment of the Country Assistance Program (Top-Down and Bottom-Up)
Item Positioning of ADBs Country Strategies Description Positioning refers to the degree of coherence of ADBs country strategies, given existing constraints. Its assessment is based on (i) ownership/alignment with country and ADB priorities (relevance); (ii) basis for formulating the strategies and programs; (iii) ADBs comparative advantage and strategy coordination with development partners; (iv) focus/selectivity and synergies; (v) long-term continuity; and (vi) risk assessment and monitoring mechanisms to achieve envisaged results. This assesses the extent to which ADBs overall country assistance program contributed to the achievement of development results such as pro-poor economic growth, inclusive social development, and good governance. The assessment of ADB performance focuses on the processes that underlie ADBs discharge of responsibilities as a development partner. This assessment reflects the perceptions/views of various groups and individuals who have dealings with ADB. This refers to the sum of the scores given to the three foregoing criteria (positioning, contribution to development results, and ADB performance). This refers to the overall performance of the sector assistance program, using a weighted index of 2 for major sectors and 1 for minor sectors. Rating Highly Satisfactory Satisfactory Partly Satisfactory Unsatisfactory Score (Points) 8 6 4 0

Contribution to development results ADB performance

High Substantial Modest Negligible Highly Satisfactory Satisfactory Partly Satisfactory Unsatisfactory

8 6 4 0 8 6 4 0

Top-down assessment, countrywide

Highly Successful Successful Partly Successful Unsuccessful Highly Successful Successful Partly Successful Unsuccessful

20 15 and <20 >10 and <15 10 20 15 and <20 >10 and <15 10

Bottom-up assessment, aggregate sector performance Overall Assessment

The overall assessment of the country assistance program Highly Successful 40 combines the scores derived from the top-down countrywide Successful 3039 assessment and the bottom-up assessment of aggregate sector Partly Successful 2029 performance. Equal weights are assigned to each assessment Unsuccessful 19 rating. Source: ADB. 2006. Guidelines for the Preparation of Country Assistance Program Evaluation Reports. Manila.

4. The Operations Evaluation Mission visited Sri Lanka several times: from 23 March to 7 April 2006, from 25 August to 25 September 2006, and from 15 November to 14 December 2006. Existing OED evaluation reports on Sri Lanka also were used in this CAPE. Communications were conducted through meetings, workshops, email, telephone, and videoconferences. The evaluation included a perception survey to assess the relevance, effectiveness, and efficiency of SLRM. The survey targeted persons (external and internal to ADB) who have had interaction or involvement with SLRM. A total of 278 persons were contacted, and 88 responses were received, a response rate of 32%. The evaluation team conducted several workshops in December 2006 in Sri Lanka.

54

KEY ECONOMIC, POVERTY, AND SOCIAL INDICATORS; AND MILLENNIUM DEVELOPMENT GOALS OF SRI LANKA Table A2.1: Poverty and Social Indicators, Sri Lanka
Indicators A. Population Indicators 1. Total Population, Mid-Year (Million) 2. Annual Population Growth Rate (%) B. 1. 2. 3. 4. Social Indicators Total Fertility Rate (Births per Woman) Maternal Mortality Ratio (per 100,000 Live Births) Infant Mortality Rate (Below 1 year per 1,000 Live Births) Life Expectancy at Birth (Years) a. Female b. Male Adult Literacy (%) a. Female b. Male Net Primary School Enrollment Ratio (%) a. Female b. Male Net Secondary School Enrollment Ratio (%) a. Female b. Male Child Malnutrition (% Below Age 5) Population with Access to Improved Water Sources (%) a. Rural b. Urban Population with Access to Improved Sanitation (%) a. Rural b. Urban Public Expenditure on Education (% of GDP) 1970 12.5 2.1 1980s 14.7 (1980) 1.8 (1980) 1990s 16.3 (1990) 17.9 (1998) 1.4 (1990) 1.3 (1998) 2.5 (1990) 42.3 (1991) 26.0 (1990) 74.0 (1990) 69.0 (1990) 96.3 (1996) 96.9 (1996) 93.7 (1996) 94.3 (1996) 38.0 (1993) 62.0 (1990) 91.0 (1990) 70.0 (1990) 64.0 (1990) 89.0 (1990) 3.0 (1990) 2.6 (1998) 1.6 (1990) 1.4 (1998) 5.3 (1995) 0.73 (1998) 84 out of 174 0.73 (1998) 68 out of 143 833 (1995/96) Early 2000s 18.5 (2000) 1.3 (2000) Latest Year 19.9 (2006) 1.0 (2005)

Appendix 2

4.3 65.0 66.9 64.1 78.2 70.9 85.6 3.3 (1971) (1971) (1971) (1971) (1971)

3.9 (1980) 34.4 (1980) 72.1 67.2 87.2 83.2 91.1 1.7 (1980) (1981) (1981) (1981) (1981) (1981)

2.0 (2000) 16.0 (2000) 90.7 (2001)a 89.2 (2001) 92.3 (2001) 29.4 (2000) 2.5 (2000) 1.6 (2000) 4.5 (2000) 0.75 (2000) 96 out of 177 1,423 (2002)

2.0 (2004) 28.0 (2002) 12.0 (2004) 77.0 72.0 92.5 90.6 94.5 (2004) (2004) (2004)b (2004) (2004)

5.

6.

98.1 (2004) 97.8 (2004) 96.6 (2004) 95.7 (2004) 30.0 (2004) 74.0 (2004) 98.0 (2004) 91.0 (2002) 89.0 (2004) 98.0 (2004) 2.6 (2005) 1.9 (2005) 2.6 (2005) 0.76 (2004) 93 out of 177 0.75 (2004) 68 out of 177 1,921.0 (2005) 2,254.0 (March 2007)

7.

8. 9.

10.

11.

12. Public Expenditure on Health (% of GDP) 13. Public Expenditure on Defense (% of GDP) 14. Human Development Index (Value) Rank 15. Gender-Related Development Index (Value) Rank C. Poverty Indicators 1. National Poverty Line (in Rupees per Capita per Month)

0.61 (1975) -

0.65 (1980) -

Indicators 2. Poverty Headcount Ratio (%)c a. National Rural Urban Estate b. By Province Western North-Central Central North-Western Southern Sabaragamuwa Uva 3. Poverty Depth or Poverty Gap (%)f National Western North-Central Central North-Western Southern Sabaragamuwa Uva 4. Poverty Severity (%)g National Western North-Central Central North-Western Southern Sabaragamuwa Uva 5. Gini Coefficient of Per Capita Consumption Expenditure 6. Human Poverty Index Rank - = not available, GDP = gross domestic product.
a b c d e f

1970 -

1980s -

1990s 28.8 30.9d 14.0d 38.4e 17.0 25.0 36.0 27.0 32.0 42.0 47.0 (1995/96) (1995/96) (1995/96) (1995/96) (1995/96)

Early 2000s -

Latest Year 22.7 (2002) 24.7 (2002) 7.9 (2002) 30.0 (2002) (2002) 11.0 21.0 25.0 27.0 28.0 34.0 37.0 (2002) 5.1 2.2 4.3 5.1 6.0 6.5 7.5 8.9 (2002) 1.6 0.7 1.3 1.6 2.0 2.2 2.4 3.2 0.40 (2002) 18.0 (2004) 38 out of 177

6.6 3.3 4.7 8.9 5.3 7.4 10.3 12.6

(1995/96)

(1995/96) 2.2 1.0 1.3 3.2 1.6 2.5 3.6 4.8 0.32 (1995/96) 20.3 (1998) 35 out of 174

Data are given for only 18 districts where the 2001 Census of Population and Housing was carried out completely. The years 1971 and 1981 were also census years Not a census year. Percentage of the population below the national poverty line. Rural and urban figures for 1995/1996 are not comparable with 2002 data. The classification of rural and urban areas was different at that time. The 1995/96 estate data are not comparable with 2002 data due to a sampling difference. Poverty depth/gap is the mean distance separating the population from the poverty line (with the nonpoor being given a distance of zero), expressed as a percentage of the poverty line. The poverty severity index gives a weight to the poverty gap (more weight to very poor than to less poor).

Appendix 2

55

56

Table A2.2: Key Economic Indicators, Sri Lanka

Indicator A. Income and Growth 1. GDP per Capita (Current Prices, $)b 2. GDP (Current Prices, SLR billion)b 3. Sector Shares (% of GDP, Current Factor Cost Prices) b a. Agriculture b. Industry c. Services 4. GDP Growth, (Constant Prices, %)c a. Agriculture b. Industry c. Services B. Employment 1. Population, Mid-Year (million)b 2. Unemployment Rate (%)b C. Savings and Investment (Market Prices) % of GDP)b 1. Gross Domestic Investment 2. Gross National Savings D. Money and Inflation (Annual % Change) 1. Consumer Price Index (Colombo)b 2. Money Supply (M2)c 3. Inflation (%)c E. Government Finance (% of GDP)b 1. Total Revenue 2. Total Expenditure 3. Overall Fiscal Balance 4. Government Debt Foreign debt Domestic debt F. Balance of Payments 1. Merchandise Trade Balance (% of GDP)c 2. Current Account Balance (% of GDP)b 3. Growth of Merchandise Exports, $, FOB (%) c 4. Growth of Merchandise Imports, (11.6) (6.0) 23.1 10.3 (9.7) (4.9) 16.0 13.7 (8.1) (2.6) 21.1 19.0 (6.9) (1.4) 13.2 14.9 (8.7) (3.6) 4.8 11.0 (10.8) (6.4) 29.2 31.4 (7.5) (1.4) 2.4 (3.8) (8.3) (1.4) 4.5 9.7 (8.4) (0.4) 10.1 10.1 (11.2) (3.3) 17.9 26.0 (10.7) (2.8) 9.3 9.9 (12.5) (2.5) 7.7 19.2 7.7 20.4 30.5 (10.1) 95.2 51.9 43.3 15.9 10.8 15.9 19.0 28.5 (9.4) 93.3 46.8 46.4 9.6 13.8 9.6 18.5 26.4 (7.9) 85.8 42.3 43.5 9.4 13.2 9.4 17.2 26.3 (9.2) 90.8 45.3 45.5 4.7 13.4 4.7 17.7 25.2 (7.5) 95.1 45.9 49.1 6.2 12.9 6.2 16.8 26.7 (9.9) 96.9 43.1 53.8 14.2 13.6 14.2 16.7 27.5 (10.8) 103.2 45.3 58.0 9.6 13.4 9.6 16.5 25.4 (8.9) 105.4 45.6 59.8 6.3 15.3 6.3 15.7 23.7 (8.0) 105.8 47.9 57.9 7.6 19.6 7.6 15.4 23.5 (8.2) 105.5 49.1 56.4 11.6 19.1 11.6 16.1 24.7 (8.7) 93.9 40.4 53.5 13.7 17.8 13.7 17.0 25.4 (8.4) 93.0 40.4 52.6 25.7 19.5 24.2 19.0 24.4 21.4 25.1 23.4 27.3 23.5 28.1 21.5 22.0 20.3 21.3 19.5 22.1 21.6 25.0 21.6 26.5 23.4 28.7 23.4 17.3 12.3 17.5 11.3 17.7 10.5 17.9 9.2 18.3 8.9 18.5 7.6 18.7 7.9 19.0 8.8 19.3 8.4 19.5 8.3 19.7 7.7 19.9 6.5 1995 719.0 667.8 100.0 23.0 26.5 50.5 5.5 3.4 8.1 4.8 1996 759.0 768.1 100.0 22.4 26.5 51.1 3.8 (4.6) 5.6 6.0 1997 853.0 890.3 100.0 21.9 26.9 51.2 6.3 3.0 7.7 7.1 1998 879.0 1,018.0 100.0 21.1 27.5 51.4 4.7 2.5 5.9 5.1 1999 863.0 1,106.0 100.0 20.7 27.3 52.0 4.3 4.5 4.8 4.0 2000 899.0 1,258.0 100.0 19.9 27.3 52.8 6.0 1.8 7.5 7.0 2001 841.0 1,407.4 100.0 20.1 26.8 53.1 (1.5) (3.4) (2.1) (0.5) 2002 870.0 1,582.0 100.0 20.5 26.3 53.2 4.0 2.5 1.0 6.1 2003 948.0 1,761.0 100.0 19.0 26.4 54.6 6.0 1.6 5.5 7.9 2004 1,030.0 2,029.0 100.0 17.8 26.8 55.4 5.4 (0.3) 5.2 7.6 2005 1,197.0 2,366.0 100.0 17.3 27.1 55.6 6.0 1.9 8.3 6.2 2006a

Appendix 2

1,355.0 2,802.0 100.0 16.5 27.1 56.4 7.4 4.7 7.2 8.3

$, CIF (%) c 5. Exports, by Principal Commodity (SLR million) b a. Garments 84,806.0 b. Tea 24,638.0 c. Petroleum Products 4,374.0

93,813.0 34,068.0 5,740.0

121,083.0 42,533.0 5,396.0

142,332.0 50,280.0 4,662.0

155,214.0 43,728.0 5,210.0

206,359.0 53,133.0 7,414.0

208,624.0 61,602.0 6,053.0

214,895.0 63,105.0 7,003.0

231,652.0 65,937.0 6,299.0

268,573.0 74,897.0 10,133.0

276,144.0 303,263.0 81,482.0 91,667.0 13,169.0 19,451.0

6
2006a 9,674.0 12,385.0 12,898.0 6,882.7 10,253.0 (3,370.3) 451.0 2,326.0 4.7

Indicator d. Rubber e. Precious Stones f. Coconut Products b 6. Total Exports, All Types ($ million) b 7. Total Imports, All Types ($ million) b 8. Trade Balance ($ million)b 9. Foreign Direct Investment ($ million) b,c 10. Worker Remittances ($ million) b G. External Sector 1. Total International Reserves ($ million)c a. Gold, National Valuation b. Foreign Exchange c. Reserve Position in the Fund d. Special Drawing Rights 2. Months of Imports (External Assets as % of Imports) b 3. External Debt, $ millionb a. Total External Debt (Short-Term Debt + Medium- and Long-Term Debt) b. Total External Debt and Banking Sector External Liabilities 4. As % of GDP b a. Total External Debt b. Total External Debt and Banking Sector External Liabilities 5. Debt-Service Ratio (Debt Service as % of Earnings from Merchandise Exports

1995 5,713.0 3,971.0 5,271.0 3,806.6 5,311.1 (1,504.5) 56.0 n.a. 2,093.7 6.0 2,056.7 30.1 0.9 6.6

1996 5,753.0 4,771.0 6,091 4,095.1 5,438.8 (1,343.7) 119.9 n.a. 1,967.0 5.0 1,931.0 29.0 2.0 6.0

1997 4,640.0 4,899.0 6,940.0 4,639.0 5,863.8 (1,224.8) 430.1 n.a. 2,028.4 5.0 1,996.0 27.0 0.4 6.4

1998 2,808.0 3,577.0 6,110.0 4,797.8 5,889.5 (1,091.7) 193.4 999.0 1,983.9 4.1 1,950.0 28.5 1.3 5.9

1999 2,305.0 4,326.0 9,119.0 4,610.1 5,979.3 (1,369.2) 176.4 1,056.0 1,639.4 3.8 1,569.1 65.5 1.0 5.2

2000 2,179.0 7,091.0 9,174.0 5,522.3 7,319.8 (1,797.5) 173.0 1,160.0 1,042.5 3.5 976.4 62.2 0.4 3.5

2001 2,129.0 7,276.0 7,348.0 4,816.9 5,974.4 (1,157.5) 171.8 1,155.0 1,357.5 70.7 1,225.9 60.1 0.9 4.5

2002 2,552.0 8,173.0 8,009.0 4,699.0 6,105.6 (1,406.6) 196.5 1,287.0 1,705.0 74.5 1,563.6 65.0 2.3 4.9

2003 3,718.0 7,606.0 8,926.0 5,133.3 6,671.9 (1,538.6) 228.7 1,414.0 2,333.7 68.8 2,193.2 71.1 0.6 5.8

2004 5,155.0 10,939.0 11,453.0 5,757.2 7,999.8 (2,242.6) 227.0 1,564.0 2,205.0 72.9 2,057.6 74.3 0.2 5.2

2005 4,724.0 12,088.0 11,400.0 6,346.7 8,863.2 (2,516.5) 234.0 1,918.0 2,736.5 85.6 2,581.0 68.4 1.5 5.7

8,694.0 9,772.0 66.7 75.0

8,486.0 9,533.0 61.1 68.6

8,197.0 9,399.0 54.3 62.3

8,749.0 9,707.0 55.5 61.6

9,088.0 9,976.0 57.8 63.5

9,031.0 10,123.7 54.5 61.0

8,372.0 9,490.0 53.2 60.3

9,333.0 10,334.0 56.3 62.4

10,735.0 11,781.0 58.4 64.6

11,346.0 12,775.0 56.6 63.7

11,354.0 13,020.0 48.2 55.3

12,235.0 14,230.0 45.4 52.8

16.5 15.3 13.3 13.3 15.2 14.7 13.2 and Services)b b 51.3 55.3 59.0 64.6 70.4 75.8 89.4 6. Exchange Rate (Average, SLR/$) - = not available, ADB = Asian Development Bank, CIF = cost, insurance, and freight, FOB = free on board, GDP = gross domestic product. a Provisional. Sources: b Central Bank of Sri Lanka. Various Years. Annual Reports . Colombo. Available: http://www.cbsl.gov.lk c ADB. 2006. Key Indicators . Manila. Available: http://www.adb.org/documents/books/key_indicators/2006/default.asp d ADB. 2000, 2003, and 2006. Key Indicators . Manila; and Central Bank of Sri Lanka. 2006. Annual Report . Colombo.

13.2 95.7

11.6 96.5

11.6 101.2

7.9 100.5

12.7 104.0

Appendix 2

57

58

Appendix 2

Table A2.3: Status of Sri Lankas Targets for the Millennium Development Goals
Goal 1 Indicator Proportion of population below the national poverty line (%) Proportion of population below $1 a day (PPP) Poverty gap ratio Poorest quintiles share in national consumption (%) 2 Prevalence of underweight children under 5 years old (%) Population below minimum level of dietary energy consumption (%) Net enrolment ratio in primary school (%) Proportion of pupils in Grade 1 who reach Grade 5 Literacy rate, 15-24 years of age 4 Girls to boys ratio, primary education Girls to boys ratio, secondary education Girls to boys ratio, tertiary education Ratio of literate women to men, 15-24 years of age Women in wage employment, non-agriculture (%) Proportion of seats held by women in national parliament (%) 5 Under-5 mortality rate per 1,000 live births (%) Infant mortality rate per 1,000 live births (%) Share of 1-year-old children immunized against measles (%) 6 Maternal mortality ratio per 1,000 live births Share of births attended by skilled health personnel 7 HIV prevalence among 1524 years old pregnant women HIV prevalence rate among women (1524 years old) attending antenatal clinics (%) Increase in percentage of sex workers who report condom use with most recent client (%) Increase in percentage of clients of sex workers who report condom use in commercial sex Ratio of school attendance of orphans to attendance of nonorphans, 1014 years old Incidence of malaria per 100,000 Death rate associated with malaria (number) Proportion of population in malaria-risk areas using effective malaria prevention and treatment measures Incidence of tuberculosis per 100,000 MDG Target Latest Year 2015 Status 26.1 22.7 13.1 Slow, not on (2002) track 3.8 5.6 5% On track (2002) 0.7 0.8 Not on track (2002) 8.9 7.0 Not on track (2002) 38.0 29.4 19.0 On track (2000) 50.9 51.3 25.0 Not on track (2002) 91.7 97.1 100 Early (2004) achiever1 92.7 97.6 100 Early (2002) achiever1 92.7 95.1 100 On track (2004) 1.0 1.0 1.0 Early 1 (2003) achiever 1.1 1.0 1.0 Early (2004) achiever1 0.6 1.0 On track 1.0 1.0 1.0 Early achiever (2004) 39.1 43.2 Not on track (2004) 4.9 4.9 Not on track (2006) 32.0 14.0 12.0 Early achiever (2004) 26.0 12.0 12.8 Early achiever (2004) 80.0 96.0 99.0 On track (2004) 0.92 0.47 0.36 On track (2001) 96.0 99.0 On track (2000) Sri Lanka has low HIV prevalence. Antenatal population is not screened for HIV. <0.1 <1 On track (2001) 40 80 On track (2001) 30 70 On track (2001) As of 2005, there were only six such orphans. 1,520 350 On track (2001) 50 53 Not on track (2001) This is a new indicator for Sri Lanka. Data are not available. 39.1 44.1 Reverse Not on track (2001) incidence 1990s

Appendix 2

59

MDG Target Latest Year 2015 Status Death rate associated with tuberculosis per 100,000 2.4 1.8 Reverse Early achiever (2001) incidence Proportion of tuberculosis cases detected and cured under 75 100 On track directly observed short course (%) (2001) Forested land area as a percentage of land area (%) 36.4 29.9 Reverse Regressing (2005) loss Ratio of protected area to maintain biological diversity to 15.5 17.2 Reverse On track surface area (2005) loss Carbon dioxide emissions, metric tons per capita 0.2 0.5 Reverse Regressing (2003) emissions Ozone-depleting chlorofluorocarbons consumption (ozone 209.5 155.7 Reverse Early achiever depleting potential, metric tons) (2004) trend Proportion of population using solid fuels (%) 89.0 80.2 Not on track (2001) Proportion of population with access to an improved water 72 82 86 On track source, urban and rural (2001) Proportion of population with access to improved sanitation, 73 80 93 On track urban and rural (2001) Slum population as percentage of urban (proportion of 24.8 13.6 Not on track households with access to secure tenure) (2001) 8 Youth unemployment rate, both sexes, 1524 years of age 33.3 27.2 On track (2003) Youth unemployment rate, men, 1524 years old 22.8 21.9 On track (2003) Youth unemployment rate, women, 1524 years old 46.9 36.1 On track (2003) Telephone lines and cellular subscribers per 100 population 0.7 16.5 On track (2004) Internet users per 100 population 0.0 1.4 On track (2004) Personal computers per 100 population 0.0 2.7 On track (2004) = not available, HIV = human immunodeficiency virus, MDG = millennium development goal, PPP = purchasing power parity. 1 Early achiever in terms of the education indicators also means that the 95% cut-off value had been achieved. Sources: (i) United Nations Development Programme. 2005. Millennium Development Goals Country Report: Sri Lanka. Colombo. Available: http://www.mdg.lk (ii) United Nations Economic Commission for Asia and the Far East, United Nations Development Programme, and Asian Development Bank. 2006. The Millennium Development Goals: Progress in Asia and the Pacific. Bangkok. Available: http://www.mdgasiapacific.org Goal Indicator 1990s

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Appendix 3

COUNTRY STRATEGIES AND PROGRAMS FOR SRI LANKA Table A3.1: Major Thrusts of the Country Strategies and Programs in Sri Lanka
Major Thrusts Overall Thrust 19931997 Country Strategy and Program and Its Updates 19982003 20042008 Poverty reduction through structural transformation, improved targeting of social programs, and natural resource management Poverty reduction through economic growth, social development, and good governance. Reconstruction and development Continuing support for sector productivity through improved policy and regulatory environment and broader sector commercialization Greater private sector participation in research, extension, marketing, and financial services Agribusiness capacity expansion Natural and environmental resource management Flexibility in responding to rehabilitation needs in the North and East Emphasis on roads and secondarily on ports Public-private partnerships Sustainable funding of road maintenance Capacity development

Reduction of poverty and unemployment through accelerating sustainable growth, improving the policy framework, and focusing on sector initiatives

Sector Priorities (i) Agriculture

Policy reform consolidation Improvement of agricultural in the perennial crops performance through a shift to sector higher income production systems and enhanced policy Public-private interface in and institutional reforms research, extension, and marketing Private sector involvement Productivity improvements Environmental sustainability Improvements in the condition of plantation workers Natural resource management

(ii) Transport

Road network upgrading and expansion Private sector involvement

Integration of the road network with other transport modes Capacity building of sector institutions Financing of road operation and maintenance Private sector participation Policy reforms Provision of complementary power infrastructure

(iii) Power

Expansion of power infrastructure/rural electrification Support for tariff adjustments Institutional strengthening

Power sector restructuring Continuing investment in transmission and distribution and in rural electrification Private sector participation Decentralization of service delivery Improvement of operational efficiency and sustainability Increased attention to sanitation needs Improving access to quality education and information technology Skills-based competitiveness Narrowing the gender gap in access to skills training

(iv) Water Supply and Sanitation

Improvement of service Rehabilitation and coverage, cost recovery, augmentation of water supply and self-financing capacity and sanitation systems of sector agencies Capacity development of sector agencies Strengthening service delivery Improvement of the quality of technical education and vocational training and its institutional framework Strengthening links with industry Equitable access to quality secondary education Development of marketable skills and attitudes at various educational levels Rationalization of fragmented institutions and programs in the technical education and vocational training subsector

(v) Education

Appendix 3

61

Major Thrusts

19931997

Country Strategy and Program and Its Updates 19982003 20042008 Curriculum design improvement Public-private partnerships Capital markets deepening and broadening Regulatory framework development Development of long-term government securities Further support for public enterprise reform Introduction of safety nets and labor market flexibility Microfinance (regulatory framework) Enabling environment for private sector-led growth Public enterprise reform Regulatory and policy reforms (small and medium enterprises and rural finance) Public sector management Dialogue with the Government on public administration reform Decentralization Anticorruption Preferential or equal access by women to skills training and support services, including microfinance and self-employment Upgrading the role of women in development Strengthening nonbank financial markets Regulatory framework for nonbank institutions Deepening the capital market Financing availability for small and medium enterprises Improving access to business development services Growth acceleration, job creation, and improvements in efficiency and productivity Pro-poor service delivery Public sector expenditure management Resource mobilization Decentralization Corporate governance of state-owned enterprises Regulatory framework (public utilities, finance, and banking) Anticorruption Mainstreaming of gender considerations in all sectors

(vi) Industry and Finance

Improving policies and institutions Reforming the financial sector Development of financial intermediaries Development of new market instruments and financing schemes Supporting small and medium enterprises

Thematic Priorities (i) Private Sector Support for a market-oriented Development economy Public enterprise reform/privatization of commercial state-owned enterprises

(ii) Governance

(iii) Gender and Development

Integration of gender concerns into appropriate project components

(iv) Environment

Compatibility of projects with their environmental setting Focus on issues of concern (water resource management, land use planning, coastal zone rehabilitation, forest depletion, and urban blight)

Support for master plans Sustainable natural resource management (forest management, biodiversity conservation, coastal resources management, and integrated water resource management) Sustainable natural resource management Trade/market expansion Tourism Support for the South Asian Association for Regional Cooperation

(v) Regional Cooperation

Not mentioned

Sources: Asian Development Bank. Various years. (i) Country Operational Strategies and (ii) Country Strategies and Programs for Sri Lanka. Manila.

62

Table A3.2: Highlights of ADBs Strategies for Sri Lanka, 19982008

Country Operational Strategy CSP Update (19982003) (20022004) I. DEVELOPMENT TRENDS AND ISSUES A. Political Internal conflict had distracted financial and political resources from development goals. About 5% of GDP and 17% of the public budget went to the civil war effort. Over 55,000 lives had been lost and more than 800,000 people displaced in the last 15 years due to the civil war. Tension between the Sinhalese and Tamil started in the late 1950s, and a higher level of conflict had been ongoing with varying intensity since 1983. The Government turned to a two-pronged strategy: intensified military operations and a proposal to devolve additional powers to the provinces. The Government had requested funding agencies to contribute additional resources for reconstruction once the war is over. In early 2001, there was optimism that the peace process between the Government and the LTTE, facilitated by the Norwegian Government, would move forward due to (i) war fatigue on both sides after extensive human and economic losses; and (ii) international pressure on the LTTE. The LTTE ended its 4-month unilateral ceasefire on 24 April 2001 due to Government refusal to reciprocate the ceasefire. Progress after peace talks was not achieved. Optimism had wavered due to the deep-seated distrust between the two sides. CSP Update (20032005) CSP (20042008) CSP Update (20052006) CSP Update (20062008)

Appendix 3

The new Government, led by the UNF, came to office in 2001 and accorded high priority to settlement of civil conflict. In February 2002, the Government and the LTTE formally agreed to cease hostilities. Confidencebuilding measures included (i) reopening in April 2002 of the A9 highway from Kandy to Jaffna after 12 years, (ii) unimpeded flow of nonmilitary goods and essential items to and from LTTE-controlled areas, and (iii) setting up of the Sri Lanka Monitoring Mission to monitor compliance with the agreement.

The UNF continued previous government efforts to bring about peace and resolve the prolonged ethnic conflict. The ceasefire agreement was signed in February 2002. The cessation of hostilities was now in its second year of implementation. The Government was in discussion with the LTTE about ending the conflict and establishing a federal structure in the North and East of the country, within the framework of a unitary state.

Six rounds of peace talks were conducted up to early April 2003, but the LTTE had temporarily withdrawn from the process. It insisted on an interim administration for the North and East that ensured political and economic freedom for the people there. To date, the Government had removed most economic and travel sanctions in those areas, including the restriction on movement of people, tradable goods, and building materials; and the ban on fishing. The Progress on the peace Government released some highprocess raised hopes security zones, particularly in the for sociopolitical and Jaffna peninsula, for resettlement economic stability. and agricultural activities.

In November 2003, President Kumaratunga assumed control of three key ministriesdefense, interior, and media that had previously been controlled by the UNF government. A parliamentary election was held on 2 April 2004, 4 years ahead of schedule, resulting in victory for an alliance between the Presidents party and the Janatha Vimukthi Peramuna. The first months after the elections were marked by building intra-alliance consensus, and seeking support from minority parties to gain sufficient parliamentary seats for the alliance to be able to govern.

In the aftermath of the tsunami that struck on 26 December 2004, it seemed that the disaster would strengthen the peace process, as all ethnic groups united to help the victims in the north, east, and south of the country. More recently, the situation has become fluid again, and remains tense in the East. On 24 June 2005, the Government signed an agreement to implement joint post-tsunami reconstruction projects with the LTTE, a mechanism that involved all affected parties, including the Muslim community. The deal prompted opposition from various factions. While there is still no agreement on when peace talks will restart, the joint mechanism was seen as an important step for trust building between the Government and the LTTE. All parties remained committed to the peace process and to a negotiated settlement. With an average mean

B. Social Indicators:

Sri Lanka made

In 2000, Sri Lanka ranked 89th of

Regional income

Country Operational Strategy (19982003) the Human Development Index of 0.711 was largely due to Sri Lankas socialist tradition and policies no widespread gender bias in access to the benefits of development 26% of the population lived below the poverty line (1990) Gini coefficient of consumption expenditure was 0.32 outmigration was considerable; overseas remittances were an important source of supplementary income unemployment at 11.2% (19951997 average); 80% of the poor worked in the rural areas and on the estates in the 1990s, the average life expectancy was 72 years; infant mortality rate was 15 per 1,000 live births; 88% literacy level; 100% primary school enrollment; fertility rate was near replacement level; natural increase of the population was 1.2% per year 8% of GDP and 36% of central Government expenditure went to social services, including social welfare and housing.

CSP Update (20022004)

CSP Update (20032005) progress toward achieving the MDGs and targets despite the prolonged civil conflict. Official statistics, however, generally excluded the North and East. In 1997, the gross enrolment rate reached over 100% in primary education and 75% in secondary education, with limited gender disparity. Child and maternal mortality rates also improved. Population with access to safe water and sanitation increased (83%). Official poverty incidence was 29% in 1995, but was estimated at 40% after including the North and East.

CSP (20042008) 173 countries in the Human Development Index and attained the highest level in South Asia (0.74). Some of the MDGs had already been met. However, the quality of social services remained poor. Moreover, inadequate calorie intake in low-income families caused wasting among children below 5 years old and maternal undernutrition, the latter triggering a fairly high incidence of low-birthweight babies. Access to safe water was at 80% overall but the water was often of relatively poor quality especially in the North and East (where water sources are frequently badly polluted) and in the rural areas more generally. In the conflict-affected areas, population displacement had led to a rise in infectious diseases and malnutrition. Malaria had increased tremendously since the conflict began owing to disrupted vector control activities, inadequate numbers of health workers, and limited access to treatment facilities. There are 750,000 Sri Lankans working in the Middle East11% of the labor forcebut there are rising technical qualifications for overseas jobs that Sri Lankans often do not have. Domestic labor supply could swell if overseas workers return home as peace continues. Unemployment is a highly emotive economic and political issue. A major goal is the creation of two million jobs. The Government recognized that absorbing the

CSP Update (20052006) inequality grew in the 5-year interval since 1995/96, possibly due to higher wages in the rapidly expanding private sector in Colombo and the surrounding western province, and an erosion of real incomes by inflation, which tended to hit the poor hardest.

CSP Update (20062008) income per household of only 85% of the national average, the coastal belt had a significant share of the poor. Eastern Province had the highest percentage of children with no schooling at all (14%). Access to electricity and piped water were lowest in the coastal areas (ranging from 3.1% to 17.4%), against an average of 35% for the remainder of Sri Lanka.

Appendix 3

63

64

Country Operational Strategy (19982003)

CSP Update (20022004)

CSP Update (20032005)

CSP (20042008) unemployed productively would not be easy, particularly if there was to be a parallel reduction in the numbers working in government and semipublic positions in line with administrative reform and improved efficiency.

CSP Update (20052006)

CSP Update (20062008)

Appendix 3

C. Economic In spite of the ethnic conflict and occasional setbacks, the economy grew at 5% annually over the last 20 years. The seeds for such growth were sown in two waves of economic and trade liberalization (in 1977 and then in 1987). Growth was accompanied by relatively modest labor absorption. Unemployment rates in the last decade remained high (11 15%). Principal areas for policy reform: (i) fiscal deficit of 9.1% of GDP (19951997) that led to macroeconomic instability, (ii) need for financial sector reform, supervision of financial intermediaries, and capital market development to induce lower interest rates and a better match of maturities between assets and liabilities; and (iii) removal of other obstacles to private sector development, particularly in trade, financial services, tax, and labor legislation. In the past, Sri Lanka invested heavily in the social sector. The

In 2000, the economy grew by 6%, up from 4.3% in 1999. Favorable export conditions boosted garments and textiles as well as the tea sector. Inflation was moderate at 6.2%. The intensified civil conflict resulted in higher securityrelated expenditures (5.6% of GDP). The budget deficit expanded from 7.5% of GDP in 1999 to 9.9% in 2000. Foreign reserves declined from $1.6 billion at end-1999 to $1 billion at end-2000. The total government debt stood at 97.0% of GDP, and 28% of domestic revenue was spent on debt service. This

In 2001, Sri Lanka had a GDP growth of -1.4% due to falling export demand from the global slowdown and poor agricultural yields from the continuing drought. The fiscal deficit reached nearly 10% of GDP, undermining economic growth prospects. The 2002 budget speech recognized the heavy burden of SOE losses on the economy, particularly the crowding out of private investment due to the accumulated fiscal deficits. In the energy sector, the reform efforts included a transparent automatic price adjustment formula for petroleum products and an average 35% increase in power

In 2002, the growth of GDP recovered (4%). The Government now sought to attain greater stability and annual rates of real GDP growth of 810%, rather than the more typical rates of 46%.

The Governments Economic Policy Framework was published in July 2004. It included major infrastructure projects in energy, Public debt by the end of 2002 roads, and ports. stood at over 105% of GDP (up At the same time, from 86% in 1997). Public debtSMEs and more service payments stood at 109% of equitable regional government revenue (up from 51% growth were the in 1997). While over 80% of such focus of the new payments were on domestic rather strategy. Tourism than foreign debt, their size was and the rural sector unsustainable, making policy reform were to be and improved governance critical. promoted, and largeChallenges for the Government scale manufacturing included (i) reforming central and supported. The local governments, (ii) widening the Government planned revenue base and strengthening to strengthen trade fiscal management, (iii) accelerating ties with important the privatization and corporatization trading partners. of SOEs and commercial activities, The Government set (iv) reducing the weight of up three major subsidies, and (v) boosting the agencies in May overall efficiency of government. 2004: (i) the National The Government is actively Council for addressing these issues in its Economic reform agenda and in its mediumterm macroeconomic targets agreed Development, (ii) the Strategic Enterprises upon with IMF. Management

Of more immediate concern for medium-term economic growth are (i) the fragile financial position of the power sector; (ii) the countrys fiscal position, weakened by low revenue collection and by subsidies on fuel, fertilizer, and government services; and (iii) the possible impact of tsunami reconstruction on large infrastructure projects.

Country Operational Strategy (19982003) country now needed to complement this with a greater focus on its physical capital endowment. Sri Lankas savings-investment gap averaged 5.5% of GDP during the 1990s. Three fundamental reasons for the relative low domestic savings rate were (i) egalitarian income distribution, (ii) prevalence of negative real interest rates on deposits, and (iii) public dissaving averaging 2.3% of GDP.

CSP Update (20022004) largely impaired the Governments fiscal capacity in terms of reduced public expenditures on poverty reduction efforts. IMF approved a 14month standby arrangement of about $253 million in April 2001.

CSP Update (20032005) tariffs. The Government was fully committed to rationalizing and simplifying the tax system. It was also committed to labor law reforms.

Outlook. The Government had recognized the need to reform social service delivery. Even after reforms, financing of social expenditure would be increasingly difficult in the future, as the demographic transition would result in a stable labor force, and a higher share of aging persons within the population. Higher levels of economic growth and productivity were seen as important avenues for providing adequate employment and generating the required financial resources to sustain development and improve standards of living.

Outlook. The GDP was projected to grow at 4.5% in 2001 due to slower growth in services and manufacturing output. Export growth was forecast to decline, reflecting the global economic slowdown. Imports were also expected to decline due to lower imports of defense goods and intermediate goods. Currency devaluation and increases in administered prices of commodities such as diesel, gas,

Outlook. A mild recovery was expected in 2002, with GDP growing by 3.5%. Tourism and shipping were slowly returning to their previous levels, and the improving global economy was raising export demand. Power cuts had been eliminated through emergency generation plants. The ceasefire was also providing some needed stability.

CSP (20042008) Job creation lagged behind job demand. Unemployment fell from 16% of the labor force in the early 1990s to about 8.8% in 2002. This was due to the increase in government service employment during the 1990s (over 200,000) and the rise in the security forces required by the conflict (around 150,000). Neither of these safety valves remained a viable option, because it is unsustainable in the present fiscal situation and incompatible with the emerging peace process. Whether employment abroad could continue to increase as rapidly as in the past to ease domestic job pressure was uncertain. Outlook. With the chances of peace now significantly enhanced, and a radically changed government strategy published, the countrys development context has become fundamentally different. The Government is now moving toward a comprehensive reform agenda.

CSP Update (20052006) Agency, and (iii) a National Procurement Agency.

CSP Update (20062008)

Outlook. Future economic performance is dependent on progress in the peace talks, the Governments fiscal stance, and on global economic growth and oil prices. The sustained global increase in oil prices might lead to a widening trade deficit and drain the budget, as petroleum prices remain subsidized. For economic growth to be at least 5%, the restructuring of the economy in all major sectors would have to

Outlook. Without decisive steps to implement the elimination of fuel subsidies and improve revenue collection, the reduction of the fiscal deficit to 8.2% in 2005 is unlikely to be met. There is also a danger that both development partners and Government will focus entirely on post-tsunami reconstruction, neglecting important structural issues that need to be tackled for growth to be sustainable.

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Country Operational Strategy (19982003)

CSP Update (20022004) and electricity were seen to impact on price levels and to push inflation to 9.5%. Maintaining a tight monetary policy stance was needed to contain inflation.

CSP Update (20032005)

CSP (20042008)

CSP Update (20052006) be continued and fiscal consolidation plans implemented.

CSP Update (20062008)

Appendix 3

D. Environment Most significant environmental issues were related to natural resource management, principally in the areas of forest cover and biodiversity, coastal zone management, soil erosion, and water resources. The rate of deforestation had been about 1.3 % per year between 1981 and 1990. With reforestation, forest cover is now approximately 32% of the total land area. Past deforestation led to flooding and erosion in most rainfed agricultural areas, causing soil losses, lower land productivity, siltation of reservoirs, and reducing the useful life of irrigation and hydroelectric infrastructure. While reforestation had led to increased forest cover, management was weak. Economic development and urbanization generated increasing pressure and conflict between alternative water uses, which needed to be harmonized

Forests cover 28% of the countrys land area, with about 1.65 million hectares of natural forests. High population density and sustained efforts to improve living standards have placed tremendous pressure on the countrys natural environment. The Governments State of the Environment Report 2001 identified five key environmental issues: (i) land degradation due to soil erosion, (ii) inadequate disposal of solid and liquid waste in urban areas, (iii) pollution of inland waters, (iv) loss of biodiversity, and (v) degradation of coastal resources. Land is the most critical and severely threatened natural resource, given its importance to agriculture, from which the majority of Sri Lankas poor continue to obtain their livelihoods. Deforestation had led to flooding and erosion in rainfed agricultural areas, triggering loss of fertile topsoil and increased siltation,

Country Operational Strategy (19982003) through a comprehensive and multisectoral approach. The coastal environment had deteriorated. Sand and coral mining and mangrove depletion had accelerated erosion, threatening existing infrastructure. Wastewater from industrial, domestic, and agricultural activities and overfishing were endangering the fragile ecological balance in the southern and western coast. Encroachment of agriculture into protected areas had also endangered preservation of endemic flora and fauna. The Government had developed a number of plans to deal with these issues, envisaging a gradual shift from the development of an institutional framework to pollution control and natural resource management.

CSP Update (20022004)

CSP Update (20032005)

CSP (20042008) which had impaired the efficiency of irrigation and hydropower systems. The regulatory and institutional framework is inadequate to deal effectively with emerging environmental challenges. Capacity strengthening for natural resource and environmental management is in process. The Ministry of Environment and Natural Resources was established in 2001. A new environmental policy and national environmental action plan were prepared. A number of natural resource subsector policies and plans (e.g., in forests, wildlife, biodiversity, fisheries, water resources, watersheds, and coastal resources) were also being prepared. Progress was being made at the subsector level with development planning, drafting of new legislation, and capacity building in the relevant government institutions. However, implementation of the evolving natural resource and environmental management frameworkwhich is often the responsibility of local government agencies that lack the required institutional, human, and financial capacityremained inadequate.

CSP Update (20052006)

CSP Update (20062008)

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Country Operational Strategy CSP Update CSP Update (19982003) (20022004) (20032005) E. Summary of Key Development Issues/Challenges 1. Identified in the 19982003 Country Operational Strategy:

CSP (20042008)

CSP Update (20052006)

CSP Update (20062008)

Appendix 3

(i) Povertyenhancing the preconditions for economic growth while targeting social expenditure for the needy population, support for infrastructure, and productivity enhancement in the traditional agriculture sector and nonformal small enterprises; (ii) Human developmentproviding social services to the aging population; improving the quality of education, and matching skills and aspirations of the labor market with labor market demand; improving the quality of health services; and expanding the role of the private sector in service delivery; (iii) Status of womenimproving access to economic opportunities through training, microfinance, and small-scale self-employment schemes; (iv) Environmentimplementing an institutional framework for natural resource management, and institutional strengthening; (v) Economic growthmanaging the fiscal deficit, financial sector reform, and private sector development; (vi) Governanceimproving the efficiency of public service; improving accountability; delineating clear responsibilities, authority, and resources to local governments; creating an appropriate policy environment; and shifting the role of government from direct producer and service provider to regulator in many areas of previous involvement; and (vii) Civil conflictresolving the conflict, along with managing reconstruction and resettlement. 2. Identified in the 20042008 CSP: The principal development challenge is to reduce poverty and address the interrelated, mutually reinforcing causes of poverty due to (i) inadequate growth and significant inequity, (ii) the civil conflict, (iii) lack of integration and access to physical and social infrastructure, (iv) slow growth in agriculture and productivity, (v) lack of clear land tenure, (vi) environmental degradation, and (vii) social exclusion and powerlessness felt by many of the poor. Other MDGs including targets on child mortality and maternal health, the fight against major diseases, and environmental sustainability are on track. Those for universal primary education and gender disparity in formal education had been fully or mostly met. F. Implications for the Country Strategy and Program Accelerating the structural With the prevailing The 2002 budget Reducing poverty is best served by ADB would assist As post-tsunami transformation process was a economic speech announced reducing the incidence and impact the Government in reconstruction appears to key strategy in Sri Lanka, difficulties and civil the Governments of these causes for the largest its renewed and be fully funded, the particularly in the following conflict, a stable commitment to number, and by spreading social stronger focus on program does not envisage areas: macroeconomic undertake reforms to opportunity more equitably. To SMEs and in further assistance, except environment was a put the country on a achieve these in line with the promoting growth in for the $210 million (i) support for policy and prerequisite for path to sustainable Governments new development remoter and poorer package including institutional reforms; sustained growth growth. The reforms strategy in Regaining Sri Lanka, regions. ADBs cofinancing approved in (ii) focused support for human with poverty had generally been in ADBs strategic priorities are assistance to Sri April 2005, and two grants resource development to reduction. The line with the ongoing Lanka should totaling $4 million financed address marketable skills Government was policy dialogue in the (i) promoting pro-poor economic address not only by the Japan Fund for and attitudes; implementing key infrastructure and growth, poverty in general, Poverty Reduction. reforms to promote finance sectors. but also improve the (iii) targeted enhancement of (ii) advancing social development, infrastructure, with emphasis greater private and manner in which its ADB planned to The key tenets of the CSP on private sector sector (iii) supporting improved assistance is continue support for 20042008 (economic development, governance. distributed participation and on physical the Governments growth, governance, and throughout the and institutional development reducing the fiscal reform agenda social development) still deficit, rightsizing country. To support of secondary towns outside through the lending The CSPs strategic focus flows hold. Colombo; the civil service, and nonlending from the need to reflect five factors: the Government's

Country Operational Strategy (19982003) (iv) preservation of the natural resource base to ensure long-term sustainability; and (v) mitigation of the social costs and environmental impacts associated with the transition process.

The 19982003 Country Operational Strategy maintained continuity with the previous strategy in supporting economic growth, market-oriented human resource development, environmental enhancement, and an orientation away from the Colombo metropolitan area. Promotion of social It differed in the following: (i) it development and had more emphasis on stability was a top structural transformation, (ii) it priority of the Government and identified fiscal deficits as a major constraint to long-term was supported by development, (iii) it underscored initiatives in governance and public sector education and efficiency to support the decentralization. transition process, (iv) it The CSP Update, targeted natural resource prepared in partnership with management to guarantee the the Government long-term sustainability of and in consultation growth and to mitigate the with civil society environmental impacts of the organizations and transition, (v) it identified Sri Lankas secondary urban centers as the development focus of decentralized investment, and (vi) it suggested partners, reflected the Governments a sharp focus on developing reform priorities. marketable skills and attitudes. G. External Assistance to Sri Lanka Official development assistance No comparable to Sri Lanka averaged $898 data in the CSP million annually (1993-1997), Update equivalent to 7% of GDP. ADB,

CSP Update (20022004) enhancing labor market flexibility, restructuring state enterprises, and creating opportunities for the poor to participate in the economic growth process. Continued support from ADB was considered critical in achieving these reform objectives.

CSP Update (20032005) pipeline. However, given the changed sociopolitical and economic context and brighter prospects for an end to the civil conflict, ADB must reassess its strategic and operational priorities and assistance program. ADB would initiate work on a new CSP in late 2002 for completion in 2003.

CSP (20042008) (i) the Governments new development strategy, (ii) the additional research undertaken on the incidence of poverty, (iii) the more optimistic outlook with respect to peace, (iv) the need to rehabilitate the North and East and to revitalize the rest of the country as the basis for lasting peace, and (v) the need to increase the impact of ADB initiatives to achieve the MDGs.

CSP Update (20052006) new policy of reducing regional inequality, ADB's programs and projects should increasingly focus beyond the western province and Colombo, where most, if not all, economic development has been taking place. The gradual shift towards greater inclusion of the neglected conflictaffected areas, which started in 2001, will also contribute toward greater income equality and equal access of opportunities across Sri Lanka's provinces. At the same time, ADB's programs need to continue to cover the poorest regions in south and central districts, where most of the present core poverty interventions are carried out.

CSP Update (20062008)

Appendix 3

No comparable data in the CSP Update

In 19982002, Sri Lanka received slightly over $3 billion in external assistance commitments from the donor and creditor community, the

No comparable data in the CSP Update

No comparable data

69

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Country Operational Strategy (19982003) the World Banks International Development Association, and Japanese external assistance accounted for about 75% of foreign aid to Sri Lanka.

CSP Update (20022004)

CSP Update (20032005)

CSP (20042008) largest sources being Japan and ADB (jointly providing some 70% of total annual commitments), and the World Bank (8%). Twenty-two other sources of different size provided 22% among them. They comprised Australia, Canada, Peoples Republic of China, European Union, France, Germany, India, International Fund for Agricultural Development, Republic of Korea, Kuwait, Netherlands, New Zealand, Nordic Fund, Norway, Organization of Petroleum Exporting Countries, Saudi Fund, Sweden, United Kingdom, United States, and several agencies of the United Nations.

CSP Update (20052006)

CSP Update (20062008)

Appendix 3

H. Review of ADB Assistance to Sri Lanka (19682006) 1. Summary of Assistance from ADB: As of 31 December 2006, Sri Lanka had 130 loans from ADB amounting to $3.7 billion, and 236 TA grants amounting to $93.9 million. a. Share of loans by sector as of 31 December 2006: (i) agriculture and natural resources (21.6%); (ii) transport and communications (16.8%); (iii) finance (12.1%); (iv) multisector (11.9%); (v) energy (10.1%); (vi) education (7.8%); (vii) water supply, sanitation, and waste management (8.5%); (viii) industry and trade (5.2%); (ix) law, economic management, and public policy (5.0%); and (x) health, nutrition, and social protection (1.0%). b. Share of TAs by sector as of 31 December 2006: (i) agriculture and natural resources (28.0%); (ii) transport and communications (15.2%); (iii) law, economic management, and public policy (11.5%); (iv) multisector (9.1%); (v) finance (8.7%); (vi) education (7.7%); (vii) energy (6.2%); (viii) industry and trade (6.1%); (ix) water supply, sanitation, and waste management (5.9%); and (x) health, nutrition, and social protection (1.6%). 2. Thrust of ADB Assistance by Decade: 1980s, economic growth and export development; 1990s, poverty reduction through policy and institutional reforms, focused support for human resources development, infrastructure enhancement, and improved natural resource management; 2000s, poverty reduction through economic growth, good governance, and social development. I. Conclusions and Lessons: Economic growth and resolution of the civil conflict are vital. Successful management of the transition will require a modern and motivated public administration, a conducive policy environment, and the

Not discussed

Not discussed

1. Having greater sector concentration in the country program would build more trust between ADB and the executing agencies concerned as repeat assistance is provided over time, and also provide ADB with

No discussed

Not discussed

Country Operational Strategy (19982003) elimination of infrastructure and human capital gaps that hinder development.

CSP Update (20022004)

CSP Update (20032005)

CSP (20042008) greater influence to trigger policy and institutional reforms. 2. The major deficiencies in project implementation must be addressed to improve the overall performance of the Sri Lanka project portfolio. Portfolio performance will have a direct impact on the future assistance program in Sri Lanka due to ADBs PBA of ADF resources to all its developing member countries. 3. The undisbursed amount of ADF resources associated with slow projects represents an unnecessary waste of increasingly scarce ADF funds. Moreover, ongoing assistance will help establish the necessary policy and institutional environment as well as strengthen implementation capacity. New projects will be based on these improvements. 4. ADB has a large ongoing portfolio in natural resources, covering forestry; protected area and upper watershed management; and water, coastal, and aquatic resources. Similar to other sectors, this portfolio has encountered delays in loan effectiveness, recruitment, and other implementation problems. More fundamental issues have related to delays in policy and institutional reforms, which have been prominent in ADB's lending for natural resources

CSP Update (20052006)

CSP Update (20062008)

Appendix 3

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Country Operational Strategy (19982003)

CSP Update (20022004)

CSP Update (20032005)

CSP (20042008) management. Natural resources projects are inherently complex, as they create a nexus between common property resources, poor rural communities, and, in many cases, entrenched public institutions that have not integrated the interests of multiple resource users in natural resources management. Sound natural resources and environmental management with strong community participation will be of enduring importance, both for long-run development and for sustained rural and urban poverty reduction in Sri Lanka. 5. Greater use of sector and sector development program loans is needed to combat project implementation deficiencies, aside from identifying and reallocating loan savings from poorly performing loans. They would provide more flexibility to the process of project execution, and allow greater attention to potential policy and institutional obstacles prior to, or alongside, the physical investments. At the same time, up-front project activities such as environmental clearances, land acquisition, and resettlement need to be completed before the investment loan is contracted. These activities often delay the disbursements of approved investment loans. Please refer to the section immediately below on Regaining

CSP Update (20052006)

CSP Update (20062008)

Appendix 3

II. THE GOVERNMENTS DEVELOPMENT STRATEGY No distinct section on the No distinct section No distinct section Governments development in the CSP Update

The new Government stated

In May 2005, the Government presented a

Country Operational Strategy (19982003) strategy in the ADB 19982003 Country Operational Strategy, but it had some statements on government recognition of the following: (i) need to reform social service delivery, (ii) macroeconomic stability, (iii) private sector as the engine of growth, and (iv) promoting higher growth rates to generate the resources necessary for continued socioeconomic development (para. 11).

CSP Update (20022004)

CSP Update (20032005) Sri Lanka.

CSP (20042008)

CSP Update (20052006) that it remained committed to fighting poverty. Under its Economic Policy Framework, the Government will continue economic restructuring and reform to put the economy on a more efficient footing. The reform will focus on commercializing SOEs, creating a balance between private sector and public interests, and improving the institutional framework to reap larger benefits from technology transfers and trade.

CSP Update (20062008) discussion policy paper that will subsequently be developed into a cohesive medium-term economic framework and Poverty Reduction Strategy, subject to extensive consultation with stakeholders. The paper outlined measures to strengthen SME support systems, improve fiscal management, reform the welfare sector, create a more competent civil service, and make the legal system more transparent. It had elements of a state-led growth but recognized a significant role for the private sector.

A. Regaining Sri Lanka: Vision and Strategy for Accelerated Development 1. Economic Reform The Governments core strategy involves accelerating economic growth by removing the barriers to increased productivity. It envisages annual GDP growth rates rising to 7% over the medium term and to 810% after that; a fundamental change in the relationship between the public and private sectors; and a central role for the private sector as the engine of growth. Essentially, the strategy entails three key elements of reform: (i) accelerating the process of privatizing commercial activities, (ii) reforming the legal and regulatory foundation of the economy, and (iii) increasing the efficiency of critical government functions. The Government sees its present crisis as having a number of dimensions, all of which have to be addressed concurrently, and as presenting four challenges which must be overcome: (i) increasing employment by creating over two million jobs in the next several years, (ii) reducing public debt by raising revenues and modifying expenditure patterns, (iii) investing in reconstruction throughout the entire country in order to create lasting peace, and (iv) increasing income levels through raising productivity and increasing investment. As an integral part of its core strategy, six main pillars constitute the strategic foundation of the Governments poverty reduction policies: (i) building a supportive macroeconomic environment, (ii) reducing conflict-related poverty, (iii) creating opportunities for the poor to participate in economic growth, (iv) investing in people, (v) empowering the poor and strengthening governance, and (vi) implementing an effective monitoring and evaluation system.

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Country Operational Strategy CSP Update CSP Update CSP CSP Update CSP Update (19982003) (20022004) (20032005) (20042008) (20052006) (20062008) 2. Rehabilitating the North and East The immense conflict-related needs were assessed, by sector, jointly by ADB, the World Bank, and the United Nations, with the full participation of the Government and the LTTE. Needs were divided into immediate (the next 1824 months) and medium-term (those for completion within 6 years, varying according to the inherent nature of the needs themselves). Total financing requirements following a baseline case covering principal conflict-affected areas were tentatively estimated at nearly $1.5 billion, with about one third required for immediate needs and two thirds for medium-term needs. A higher scenario, which included other conflict-affected areas, suggested total requirements of $1.9 billion. Longer term needs could be up to a further $1.5 billion (approximately). The assessment factored into its estimates and sector needs such crosscutting issues as gender concerns, conflict sensitivity, human rights, environment, private sector, and community development. To rebuild a war-ravaged region, the assessment identified a holistic approach that went beyond the repair and reconstruction of facilities and the reestablishment of the means for making a living. It sought to capture some of the interrelationships that contribute to peace building and make up a secure and productive economic and social life. For progress to be made, creating a local administrative capacity is essential. 3. Resource Mobilization and Investment Aside from requiring wide political acceptance, the Governments development strategy needs underpinning by additional fiscal resources and more efficient public spending, as well as by faster progress in institutional development (especially in financial intermediation and fiscal management). With continuing peace, although there will be more opportunity for substituting various military outlays for higher reconstruction and development activity, the traditional levels of domestic savings of 1619% of GDP and domestic investment of 2427% of GDP still need to be raised if they are to sustainably support a virtual doubling of GDP growth rates. With high service payments on domestic debt, the Government is committed to mobilizing added domestic resources, managing them more efficiently, utilizing them more productively, and creating a business climate that motivates higher private savings and investment. The private sector is the key to realizing the countrys development potential, and for this the reform of finance, land law, and labor markets will be critical. B. ADBs Assessment of the Governments Development Strategy: The proposed structural reform program that lies at the heart of the Governments new development strategy constitutes a marked change in the strategy for achieving GDP growth and poverty reduction from the earlier emphasis on state control, redistributive transfers, and welfare payments. Notwithstanding misgivings about certain implicit assumptions of the strategy, the countrys development partners welcomed it as representing an admirable break with the past. However, the success of the strategy is highly contingent on the continuation of peace, because, without it, it is unlikely that the Government will be in a position to implement reforms in full, that business and tourist confidence will maintain recent advances, and that the required reorientation of budgetary expenditure to civilian uses will be possible. Assuming the continuation of peace, however, the strategy correctly places emphasis on the revitalization of the private sector to spearhead growth, and it proposes to liberalize the domestic economy, strengthen the finance and credit systems, revamp the legislative and institutional structures, reform land and labor laws, modernize infrastructure, and reinforce the position of SMEs as ways of providing a more enabling environment for private investment. ADB supports these proposals. They are in line with the directions and substance of the policy dialogue in which it has been closely engaged in recent years. It also supports the Governments intentions to continue tackling the inefficiency of SOEs, as this mirrors the kind of assistance specifically provided by ADB to the energy (petroleum and power), transport, estate, SME, and port sectors, as well as its general policy dialogue. Proposed sector reforms are equally radical. Given that the overwhelming proportion of the poor live in rural areas, the strategy correctly addresses the rural economy as being crucial to its poverty reduction initiatives. Appendix 3

Country Operational Strategy CSP Update CSP Update CSP CSP Update CSP Update (19982003) (20022004) (20032005) (20042008) (20052006) (20062008) 1. Agriculture The Government aims to raise productivity by increasing the role of the private sector (although state intervention still appears to remain significant), removing state control over land, introducing a new land titling program; reducing protection, eliminating tariff irregularities, and encouraging higher-value output (including in such areas as horticulture, livestock, and fisheries). The Government also aims to provide the rural population with the skills to migrate to urban areas, although it is not clear that current urban reform measures can accommodate a large-scale migration in the time frame suggested without adding to slums and the urban jobless. Complementing these reforms will be major efforts to ensure that the poor are themselves able to benefit from the anticipated growth process (connectivity) by narrowing the transport and information divide that separates the poor from dynamic markets, mainstreaming such objectives as job creation and poverty reduction (although gender does not seem to be included explicitly) in all sector strategies, promoting SMEs, and incorporating community participation in assistance for poor regions. 2. Education The Government aims to raise quality; to improve the relevance of the curricula; to redress disparities in access in an attempt to reduce dropout rates, especially among the poor; and to increase the returns accorded to basic education in the labor market. This will require major refurbishment and refurnishing of school premises, and increases in the supply of trained teachers, especially in rural areas. 3. Health and Nutrition There will be a concentration on the needs of the poor and other disadvantaged groups, and a rationalization of health care funding (with the public sector concentrating support on the poor and the private sector being expected to expand its role for other health groups). This again will require an expansion in rural facilities and significant increases in the supply of nurses and trained medical personnel. 4. Social Protection A welcome proposal is the decision to improve the impact of income transfer schemes for the poor (e.g., Samurdhi). 5. Governance The strategy recognizes the pressing need for better governance and makes proposals to this end, but there are few details on civil service reform, on rationalizing its structure, on clarifying the responsibilities of the different tiers of government, and on establishing some kind of focal point to track delivery at each level of government. III. IMPLEMENTATION OF THE COUNTRY STRATEGY AND PROGRAM A. Poverty Reduction Partnership Agreement and Progress Sri Lanka had pursued poverty ADBs poverty A PRPA between the reduction through free access to analysis and Government and social services and income proposed ADB was signed in transfer schemes. The medium- approach to Colombo on 8 March term priority was to enhance the poverty reduction 2002. The PRPA was preconditions for economic in Sri Lanka in consistent with the growth. Consolidation and better support of the Governments targeting of the social safety net Government poverty reduction by the Government were Framework for strategy as well as necessary to the delivery and Poverty Reduction the relief, improvement of social services were discussed at rehabilitation, and to the poor in an overall fiscal the high-level reconciliation discipline context. Poverty in the forum on poverty framework. The areas of civil conflict also reduction in March Government had needed to be addressed as part 2001. The forum strengthened the The PRPA, signed in 2002, endorsed the Governments priorities for poverty reduction and ADBs 19982003 Country Operational Strategy. Its vision called for (i) a sustained reduction in the poverty disparity between Western Province and the rest of the country, (ii) progress toward the full achievement of MDGs related to human development by 2015, (iii) good governance, and (iv) progress in reducing conflictrelated poverty. The countrys social indicators were already very good. Sri Lanka is the most advanced in South Asia in terms of infant and maternal mortality rates, education ratios, and most gender indexes. Poverty levels had generally fallen. ADB is assisting the Sri Lankas social indicators compare favorably with those of countries with similar per capita incomes. However, it is now clear that Sri Lanka is unlikely to meet a halving of poverty levels by 2015. Although survey data are not strictly comparable, given different methodologies and sampling sizes, the percentage of the population in poverty

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Country Operational Strategy (19982003) of the resettlement and reconstruction activities.

CSP Update (20022004) supported the findings. Following approval of the CSP Update, a PRPA reflecting key priorities of the CSP would be prepared, discussed, and signed with the Government.

CSP Update (20032005) monitoring mechanism with stakeholder participation to regularly observe achievement of targets under the poverty reduction strategy. The Government and ADB agreed that the impact of ADBs assistance on poverty reduction in Sri Lanka would be stronger if policy and institutional reforms improved the economic and sector investment environment.

CSP (20042008)

CSP Update (20052006) Government in strengthening poverty monitoring and analysis, and in monitoring the poverty impact of foreign-funded projects. The Government has set up an MDG cluster in its National Council for Economic Development to monitor progress toward achieving the MDGs.

CSP Update (20062008) remained at about 22%, and there had been little improvement since 1991. Despite good health indicators, declines in morbidity have been slow, and there are relatively high levels of undernutrition among women and children. In terms of the quality of education, women are still underrepresented in vocational and technical courses and lack information technology skills, which reinforce gender division in the labor market. While child and maternal mortality rates have fallen by 50% over the last 10 years, malnutrition among children remains relatively high. International agencies and the Government are increasingly concerned that the previous good record in health and education may have led to a degree of complacency, and that these good indicators may erode over time as spending decreases. Targeted poverty reduction focus Emphasisin line with government policyis on reducing regional

Appendix 3

B. ADB Country Strategy and Program Focus Areas/ Thematic Priorities Thematic Key Areas of ADB Continuing emphasis Priorities: Investment: on the sector (i) Policy and institutional development 1. Economic reform at the national level approach to help Growth (private sector strengthen sector

Core sectors: (i) agriculture and rural development, (ii) transport (roads and ports), (iii) energy, (iv) financial sector and SMEs, (v) education, and (vi) water supply

Focus of ADBs strategy: (i) economic reform and governance, (ii) rehabilitation in

Country Operational Strategy (19982003) development, public sector development, and improvement of productivity and technological level of the agriculture sector) (ii) Human resource development (iii) Expansion of infrastructure (iv) Natural resource management (forestry and biodiversity conservation and management, water resource management, and coastal resource management) (v) Social dimensions (establishment of safety nets; development of financial and capital markets to allow the expansion and private provision of social security services; targeting of skills development and retraining programs; and supply of small infrastructure, water supply and sanitation, and housing in secondary towns).

CSP Update (20022004) (i) Generation of productive employment and higher rural income, (ii) Strategic infrastructure investment, (iii) Institutional and policy changes, (iv) SME development 2. Human Development (i) Improving the quality of education, (ii) Strengthening regional training centers

CSP Update (20032005) policy and the institutional environment Progressive assessment of specific investment opportunities in public sector projects that will invigorate, strengthen, and speed up private sector development

CSP (20042008) and sanitation Thematic areas of intervention: (i) Environment and natural resources management promoting rural development and enhancing rural incomes with an emphasis on sustainable resource development (i) Private sector development key way of accelerating GDP growth, creating jobs, and raising efficiency and productivity (iii) Governanceimproving the effectiveness of public sector management, the quality and efficiency of public service delivery, and the impact of external assistance and government programs; addressing gender and social equity, decentralization, and local service delivery (iv) Gender considerations mainstreaming gender concerns in all sectors to improve access to technical and vocational education and information technology for women, and thereby improve the position of women in the labor market Strategic Priorities: (i) Promoting pro-poor growtheconomic reform; private sector development;

CSP Update (20052006) conflict-affected areas, and (iii) direct poverty reduction and rural infrastructure ADB supports crosscutting issues such as governance, gender equity, and the environment. For example, projects in the education and water and sanitation sectors are focusing on gender issues. ADB also supports regional cooperation, both in the South Asian Association for Regional Cooperation and, on a smaller scale, between Sri Lanka and the Maldives.

CSP Update (20062008) income inequality, and ensuring that economic growth becomes more propoor. Existing projects and projects processed in 2005 will direct significant resources to areas with a high incidence of poverty, and specifically conflictand tsunami-affected areas. It is also envisaged that postconflict assistance will shift from small-scale emergency reconstruction and rehabilitation to more usual projects for ADB, such as the proposed Jaffna Water Supply and Sanitation Project.

3. Gender and Development (i) Gender mainstreaming (ii) Microfinance schemes to reduce womens poverty 4. Good Governance (i) Creating a policy environment conducive to private sector growth, and

Poverty reduction through economic growth ADB operations will focus on (i) upgrading road access by developing the network, (ii) improving connections to international markets through Colombo port, (iii) promoting SME development and microfinance, and (iv) improving agricultural productivity.

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Country Operational Strategy (19982003)

CSP Update (20022004) shifting the role of Government from direct producer and service provider to regulator in many areas (ii) Supporting policy and institutional reforms in sectors where ADB operations are focused (roads, power, ports, education, water supply and sanitation, environmental and natural resources management, and rural finance) (iii) Strengthening the capacity and performance of public sector management (iv) Supporting the Governments decentralization process 5. Private Sector Development (i) Promoting an enabling environment for private sector activities (ii) Assessing specific

CSP Update (20032005)

CSP (20042008) and reducing regional development imbalance (ii) Advancing social developmentsecondary and distance education; human resources investment; and water supply, sanitation, and waste management (iii) Supporting improved governancepro-poor service delivery; public expenditure management; resource mobilization; local and corporate governance; and regulatory framework in public utilities, finance, and banking

CSP Update (20052006)

CSP Update (20062008) ADB will also work to improve the marketable skills of the labor force, especially the young, who bear the brunt of unemployment. In the road and education sectors, ADB will work closely with other development partners to promote a sector approach. To strengthen the ability of the Government to direct more of its own resources towards reducing poverty and regional income disparities, and to ensure the distribution of the benefits of growth, two governance projects are in the pipeline. These will improve service delivery at the local government and provincial council levels, and strengthen fiscal management. Continued investment to improve living conditions and provide economic opportunities in areas affected by conflict, together with heightened sensitivity about how posttsunami and postconflict reconstruction are implemented, are the most tangible contributions that

Appendix 3

Country Operational Strategy (19982003)

CSP Update (20022004) investment opportunities for private sector participation in public sector projects (iii) Continued focus of ADBs Private Sector Group operations on infrastructure projects 6. Environmental Protection (i) Emphasis on green issues (ii) Legal framework modernization, stakeholder involvement, and decentralization (iii) Sustainable natural resource management

CSP Update (20032005)

CSP (20042008)

CSP Update (20052006)

CSP Update (20062008) ADB can make in consolidating peace.

7. Regional Cooperation (i) Trade/market expansion (ii) Tourism C. Coordination of External Funding and Partnership Arrangements ADB routinely consulted with Germany, the multilateral and bilateral funding Netherlands, and the bodies, and in the past Organization of cofinanced operations with some Petroleum Exporting of them in a sector or geographic Countries Fund for area of interest. The World International Banks program was fairly Development had diversified among sectors provided $12 million general education and health cofinancing in two out services, food crops and of four ADB projects plantation agriculture, approved in 2001.

ADB has regularly consulted with multilateral organizations, including IMF, and the main bilateral agencies. Twenty or more countries and international organizations attended the Local Development Forum in June 2002, and even more attended the Tokyo Conference on Reconstruction and Development in June 2003. Due to the large proportion of external

Cooperation among development partners in Sri Lanka is very good. Funding agency meetings by subgroup ensure good collaboration and sharing of information, and the chairs of these are

Cooperation between development partners has remained very good and has been strengthened by reconstruction efforts since the tsunami. Post-tsunami damage and needs assessment was done together by the three main development partners (ADB, JBIC, and the World

Appendix 3

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Country Operational Strategy (19982003) infrastructure, and environment. IMF had in the past provided support for macroeconomic stabilization and structural reform. Japan had been the largest bilateral source, with a strong focus on infrastructure (transport, energy, and telecommunications), along with irrigation and flood control, environmental improvements in the Colombo area, and social sector assistance. The United Nations and bilateral funding sources had been supporting agriculture, forestry and wetlands conservation, social development, localized water supply and sanitation schemes, technological development of industrial and agricultural enterprises, and humanitarian aid. Partly in response to the stated programs of other aid agencies, ADB would not be involved in projects located in the Colombo metropolitan area, in pollution abatement, in food crop agriculture, and in the social sector (health and education), except marketable skills development. ADB expected to be a lead source of assistance in natural resource management, including integrated water resource management; plantations and perennial crop

CSP Update (20022004)

CSP Update (20032005) Commercial cofinancing of up to $90 million supported by ADBs partial credit guarantee was also mobilized to partly finance the lines of credit under the SME Sector Program.

CSP (20042008) assistance coming from Japan, ADB, and the World Bank, particular attention was being paid to close coordination among them to ensure compatibility of policy advice and investment harmonization.

A joint strategy seminar was organized by JBIC in Tokyo in The United Kingdom February 2003, in which ADB and would support the the World Bank participated, to ongoing ADB project exchange views on respective in the North and East strategy formulation. In this, the Sri by financing an Lanka Resident Mission has been implementation expert playing a crucial role in local based in the Sri funding agency coordination, Lanka Resident particularly in those sectors where Mission. ADB has been especially prominent, notably in roads, energy, water supply and sanitation, and environmental and natural resources management.

CSP Update (20052006) rotated on a regular basis. An efficient division of labor is taking place in fiscal reform, with ADB supporting in-depth institutional reforms to complement IMFs tax policy reforms in an effort to enhance revenue mobilization. These efforts supplement ADB expenditure management reforms under the fiscal reform management project that also feed directly into the ongoing public expenditure review conducted by the World Bank. Projects in the conflict-affected areas have also been successful in attracting cofinancing of about $40 million. The Government of Japan gives project support in the power sector. In microfinance, close linkages have been established with the Government of Germany, which will

CSP Update (20062008) Bank), and finalized in January 2005. The Ministry of Finance has taken a keen interest in coordinating external funding. The Government also hosted a development Forum in May 2005, further strengthening collaboration between the Government and its development partners. The Norwegian Government and the Swedish International Development Cooperation Agency have cofinanced support for petroleum exploration and strengthening of the countrys debt market. JBIC and ADB are working closely on power sector reforms.

Appendix 3

Close coordination with the World Bank and IMF continued, particularly in helping the Government implement the poverty reduction strategy, develop the private sector and SMEs, and improve public sector resource management. ADB continued to pursue official cofinancing opportunities for public sector projects and commercial

ADB has progressively strengthened its operational partnerships with development partners through regular and development agenda-specific consultations in order to enhance the benefits of its development assistance. The developing peace process has provided ADB with additional opportunities to pursue cofinancing operations. The needs assessment jointly undertaken by ADB, the World Bank, and the United Nations demonstrates effective collaboration and further

Country Operational Strategy (19982003) agriculture; and power sector reform, the latter in close cooperation with the World Bank. Private sector development and public sector reform will require careful aid coordination. Due to the broad approach to private sector development, promotion of an enabling environment will affect multiple dimensions (financial and capital markets; public enterprise reform; trade, industrial, and competition policy; and labor market rigidities). A proportionately large number of external assistance sources included both the World Bank and IMF. Both will be consulted given the potential for conflicting policy advice. The opening of the resident mission in Sri Lanka offered the opportunity to pursue coordination at the micro level in terms of project design and addressing implementation issues related to the loans and TA portfolio. Interaction with ADB and the Sri Lanka NGO community had been sporadic in the past, but had recently begun to strengthen. Past experience showed that NGOs could be very effective in identifying beneficiaries and stimulating community participation in

CSP Update (20022004)

CSP Update (20032005) cofinancing opportunities for commercially viable private and public sector projects.

CSP (20042008) coordination and cofinancing opportunities. In support of its overall thematic priorities, ADB will continue to pursue official cofinancing (particularly from grant and concessional sources) for A local development public sector projects and forum, led by the commercial cofinancing (including Government, was held the use of guarantees) for viable in Colombo in June private sector projects in line with 2002. ADB was the Governments external represented among borrowing policy. 40 funding agencies and local delegations. Forum representatives noted that efforts to improve project implementation must be expedited and necessary policy measures pursued to achieve the goals and targets identified in the documents.

CSP Update (20052006) also support this sector. The Swedish International Development Agency supports ADB's efforts in improving the financial sector environment, while the Norwegian Agency for Development Cooperation works closely with ADB to strengthen the country's potential in oil and gas exploration; it will also cofinance ADBsupported postconflict rehabilitation operations.

CSP Update (20062008)

Appendix 3

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Country Operational Strategy CSP Update (19982003) (20022004) development projects. NGOs were willing to go beyond the role of project implementation contractors, and welcomed wider consultation on development issues and more comprehensive involvement in project planning. IV. PORTFOLIO MANAGEMENT PERFORMANCE A. Portfolio Performance ADB lending commitments to Sri Lanka averaged $140 million per year (19931997). ADB was facing significant constraints in the availability of concessional resources. Since Sri Lankas external debt-service capacity was reasonably sound, it was in a position to absorb some official development assistance at OCR terms and conditions. Note: No discussion of contract awards and disbursement ratios As of 31 December 2000, there were 23 ongoing loan projects amounting to $961 million. Of this, net undisbursed funds reached $690 million (72% of the portfolio). In 2000, contract awards were $55 million or 83% of the annual target of $67 million. Disbursements amounted to $76 million or 115% of the annual target of $66 million. Although Sri Lanka achieved its disbursement target, the disbursement ratio was 13.2% for the year, below the ADB-wide average of 18.3%. This was the first time Sri

CSP Update (20032005)

CSP (20042008)

CSP Update (20052006)

CSP Update (20062008)

Appendix 3

As of 31 December 2001, ADB had approved 105 loans, including private sector loans, valued at $2.7 billion, and 189 TAs worth $74.4 million. Contract awards for 2001 totaled $99.6 million against a projected $183 million, while disbursements reached $91.4 million, also less than the annual projected $118.2 million. The contract award ratio for ongoing loans was 15.1%, and the disbursement ratio on all loans was 15.1% against the ADB-wide average of 20.5%. These ratios reflected the delayed release of the second tranche of the Private Sector Development

Portfolio performance had generally been weak. Of the net loan amount of $1.4 billion for 36 ongoing public sector loans as of 30 June 2003, $941 million or 66% remained undisbursed. Many projects suffered from implementation delays at the outset due to the excessive time taken to satisfy conditions for loan effectiveness. Although the lengthy process of securing legal opinion from the Government often delayed effectiveness, most delays resulted from a failure to meet project-specific conditions. There was generally a lack of aggressive action by agencies to ensure that these conditions were met in a timely manner. Considering project loans alone, contract awards totaled only $93 million in 2002 against projections of $125 million. The contract award ratio for project loans of 13.7% significantly below the ADB-wide average of 17.9%reflected the lengthy procurement process. Although the Government had introduced new, streamlined tender

Portfolio performance had generally been satisfactory. As of 31 December 2003, the portfolio for Sri Lanka consisted of 41 public sector loans covering 32 projects with a net loan amount of $1.6 billion, of which $1.3 billion (85%) was from ADF. Of the total loan amount of $824 million, 52% was undisbursed at end-2003. The contract award ratio for 2003 was 31% for all loans and 29% for project loans only, significantly above the ADB-wide average of 17% for all loans and 15% just for project loans. The disbursement ratio, including

Portfolio performance had generally been satisfactory. Contract awards in 2004 were $184 million against a projection of $198 million (about 93%). Disbursement performance for 2004 fell slightly short of target. At the end of the third quarter, disbursements totaled $105 million, about 67% of projections for the first nine months, and only 54% of the annual target of $193 million. However, considerable efforts by project directors to expedite disbursements late in the last quarter contributed to a year-end surge in performance. Disbursement ratios for all loans declined from 22% in 2003 to 18% in 2004, but this was still slightly above the ADB-wide average of 17.7%.

Country Operational Strategy (19982003)

CSP Update (20022004) Lankas disbursement ratio had fallen below the ADB average since 1996. The reason was that new loans in the portfolio were not yet effective. Portfolio performance had also been marked by delays in project startup and implementation. For infrastructure, the delays were due to complex and timeconsuming contracting and procurement rules and procedures of the Government, and delay in land acquisition and resettlement. The Government recently initiated several measures to accelerate procurement and reduce other impediments.

CSP Update (20032005) Program Loan, approved in 2000, and slow contract awards in the education, natural resources, and infrastructure sectors. During 2001, the lack of counterpart funds constrained project implementation, affecting procurement for ongoing contracts and new contract awards, and compensation for resettlement. Although local funds were sufficient by the end of 2001, their release was sometimes delayed. Given the Governments tight fiscal position, counterpart funding required close monitoring.

CSP (20042008) procedures, delays in awarding contracts had persisted. The disbursement ratio (excluding program loans) was low at 11.9%. The disbursement ratio including program loans was noticeably higher at 17.6%, but still below the ADB-wide average of 22.2%. Delayed loan effectiveness, slow project progress, and poor contract award and disbursement performance all contributed to slow implementation and unnecessary delay. The Sri Lanka Resident Mission has initiated measures to enhance project implementation: annual country portfolio review exercise and monthly meetings with all project directors to review the progress of the action plan and resolve implementation issues.

CSP Update (20052006) program loans, was at 22%, above the ADB-wide average of 20%.

CSP Update (20062008)

Appendix 3

Private sector guarantee operations ($115 million), in conjunction with two private sector window OCR loans totaling $10 million, had been pioneered in 1997 and 1998 to

83

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Country Operational Strategy (19982003) mobilize private sector financing through two facilities for smaller and larger enterprises, respectively. Use of the guarantee had allowed primary Sri Lankan financial institutions to access international sources of commercial funds.

CSP Update (20022004)

CSP Update (20032005)

CSP (20042008)

CSP Update (20052006)

CSP Update (20062008)

Appendix 3

B. Risks 1. Risks Identified in the 19982003 Country Operational Strategy: a. Warning indicators of a worsening security risk would include increases in defense spending, more frequent and visible bomb explosions, and termination of efforts to implement devolution. b. The current Government would call early elections in an attempt to strengthen its parliamentary majority in preparation for decisive action on the proposal of greater devolution of powers to the provinces and other constitutional reforms, and/or the opposition party would return to power, resulting in a different policy orientation. c. The ongoing Asian financial crisis could also negatively affect macroeconomic stability and implementation of strategy. d. On the macroeconomic side, the largest risk was a relaxation of fiscal discipline. At the project level, project success in new sectors (natural resource management) would depend on a socially acceptable design. In project implementation, the old problems of delays and procurement difficulties would continue. Recent measures, such as the strengthening of the project directors forum, development of an action plan, and creation of a procurement support bureau, should all contribute to improved project performance. 2. Risks Identified in the 20042008 CSP: a. The Governments reform program including public administration reforms might be diluted or deferred by political opposition groups or vested interests, thereby reducing the effect that reforms might otherwise have on GDP and productivity growth, and hindering full recovery either in the fiscal situation or in public and private investment. b. Civil conflict could restart either as a result of a breakdown in the peace process or lack of progress in the process. In the former case, resumption of hostilities will thwart development efforts by undermining the investment climate, hurting tourism, and raising defense expenditures. In the latter case, public perceptions of failure to promote equitable development opportunities will cause disillusionment and make economic recovery difficult. c. External shocks could lead to dampened domestic economic conditions, thereby restraining growth, endangering macroeconomic recovery, and weakening the impetus for reform. d. The possibility of failings internal to ADB could reduce the impact of ADBs strategy. In Sri Lanka, the extent and major causes of poverty vary among people, locations, and occupations, as does the extent of social deprivation in areas of equivalent income poverty. The actual poverty situation, therefore, is complex. It will not necessarily be addressed by a project that is sited in a poor area, or by one that targets a characteristic of poverty that happens not to be crucial in the project area. Judgment and careful design are needed to select the kind of project that benefits the maximum number of people, is located in the most appropriate district, and pinpoints critical local causes of poverty. Inappropriate targeting will dilute the impact of any strategy, as it will lead to overstated expectations with respect to the likely extent of poverty reduction from project interventions. e. With regard to the possible social consequences of the Governments reform package as a whole and those with ADB support, some of the proposed reformslabor law, land law, and privatizationcan be particularly unsettling in their consequences for the poor. There are risks, for instance, that the protection for the poor and lowpaid people that is built into existing laws and traditions will be diluted or eliminated; that growing private provision of social and economic services will reduce rather than expand their accessibility, or price them beyond the reach of the poor or low-paid; that the poor might not have the innate capacity to withstand or adapt to new customs and practices; or, ultimately, that the reform package turns out to be over-ambitious in its growth, efficiency, and connectivity expectations. If any of these risks transpire, poverty, exploitation, and vulnerability for those directly affected would worsen, and social stability could deteriorate.

Country Operational Strategy CSP Update (19982003) (20022004) C. Performance Monitoring and Evaluation Assessing the strategic Project monitoring relevance of the Country and evaluation Operational Strategy would be (M&E) needed to done through a process of be strengthened, validation within ADB and particularly for between ADB and Sri Lankas projects in remote Government and civil society areas and with and would involve multiple (i) consultations within ADB components. The during strategy formulation; poor quality of (ii) periodic discussions with the services and civil Government focal point works, especially group (relevant ministries, in remote areas, institutions, private sector, was a major etc.) to ensure that national concern. Monthly priorities and concerns are and/or quarterly reflected; and reviews of slow(iii) monitoring risks and sectoral moving projects performance. were being carried out for early identification of problems and measures for improvement. In addition, the project directors for ADB-assisted projects met monthly to identify generic issues and broad solutions to improve project M&E mechanisms. Other efforts to improve M&E included the project performance management system and the

CSP Update (20032005) In 2001, only one project was rated unsatisfactory for implementation progress due to a delay in loan effectiveness, pending finalization of an effectiveness condition related to involuntary resettlement. All other ongoing projects were rated as satisfactory for implementation progress and achievement of development objectives. In 2001, four project completion reports and one project performance audit report were completed. They provided valuable insights into project performance and highlighted critical country- and sectorspecific issues related to project implementation. Areas of concern identified by the country portfolio review mission in 2001, included (i) inordinate delays in contract awards, (ii)

CSP (20042008) Monitoring the impact of the Governments reforms as well as the performance of ADBs strategy will be important, especially in a situation where the effects on the poor of radical changes in policy and procedures cannot be foreseen with any certainty. The Governments Regaining Sri Lanka recognizes current weaknesses in the database and institutional system for accurate monitoring of poverty and human development, and proposes detailed institutional arrangements. The resulting improvements in the collection and periodicity of appropriate disaggregated data will ensure better poverty monitoring and more timely notice to the authorities of outcomes or of unwanted consequences of ongoing reform. ADB will continue its partnership with the Government and other stakeholders including other funding agencies to closely monitor and evaluate the PRPA and achievements in the Governments poverty reduction strategy program through the process of an annual CSP update. The CSP update exercise will evaluate (i) the Governments reform program and its implications for the poor; (ii) the comparative impact of sector growth on poverty reduction; (iii) sector portfolio performance; (iv) the evolving peace process and its implications

CSP Update (20052006) As of 31 December 2003, all 41 projects were rated satisfactory for implementation progress, and one project was rated highly satisfactory. All the projects were rated satisfactory for attainment of development objectives. Quarterly portfolio review meetings led by the Resident Mission continued in 2003, in addition to projectspecific review missions by both the Resident Mission and headquarters staff. The lack of counterpart funds adversely affected project implementation progress in the third quarter of 2003. However, this situation was corrected in the fourth quarter. Although the Government has introduced new streamlined tender procedures, and improvements have

CSP Update (20062008) Of the 15 projects that had performance audits, 1 was rated highly successful, 6 successful, 7 partly successful, and 1 unsuccessful. Of the 4 TAs that had been postevaluated at the end of 2004, 1 was rated highly successful, 2 successful, and 1 partly successful. Of the active portfolio, 4 of the 46 projects that were rated were highly satisfactory for implementation progress, 40 were satisfactory, and 2 were partly satisfactory. With regard to attainment of development objectives, 1 project was highly satisfactory, 44 were satisfactory, and 1 was partly satisfactory.

Appendix 3

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Country Operational Strategy (19982003)

CSP Update (20032005) delays in establishment and appropriate staffing of project management units and project implementation units, (iii) time-consuming procedures for land acquisition and resettlement, (iv) lack of authority and responsibility given to the project director, and (v) inadequate budget allocations for counterpart funding. To address these concerns, a timebound action plan was agreed upon with the Government. V. COUNTRY PERFORMANCE AND ASSISTANCE LEVELS A. Lending Level Proposed Lending would continue to be a major instrument of ADB operations. About 47% of loans would have economic growth as a strategic development objective, followed by economic growth with crosscutting concerns (19%), environment (17%), and human development (17%). There was a need to maintain a lending level of about $100-130 million per year. Sri Lankas ADF allocation, based on the PBA exercise, was $146 million for 2002. The proposed lending program for 2002-2004 totaled $680 million ($480 million ADF and $200 million OCR), or an annual average of $160 million ADF and $66 million OCR, including overprogramming. After the PBA exercise, indicative ADF lending of $400 million and OCR lending of $200 million were programmed for 2003-2005, or an annual average of $133 million ADF and $66 million OCR lending. However, the proposed ADF levels were subject to the outcome of the annual PBA exercise. The assessment of the country-specific

CSP Update (20022004) adoption of a more detailed project performance report.

CSP (20042008) for ADB assistance; (v) lending and nonlending assistance in the following three years to ensure the relevance and effectiveness of ADB assistance; (vi) PBA allocation of ADF resources based on an assessment of macroeconomic management, structural reforms, and portfolio management; and (vii) the countrys OCR borrowing capacity.

CSP Update (20052006) been made, delays in awarding contracts have persisted. Delays in land acquisition and resettlement, primarily in road sector projects, also severely and negatively affected implementation.

CSP Update (20062008)

Appendix 3

Sri Lanka was classified as B1 in December 1998 and has since been a blend ADF/OCR country in terms of its access to ADBs financial resources. The overall lending level to Sri Lanka is expected to increase to $700 million in 20042006 from $600 million in the last planning cycle (20032005). This is a response to the higher level of economic activity arising from peace thus far, the future needs of reconstruction and development as peace progresses, and the new government strategy. However, the level and timing of assistance will be contingent on positive

Lending levels for 2005-2006 for ADF are unlikely to exceed $90 million per year. This is a considerable reduction in ADF levels for Sri Lanka, which recently have been about $150 million. This reduced allocation is in line with the PBA exercise in November 2003. For OCR funding, the size of the

The ADF lending levels for the 3-year period 2006 2008 have been planned according to PBA criteria and will amount to about $93 million per year (including a grant element equal to 15% of the total, the size of which is subject to revisions following the ADF IX midterm review). ADBs and the World Banks PBA exercises have been harmonized. This means that governance indicators, in addition to economic and social policy management,

Country Operational Strategy (19982003)

CSP Update (20022004)

CSP Update (20032005) criteria was the basis for triggering a high or low lending scenario each year. The actual blend of ADF and OCR lending to the country depended on the program composition, the availability of ADF resources, and Sri Lankas capacity to absorb OCR.

CSP (20042008) developments in the peace process and good project performance, without either of which the lending level scenario will be reviewed and may be adjusted accordingly. An indicative level of $400 million in ADF and $300 million in OCR lending is programmed for 2004 2006. Depending on ADF resource availability in 2004, the ADF lending program will need to be reviewed. The 2005 and 2006 ADF lending program will depend on the outcome of the discussions regarding ADF replenishment. Owing to the limits on the availability of ADBs concessional funds, Sri Lanka will have increased access to OCR resources, but contingent upon the countrys ability to service the additional debt. An ADB study on Sri Lankas borrowing capacity assessment, based on conservative projections for the countrys macroeconomic indicators, concluded that the country can absorb the additional levels of OCR being proposed up to $100 million per year from about $66 million in recent years. The Government agreed with this. ADB will continue to ensure that its lending is consistent with the countrys efforts toward fiscal consolidation and maintaining debt sustainability. ADF allocations and lending to Sri

Lending at OCR terms should be restricted to projects that yield financial returns, while projects that generate externalities that cannot be internalized by the market (such as natural resource preservation, human resource development, and economic projects with significant social and environmental components) would continue to be financed at concessional terms.

The proposed lending program for 20022004 comprised 15 projects, 9 of them (60%) classified as poverty intervention. The proposed program aimed at achieving sustainable reduction in poverty through broad-based, propoor growth; social development; promotion of community-based natural resources management; good governance; and reducing conflict-related poverty.

Twelve loan projects were in the pipeline for 20032005, of which 8 were classified as poverty interventions, including three core poverty interventions. Poverty intervention projects comprised 66.7% of total projects and 56.7% of total lending volume for the 3-year period. The program proposed to continue support for the wideranging reform agenda in promoting an enabling environment for private sector-led growth.

CSP Update (20052006) allocation will have to fit into the framework of the Governments debt strategy. An earlier borrowing capacity assessment concluded that OCR levels of $150 million to $200 million per year are possible, provided growth remains at about 6% per year, and the fiscal deficit is gradually reduced to 6% by 2006. Sri Lanka has been classified as a B1 country since December 1998 and is a blend ADF/OCR country in terms of accessing ADB financial resources. Assuming continued economic growth and economic reforms, the program plans a gradual move toward increased OCR lending for power and major road projects while retaining ADF for education, remote provincial and rural roads, other sectors identified on a caseby-case basis, and urgent reconstruction

CSP Update (20062008) now account for 50% of the countrys rating. The revised PBA assessment will be finalized, in close consultation with the World Bank, in November 2005, to determine the lending levels for 20072008.

Appendix 3

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CSP Update (20022004) The scope of the country program was reduced to focus on seven sectors: agriculture and rural development; transport; energy (i.e., power and petroleum); finance; education; water supply and sanitation, and urban development; and environment and natural resources management.

CSP Update (20032005)

CSP (20042008) Lanka are triggered by countryspecific performance indicators: (i) macroeconomic management, (ii) reforms in major infrastructure sectors, and (iii) portfolio management as agreed upon in the CSP update of July 2002. In this context, official reserves have increased to 2.7 months of imports, the budget deficit has been reduced to 8.9% of GDP, and the Government has started to implement improved budgeting procedures and to pilot multiyear budgeting in the preparation of its 2003 budget. Spending ceilings were introduced in 2003. The Government also created the Public Utilities Commission (a regulatory authority for all public utility services), and made progress in improving the financial viability and the planning and implementation capabilities of the sector agencies in energy, roads, and water supply, although portfolio management is still not satisfactory. Accordingly, an overall assessment of these performance triggers concludes a base-case lending scenario for 2004. The main focus is on structural reforms and portfolio performance, as adherence to the agreement with IMFs poverty reduction and growth facility and extended fund facility conditions should ensure macroeconomic stability. However, control of the fiscal deficit and extension of the tax base have

CSP Update (20052006) and rehabilitation work in the North and East. Sri Lanka will also be eligible for a 10-15% grant element in its ADF allocation starting in 2005.

CSP Update (20062008)

Appendix 3

Given the number of external agencies already involved in the health sector and the need to focus on fewer sectors, ADBs involvement in the health sector will be limited to rural water supply and sanitation projects, education

Country Operational Strategy (19982003)

CSP Update (20022004) projects, maternal health and child nutrition components for plantation workers, and aquatic resources development to improve nutrition.

CSP Update (20032005)

CSP (20042008) been included, as they directly affect the countrys ability to manage its public debt. The structural reforms focus on the key infrastructure sectors in ADBs operations (energy, transport, and water supply), while portfolio performance is emphasized, as this needs improvement if additional funds to support reconstruction are to be absorbed. Of the proposed lending volume, 46% involves poverty interventions, of which 44% is core poverty interventions.

CSP Update (20052006)

CSP Update (20062008)

B. Nonlending Program 1. Technical Assistance In the past, the quality and size of ADBs Sri Lanka portfolio was directly related to the support provided through PPTA. PPTA would continue to play an important role. Advisory TAs would focus on strengthening sector institutions and providing inputs necessary to technically support the evolution of the legal and regulatory framework. In agriculture, it would focus on exploring and promoting modalities for private-public sector partnership. The TA program was envisaged to be about $5 million annually. It focused on project preparation, and strengthening and capacity building for institutions in sectors of ADB involvement (policy and institutional change to improve public sector efficiency and promote private sector participation in infrastructure development). The TA program also aimed to sustain a robust pipeline of quality ADB projects. The TA A TA program was proposed for 2003 2005, for a total of $11 million. This was equivalent to an average of about $3.7 million a year, which was in line with the TA resources available but substantially lower than the actual average of $6.5 million in TA provided to Sri Lanka in 1997 2001. Concerted efforts were required to augment TA resources through cofinancing. The TA program largely focused on project preparatory activities, which emphasized The nonlending program amounts to $12.8 million, of which $2.8 million in cofinancing is envisaged. The nonlending program includes support for project preparation; institutional development, particularly to promote good governance; and economic, thematic, and sector work in the road and energy sectors, in preparation for future interventions. The nonlending program prioritized PPTA for projects in the pipeline. The 2004 allocation was reduced to $1.8 million, while the allocation for 2005 and 2006 was somewhat larger, subject to change, however. As in the past, priority will be given to PPTA. The nonlending program prioritized PPTA for projects in the pipeline. The 2005 allocation has been $1.5 million, although this is subject to change. Cofinancing will be sought for advisory TA and PPTA.

Appendix 3

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CSP Update (20022004) program for 2002 2004 included 22 TAs with a total value of $13.8 million. Efforts would be needed to augment TA resources through cofinancing. 2. Economic, Thematic, and Sector Work A. In support of strategy The planned lowimplementation income housing study, sustainable analysis of constraints to natural resources private sector development, management, institutional development policy review for needs for capital market commercial development, public sector agriculture development, institutional development, rural arrangements for skills finance, and development, transport formulation of an sector options and integrated energy intermodal links, sector master plan reassessment of ADBs role would help guide and perspectives in rural future ADB area development projects, and road sector policy action assistance in the regional plan development, B. In support of preparation agriculture and of the next strategy rural development, needs assessment in and energy sectors. The water supply and sanitation, ongoing support to status and prospects for public expenditure power sector reforms, plantation sector reform management, project contract process, food crop sector management, and policy environment and SME development investment needs, and transport sector options will be further strengthened over 20022004.

CSP Update (20032005) sector development, including policy and institutional support.

CSP (20042008)

CSP Update (20052006)

CSP Update (20062008)

Appendix 3

Economic, thematic, and sector work was proposed on commercialization of agriculture to review international good practices and identify interventions to improve commercialization in various subsectors in agriculture.

No discussion

No discussion

Country Operational Strategy CSP Update CSP Update (19982003) (20022004) (20032005) C. Summary of Changes to Lending and Nonlending Programs The Aquatic The Participatory Resource Forestry Development and Development Project Quality was removed from Improvement the pipeline because Project in 2003 of other aid agency was renamed as activities and ADBs Aquatic Resources ongoing Forest Management and Resources advanced to 2002. Management Project, The Eastern which was extended Province Coastal to 2008. The Public Community Sector Resource Development Management Project Project was was included in deferred from 2002 2004. The Private to 2003. The Sector Development Public Subprogram II was Administration moved from 2003 to Reform 2004 due to the (Decentralization) delay in the release Project in 2002 of the second was reformulated tranche. The as the Colombo Port South Decentralization of Harbor Development Expenditure Project was moved Management from 2004 to 2005, System Project because its and included in cofinancing 2004. The requirement was Secondary substantial. The Sustainable EcoEducation Management Project, Computerization Project was added, originally scheduled for 2004, was moved and the Loan to 2005 but would Cluster for Private remain as a standby Sector project for 2004. Development (Subprogram II) was reflected in 2003. The

CSP (20042008) No discussion in the CSP

CSP Update (20052006) The ColomboKatunayake Expressway Project, with a loan amount of $50 million from OCR, was added to the 2005 program, but subject to further discussion with the Government about viability and financing modality. Two other new operations, the Technical Education Development Project and the Jaffna Water Supply Project, were included as firm in 2006.The total loan amount for the National Highway Sector Development Project was increased from $60 million to $100 million, all from OCR. The Human Resource Investment Project for $20 million was moved to 2006. The total effect of these changes for 2005 2006 was a $50 million increase in OCR and a $30 million increase in ADF funding for firm projects.

CSP Update (20062008) There were changes to the lending program for 2006, reflecting the new Governments priorities. Subject to implementation of power sector reforms agreed upon with the Government under earlier assistance, the Rural Electrification and Systems Expansion Project will be changed to a sector development project. Given the importance for the countrys export competitiveness of fast tracking the expansion of the Colombo Port South Harbor Development Project, the OCR allocation was increased from $100 million to $150 million, and a TA is exploring ways of mobilizing complementary domestic financing. The SME Project has now been allocated $10 million from the ADF for capacity building and training. To give the Government more time to prepare an appropriate environment for greater private sector involvement in wastewater management, the Greater Colombo Waste Water Management Project was moved to standby in 2006, and firm in 2007. At the same time, the OCR

Appendix 3

91

92

Country Operational Strategy (19982003)

CSP Update (20022004) Sustainable EcoManagement Project in 2003 was deferred to 2004. The Integrating Cleaner Production into Industrial Development Project was changed from a firm to a standby project in 2004. Small and Medium Enterprise Development Project was added in 2004, and the Housing Finance Project in 2004 was deleted. The Petroleum Subsector Development Project was included in 2004.

CSP Update (20032005)

CSP (20042008)

CSP Update (20052006) The PPTA for Commercialization of Agriculture was moved from 2004 to 2005. As a result of the prioritization process, three projects were removed from the 2005 nonlending plan. The total effect on the nonlending program for 2005 was an increase of $1 million. One new project, Education Sector Development, was included in the 2006 nonlending program.

CSP Update (20062008) allocation was increased to make it a viable standalone project. The loan for Commercialization of Agriculture was postponed beyond 2008, as it did not reflect the Governments development priorities in that sector. Instead, another followup project focusing on Perennial Crops Development was introduced. The nonlending program for 2006 was adjusted to reflect the changes in the lending program, as all TA is PPTA.

Appendix 3

ADB = Asian Development Bank, ADF = Asian Development Fund, CSP = country strategy and program, GDP = gross domestic product, IMF = International Monetary Fund, JBIC = Japan Bank for International Cooperation, LTTE = Liberation Tigers of Tamil Ealam, M&E = monitoring and evaluation, MDG = Millennium Development Goal, NGO = nongovernment organization, OCR = ordinary capital resources, PBA = performance-based allocation, PPTA = project preparatory technical assistance, PRPA = poverty reduction partnership agreement, SME = small and medium enterprise, SOE = state-owned enterprise, TA = technical assistance, UNF = United National Front.

PROGRAMS AND PROJECTS (LOANS) Table A4.1: ADB Public Sector Loans to Sri Lanka, by Sector, 19682006
Sector/ Loan Subsector Number Project Name/Title Agriculture and Natural Resources Agriculture Production, Agroprocessing, and Agrobusiness 0002 First Modernization of Tea Factories 0039 Second Modernization of Tea Factories 0123 Gal Oya Sugar Industry 0369 Sevanagala Sugar Development 0432 Rural Credit 0472 Third Tea Development 0526 Coconut Development 0712 Plantation Sector 0820 Agricultural Inputs Program 0899 Perennial Crops Development 0955 Smallholder Tea Development 1402 Plantation Reform 1552 Second Perennial Crops Development 1639 Tea Development Agriculture Sector Development 0993 Agriculture Rehabilitation 0994 Agriculture Program Loan 1127 Second Agriculture Program 1462 North Central Province Rural Development 1913 Plantation Development 1914 Plantation Development 2027 North East Coastal Community Development Fishery 0115 Fisheries Development 0520 Second Fisheries Development 0648 Aquaculture Development 1201 Fisheries Sector 1910 Aquatic Resource Development and Quality Improvement 1911 Aquatic Resource Development and Quality Improvement Environment and Biodiversity 0816 Land Use Planning 1716 Coastal Resource Management 1767 Protected Area Management And Wildlife Conservation Forest 0568 Community Forestry 1183 Participatory Forestry 1744 Forest Resources Management Sector Water Resource Management 1545 Upper Watershed Management 1757 Water Resources Management Livestock 0606 Livestock Development Amount ($ million) 797.65 309.20 2.00 3.50 2.80 33.90 10.90 12.80 12.00 45.00 29.00 17.30 25.00 60.00 20.00 35.00 232.29 22.26 80.00 60.00 20.03 20.00 10.00 20.00 79.87 3.10 13.50 17.27 26.00 6.20 13.80 68.70 16.70 40.00 12.00 47.50 10.00 10.50 27.00 36.30 16.60 19.70 15.20 15.20 Date Approved Project Completion (Estimate) Project Completion (Actual) PCR Rating PPAR Rating Loan Type Fund Type

02-Jul-68 29-Oct-70 15-Feb-73 29-Nov-78 06-Dec-79 07-Oct-80 24-Sep-81 04-Dec-84 16-Dec-86 30-Aug-88 21-Feb-89 09-Nov-95 25-Sep-97 10-Nov-98 28-Nov-89 28-Nov-89 26-Nov-91 24-Sep-96 13-Sep-02 13-Sep-02 28-Nov-03 14-Dec-72 20-Aug-81 03-Nov-83 01-Dec-92 05-Sep-02 05-Sep-02 09-Dec-86 07-Dec-99 19-Oct-00 25-Mar-82 05-Nov-92 28-Jun-00 24-Sep-97 19-Sep-00 07-Dec-82

31-Dec-70 29-Feb-76 31-Dec-78 31-Mar-86 31-Dec-83 31-Dec-86 31-Dec-86 31-Dec-89 31-Mar-87 31-Dec-94 30-Jun-95 30-Jun-02 30-Jun-06 31-Dec-04 31-Jul-92 31-Dec-91 30-Jun-94 31-Mar-05 31-Dec-08 01-Jan-09 31-Dec-09 30-Jun-76 30-Nov-86 22-Feb-90 31-Dec-98 31-Dec-09 31-Dec-09 31-Mar-92 30-Jun-05 31-Dec-06 31-Mar-85 31-Dec-98 31-Dec-07 31-Dec-04 30-Jun-06 30-Jun-89

31-Jan-71 09-Dec-76 31-Mar-80 31-Dec-92 31-Dec-86 31-Dec-89 31-Dec-87 31-Dec-92 30-Sep-90 30-Apr-98 31-Mar-98 31-Dec-02 ongoing ongoing 30-Jun-95 30-Nov-92 31-Dec-96 13-Dec-05 ongoing ongoing ongoing 31-May-80 30-Jun-90 31-Dec-91 30-Apr-01 ongoing ongoing 30-Sep-95 ongoing ongoing 30-Jun-90 30-Jun-00 ongoing 31-Dec-05 ongoing 31-Dec-91

NR NR NR NR NR NR NR NR GS PS S

GS PS US PS PS PS GS PS

Project Project Project Project Project Project Project Sector Program Project Project DFI-Project Project Project Project Program Program Project DFI-Project DFI-Project Project Project Project Project Sector DFI-Project Project Project Project Project

OCR OCR ADF ADF ADF ADF ADF ADF ADF ADF ADF ADF ADF ADF ADF ADF ADF ADF ADF OCR ADF ADF ADF ADF ADF OCR ADF ADF ADF ADF ADF ADF ADF ADF ADF ADF

PS NR PS PS

PS PS

NR NR NR PS

US PS PS

US

NR S

GS S

Project Project Sector Project Project

Appendix 4

NR

PS

Project

93

94

Sector/ Loan Subsector Number Project Name/Title Irrigation and Drainage 0016 Walawe Development 0017 Walawe Development Transport and Communications Roads and Highways 0471 Mahaweli Area Roads Development 0753 Trunk Roads Improvement 0864 Second Road Improvement 0865 Emergency Road Restoration 1312 Third Road Improvement 1567 Southern Provincial Roads Improvement 1649 Road Network Improvement 1711 Southern Transport Development 1986 Road Sector Development 2080 Road Project Preparatory Facility 2217 National Highways Sector Telecommunications and Communications 0071 Communications Satellite Earth Station 0203 Communications Satellite Earth Station (Supplementary) 1038 Second Telecommunications Ports, Waterways, and Shipping 3100 Colombo Port Tanker Berth 1841 Colombo Port Efficiency And Expansion Finance Banking Systems 0288 0451 0519 0754 0896 1090 1302 2040

Amount ($ Million) 8.59 7.71 0.89 623.80 565.00 10.00 22.00 36.50 20.00 55.00 30.00 80.00 90.00 56.50 15.00 150.00 46.20 3.60 1.50 41.10 12.60 2.60 10.00 445.00 280.00 5.00 10.00 10.00 20.00 40.00 50.00 75.00 50.00 10.00 10.00 145.00 80.00 60.00 5.00 20.00 20.00 439.30 24.00 15.00 10.00 14.70 11.00

Date Approved 23-Oct-69 23-Oct-69

Project Completion (Estimate) 31-Dec-72 31-Dec-72

Project Completion (Actual) 31-Dec-79 31-Dec-79

PCR Rating NR NR

PPAR Rating PS PS

Loan Type Project Project

Fund Type ADF OCR

Appendix 4

30-Sep-80 19-Nov-85 24-Nov-87 24-Nov-87 15-Sep-94 30-Oct-97 08-Dec-98 25-Nov-99 19-Dec-02 13-Apr-04 15-Dec-05 19-Aug-71 28-Nov-74 18-Oct-90 30-Mar-70 27-Sep-01

30-Nov-83 30-Jun-89 30-Jun-91 31-Dec-89 31-Dec-98 30-Jun-03 31-Dec-06 31-Dec-06 31-Dec-07 30-Jun-08 31-Dec-10 31-May-74 31-May-74 31-Dec-94 31-Dec-74 31-Aug-06

30-Jun-90 15-Nov-92 31-Mar-96 30-Jun-93 30-Jun-04 30-Jun-04 ongoing ongoing ongoing ongoing ongoing 30-Nov-76 30-Nov-76 31-Dec-96 19-Apr-73 ongoing

NR NR GS NR S S

PS

Project Project Project Project Project Project Project Project Sector TA Project Project Project Project Project TA

ADF ADF ADF ADF ADF ADF ADF ADF ADF ADF OCR ADF ADF ADF OCR ADF

NR NR GS na

GS GS

Development Finance Corporation of Ceylon Second Development Finance Corporation of Ceylon National Development Bank of Sri Lanka Development Financing Second Development Financing Third Development Financing Fourth Development Finance Loan Rural Finance Sector Development Program (Program Loan) 2041 Rural Finance Sector Development Program (Credit Line) 2042 Rural Finance Sector Development Program (Project Loan) Finance Sector Development 1051 Financial Sector Program 2138 Financial Markets Program For Private Sector Development 2139 Supporting the Private Sector and Financial Markets Housing Finance 1096 Low-Income Housing 0324 0496 0612 0634 0695 Kirindi Oya Irrigation and Settlement Anuradhapura Dry Zone Agriculture Kirindi Oya Irrigation and Settlement (Supplementary) Special Assistance for Selected Bank-Financed Projects Walawe Irrigation Improvement

21-Dec-76 14-Feb-80 29-Jun-81 26-Nov-85 04-Aug-88 23-Jul-91 28-Jun-94 11-Dec-03 11-Dec-03 11-Dec-03 20-Nov-90 15-Dec-04 15-Dec-04 29-Aug-91 09-Dec-77 15-Dec-80 09-Dec-82 16-Aug-83 27-Sep-84

31-Mar-81 03-Oct-84 11-Sep-85 09-Mar-90 09-Mar-93 06-Dec-95 28-Nov-96 31-Dec-07 31-Dec-07 01-Jan-08 30-Nov-93 31-Dec-07 31-Dec-07 31-Oct-95 31-Dec-84 28-Feb-86 31-Dec-85 30-Jun-85 31-Jan-90

08-Mar-81 31-Mar-86 11-Sep-86 29-May-91 22-Sep-93 31-Dec-95 28-May-97 ongoing ongoing ongoing 30-Nov-93 ongoing ongoing 22-Oct-97 15-Mar-92 31-Dec-89 15-Mar-92 12-Aug-85 31-Dec-95

NR NR NR NR NR GS S

PS GS GS

DFI DFI DFI DFI DFI DFI DFI SDP-Program SDP-Credit SDP-Project

ADF ADF ADF ADF ADF ADF ADF OCR OCR ADF ADF OCR ADF ADF ADF ADF ADF ADF ADF

NR

PS

Program Program TA Project

PS PS NR PS na GS PS PS GS

Multisector

Project Project Project Project Project

Sector/ Subsector

Loan Number 0794 1128 1166 1204 1632 1846 1849 2043 2044 2084 2167 2168

Project Name/Title Kirindi Oya Irrigation and Settlement (Phase II) Southern Province Rural Development North Western Province Water Resources Development Urban Development Sector Urban Development and Low Income Housing North East Community Restoration and Development Southern Province Rural Economic Advancement Conflict-Affected Areas Rehabilitation Conflict-Affected Areas Rehabilitation North East Community Restoration and Development Tsunami-Affected Areas Rebuilding North East Community Restoration and Development II

Amount ($ Million) 26.60 38.00 30.00 27.00 70.00 25.00 25.00 50.00 30.00 10.00 7.00 26.00 371.75 204.30 74.30 60.00 70.00 138.50 11.30 12.40 34.80 80.00 25.50 8.00 17.50 3.45 3.45 286.90 90.90 16.10 36.00 18.80 20.00 81.00 31.00 50.00 65.00 20.00 45.00 35.00 35.00 15.00 15.00 315.29 265.29 30.00

Date Approved 30-Oct-86 26-Nov-91 25-Jun-92 08-Dec-92 24-Sep-98 16-Oct-01 26-Oct-01 11-Dec-03 11-Dec-03 15-Jun-04 14-Apr-05 14-Apr-05

Project Completion (Estimate) 31-Dec-90 31-Dec-99 31-Dec-98 30-Jun-98 31-Dec-04 31-Dec-06 31-Jan-08 31-Dec-07 31-Dec-07 31-Dec-06 31-Dec-08 31-Dec-08

Project Completion (Actual) 31-Mar-94 30-Sep-00 30-Sep-00 30-Jun-99 31-Dec-04 ongoing ongoing ongoing ongoing ongoing ongoing ongoing

PCR Rating PS PS S S

PPAR Rating PS PS

Loan Type Project Project Project Sector Sector Project Project Project Project Project Project Project

Fund Type ADF ADF ADF ADF ADF ADF ADF ADF OCR ADF ADF ADF

Energy Energy Sector Development 1021 Power System Expansion (Sector Loan) 1929 Power Sector Development Program (Program) 1930 Power Sector Development Program (Project Loan) Transmission and Distribution 0436 Rural Electrification 0732 Secondary Towns Power Distribution 0870 Secondary Towns Power Distribution II 1414 Second Power System Expansion (Sector) Hydropower Generation 0118 Bowatenna Power 0299 Canyon Hydropower Conventional Energy Generation (other than hydropower) 0654 Trincomalee Thermal Power Education Technical, Vocational Training, and Skills Development 0585 Technical Education 0887 Second Technical Education 1707 Skills Development 2197 Technical Education Development Basic Education 1247 Secondary Education Development 1756 Secondary Education Modernization Tertiary Education 1535 Science and Technology Personnel Development 1999 Distance Education Modernization Senior Secondary General Education 2096 Secondary Education Modernization Project II Education Sector Development 0888 Emergency Schools Restoration Water Supply, Sanitation, and Waste Management Water Supply and Sanitation 0817 Water Supply Sector

31-May-90 31-Oct-02 31-Oct-02 10-Dec-79 22-Jan-85 03-Dec-87 14-Dec-95 19-Dec-72 26-Jul-77 17-Nov-83

30-Jun-95 30-Jun-06 31-Dec-06 30-Jun-86 31-Dec-87 30-Jun-91 30-Jun-00 31-Oct-76 31-Dec-80 31-Oct-85

18-Apr-98 ongoing ongoing 31-May-89 31-Mar-90 30-Jun-94 30-Jun-03 30-Jun-81 31-Mar-83 11-May-89

PS

Sector SDP-Program SDP-Project GS GS GS Project Project Project Sector Project Project TA

ADF OCR ADF ADF ADF ADF ADF ADF ADF ADF

NR NR NR S NR NR na

GS GS

30-Sep-82 21-Apr-88 28-Oct-99 21-Nov-05 24-Aug-93 12-Sep-00 11-Sep-97 11-Jun-03 25-Oct-04 30-Jun-88

31-Dec-87 30-Jun-93 30-Apr-06 28-Feb-11 31-Dec-98 30-Jun-06 30-Dec-02 30-Jun-09 31-Dec-09 31-Jul-90

31-Dec-92 31-Dec-97 ongoing ongoing 31-Dec-99 ongoing 30-Mar-05 ongoing ongoing 31-Mar-95

NR PS

Project Project Project Project Project Project Project Project Project

ADF ADF ADF ADF ADF ADF ADF ADF

HS

Appendix 4

ADF ADF

GS

Project

95

11-Dec-86

30-Jun-93

31-Jul-95

GS

Sector

ADF

96

Sector/ Subsector

Loan Number Project Name/Title 1235 Second Water Supply and Sanitation 1575 Third Water Supply and Sanitation (Sector) 1993 Secondary Towns and Rural Community-Based Water Supply and Sanitation 2275 Secondary Towns and Rural Community-Based Water Supply and Sanitation (Supplementary) 2276 Secondary Towns and Rural Community-Based Water Supply and Sanitation (Supplementary) 2201 Local Government Infrastructure Improvement

Amount ($ Million) 40.00 75.00 60.29 13.50 46.50 50.00 50.00 193.15 131.00 15.00 30.00 20.00 6.00 60.00 62.15 4.15 1.00 30.00 3.00 24.00 183.00 100.00 85.00 15.00 83.00 13.00 45.00 10.00 15.00 35.40 35.40 9.30 26.10 3,691.25

Project Date Completion Approved (Estimate) 17-Jun-93 31-Mar-98 06-Nov-97 30-Jun-06 16-Jan-03 31-Mar-09 29-Nov-06 29-Nov-06 30-Jun-10 30-Jun-10

Project Completion PCR (Actual) Rating 31-Mar-99 GS ongoing ongoing ongoing ongoing

PPAR Rating

Loan Type Project Sector Project Project Project

Fund Type ADF ADF ADF OCR ADF

Appendix 4

Integrated Industry and Trade Small and Medium Scale Enterprises 0873 Small and Medium Industries 1084 Second Small and Medium Industries 1894 Small and Medium Enterprise Sector Development Program 1895 Small and Medium Enterprise Sector Development Program 1896 Small and Medium Enterprise Sector Development Program Industry 0078 Mineral Sands 0202 Mineral Sands (Supplementary) 0231 Urea Fertilizer 0403 Urea Fertilizer (Supplementary) 1438 Emergency Rehabilitation of Petroleum Facilities Law, Economic Management, and Public Policy Economic Management 1800 Private Sector Development Program (Subprogram I) 1801 Private Sector Development Program (Subprogram I) Public Finance and Expenditure Management 1275 Financial Management Training 2130 Fiscal Management Reform Program (Program Loan) 2131 Institutional Strengthening of Fiscal Management Institutions 2132 Modernization of the Revenue Administration Health, Nutrition, and Social Protection Health Systems 0576 Health and Population 1189 Second Health and Population Total

24-Nov-05

30-Apr-12

ongoing

Project

ADF

08-Dec-87 30-May-91 20-Dec-01 20-Dec-01 20-Dec-01 11-Nov-71 28-Nov-74 18-Sep-75 21-Jun-79 16-May-96

25-May-93 04-Oct-96 31-Dec-04 15-Apr-06 19-Sep-07 31-May-75 31-May-75 30-Jun-78 30-Jun-78 30-Jun-99

15-Mar-94 14-Jun-99 18-Apr-05 ongoing ongoing 30-Jun-79 30-Jun-79 30-Sep-81 30-Sep-81 28-Feb-00

GS GS

DFI DFI SDP-Program SDP-Project SDP-DFI Project Project Project Project Project

ADF ADF ADF ADF OCR OCR OCR ADF ADF ADF

NR NR NR NR HS

GS GS US US

12-Dec-00 12-Dec-00 29-Nov-93 14-Dec-04 14-Dec-04 14-Dec-04

14-Feb-03 14-Feb-03 30-Sep-98 31-Dec-07 31-Dec-07 31-Dec-07

24-Nov-03 24-Nov-03 31-Mar-99 ongoing ongoing ongoing

S na PS

Program Program Project SDP-Program SDP-Project SDP-Project

ADF OCR ADF OCR ADF OCR

22-Jul-82 17-Nov-92

30-Jun-87 31-Dec-97

31-Mar-90 31-Aug-98

NR GS

GS S

Project Project

ADF ADF

ADF = Asian Development Fund, DFI = development finance institution, GS = generally successful, HS = highly successful, NR = no rating, OCR = ordinary capital resources, PCR = project completion report, PPAR = project performance audit report, PS = partly successful, S = successful, SDP = sector development program, TA = technical assistance, US = unsuccessful. Sources: Lotus Notes database on Loan, TA, Grant, and Equity Approvals; Loan Financial Information Systems; reports and recommendations of the President; program/project completion reports, program/project performance audit/evaluation reports.

Table A4.2: Approved Loan Projects for Sri Lanka with Cofinancing, 19702006 ($ Million)
Loan No. 2217 2168 2167 Project Name National Highways Sector North East Community Restoration and Development II Tsunami-Affected Areas Rebuilding Project ADB Approval 15-Dec-05 14-Apr-05 14-Apr-05 ADB Amount 150.0 40.0 157.0 Cofinancier OPEC Fund Sida Agence Francaise de Dveloppement Agence Francaise de Dveloppement European Commission Netherlands JBIC (ODA) Norway NET OPEC Fund JBIC (ODA) JBIC (ODA) JBIC (ODA) Participating Financial Institutions in Sri Lanka NDTF Commercial lenders with ADB Partial Credit Guarantee OPEC Fund GTZ NET OPEC Fund Commercial lenders with ADB Political Risk Guarantee Sida GEF NET NDF 5.5 0.5 4.0 Grant Loan 8.0 5.9 13.5 34.5 53.2 8.7 20.0 8.6 1.5 8.5 80.0 75.0 25.0 20.0 1.5 8.5 80.0 75.0 25.0 8.5 1.6 1.6 90.0 Total 8.0 5.9 13.5 34.5 53.2 Commercial Total 8.0 5.9 13.5 34.5 53.2 8.7 20.0 8.6 1.5 8.5 80.0 75.0 25.0 8.5 1.6 90.0

26-Jun-06 2043- Conflict-Affected Areas Rehabilitation 2044 2027 1986 North East Coastal Community Development Road Sector Development 11-Dec-03 09-Oct-06 28-Nov-03 19-Dec-02 19-Dec-02 31-Oct-02 13-Sep-02

15.0 80.0 20.0 56.5 60.0 30.0

1929 Power Sector Development Program 1913- Plantation Development 1914 1910- Aquatic Resources Development and 1911 Quality Improvement 1896 Small and Medium Enterprise Credit Assistance 1849 1846 1815 Southern Province Rural Economic Advancement North East Community Restoration and Development AES Kelanitissa Power

05-Sep-02 20-Dec-01

20.0 60.0

26-Oct-01 16-Oct-01 19-Dec-00

25.0 25.0 26.0

5.0

5.0 5.5 0.5 4.0 52.0

5.0 5.5 0.5 4.0 52.0

Appendix 4

1800- Private Sector Development Program 1801 1767 Protected Area Management and Wildlife Conservation 1756 Secondary Education Modernization

12-Dec-00 19-Oct-00 12-Sep-00

100.0 12.0 50.0

1.0 9.0 4.0 7.0

1.0 9.0 4.0 7.0

1.0 9.0 4.0 7.0

97

98

Loan No. 1716 1711 1707 1689

Project Name Coastal Resource Management Southern Transport Development Skills Development South Asia Gateway Terminals (Private) Ltd for the Colombo Port Development

ADB Approval 07-Dec-99 25-Nov-99 28-Oct-99 11-May-99

ADB Amount 40.0 90.0 18.8 35.0

1649 1629

Road Network Improvement Credit Enhancement Facility for Private Enterprises

08-Dec-98 08-Sep-98

80.0 5.0

1575 1535 1402 1183 1084 1038 0993 0896 0888 0873 0864 0712

Third Water Supply and Sanitation Sector Science and Technology Personnel Development Plantation Reform Participatory Forestry Second Small and Medium Industries Second Telecommunications Agriculture Rehabilitation Development Financing II Emergency Schools Restoration Small and Medium Industries Second Road Improvement Plantation Sector

06-Nov-97 11-Sep-97 09-Nov-95 05-Nov-92 30-May-91 18-Oct-90 28-Nov-89 04-Aug-88 30-Jun-88 08-Dec-87 24-Nov-87 04-Dec-84

75.0 20.0 70.6 10.5 30.0 41.1 22.3 40.0 15.0 15.0 36.5 45.0

Cofinancier Grant Loan NET 12.8 JBIC (ODA) 180.0 NDF 6.7 Sida 1.0 NDF 7.0 OPEC Fund 7.4 CDC 35.0 IFC 'A' 35.0 Private Sector Infrastructure Development Company Limited JBIC (ODA) 16.0 ABN-AMRO Bank N.V. Banca Nazionale del Lavoro S.p.A. Bank of Ceylon Bank of Nova Scotia Berliner Bank Citibank, N.A. KBC Bank N.V. Tokyo-Mitsubishi Intl. Ltd. Unicredito Italiano SpA France 15.0 NORAD 7.3 OPEC Fund 6.5 JBIC (ODA) AusAID IDA IBRD SWI IDA CIDA IDA UNDP IDA NET NOR ODA GER IFAD 40.0 3.9 45.0 58.0 4.5 40.0 4.0 15.0 0.2 55.0 8.3 5.5 5.5 7.6 6.0

Total 12.8 180.0 6.7 1.0 7.0 7.4 35.0 35.0

Commercial

39.0

Total 12.8 180.0 6.7 1.0 7.0 7.4 35.0 35.0 39.0

Appendix 4

16.0 10.0 10.0 5.0 3.0 7.0 5.0 7.0 3.0 15.0 15.0 7.3 6.5 40.0 3.9 45.0 58.0 4.5 40.0 4.0 15.0 0.2 55.0 8.3 5.5 5.5 7.6 6.0

16.0 10.0 10.0 5.0 3.0 7.0 5.0 7.0 3.0 15.0 15.0 7.3 6.5 40.0 3.9 45.0 58.0 4.5 40.0 4.0 15.0 0.2 55.0 8.3 5.5 5.5 7.6 6.0

0612

Kirindi Oya Irrigation and Settlement (Supplementary)

09-Dec-82

10.0

Loan No. 0585 0526 0496 0472 0436 0403 0324 0231 0118

Project Name Technical Education Coconut Development Anuradhapura Dry Zone Agriculture Third Tea Development Rural Electrification Urea Fertilizer (Supplementary) Kirindi-Oya Irrigation and Settlement Urea Fertilizer Bowatena Power Total

ADB Approval 30-Sep-82 24-Sep-81 15-Dec-80 07-Oct-80 10-Dec-79 21-Jun-79 09-Dec-77 18-Sep-75 19-Dec-72

ADB Amount 16.1 12.0 15.0 12.8 11.3 3.0 24.0 30.0 8.0 1,758.5

Cofinancier ODA IFAD IFAD OPEC Fund OPEC Fund GER KFAED GER IFAD GER India KFAED OPEC Fund

Grant Loan 0.2 8.0 14.5 5.0 6.0 3.0 2.1 13.3 12.0 24.5 12.5 25.0 3.2 142.0 995.4

Total 0.2 8.0 14.5 5.0 6.0 3.0 2.1 13.3 12.0 24.5 12.5 25.0 3.2 1,120.0

Commercial

Total 0.2 8.0 14.5 5.0 6.0 3.0 2.1 13.3 12.0 24.5 12.5 25.0 3.2 1,391.8

254.5

ADB = Asian Development Bank, AusAID = Australian Agency for International Development, CDC = Commonwealth Development Corporation, CIDA = Canadian International Development Agency, GEF = Global Environment Facility, GER = Germany, GTZ = Gesellschaft fr Technische Zusammenarbeit, IBRD = International Bank for Reconstruction and Development, IDA = International Development Association, IFAD = International Fund for Agricultural Development, IFC = International Finance Corporation, JBIC = Japan Bank for International Cooperation, KFAED = Kuwait Fund for Arab Economic Development, NDF = Nordic Development Fund, NDTF = National Development Trust Fund, NET = Netherlands, NORAD = Norwegian Agency for Development Co-operation, ODA = official development assistance, OPEC = Organization of the Petroleum Exporting Countries, Sida = Swedish Agency for International Development Cooperation, SWI = Switzerland, UNDP = United Nations Development Programme.

Appendix 4

99

100

Appendix 5

TECHNICAL ASSISTANCE TO SRI LANKA Table A5.1: ADB Advisory Technical Assistance to Sri Lanka, 19682006
TA Sector/ No. Title Subsector Agriculture and Natural Resources Agriculture Production, Agroprocessing, and Agrobusiness 0261 Sevanagala Sugar Development 0317 Second Rural Credit 0962 Review of Crop Production Incentives 1139 Pigeonpea Varietal Adaptation and Production Studies in Collaboration with Institutional Crops Research Institute for the Semi-Arid Tropics 1166 Sugar Sector Rationalization Study 1742 Pigeonpea Intercropping and Diversification Study 2352 Impact Evaluation Study of Bank Assistance to the Industrial and Agro-Industry Sector 2438 Tree Crop Plantation and Monitoring 2877 Privatization of Extension Services for Perennial Crops Agriculture Sector Development 0840 Rural Credit Review 1480 Study of Irrigation Management and Crop Diversification (Phase II) 1613 Institutional Strengthening of the Southern Provincial Council 1614 Promotion of Micro-Enterprises through Strengthening of Marketing 2315 Support to Public Enterprises Reform in the Agriculture Sector Water Resource Management 2422 Institutional Strengthening for Comprehensive Water Resources Management Environment and Biodiversity 2765 Institutional Strengthening for Environmental Impact Assessment 3271 Sustainable Natural Resource Management for Development 3274 Cost Recovery Mechanism Analysis for Coastal Zone Protection Irrigation and Drainage 0020 Walawe Development 0846 Study of Irrigation Management and Crop Diversification 1176 Resource Mobilization for Sustainable Irrigation Management 1705 Monitoring and Evaluation of Participatory Irrigation System Management Policy Fishery 0018 0410 0872 1795 Forest 1777 Institutional Strengthening of the Forest Department Livestock 1540 Livestock Sector Policy Review Ceylon Fisheries Corporation Second Fisheries Development Fisheries Sector Study Rationalization of Fishery Harbor and Other Charges Amount Date of Approval ($) 11,496,500 2,782,000 205,000 29-Nov-78 260,000 06-Dec-79 300,000 10-Mar-88 230,000 16-Mar-89

387,000 350,000 100,000 400,000 550,000 1,767,500 177,500 750,000 420,000 320,000 100,000 1,570,000 1,570,000 1,550,000 600,000 800,000 150,000

16-Jun-89 18-Aug-92 30-Jun-95 09-Nov-95 25-Sep-97 09-Jan-87 19-Feb-91 26-Nov-91 26-Nov-91 29-Mar-95 12-Oct-95

10-Mar-97 06-Oct-99 13-Oct-99

1,395,000 400,000 23-Oct-69 350,000 16-Jan-87 50,000 14-Jul-89 595,000 25-May-92 1,260,000 165,000 02-Oct-69 360,000 20-Aug-81 175,000 08-May-87 560,000 01-Dec-92 822,000 822,000 350,000 350,000 05-Nov-92 18-Jul-91

Appendix 5

101

TA Sector/ Title Subsector No. Law, Economic Management, and Public Policy Public Finance and Expenditure Management 2433 Improvement of Contract Approval and Implementation 2433 Improvement of Contract Approval and Implementation Procedures (Supplementary) 2950 Establishing the Sri Lanka Tender Support Bureau 3301 Strengthening Public Expenditure Management Systems 3329 Capacity Building in Imprest Accounts Economic Management 0051 ILO-Sponsored Comprehensive Employment Strategy Mission 1002 Urban Sector Profile 1500 Study on the Privatization of the National Development Bank of Sri Lanka 1735 Study on Policy Impact of Agricultural Program Loan 2745 Improvement of Project Implementation in Sri Lanka 2810 Strengthening Project Performance Evaluation Capability of the Ministry of Plan Implementation, Ethnic Affairs and National Integration 3567 Governance and Institutional Support for Private Sector Development 4278 Poverty Assessment and Information Management National Government Administration 0890 Support for the Administrative Reforms Committee 1579 Strengthening Post-Evaluation Capability of the Ministry of Policy Planning and Implementation 2616 Public Administration Reform 3038 Institutional Modernization of the Ministry of Finance Subnational Government Administration 3263 Institutional Strengthening of the Ministry of Provincial Councils and Local Government Transport and Communications Roads and Highways 0718 Institutional Strengthening of MOH 1110 Institutional Strengthening of Road Development Authority 2152 Road Safety Study 3110 Reengineering of Road Sector Institutions 3110 Reengineering of Road Sector Institutions (Supplementary) 3691 Road Maintenance Budgeting and Expenditure Control 4075 Passenger Transport Services Improvement 4315 Road Sector Master Plan 4736 Capacity Building of the Environmental and Social Division of the Road Development Authority 4748 Independent External Monitoring of Resettlement Activites of the Southern Transport Development Telecommunications and Communications 1388 Institutional Strengthening of Sri Lanka Telecommunications 4110 Community Information Services for the Poor

Amount Date of Approval ($) 8,199,000 4,200,000 100,000 26-Oct-95 20,000 10-Oct-96 1,000,000 12-Dec-97 3,000,000 16-Nov-99 80,000 08-Dec-99 2,946,000 7,000 98,000 98,000 98,000 45,000 350,000 16-Mar-71 05-Jul-88 02-Apr-91 21-Jul-92 07-Jan-97 16-Jun-97

1,900,000 12-Dec-00 350,000 18-Dec-03 583,000 60,000 100,000 275,000 148,000 470,000 470,000 31-Jul-87 17-Oct-91 24-Jul-96 03-Jul-98 24-Sep-99

6,521,000 4,961,000 200,000 575,000 800,000 640,000 360,000 150,000 500,000 1,000,000 400,000 336,000

19-Nov-85 17-Jan-89 15-Sep-94 08-Dec-98 17-May-00 27-Jul-01 19-Dec-02 20-Jan-04 14-Dec-05 19-Dec-05

1,260,000 460,000 18-Oct-90 800,000 09-May-03

102

Appendix 5

TA Sector/ Subsector No. Ports, Waterways, and Shipping 4121 Port Sector Master Plan Railways

Title

Amount Date of Approval ($) 150,000 150,000 27-May-03 150,000 150,000 6,853,000 2,630,000 108,000 822,000 1,700,000 1,605,000 295,000 630,000 680,000 08-Mar-00

3410 TA to Establish Public-Private Partnerships for Railways Finance Finance Sector Development 1420 Review of the Role of National Savings Bank 1421 International Financial Audit of Bank of Ceylon and People's Bank 4421 Implementing Products and Services for the Domestic Debt Market (TA Cluster) Housing Finance 1100 Housing Development Finance Corporation 1555 Institutional Support to HDFC and SMIB 1556 Housing Sector Development Banking Systems 0186 Development Finance Corporation of Ceylon 1541 Securities Council Training and Research Assistance Program 2111 Institutional Strengthening of National Savings Bank 2112 Development of an Institutional and Regulatory Framework for the Leasing Industry in Sri Lanka Capital Markets and Funds 1023 Establishment of a Domestic Unit Trust 1024 Institution-Building for Capital Development and Investment Company Ltd. (CDIC) 1025 Establishment of an Investors' Compensation Fund and Workshops for Training in Securities 1419 Study of the Regulatory Framework of the Securities Market Microfinance 4761 MicroInsurance Sector Development Industry and Trade Small- and Medium-Scale Enterprises 1519 Study of SME Development Policies and Strategies 1520 Institutional Strengthening of Credit Information Bureau of Sri Lanka 3578 Small and Medium Enterprise Development 3578 Small and Medium Enterprise Development (Supplementary) 3822 Enabling Small and Medium Enterprise Growth 4018 Investment Climate and Productivity Study for Sri Lanka: An Approach to Long-Term Poverty Reduction Industry 0058 0597 1361 1478 2153 2161 Mineral Sands Review and Evaluation of the Operations of the Urea Fertilizer Review of Industrial Pollution Regulations Rationalization of the Fertilizer Marketing System Quarry Industry Study Industrial Sector Policy Review

20-Nov-90 20-Nov-90 26-Oct-04

05-Jan-89 29-Aug-91 29-Aug-91

1,226,000 75,000 21-Dec-76 240,000 23-Jul-91 713,000 28-Jun-94 198,000 28-Jun-94 792,000 230,000 100,000 170,000 292,000 600,000 600,000

04-Aug-88 04-Aug-88 04-Aug-88 20-Nov-90 03-Jan-06

4,417,000 2,238,000 238,000 30-May-91 0 30-May-91 400,000 11-Dec-00 200,000 08-Aug-01 1,250,000 20-Dec-01 150,000 06-Dec-02 2,179,000 50,000 11-Nov-71 220,000 17-May-84 87,000 24-Aug-90 97,000 09-Feb-91 430,000 15-Sep-94 345,000 21-Sep-94

Appendix 5

103

Sector/ Subsector

TA No. Title 3624 Integrating Cleaner Production into Industrial Development 3655 Study of Pricing Policy in the Petroleum Subsector

Amount Date of ($) Approval 800,000 25-Jan-01 150,000 24-May-01 4,133,500 4,133,500 200,000 15-Dec-80 500,000 30-Oct-86 276,400 85,000 227,600 400,000 27-Aug-91 25-Oct-88 27-Aug-91 30-Oct-86

Multisector Multisector 0387 Anuradhapura Dry Zone Agriculture 0812 Institution Building (Irrigation Department and Irrigation Management) 0812 Institution Building (Irrigation Department and Irrigation Management) (Supplementary) 0812 Institution Building (Irrigation Department and Irrigation Management) (Supplementary) 0812 Institution Building (Irrigation Department and Irrigation Management) (Supplementary) 0812 Institution Building (Irrigation Department and Irrigation Management) 0957 Accelerated Development of Southern Province 1719 Institutional Strengthening of the North Western Provincial 1797 Urban Land Management 1918 Institutional Assessment for Comprehensive Water Resources Management 2441 Study on Financing of Social Services 4040 Needs Assessment in Conflict-Affected Areas 4040 Needs Assessment in Conflict-Affected Areas (Supplementary) 4567 Sri Lanka Post-Tsunami Needs Assessment and Preparation for Emergency Assistance Implementation Strategies 4703 Strengthening Local Government Infrastructure Energy Energy Sector Development 0523 Energy Planning Support 0660 Energy Planning Support (Phase II) 0930 Institutional Strategy Study of LECO 1307 Rural Electrification Development 1309 Institutional Review and Development of CEB 1309 Institutional Review and Development of CEB (Supplementary) 2595 Power Distribution Restructuring and Regulation 2795 Energy Sector Strategy Study 3857 Restructuring of the Power Sector - Phase II 4113 Energy Sector Master Plan Coventional Energy Generation (other than hydropower) 3450 Promotion of Private Sector Involvement in Oil and Gas Exploration Education Education Sector Development 0985 Education and Training Sector Study 3073 Improving Education Planning

60,000 22-Feb-88 400,000 25-Jun-92 290,000 08-Dec-92 188,000 30-Jul-93 350,000 09-Nov-95 150,000 16-Dec-02 6,500 17-Mar-05 500,000 18-Feb-05 500,000 3,605,000 3,280,000 80,000 50,000 230,000 445,000 700,000 125,000 0 100,000 1,050,000 500,000 325,000 325,000 28-Nov-05

16-Jun-83 26-Dec-84 03-Dec-87 31-May-90 31-May-90 28-Jun-91 26-Jun-96 19-May-97 15-Apr-02 12-May-03 01-Jun-00

2,803,000 1,205,000 405,000 800,000

15-Jun-88 23-Sep-98

104

Appendix 5

TA Sector/ Title Subsector No. Technical, Vocational Training, and Skills Development 1672 Second Technical Education 2612 Resource Rationalization Action Plan under the Department of Technical Education and Training 3219 Capacity Building of the Ministry of Vocational Training and Rural Industries Project Implementation Management 4663 Strengthening Technical Education Basic Education 1937 Organizational Development and Institution Building Tertiary Education 0705 Accounting and Audit Education Master Plan Water Supply, Sanitation, and Waste Management Water Supply and Sanitation 1150 Rural Water Supply and Sanitation Sector Development Planning 1486 Financial Accounting and Reporting Assistance to the National Water Supply and Drainage Board 1900 Management Strengthening of the National Water Supply and Drainage Board 3434 Accounting Review of the National Water Supply and Drainage Board 4049 Strengthening the Regulatory Framework for Water Supply and Sanitation 4049 Strengthening the Regulatory Framework for Water Supply and Sanitation (Supplementary) Waste Management 4184 Greater Colombo Wastewater Management Sector Review Health, Nutrition, and Social Protection Social Protection 3246 National Policy on Involuntary Resettlement 3697 Support to Transport Sector for Resettlement Capacity Building 3792 Capacity Building for the National Policy on Involuntary Resettlement 4245 Implementing the National Involuntary Resettlement Policy 4442 Psychosocial Health in Conflict-Affected Areas Health Systems 1786 Management Information System and Health Insurance Study Total

Amount Date of Approval ($) 1,040,000 670,000 20-Feb-92 100,000 22-Jul-96 150,000 120,000 400,000 400,000 158,000 158,000 1,827,000 1,677,000 600,000 100,000 552,000 05-Jul-99 03-Oct-05 24-Aug-93 13-Sep-85

26-Apr-89 27-Feb-91 17-Jun-93

100,000 10-May-00 285,000 18-Dec-02 40,000 150,000 150,000 13-Dec-06

26-Sep-03

1,381,000 956,000 250,000 27-Aug-99 56,000 07-Aug-01 150,000 11-Dec-01 100,000 15-Dec-03 400,000 23-Nov-04 425,000 425,000 51,236,000 17-Nov-92

ADB = Asian Development Bank, CEB = Ceylon Electricity Board, HDFC = Housing Development Finance Corporation, ILO = International Labor Organization, LECO = Lanka Electricity Company (Private) Limited, MOH = Ministry of Highways, SME = small- and medium-scale enterprise, SMIB = State Mortgage and Investment Board, TA = technical assistance. Source of Basic Data: Lotus Notes Database on Loans, Technical Assistance, Grants and Equity Approvals.

Appendix 5

105

Table A5.2: ADB Project Preparatory Technical Assistance to Sri Lanka, 19682006
Sector/ TA Subsector No. Title Agriculture and Natural Resources Environment and Biodiversity 0351 Geological Survey 0712 Land Use Planning 2942 Biodiversity Conservation 3034 Coastal Resource Management 3273 Protected Area Management and Wildlife Conservation 3479 Eastern Province Coastal Community Development 4059 Delivering Natural Resource and Environmental Management Services Sector Agriculture Production, Agroprocessing, and Agrobusiness 0064 Gal Oya Sugar Industry Rehabilitation 0191 Sevanagala Sugar Development 0276 Integrated Tea Development 0338 Coconut Development 0747 Subsidiary Crops Production and Processing 0765 Agricultural Inputs Program 0897 Smallholder Tea 1213 Agricultural Extension Rationalization 1260 Second Coconut Development 1869 Sustainable Development of Tree Crop Plantations 2608 Perennial Crops and Seed Project 2784 Second Smallholder Tea Development 3594 Plantation Development 4800 Agribusiness Development Water Resource Management 3030 Western River Basins Sector Forest 0359 Community Forestry 1157 Preparation of the Participatory Forestry 3047 Forest Resource Management Fishery 0336 0412 1368 3639 West Coast Fisheries Development Aquaculture Development Fisheries Sector Aquatic Resources Development and Quality Improvement Amount Date of ($) Approval 14,831,600 4,200,000 130,000 24-Apr-80 290,000 29-Oct-85 800,000 12-Dec-97 850,000 25-Jun-98 330,000 13-Oct-99 1,000,000 16-Aug-00 800,000 19-Dec-02 4,971,000 49,000 350,000 98,000 99,000 400,000 75,000 150,000 350,000 250,000 350,000 600,000 600,000 800,000 800,000 1,500,000 1,500,000

17-May-72 14-Apr-77 12-Feb-79 28-Dec-79 06-Feb-86 13-May-86 27-Aug-87 30-Oct-89 26-Dec-89 16-Apr-93 11-Jul-96 24-Apr-97 18-Dec-00 16-Jun-06 11-Jun-98

1,244,000 94,000 16-Jul-80 350,000 16-May-89 800,000 20-Jul-98 1,195,000 90,000 27-Dec-79 105,000 02-Sep-81 200,000 06-Sep-90 800,000 19-Mar-01 774,600 75,000 99,600 600,000 600,000 200,000 400,000 347,000 49,000 21-Apr-88 05-Aug-94 25-Jul-96 03-Nov-80 20-Jul-94 07-Jul-76

Agriculture Sector Development 0972 Crop and Fisheries Rehabilitation 2132 Second Agriculture Rehabilitation 2619 Upper Watershed Management Livestock 0371 Livestock Development 2126 Second Livestock Development Irrigation and Drainage 0168 Lunuganwehera Reservoir (Irrigation and Agricultural Development) 0407 Kirindi Oya Irrigation and Settlement 0512 Walawe Irrigation Rehabilitation and Improvement

50,000 23-Jul-81 248,000 09-May-83

106

Appendix 5

Sector/ TA Subsector No. Title Transport and Communications Roads and Highways 0292 Mahaweli Area Roads Development 0618 Trunk Road Maintenance 0792 Second Road Improvement 0922 Third Road Improvement 2151 Road Network Improvement 2335 Southern Provincial Roads Improvement 2892 Southern Transport Corridor 2904 Second Provincial Roads Improvement 3184 Preparation of the Southern Transport Development Project 4074 Feasibility Study of National Highways Development 4178 Public-Private Partnership Expressway Ports, Waterways, and Shipping 3276 Port of Colombo South Harbor Development Telecommunications and Communications 0988 Telecommunications Development Study Multisector Multisector 0300 0730 1337 1387 1508 2217 2791 3385 3542

Amount Date of ($) Approval 7,798,000 5,988,000 98,000 27-Apr-79 250,000 31-Jul-84 350,000 27-Aug-86 150,000 24-Nov-87 700,000 15-Sep-94 600,000 24-May-95 1,000,000 09-Oct-97 1,000,000 30-Oct-97 190,000 14-Apr-99 850,000 19-Dec-02 800,000 17-Sep-03 1,460,000 1,460,000 350,000 350,000 4,445,000 4,445,000 300,000 75,000 420,000 400,000 600,000 600,000 1,100,000 800,000 150,000 13-Oct-99 21-Jun-88

Anuradhapura Dry Zone Agriculture Kirindi Oya Phase II Southern Province Development North Western Province Water Resources Development Urban Development Area Development Project in the North Central Region Urban Development and Low-Income Housing Southern Province Rural Economic Advancement Preparation of the North East Emergency Rehabilitation Project

05-Jul-79 09-Dec-85 13-Jul-90 11-Oct-90 18-Apr-91 02-Dec-94 08-May-97 29-Dec-99 10-Nov-00

Education Technical, Vocational Training, and Skills Development 0353 Technical Education 0808 Second Technical Education 3051 Skills Development 4090 Human Resources Investment Education Sector Development 1316 Education Development 3973 School Computerization 4733 Education Sector Development Program Tertiary Education 1611 Accounting, Auditing and Financial Management Education and Training 2278 Scientific and Technical Personnel Development 3598 Postsecondary Education Modernization Basic Education 3241 Secondary Education Modernization

4,395,000 1,644,000 150,000 26-May-80 294,000 24-Oct-86 600,000 24-Jul-98 600,000 19-Mar-03 1,502,000 302,000 06-Jun-90 500,000 05-Nov-02 700,000 13-Dec-05 999,000 99,000 22-Nov-91

400,000 03-Jan-95 500,000 19-Dec-00 250,000 250,000 12-Aug-99

Appendix 5

107

Sector/ TA Subsector No. Title Water Supply, Sanitation, and Waste Management Water Supply and Sanitation 0744 Water Supply Rehabilitation 1584 Second Water Supply Sector 2609 Rural Water Supply and Sanitation Sector 3587 Secondary Towns Water Supply and Sanitation 4853 Small Towns Rural Arid Areas Water and Sanitation Waste Management 4531 Greater Colombo Wastewater Law, Economic Management, and Public Policy Economic Management 3075 Private Sector Development Program 4248 Private Sector Development Program (Subprogram II) Public Finance and Expenditure Management 3906 Public Sector Resource Management Subnational Government Administration 4296 Basic Social Infrastructure Development Energy Energy Sector Development 3141 Power Sector Restructuring 4262 Rural Electrification and Network Expansion Transmission and Distribution 0219 Rural Electrification 0578 Secondary District Towns Power Coventional Energy Generation (other than hydropower) 0551 Trincomalee Thermal Power 1308 Preparation of CEB's New Thermal Power Station Hydropower Generation 0083 Preparation of the Samanala Wewa Power Finance Microfinance 3707 Rural Finance Sector Development Banking Systems 0241 Rural Credit 1202 Second Rural Credit Capital Markets and Funds 1108 Feasibility Study of Establishing a Venture Capital Company 2355 Establishment of a Credit Rating Agency Housing Finance 1293 Low-Income Housing Development Industry and Trade Small and Medium Scale Enterprises 4633 Small and Medium Enterprise Sector Development Program II

Amount Date of ($) Approval 3,645,000 2,795,000 75,000 29-Jan-86 250,000 25-Oct-91 600,000 17-Jul-96 1,000,000 15-Dec-00 870,000 23-Oct-06 850,000 850,000 23-Dec-04 2,630,000 1,630,000 830,000 23-Sep-98 800,000 12-Dec-03 500,000 500,000 23-Aug-02

500,000 500,000 19-Dec-03 2,236,000 1,600,000 1,000,000 23-Dec-98 600,000 16-Dec-03 440,000 190,000 09-Dec-77 250,000 29-Dec-83 150,000 150,000 17-Nov-83 0 31-May-90 46,000 46,000 1,330,200 550,000 550,000 336,200 91,200 245,000 336,000 75,000 261,000 108,000 108,000 1,251,300 550,000 550,000 22-Aug-78 01-Sep-89 13-Jan-89 30-Jun-95 26-Apr-90 11-Apr-73

18-Aug-05

108

Appendix 5

Sector/ TA Subsector No. Industry 0046 0060 0384 0649 Trade

Title Oleo Chemical Urea Fertilizer Plant Graphite Mining Graphite Mining- World Market and Marketing Analysis

Amount Date of ($) Approval 451,300 25,300 25-Jan-71 165,000 18-Jan-72 186,000 15-Dec-80 75,000 17-Dec-84 250,000 250,000 100,000 100,000 100,000 42,662,100 01-Aug-90

1346 Koggala Export Processing Zone Health, Nutrition, and Social Protection Health Systems 1291 Second Health and Population Total

18-Apr-90

ADB = Asian Development Bank, CEB = Ceylon Electricity Board, TA = technical assistance. Source of Basic Data: Lotus Notes Database on Loans, Technical Assistance, Grants and Equity Approvals.

Appendix 5

109

Table A5.3: Regional Technical Assistance Involving Sri Lanka

RETA Amount Number Title ($'000) 5528 Acid Rain and Emissions Reduction Project in Asia 450.0 5573 South Asia Cooperative Environment Programme (SACEP) for 98.9 Regional Environment and Natural Resources Information Centre II 800.0 5590 Coconut Genetic Resources Network in Asia and the Pacific Region 5603 Strengthening Regional Collaboration on Cereals and Legumes 600.0 Research in Asia 5614 Study on Issues Related to Private Sector Growth in the Health Sector 550.0 in Asia 85.0 5626 Development Policy Issues in Asia 5664 350.0 Governance and Development in South Asian and Other DMCs 5670 Low-Income Women Entrepreneurs in Asia 600.0 600.0 5719 South Asia Vegetable Research Network (Phase II) 5766 Second Agriculture and Natural Resources Research at CGIAR 5,500.0 Centers 375.0 5808 Policy Options for Pension Reform in Asia: Challenges in Design and Implementation 125.0 5811 Workshop on the Enhancement of DMC Participation in the Bank's Operational Businesss Processes 5824 Regional Study of Nutrition Trends, Policies, and Strategies in Asia and 750.0 the Pacific 800.0 5828 Study of Large Dams and Recommended Practices 1,000.0 5832 Evaluation Studies in the Bank's Developing Member Countries Asian Vaccination Initiative 400.0 a 5857 30.0 5890 First Meeting of the Private Sector Forum on Economic Cooperation in the Eastern South Asian Subregion 700.0 5897 Strategies for Improved Social Protection in Asia 150.0 5898 Prospects and Benefits of Economic Cooperation in Eastern South Asia Subregion 760.0 5916 Year 2000 Special Evaluation Studies of Asian Development Bank Operations in Developing Member Countries -- Part II 5922 Regulatory Systems and Networking of Water Utilities and Regulatory 500.0 Bodies 425.0 5959 Enhancing Municipal Services Delivery Capability Phase 2 5974 Coastal and Marine Resources Management and Poverty Reduction in 600.0 South Asia 4,000.0 6005 Sixth Agriculture and Natural Resources Research at CGIAR Centers 50.0 6006 Regional Conference on National Poverty Reduction Strategies 150.0 6007 Enhancing Social and Gender Statistics in Selected DMCs 650.0 6014 Strengthening the Regional Training Capability of the Asian Organization of Supreme Audit Insitutions 150.0 b 6016 Clean Air Initiative for Asian Cities (CAI-Asia) 6022 Thematic Evaluation Studies of Asian Development Bank Operations in 1,600.0 Developing Member Countries 670.0 6026 Promoting Urban Poverty Reduction Through Participation in the Cities Alliance 450.0 6035 Capacity Building for Developing Member Countries on the World Trade Organization Trading System 245.0 6052 Government Accounting Standards (Second Phase) 250.0 6072 Good Practice on Pro-Poor Service Delivery by Local Governments 60.0 6079 Exploring Sri Lanka's Subregional Economic Cooperation Potential Approval Date 16-Apr-93 14-Mar-94 29-Jul-94 24-Nov-94 27-Dec-94 28-Mar-95 22-Dec-95 18-Jan-96 10-Jan-97 29-Dec-97 05-Oct-98 15-Oct-98 23-Dec-98 28-Dec-98 12-Feb-99 27-Aug-99 23-Dec-99 28-Dec-99 29-Dec-99 18-May-00 19-Jul-00 08-Dec-00 06-Mar-01 06-Nov-01 21-Nov-01 26-Nov-01 18-Dec-01 19-Dec-01 08-Mar-02 13-Mar-02 04-Jun-02 10-Oct-02 16-Dec-02 18-Dec-02

110

Appendix 5

RETA Amount Number Title ($'000) 6080 Seminar on Regional Challenges to Governance: Experiences of Asia 75.0 and Latin America 60.0 6081 Exploring the Maldives' Subregional Economic Cooperation Potential 500.0 6082 Supporting Country-Driven Private Sector Development Strategies 500.0 6086 Public-Private Infrastructure Advisory Facility 1,200.0 6088 Strengthening and Collection of Purchasing Power Parity Data in Selected Developing Member Countries 150.0 6090 Private Sector Cooperation in the SASEC Subregion 6092 Enhancing Gender and Development Capacity in Developing Member 400.0 Countries - Phase 2 6093 Promoting Effective Water Management Policies and Practices - Phase 1,000.0 2 300.0 6096 Supporting the Sector Approach and Results-Based Management in ADB Operations 6097 Thematic Evaluation Studies for 2003 1,400.0 A Review of the Asian Development Bank's Poverty Reduction Strategy 300.0 6105 6108 Emergency Regional Support to Address the Outbreak of Severe Acute 2,000.0 Respiratory Syndrome (SARS) 500.0 6109 NGO Partnerships for Poverty Reduction 600.0 6111 2003/04 Seminars on Capacity Building for Project Implementation and Administration 600.0 6120 Social Protection Index for Committed Poverty Reduction 6123 Promoting Effective Water Management Policies and Practices - Phase 4,300.0 3 150.0 6132 Private Sector Cooperation in the South Asia Subregional Economic Cooperation (SASEC) Subregion (Phase II) Asia Recovery Information Center Phase III 404.6 6138 450.0 6142 Capacity Building on Selected WTO Issues 1,500.0 6143 Promoting Gender Equality and Women's Empowerment 300.0 6144 Better Air Quality Management in Asia Assessing Private Sector Development Outcomes in Projects 400.0 6145 400.0 6148 Strengthening the Capacity of Financial Sector Regulators and Supervisors 3,920.0 6150 Poverty and Environment Program 6152 Development of Domestic Consultant Services in Developing Member 180.0 Countries 400.0 6170 Pilot Project on Institutionalizing Civil-Society Participation to Create Local Pro-Poor Projects 6180 Preparation of Asian Development Outlook 2005 400.0 725.0 6181 2004-2006 Orientation Program for Officials of the Asian Development Bank's Developing Member Countries 500.0 6187 Promoting South Asian Regional Economic Cooperation 6196 Implementation of the ADB-OECD Anticorruption Initiative for Asia250.0 Pacific 6219 Promoting Effective Water Management Policies and Practices - Phase 5,600.0 4 550.0 6224 Pilot Testing Participatory Assessment Methodologies for Sustainable and Equitable Water Supply and Sanitation Services 150.0 6233 High Level Coordination Meeting on Rehabilitation and Reconstruction Assistance to Tsunami-Affected Countries 6291 Rolling Out Air Quality Management in Asia 655.0 6303 Competition Law and Policy Roundtable 100.0

Approval Date 18-Dec-02 18-Dec-02 19-Dec-02 19-Dec-02 19-Dec-02 19-Dec-02 20-Dec-02 31-Jan-03 07-Mar-03 10-Mar-03 06-May-03 23-May-03 27-May-03 13-Jun-03 27-Aug-03 03-Oct-03 05-Nov-03
g

13-Nov-03 28-Nov-03 28-Nov-03 28-Nov-03 28-Nov-03 15-Dec-03 16-Dec-03 16-Dec-03 06-Apr-04 20-Jul-04 23-Jul-04 27-Sep-04 02-Nov-04 20-Dec-04 23-Dec-04 03-Mar-05 19-Dec-05 21-Dec-05

Appendix 5

111

RETA Amount Number Title ($'000) 6308 Scaling Up of the Social Protection Index for Committed Poverty 900.0 Reduction 6311 Regional Seminars on Anticorruption 2006-2007 300.0 1,400.0 6312 Selected Evaluation Studies for 2006 Asia Regional Integration Center 780.0 6314 Support for Strengthening the Tsunami Development Assistance 6331 800.0 k Database 600.0 6333 Statistical Capacity Building in the Asia and Pacific Region 960.0 6335 BIMSTEC Transport Infrastructure and Logistics Study 8,500.0 l 6337 Development Partnership Program for South Asia 6349 600.0 Free Trade Agreements in Asia: The Way Ahead 6350 1,000.0 Sustainable Urban Transport 380.0 6354 Asian Development Outlook 2007 450.0 6355 Capacity Development of Selected Developing Member Countries on the Implementation of the Trade Facilitation 500.0 6356 Improving Administrative Data Sources for the Monitoring of the Millennium Development Goal Indicators Preparing the South Asia Subregional Economic 950.0 6362 Cooperation Tourism Development Project 6368 Preparing the Energy Sector Dialogue and South Asian Association for 1,000.0 Regional Cooperation Energy Center Capacity Development Project

Approval Date 06-Mar-06 28-Mar-06 28-Mar-06 20-Apr-06 28-Jul-06 31-Jul-06 14-Aug-06 18-Aug-06 23-Oct-06 26-Oct-06 22-Nov-06 23-Nov-06 24-Nov-06 13-Dec-06 14-Dec-06

ADB = Asian Development Bank, BIMSTEC = Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation, CGIAR = Consultative Group on International Agricultural Research, DMC = developing member country, NGO = nongovernment organization, OECD = Organisation for Economic Co-operation and Development, SASEC = South Asia Subregional Economic Cooperation, TA = technical assistance.
a b c d e

Excludes $80,000 counterpart financing from the Government of Australia and World Health Organization. With cofinancing of $1,328,000 from various sources. The amount of $1,200,000 is budgeted over a 3-year implementation period, approved for $400,000 a year. With $1.2 million grant finance from the Government of Denmark. In September 2003, the President approved an increase of $3 million in the TA amount. The TA totals $5.45 million, including $450,000 counterpart funds from the World Health Organization. In June 2004, the President approved an increase of $500,000 in the amount to total $1,000,000, consistent with the change in scope. With $381,013 grant finance from the Government of Australia. In November 2004, the President approved ADB administering additional funds of $245,000 on behalf of various organizations. Excludes $200,000 contribution from other funding agencies. Excludes $200,000 contribution from OECD and $10,000 of government counterpart funds. UNDP provided $800,000 on a parallel basis through the Regional Project for Capacity Development for Tsunami Aid Coordination. Total TA cost estimated at A$11 million (about US$8.5 million) would be financed on a grant basis by the Australia-ADB South Asia Development Partnership Facility, funded by the Government of Australia.

g h

I j
k

Source: Asian Development Bank database.

Appendix 6

112 PORTFOLIO ANALYSIS

1. During 19862006, the period covered by the country assistance program evaluation, ADB approved 90 loans ($3.3 billion) to Sri Lanka. The highest amount of loan approvals was $275.3 million in 2003, while 2006 registered the lowest volume ($60 million) since 1996 (Figure A6.1). Project loans accounted for 54 (60%) of the 90 approvals during 19862006. Figure A6.1: Annual Approved Loans for Sri Lanka, 19862006
300 250
195.4 198.0 130.0 106.3 102.3 108.3 127.3 119.6 84.0 44.0 60.0 140.0 161.6 148.8 146.0 208.7 236.5 195.0 275.3 185.0 253.0

$M n illio

200 150 100 50 0

Source: Asian Development Bank Loan Financial Information System.

2. By 2006, ongoing loans in Sri Lankas public sector portfolio consisted of 47 loans 1 ($1.7 billion), comprising 39 project loans ($1.46 billion), 3 program loans ($155 million), 2 lines of credit for development finance ($70 million), and 3 loans for investment/credit ($38 million). During 19862005, an average of four loans was approved for Sri Lanka, rising to six or seven per year during 20002005. 2 Since 2004, ADB has classified public sector loans as (i) targeted or general interventions as per the approach to poverty, (ii) thematic areas, and (iii) primary sectors. Of the 12 projects approved during 20042006, 83% were classified as general interventions. By theme, sustainable economic growth was dominant (47%), followed by private sector development (18%). Table A6.1 and Figure A6.2 illustrate ADB loans by sector and source of funds. Table A6.1: Sector Composition of ADB Public Sector Loans to Sri Lanka, 19862006
Sector/Subsector Agriculture and Natural Resources Transport and Communications Finance Multisector Energy Education Water Supply, Sanitation, and Waste Management Industry and Trade Law, Economic Management, and Public Policy Health, Nutrition, and Social Protection Total 19862006 Number Amount Loan Project $M %Share 23 21 607 19 11 11 584 18 10 400 12 7 12 11 365 11 319 10 5 4 271 9 9 8 315 10 7 5 155 6 4 5 183 6 3 6 26 1 1 1 90 76 3,225 100 19972006 Number Amount Loan Project $M %Share 12 10 240 13 432 23 7 7 135 5 2 7 243 13 8 7 130 2 1 7 189 10 6 6 245 13 5 3 86 3 1 5 170 5 2 9 53 39 1,870 100

Source of Basic Data: Lotus Notes Database on Loans, Technical Assistance, Grants and Equity Approvals.

1 2

The average age of ongoing loans was 4.3 years in 2006, which was higher than the ADB average (3.8 years), and 1 year older than the average age of active loans during 19982005. The increase reflects loans from ordinary capital resources, which Sri Lanka started to receive in 2000.

19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06

Appendix 6

113

Figure A6.2: ADB Loans to Sri Lanka, by Source of Funds, 19862006

10 8 6 4 2 0
19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04

Number of Loans

ADF

OCR

Total

ADF = Asian Development Fund, OCR = ordinary capital resources. Source: Asian Development Bank Loan Financial Information System.

3. Performance ratings of completed programs/projects show mixed results. By 31 December 2006, 54% of all completed ADB projects/programs in Sri Lanka had been assessed as successful or better, 40% as partly successful, and 6% as unsuccessful. 3 The succeeding paragraphs provide a discussion of portfolio performance findings and are supported in detail, as appropriate, by figures and tables found at the end of this appendix. 4. Loan signing and effectivity in Sri Lanka generally takes longer than the allocated time periods. The standard time required from loan approval to signing is 30 days. The average time from loan approval to signing (for active and closed loans) was 1.7 months (1968 2006). More recently, this deteriorated to 2.0 months (19862006) and to 2.2 months (1998 2006). Nevertheless, during 19982006, Sri Lankas performance as judged by these criteria was better than the ADB-wide average of 3.5 months. The benchmark for the time required from loan signing to effectivity is 90 days. The average time required in Sri Lanka was 4.3 months during 19682006. This deteriorated to 4.4 months during 19862006, and 4.5 months during 19982006. The time from loan signing to effectivity in 2006 (5 months) was longer than the

The methodology used in project completion reports (PCRs) and project performance evaluation reports (PPERs) for rating project success had changed over the years. With the adoption of ADBs Guidelines for Preparing Performance Evaluation Reports for Public Sector Operations in 2006, which replaced the 2000 Guidelines for the Preparation of Project Performance Audit Reports, the core criteria for rating project performance were reduced from five to four. Changes were made to the weights of the core criteria for aggregation purposes and to the cutoff points for assigning an overall rating. Under the current guidelines, each of the four core criteria (relevance, effectiveness, efficiency, and sustainability) has a whole number score between 0 and 3. The overall rating is the average of the scores of the core criteria, using fixed weights: 20% each for relevance and sustainability, and 30% each for effectiveness and efficiency. The current cutoff points (ranges) for project or program performance rating are (i) highly successful > 2.7, (ii) 1.6 < successful 2.7, (iii) 0.8 < partly successful 1.6, and (iv) unsuccessful 0.8. For assessing the performance of sector assistance under the country assistance program evaluation, another core criterion (impact) is added to the four criteria. Each criterion has a whole number score between 0 and 3, with twice as much weight given to effectiveness, sustainability, and impact. The overall performance rating for each sector is computed by adding up the scores of each criterion: (i) highly successful > 20, (ii) 16 successful 19, (iii) 11 partly successful 15, and (iv) unsuccessful 10.

20 06

Appendix 6

114

averages for South Asia (4.8 months) and ADB (4.5 months). 4 For TA grants, the average time (19982006) from approval to signing of the letter of agreement was 1.9 months, which was better than the ADB-wide average of 3.0 months. 5. Sri Lankas portfolio remained unfocused. By 2006, ADB had operated in nine sectors with an average of five loans per sector. Building on the analysis of previous Operations Evaluation Department reports, 5 the measures of dispersion for 2006 using the Hirschman Herfindal Index 6 were estimated at 0.15 each for the number and value of loans. This implies that the portfolios sector focus was heterogeneous. It became more dispersed from 2004 to 2006 in terms of the number of loans. A similar conclusion was reached using the value of loans to estimate the HirschmanHerfindal Index. The results are not surprising, as a cursory review of the loan portfolio in the last decade indicates that five sectors in Sri Lankas portfolio accounted for 72% of the total loan amount. 6. Among South Asian countries, Sri Lanka ranked second during 20012006 in terms of the percentage of loans requiring extension (90%). A total of 43 loans were closed during 19862006, of which 40 (93%) required extensions before they were closed; 34 loans (79%) had two or more extensions. During 19972006, 96% of the 27 closed loans were extended. For comparison, during 19861996, 88% of the 16 closed loans had extensions. The average duration of loan extensions for Sri Lanka was 1.8 years, mainly due to (i) delayed compliance with the conditions for loan effectiveness, (ii) changes in project scope, and (iii) time taken to finalize subsidiary loan agreements and other credit agreements. ADB may need to review the appropriateness of its processes and conditions. 7. From 1997 to 2001, the 3-year moving average of contract awards declined by 41%, but it has since improved. The value of contract rewards increased from $104.7 million in 2002 to $170.6 million in 2006. This recovery reflects the inclusion of program loans starting in 2001. During the last decade (19972006), Sri Lanka achieved 96% and 89% of its annual projected targets for contract awards for projects and programs, respectively, and 95% overall. Moreover, Sri Lankas average contract commitment ratio was the second lowest (19.2%) in the South Asia region, behind Nepal (18.7%). From 19982006, the countrys contract commitment ratio (18.6%) was lower than the overall ADB ratio (22.4%). 8. The 3-year rolling average for disbursements declined from 1997 to 2001 but has since increased with the fund disbursements from program loans. The average annual disbursements in the last 10 years achieved 93% of the projected target. Actual disbursements (19%) were close to the targeted average disbursement ratio (19.8%). The average disbursement ratio was 20% during 20032006, higher than the 16% during 19992002.
4

Several loans approved during 19862006 took more than a year to become effective after loan signing: (i) Southern Transport Development Project (Loan 1771-SRI), 35 months; (ii) Perennial Crops Development Project (Loan 899-SRI), 13 months; and (iii) Water Resources Management Project (Loan 1757-SRI), 12.3 months. (i) ADB. 2005. Annual Report on Loan and Technical Assistance Portfolio Performance for Year Ending December 2004. Manila. (ii) ADB. 2006. Annual Report on Loan and Technical Assistance Portfolio Performance for Year Ending December 2005. Manila. The HirschmanHerfindal Index formula is [n/p]2, where n is the number of loans a country has in a sector, and p is the countrys total number of loans. The squares of n/p are summed up across all sectors. The maximum index value of 1 is reached when all of a countrys loans are in a single sector. The minimum index value approaches zero when there is one loan per sector for an infinite number of sectors; however, in this case, with 10 sectors, the minimum possible index value of 0.1 would occur if a country had just one loan in each of the 10 sectors. As the value of p increases, it becomes increasingly difficult to achieve a higher index. When two countries have roughly the same index, the country with the larger number of loans is considered to have a more focused portfolio.

Appendix 6

115

9. Project performance reports show that portfolio performance is satisfactory, but these reports are generally overoptimistic. Based on performance in the last 9 years (19982006), 94% of ongoing projects (average of 32 projects per year) were rated satisfactory, 4.7% (an average of 2 per year) partly satisfactory, and the rest (1.3%) unsatisfactory. The percentage share of projects and programs rated satisfactory was higher than the ADB-wide average (83%). On average, two or three projects per year (7%) were reported at risk during 20012006. 7 This increased to eight projects (17%) in 2006, higher than average in the South Asia region (12%) and ADB-wide (10%). Projects at risk were associated with implementation delays, problems with compliance of loan covenants, and disbursement delays. Other factors that affected portfolio performance included (i) the December 2004 tsunami, (ii) resurgence of civil conflict, and (iii) weak capacity at the local government levels. The evaluation team reviewed all existing (41) project performance reports for the current portfolio of active projects. This revealed a number of issues related to project performance reports: (i) inconsistent information and inaccurate data transcription from other sources; (ii) loan closing dates not extended, or loans not closed on time; (iii) underestimated time allocations for loan effectiveness; (iv) planned project implementation periods cut short; and (v) unrealistic project implementation schedules as a result of delayed start-ups. Overall, the performance ratings in the project performance reports are not a reliable indicator of portfolio performance. They are useful mainly for identifying implementation issues, risks, and projects that perform relatively less well in the portfolio. Nonetheless, since project management and monitoring is a shared responsibility between ADB and developing member countries, efforts should be undertaken to achieve better development results. 10. The average supervision intensity 8 for Sri Lanka in 2006 was 24, slightly lower than the regional and ADB-wide intensity levels. The number of project administration missions fluctuated during 20032006 to reflect the increasing number of projects for review. In the last 4 years, an average of 47 missions involving 689 staff-days per year was devoted to supervision of 29 projects. This represents a staff-days/project ratio of 23.8, which is lower than both the averages for 2003 and 2004, as well as for South Asia (27.4) and ADB (25.6). Increasing delegation of loans to the Sri Lanka Resident Mission (SLRM) to possibly improve project performance should be reviewed, given implications on resident mission staff capacity. Most loans administered by SLRM are ongoing. 11. Improving portfolio performance calls for several measures. These include (i) learning from the experience of lending and nonlending operations; (ii) improving quality at entry of ADB assistance; (iii) improving sector focus/selectivity; (iv) reviewing the appropriateness of ADBs processes and loan conditions; (v) revisiting supervision intensity and delegation of loans to SLRM; (vi) strengthening the objectivity of the project performance report system; and (vii) promoting results-based monitoring and evaluation to increase development effectiveness.

7 8

Data are available from 2001 onwards. This refers to total staff-days for missions divided by the number of projects.

Table A6.2: Sectoral Composition of ADB Public Sector Loans to Sri Lanka, 19682006 19682006 19862006 Number Number Amount Amount Sector/Subsector Loan Project $M %Share Loan Project $M %Share Agriculture and Natural Resources 38 35 797.7 21.6 23 21 607.1 18.8 14 14 309.2 8.4 6 6 186.3 5.8 Agriculture Production, Agroprocessing, and Agrobusiness Agriculture Sector Development 7 6 232.3 6.3 7 6 232.3 7.2 Fishery 6 5 79.9 2.2 3 2 46.0 1.4 Environment and Biodiversity 3 3 68.7 1.9 3 3 68.7 2.1 Forest 3 3 47.5 1.3 2 2 37.5 1.2 Water Resource Management 2 2 36.3 1.0 2 2 36.3 1.1 Livestock 1 1 15.2 0.4 Irrigation and Drainage 2 1 8.6 0.2 Transport and Communications Roads and Highways Telecommunications and Communications Ports, Waterways, and Shipping Finance Banking Systems Finance Sector Development Housing Finance Multisector Multisector Energy Energy Sector Development Transmission and Distribution Hydropower Generation Conventional Energy Generation (other than hydropower) Education Technical, Vocational Training, and Skills Development Basic Education Tertiary Education Senior Secondary General Education Education Sector Development Water Supply, Sanitation, and Waste Management Water Supply and Sanitation Integrated Industry and Trade Small- and Medium-Scale Enterprises Industry Law, Economic Management, and Public Policy Economic Management Public Finance and Expenditure Management Health, Nutrition, and Social Protection Health Systems Total
ADB = Asian Development Bank. Source of Basic Data: Lotus Notes Database on Loans, Technical Assistance, Grants, and Equity Approvals.

116
Appendix 6

19972006 Number Amount Loan Project $M %Share 12 10 240.3 12.9 1 1 35.0 1.9 4 3 70.0 3.7 2 1 20.0 1.1 2 2 52.0 2.8 1 1 27.0 1.4 2 2 36.3 1.9

16 11 3 2 14 10 3 1 17 17 10 3 4 2 1 10 4 2 2 1 1 7 6 1 10 5 5 6 2 4 2 2 130

15 11 2 2 11 8 2 1 14 14 9 2 4 2 1 10 4 2 2 1 1 5 4 1 6 3 3 3 1 2 2 2 110

623.8 565.0 46.2 12.6 445.0 280.0 145.0 20.0 439.3 439.3 371.8 204.3 138.5 25.5 3.5 286.9 90.9 81.0 65.0 35.0 15.0 315.3 265.3 50.0 193.2 131.0 62.2 183.0 100.0 83.0 35.4 35.4 3,691.2

16.9 15.3 1.3 0.3 12.1 7.6 3.9 0.5 11.9 11.9 10.1 5.5 3.8 0.7 0.1 7.8 2.5 2.2 1.8 0.9 0.4 8.5 7.2 1.4 5.2 3.5 1.7 5.0 2.7 2.2 1.0 1.0 100.0

11 9 1 1 10 6 3 1 12 12 5 3 2

11 9 1 1 7 4 2 1 11 11 4 2 2

584.1 533.0 41.1 10.0 400.0 235.0 145.0 20.0 364.6 364.6 319.1 204.3 114.8

18.1 16.5 1.3 0.3 12.4 7.3 4.5 0.6 11.3 11.3 9.9 6.3 3.6

7 6 1 5 3 2 8 8 2 2

7 6 1 2 1 1 7 7 1 1

431.5 421.5 10.0 135.0 70.0 65.0 243.0 243.0 130.0 130.0

23.1 22.5 0.5 7.2 3.7 3.5 13.0 13.0 7.0 7.0

9 3 2 2 1 1 7 6 1 6 5 1 6 2 4 1 1 90

9 3 2 2 1 1 5 4 1 4 3 1 3 1 2 1 1 76

270.8 74.8 81.0 65.0 35.0 15.0 315.3 265.3 50.0 155.0 131.0 24.0 183.0 100.0 83.0 26.1 26.1 3,225.1

8.4 2.3 2.5 2.0 1.1 0.5 9.8 8.2 1.6 4.8 4.1 0.7 5.7 3.1 2.6 0.8 0.8 100.0

6 2 1 2 1 5 4 1 3 3 5 2 3

6 2 1 2 1 3 2 1 1 1 2 1 1

188.8 38.8 50.0 65.0 35.0 245.3 195.3 50.0 86.0 86.0 170.0 100.0 70.0

10.1 2.1 2.7 3.5 1.9 13.1 10.4 2.7 4.6 4.6 9.1 5.3 3.7

53

39

1,869.9

100.0

Appendix 6

117

Table A6.3: Sectoral Composition of ADB Technical Assistance to Sri Lanka, 19682006
19682006 19862006 19972006 Amount Amount Amount Sector/Subsector Number $ ('000) %Share Number $ ('000) %Share Number $ ('000) %Share Agriculture and Natural Resources 65 26,328.1 28.0 47 23,086.1 26.4 15 11,180.0 21.3 5.2 Agriculture Production, Agroprocessing, and Agrobusiness 23 7,753.0 8.3 17 6,692.0 7.6 4 2,750.0 10.1 Environment and Biodiversity 10 5,750.0 6.1 8 5,330.0 6.1 8 5,330.0 2.9 Water Resource Management 2 3,070.0 3.3 2 3,070.0 3.5 1 1,500.0 Agriculture Sector Development 8 2,542.1 2.7 8 2,542.1 2.9 1.5 Fishery 8 2,455.0 2.6 4 1,735.0 2.0 1 800.0 Forest 4 2,066.0 2.2 3 1,972.0 2.3 1 800.0 1.5 Irrigation and Drainage 7 1,742.0 1.9 3 995.0 1.1 Livestock 3 950.0 1.0 2 750.0 0.9 Transport and Communications Roads and Highways Ports, Waterways, and Shipping Telecommunications and Communications Railways Law, Economic Management, and Public Policy Public Finance and Expenditure Management Economic Management Subnational Government Administration National Government Administration Multisector Multisector Finance Finance Sector Development Housing Finance Banking Systems Capital Markets and Funds Microfinance Education Education Sector Development Technical, Vocational Training, and Skills Development Tertiary Education Basic Education Energy Energy Sector Development Conventional Energy Generation (other than hydropower) Transmission and Distribution Hydropower Generation Industry and Trade Small- and Medium-Scale Enterprises Industry Trade Water Supply, Sanitation, and Waste Management Water Supply and Sanitation Waste Management Health, Nutrition, and Social Protection Social Protection Health Systems Health Programs Total 27 21 2 3 1 22 6 10 2 4 24 24 21 3 4 6 6 2 19 5 8 4 2 18 12 3 2 1 20 7 12 1 13 11 2 7 5 1 1 236 14,319.0 10,949.0 1,610.0 1,610.0 150.0 10,829.0 4,700.0 4,576.0 970.0 583.0 8,578.5 8,578.5 8,183.2 2,630.0 1,713.0 1,562.2 1,128.0 1,150.0 7,198.0 2,707.0 2,684.0 1,157.0 650.0 5,841.0 4,880.0 475.0 440.0 46.0 5,668.3 2,788.0 2,630.3 250.0 5,472.0 4,472.0 1,000.0 15.2 11.7 1.7 1.7 0.2 11.5 5.0 4.9 1.0 0.6 9.1 9.1 8.7 2.8 1.8 1.7 1.2 1.2 7.7 2.9 2.9 1.2 0.7 6.2 5.2 0.5 0.5 0.0 6.0 3.0 2.8 0.3 5.8 4.8 1.1 24 18 2 3 1 21 6 9 2 4 21 21 19 3 4 4 6 2 17 5 7 3 2 12 10 2 13,771.0 10,401.0 1,610.0 1,610.0 150.0 10,822.0 4,700.0 4,569.0 970.0 583.0 8,003.5 8,003.5 8,017.0 2,630.0 1,713.0 1,396.0 1,128.0 1,150.0 6,890.0 2,707.0 2,534.0 999.0 650.0 5,075.0 4,750.0 325.0 15.7 11.9 1.8 1.8 0.2 12.4 5.4 5.2 1.1 0.7 9.1 9.1 9.2 3.0 2.0 1.6 1.3 1.3 7.9 3.1 2.9 1.1 0.7 5.8 5.4 0.4 16 12 2 1 1 12 3 6 2 1 7 7 3 1 9,786.0 7,226.0 1,610.0 800.0 150.0 9,953.0 4,560.0 4,275.0 970.0 148.0 3,206.5 3,206.5 2,850.0 1,700.0 18.6 13.8 3.1 1.5 0.3 19.0 8.7 8.1 1.8 0.3 6.1 6.1 5.4 3.2

2 9 3 4 1 1 6 5 1

1,150.0 4,220.0 2,000.0 1,470.0 500.0 250.0 3,575.0 3,250.0 325.0

2.2 8.0 3.8 2.8 1.0 0.5 6.8 6.2 0.6

14 7 6 1 13 11 2 7 5 1 1 195

4,947.0 2,788.0 1,909.0 250.0 5,472.0 4,472.0 1,000.0

5.6 3.2 2.2 0.3 6.2 5.1 1.1

7 5 2 7 5 2 5 5

3,500.0 2,550.0 950.0 3,295.0 2,295.0 1,000.0 956.0 956.0

6.7 4.9 1.8 6.3 4.4 1.9 1.8 1.8

1,481.0 1.6 956.0 1.0 425.0 0.5 100.0 0.1 93,898.1 100.0

1,481.0 1.7 956.0 1.1 425.0 0.5 100.0 0.1 87,564.6 100.0

87

52,521.5

100.0

ADB = Asian Development Bank. Source of Basic Data: Lotus Notes Database on Loans, Technical Assistance, Grants, and Equity Approvals.

118

Table A6.4: Sri Lanka Portfolio Management Indicators As of 31 December 2006

Indicators Public Sector Loans A. Loan Portfolio 1. Active Loan Portfolio a. Project Loans (number) b. Program Loans c. DFI/Credit Loans d. Combined Projects and DFI Loans 2. Average Age of the Active Loan Portfolio 3. Inactive Loan Portfolio B. Start-Up Compliance 1. Loans Approved During the Year 2. Loans Not Yet Signed 3. Loans Awaiting Effectiveness 4. Average Time from Approval to Signing 5. Average Time from Signing to Effectivity 6. Loans That Became Effective More than 90 Days after Signing C. Financial Performance 1. Contract/Commitment Achievement b 2. Contract/CommitmentRatio 3. Disbursement Achievement 4. Disbursement Ratio c 5. Imprest Fund Turnover Ratio 6. Submission of APA and AFS (PC & NC) a. Less than 6 Months Overdue b. Greater than 6 Months but Less than 12 Months Overdue c. More than 12 Months Overdue 7. Loan Service Payments 8. Net Resource Transfer D. Portfolio Performance 1. Project Ratings (Number of Loans) a. Highly Satisfactory b. Satisfactory c. Partly Satisfactory d. Unsatisfactory 2. Projects at Risk (Number of Loans) a. Problem Projects (IP or DO is rated PS or U) b. Potential Problem Projects (4 or more problem flags) c. Problem Projects i. Implementation Progress (PS & U) ii. Development Objectives (PS & U) d 3. Risk Ratios a. Project Implementation Delays Unit 1998 1999 2000 2001 2002 2003 2004 2005 2006

Appendix 6

No.|$M No.|$M No.|$M No.|$M No.|$M Years No.|$M No.|$M No. No. Months Months No.|%

25 20 0 2 3 3.9 0 3 2 1 2.0 3.8 15

945.4 721.8 0.0 108.5 115.1 0.0 185.0

21 20 0 0 1 3.4 0 3 0 3 2.2 3.6 11

843.3 787.1 0.0 0.0 56.2 0.0 148.8

24 21 2 0 1 3.1 0 6 2 3 2.1 3.6 12

961.0 805.3 100.6 0.0 55.1 0.0 208.7

27 22 3 1 1 2.6 0 6 3 3 2.1 4.2 13

999.5 766.3 118.4 60.0 54.8 0.0 146.0

34 1,286.4 25 951.3 4 183.6 1 60.0 4 91.5 2.9 0 0.0 7 2 3 2.0 5.3 18 236.5

41 1,569.2 30 1,167.6 5 236.3 2 70.0 4 95.4 3.1 0 0.0 8 6 0 2.4 5.4 24 275.3

46 1,637.7 36 1,289.9 5 236.1 2 70.0 3 41.7 3.3 0 0.0 8 1 6 2.2 5.2 28 195.0

48 1,726.1 39 1,403.4 4 215.0 2 70.0 3 37.6 3.7 0 0.0 5 3 0 2.2 4.8 32 253.0

47 39 3 2 3 4.3 0 2 2 1 2.4 4.97 33

1,722.5 1,458.9 155 70 38.7 0 60

68.2

61.1

63.2

65.0

62.1

68.6

71.8

71.1

75

$M % $M % % No.|% No.|% No.|% $M $M

132.1 18.1 120.1 25.0 2.0 1 0 0 27.2 93.0

85.1 15.2 98.2 17.9 2.0 7.1 0.0 0.0 30.3 68.0 1 0 0

55.3 9.2 76.0 13.2 1.9 7.7 0.0 0.0 35.6 40.4 6 0 0

99.6 15.1 91.4 15.1 2.1 37.5 0.0 0.0 37.4 54.0 2 1 0

159.2 18.9 149.0 17.6 2.0 11.1 5.6 0.0 42.0 107.0 7 0 0

315.4 31.5 213.9 22.3 2.5 35.0 0.0 0.0 51.7 162.2 8 0 0

183.6 19.7 185.7 18.3 2.0 26.7 0.0 0.0 59.6 126.1 13 1 0

201.3 21.8 206.0 19.2 1.7 38.2 2.9 0.0 72.3 133.7 16 3 0

144.9 18.2 180.4 21.6 1.1 41 7.7 0 83.72 96.71

No.|% No.|% No.|% No.|% No.|% No.|% No.|%

0 23 2 0 2

0.0 92.0 8.0 0.0 8.0

0 20 1 0 1

0.0 95.2 4.8 0.0 4.8

0 23 0 1 1

0.0 95.8 0.0 4.2 4.2

0 26 0 1 1 1 0

0.0 96.3 0.0 3.7 3.7 3.7 0.0

0 32 2 0 2 2 0

0.0 94.1 5.9 0.0 5.9 5.9 0.0

0 41 0 0 0 0 0

0.0 100.0 0.0 0.0 0.0 0.0 0.0

1 43 1 1 2 2 0

2.2 93.5 2.2 2.2 4.3 4.3 0.0

1 44 3 0 4 3 1

2.1 91.7 6.3 0.0 8.3 6.3 2.1

0 39 7 1 8 8 0

0 83 14.9 2.1 17 17 0

No.|% No.|% No.|%

2 0

8.0 1 4.8 1 0.0 0 0.0 0 Not applicable from 19982000

4.2 0.0

1 0 4

3.7 0.0 15.4

2 0 6

5.9 0.0 18.2

0 0 5

0.0 0.0 12.8

2 1 5

4.3 2.2 11.4

3 1 7

6.3 2.1 15.2

5 4 3

10.6 8.5 6.7

Indicators Unit 1998 1999 2000 2001 2002 2003 2004 2005 2006 b. Loan Utilization Delays No.|% 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0 c. Established, Staffed, and/or Operation No.|% 2 8.3 2 6.7 1 2.8 0 0.0 1 2.3 2 4.5 of PMU/PIU d. Fielding of Consultants No.|% 1 3.8 3 9.1 1 2.6 3 6.8 3 6.5 3 6.7 e. Environmental or Social Problems No.|% 0 0.0 0 0.0 0 0.0 0 0.0 0 0.0 0 0 f. Poor Compliance with APA and AFS No.|% 0 0.0 0 0.0 0 0.0 0 0.0 1 2.3 5 11.4 g. Poor Compliance with Other Covenants No.|% 4 14.8 4 11.8 5 12.2 9 19.6 11 22.9 11 23.4 h. Shortage of Counterpart Funds/Cofinancing No.|% 1 3.8 0 0.0 0 0.0 0 0.0 0 0.0 2 4.4 i. Unsettled Cost Overrun No.|% 0 0.0 0 0.0 0 0.0 0 0.0 1 2.4 1 2.4 j. Significant Disbursement Delays No.|% 11 40.7 10 29.4 9 22.0 20 43.5 14 29.2 16 34 k. In Risk Sector or Country with History No.|% 1 3.7 11 32.4 2 4.9 2 4.3 0 0.0 9 19.1 of Past Problems l. Project Fielded Missions No.|% 9 33.3 15 44.1 15 36.6 22 47.8 21 43.7 18 38.3 e % 11.7 14.2 8.9 12.7 11.6 14.0 Not applicable from 19982000 4. Overall Risk Ratio of the Portfolio E. Portfolio Supervision f No.|% 39 25.7 1 100.0 2 100.0 0 0.0 1 50.0 1. Proactivity Index 1 25 2. Average Supervision Intensity Days 14.1 17.3 17.2 1.9 23.8 24.5 25.5 21.3 24 (Staff-Days/Project) 3. Loans with Settled Cost Overruns No. 0 0 0 0 1 1 4. Loans with Changes in Project Scope No. 0 0 2 1 3 2 6 3 6 5. Loans with Changes in Implementation No. 4 2 0 1 2 2 7 6 8 Arrangements 6. Loans with Extensions No. 1 6 4 3 3 6 8 10 11 7. Loan Cancellations $M 16.2 16.4 0.1 1.7 0.0 0.6 0.0 0.6 36.1 Technical Assistance A. Active TA Portfolio No.|$M NA 39 25.7 36 26.8 36 26.0 41 28.5 37 23.1 32 20.2 31 20.1 24 15.2 B. Average Time from Approval to Signing of TA Months NA 1.9 1.6 1.5 1.5 1.8 1.9 2.3 2.53 Letter/Agreement C. TAs Completed but not Financially Closed (Potential Savings) No.|$M NA 15 0.9 9 0.4 12 1.3 12 1.0 10 0.5 9 3.5 4 0.3 3 0.47 AFS = audited financial statement, APA = audited project account, DFI = development finance institution, DO = development objective, IP = implementation progress, na = not applicable, NA = not available, NC = not complied, No. = number, PC = partly complied, PIU = project implementatio unit, PMU = project management unit, PS = partly satisfactory, TA = technical assistance, U = unsatisfactory. Notes: 1. The South Asian Region comprises Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. 2. For 1998 to 2001, figures are based on the contract awards and exchange rates as of 31 December 2001. 3. The annualized turnover rate is computed as the ratio of total liquidation over the time-weighted average fund balance for 12 months. 4. Percent of problem-flagged projects (loans) to the total number of loans in the various loan portfolio categories. Project Implementation Delays refer to all loans except credit loans, which is dealt with under Loan Utilization Delays. Significant Disbursement Delays pertain to loans whose disbursement is less than 70% of the projected loan disbursement for the year. 5. The weighted average of the 12 risk ratios. 6. Percent of problem projects changed through upgrading, restructuring, closure, or cancellation during the previous 12 months. Source: Central Operations Services Office (COSO), Asian Development Bank.

Appendix 6

119

120

Table A6.5: Sri Lanka and ADB Portfolio Management Indicators 19982006 Indicators Public Sector Loans A. Loan Portfolio 1. Active Loan Portfolio a. Project Loans (number) b. Program Loans c. DFI/Credit Loans d. Combined Projects and DFI Loans 2. Average Age of the Active Loan Portfolio 3. Inactive Loan Portfolio B. Start-Up Compliance 1. Loans Approved During the Year 2. Loans Not Yet Signed 3. Loans Awaiting Effectiveness 4. Average Time from Approval to Signing 5. Average Time from Signing to Effectivity 6. Loans That Became Effective More than 90 Days after Signing C. Financial Performance 1. Contract/Commitment Achievement b 2. Contract/CommitmentRatio 3. Disbursement Achievement 4. Disbursement Ratio c 5. Imprest Fund Turnover Ratio 6. Submission of APA and AFS (PC & NC) a. Less than 6 Months Overdue b. Greater than 6 Months but Less than 12 Months Overdue c. More than 12 Months Overdue 7. Loan Service Payments 8. Net Resource Transfer D. Portfolio Performance 1. Project Ratings (Number of Loans) a. Highly Satisfactory Unit SRI Average 19982006 ADB Average 19982006 Regional 2006 ADB 2006

Appendix 6

No.|$M 34.8 No.|$M 28.0 No.|$M 2.9 No.|$M 1.3 No.|$M 2.6 Years No.|$M 0.0 No.|$M 5.3 No. 2.3 No. 2.2 Months 2.2 Months 4.5 No.|% 20.7

1,299.0 1,039.1 138.3 56.5 65.1 3.4 0.0 189.8

499.1 420.8 47.4 18.9 12.0 3.6 0.1 72.1 45.0 21.6 3.5 4.1 235.2

34,921.4 26,960.2 6,335.4 1,185.2 440.2 5.6 5,543.0

155 11,834.7 134 10,051.6 12 1,462.2 6 282.2 3 38.7 3.9 0 0.0 15 8 4 3.8 4.8 89 1,698.7

529.0 441.0 60.0 13.0 15.0 3.8 0.0 71.0 44.0 16.0 3.9 4.5 287.0

37,349.6 29,336.6 6,969.8 532.8 510.4 0.0 6,821.3

67.3

54.3

62.2

61.2

$M % $M % % No.|% No.|% No.|% $M $M 6.8 0.6 0.0

152.9 18.6 146.7 18.9 1.9 25.5 2.0 0.0 48.9 97.9 54.3 6.3 3.5

4,435.9 22.4 4,496.6 21.9 1.4 17.1 1.9 1.1 4,591.3 (94.8) 35 6 2

2,339.4 1,321.1

6,372.8 29.3 5,400.0 23.4 1.6 77.0 17.0 6 22.4 4.9 1.7 3,432.1 1,967.7

31.0 5.3 1.8 705.6 615.5

No.|%

0.2

0.5

6.6

1.3

0.6

3.0

0.6

Indicators b. Satisfactory c. Partly Satisfactory d. Unsatisfactory 2. Projects at Risk (Number of Loans) a. Problem Projects (IP or DO is rated PS or U) b. Potential Problem Projects (4 or more problem flags) c. Problem Projects i. Implementation Progress (PS & U) ii. Development Objectives (PS & U) d 3. Risk Ratios a. Project Implementation Delays b. Loan Utilization Delays c. Established, Staffed, and/or Operation of PMU/PIU d. Fielding of Consultants e. Environmental or Social Problems f. Poor Compliance with APA and AFS g. Poor Compliance with Other Covenants h. Shortage of Counterpart Funds/Cofinancing i. Unsettled Cost Overrun j. Significant Disbursement Delays k. In Risk Sector or Country with History of Past Problems l. Project Fielded Missions e 4. Overall Risk Ratio of the Portfolio E. Portfolio Supervision f 1. Proactivity Index 2. Average Supervision Intensity (Staff-Days/Project) 3. Loans with Settled Cost Overruns 4. Loans with Changes in Project Scope 5. Loans with Changes in Implementation Arrangements 6. Loans with Extensions 7. Loan Cancellations

Unit No.|% No.|% No.|% No.|% No.|% No.|%

SRI Average 19982006 32.3 93.5 1.8 4.7 0.4 1.4 2.8 6.5 2.2 6.0 0.2 0.4

ADB Average 19982006 414.3 82.9 55.4 11.2 22.9 4.6 75.3 14.9 78.3 15.8 10.7 2.1

Regional 2006 135 87.1 14 9.0 5 3.2 19 12.3 19 12.3 0 0.0

ADB 2006 479.0 31.0 16.0 53.0 47.0 6.0

90.5 5.9 3.0 10.0 8.9 1.1

No.|% No.|% No.|% No.|% No.|% No.|% No.|% No.|% No.|% No.|% No.|% No.|% No.|% No.|% % No.|% Days No. No. No. No. $M

1.9 0.7 5.0 0.0 1.3 2.3 0.0 1.0 7.3 0.5 0.3 13.3 4.2 16.7

5.3 1.4 13.3 0.0 4.1 5.9 0.0 2.3 17.5 1.4 0.8 33.1 10.7 40.6 12.2 50.1

67.6 28.6 137.0 3.8 18.8 30.0 23.3 19.3 67.0 20.3 2.3 155.5 126.7 154.8

13.7 5.8 28.0 12.4 4.1 6.1 5.4 4.3 13.3 4.2 0.5 30.7 25.1 30.6 14.3 66.5

15 6 55 45 1 21 1 4 2 6 8 10 1 50

9.7 3.9 36.9 500.0 0.7 14.1 0.7 2.8 1.3 4.0 5.8 6.5 0.6 32.3 12.5 60.9

40.0 16.0 132.0 2.0 18.0 29 14.0 27.0 52.0 19.0 7.0 163.0 69.0 149.0

7.6 3.0 25.6 7.1 3.8 5.6 3.1 5.8 9.8 3.7 1.5 30.8 13.0 28.2 12.3 61.4
Appendix 6

7.3 18.8 0.3 2.6 3.6 0.0 5.8

56.5 21.5 6.7 47.9 40.6 127.6

14 27.4 1 19 23 40

27.0 25.6 5 60 81 154

121

8.0

1,037.9

230.2

423.0

122

Indicators Technical Assistance A. Active TA Portfolio B. Average Time from Approval to Signing of TA Letter/Agreement C. TAs Completed but not Financially Closed (Potential Savings)

Unit

SRI Average 19982006 23.2

ADB Average 19982006 1,117.0 3.0 778.3

Regional 2006

ADB 2006

Appendix 6

No.|$M 34.5 Months 1.9

No.|$M

9.3

0.9

249.0

26.6

AFS = audited financial statement, APA = audited project account, DFI = development finance institution, DO = development objective, IP = implementation progress, No. = number, na = not applicable, NA = not available, NC = not complied, PC = partly complied, PIU = project implementation unit, PMU = project management unit, PS = partly satisfactory, SRI = Sri Lanka, TA = technical assistance, U = unsatisfactory. Notes: 1. The South Asian Region comprises Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka. 2. For 1998 to 2001, figures are based on the contract awards and exchange rates as of 31 December 2001. 3. The annualized turnover rate is computed as the ratio of total liquidation over the time-weighted average fund balance for 12 months. 4. Percent of problem-flagged projects (loans) to the total number of loans in the various loan portfolio categories. Project Implementation Delays refer to all loans except credit loans, which are dealt with under Loan Utilization Delays. Significant Disbursement Delays pertain to loans whose disbursement is less than 70% of the projected loan disbursement for the year. 5. The weighted average of the 12 risk ratios. 6. Percent of problem projects changed through upgrading, restructuring, closure, or cancellation during the previous 12 months. Source: Central Operations Services Office (COSO), Asian Development Bank.

Appendix 6

123

Table A6.6: Targeting and Thematic Classifications of Loans and Projects Approved from 20042006 Distribution of Loans by Number % OCR ADF Total 0 4 0 4 1 6 1 8 1 10 1 12 8.3 83.3 8.3 100.0 Projects Number % 1 6 1 8 12.5 75.0 12.5 100.0

Loan Classification A. By Targeting Classification 1. Targeted Intervention 2. General Intervention 3. Others Total B. By Theme Classification 1. Sustainable Economic Growth 2. Governance 3. Inclusive Social Development 4. Environmental Sustainability 5. Gender and Development 6. Private Sector Development 7. Regional Development 8. Capacity Development Theme Factor
Notes:

4 2

4 2 2 2

8 2 2 2 3

47.1 11.8 11.8 11.8 17.6

5 2 2 1 2

41.7 16.7 16.7 8.3 16.7

1.75

1.75

1.75

1.57

ADF = Asian Development Fund, OCR = ordinary capital resources. 1. Theme factor is computed as the average number of themes per loan or project. 2. The number of approved loans does not include the two supplementary loans signed in 2006, as targeting and theme classification were not indicated in the project performance audit/evaluation report. 3. Loan 2084-SRI: North East Community Restoration and Development, approved in 15 June 2004, was excluded, as ADB was still using poverty classification (instead of targetting classification) during that time.

124

Table A6.7: Project/Program Performance Ratings in Sri Lanka (Combined PCR and PPAR/PPER Ratings)
Number of Rated Projects/Programs Sector HS/GS/S PS US Total A. Programs 1. Agriculture and Natural Resources 3 3 2. Finance 1 1 3. Law, Economic Management, and Public Policy 1 1 Subtotal 1 4 5 B. Projects 1. Agriculture and Natural Resources 7 12 3 22 2. Education 3 1 4 3. Energy 6 1 7 4. Finance 4 2 6 5. Health, Nutrition, and Social Protection 2 2 6. Industry and Trade 4 1 5 7. Law, Economic Management, and Public Policy 1 1 8. Multisector 2 4 6 9. Transport and Communications 4 1 5 10. Water Supply, Sanitation, and Waste Management 2 2 Subtotal 34 22 4 60 C. Total 1. Agriculture and Natural Resources 7 15 3 25 2. Education 3 1 0 4 3. Energy 6 1 0 7 4. Finance 4 3 0 7 5. Health, Nutrition, and Social Protection 2 0 0 2 6. Industry and Trade 4 0 1 5 7. Law, Economic Management, and Public Policy 1 1 0 2 8. Multisector 2 4 0 6 9. Transport and Communications 4 1 0 5 10. Water Supply, Sanitation, and Waste Management 2 0 0 2 Total 35 26 4 65 Proportion: All Ratings, 19682006 (%) Proportion: Rated Successful, By Decade (%) HS/GS/S PS US Total 19601970s 1980s 1990s 2000s Total 0 0 100 20 32 75 86 67 100 80 0 33 80 100 57 28 75 86 57 100 80 50 33 80 100 54 100 100 0 80 55 25 14 33 0 0 100 67 20 0 37 60 25 14 43 0 0 50 67 20 0 40 0 0 0 0 14 0 0 0 0 20 0 0 0 0 7 12 0 0 0 0 20 0 0 0 0 6 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 17 100 0 50 0 0 0 100 100 0 0 100 20 32 75 86 67 100 80 0 33 80 100 57 28 75 86 57 100 80 100 50 33 80 100 54

Appendix 6

0 27 50 100 100 100 100

0 60 100 50 67 100 100 0 25 100 100 68 50 100 50 50 100 100 0 25 100 100 62

0 100

100 0 100 57 23 50 100 100 100 100

27 17 100 0 50

100

0 100

100 0 100 50

43

100

GS = generally successful, HS = highly successful, PCR = project/program completion report, PPAR = project/program performance audit report, PPER = project/program performance evaluation report, PS = partly successful, S = successful, US = unsuccessful. Source of basic data: Project/program completion reports and project/program performance audit/evaluation reports containing a rating circulated as of 31 December 2006.

Appendix 6

125

Table A6.8: Distribution of Ongoing Loans to Sri Lanka by Sector, 20042006

Loans HHI by HHI by Sector Total Total per Number Amount T&C ANR Edu En WSS LEP Fin HNS I&T Multi Loans Sector Sector of Loans of Loans 7 6 6 14 14 12 5 6 5 2 2 1 2 3 5 3 3 3 5 5 5 _ _ _ 3 2 2 5 7 8 46 48 47 9 9 9 5.1 5.3 5.2 0.164 0.160 0.151

Year 2004 2005 2006

0.143 0.148

ANR = agriculture and natural resources; Edu = education; En = Energy; Fin = finance; HHI = HirschmanHerfindahl Index; HNS = health, nutrition, and social protection; I&T = industry and trade; LEP = law, economic management, and public policy; Multi = multiple sectors; T&C = transport and communications; WSS = water supply, sanitation, and waste management. Note: There were no ongoing loans for the health, nutrition, and social protection sector for these years. Source: Operations Evaluation Department and Central Operations Services Office.

Table A6.9: Number of Extensions to Loan Closing Date for Closed Loans 19861996 Number % 16 2 14 4 3 3 4 12.5 87.5 25.0 18.8 18.8 25.0 19972006 Number % 27 1 26 2 15 7 1 1 3.7 96.3 7.4 55.6 25.9 3.7 3.7 19862006 Number % 43 3 40 6 18 10 5 1 7.0 93.0 14.0 41.9 23.3 11.6 2.3

Item 1. Total Loans Closed 2. Loans without Extensions 3. Loans with Extensions a. 1 Extension b. 2 Extensions c. 3 Extensions d. 4 Extensions e. 5 Extensions

Source: Asian Development Bank database.

Table A6.10: Average Delay in Loan Closings, South Asia, 19962006 Loans (19962000) Number Late % Late 18 26 3 19 2 23 36 17 24 3 16 2 21 33 94 92 100 84 100 91 92 Average (Years) 1.84 2.05 2.56 2.48 1.98 2.92 3.18 Loans (20012006) Number Late % Late 10 26 8 21 1 12 30 9 17 4 9 1 12 21 90 65 50 43 100 100 70 Average (Years) 1.81 2.33 1.16 3.09 2.53 1.75 2.93

DMC Sri Lanka Bangladesh Bhutan India Maldives Nepal Pakistan

DMC = developing member country. Source: Asian Development Bank database.

126

Appendix 6

Table A6.11: Annual Loan Closings, Disbursements, and Cancellations Status Number of Loans Closed Loan Amounts ($ million) Cumulative Disbursements ($ million) Cumulative Loan Cancellations ($ million) Percent Cancelled 2001 2002 2003 2004 2005 2006 Average 3 94.7 81.9 12.8 13.5 0 1 0.0 71.8 0.0 71.2 0.0 0.6 0.0 0.8 1 55.3 54.2 1.1 2.0 2 72.7 72.6 0.2 0.3 1 60 30.6 29.4 49.0 1.3 59.1 51.8 7.4 12.4

Source: Central Operations Services Office, Asian Development Bank.

Table A6.12: Portfolio Indicators for Closed Loans, Sri Lanka, 19862006
Item Total Closed Loans Loans with Extension Loans without Extension Average Extensions (months) All Closed Loans All Closed Loans with Extension Only Average Time from Approval to Signing (months) Loans Signed Within: < or = 30 days > 30 days Average Time from Signing to Effectivity (months) Loans Made Effective < 90 days > 90 days Number 43 40 3 20.7 22.7 1.47 19 24 3.74 17 26 39.5 60.5 2 1 11.8 4.2 44.2 55.8 2 1 8.3 4.2 % 93.0 7.0 Loans Completed on Time Number %

Source of basic data: ADB Loan and Financal Information Systems.

Table A6.13: Project Administration Missions, Sri Lanka, 20032006 Year 2003 2004 2005 2006 Average Number of Projects 24 28 31 33 29 Total 37 44 49 57 47 Total Staff-Days 587 714 660 793 689 Staff-Days/Project 24.5 25.5 21.3 24.0 23.8

Source: Asian Development Bank database.

Table A6.14: Sri Lanka Financial Performance Indicators, 19972006 ($ million)

Item 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Ave: 19972006 Average % Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Achievement 245.0 205.0 40.0 253.7 213.7 40.0 210.0 210.0 0.0 24.4 24.2 25.9 5 0 0 201.3 181.3 20.0 206.0 186.0 20.0 253.0 253.0 0.0 19.2 20.3 13.0 133.7 125.3 8.4 72.3 7.9 64.4 7 0 0 202.3 147.3 55.0 228.7 173.7 55.0 70.0 70.0 0.0 22.3 19.5 41.0 4 0 0 144.9 109.9 35.0 180.4 145.4 35.0 60.0 60.0 0.0 21.6 19.9 33.4 96.7 77.8 19.0 83.7 13.9 69.8 3 0 0 159.1 132.1 27.0 152.5 125.5 27.0 160.3 127.7 30.6 19.8 16.6 30.5 150.6 126.5 24.1 141.6 117.4 24.2 187.0 148.5 41.9 19.1 16.3 26.3 94.7 77.4 17.3 46.9 2.7 44.2 8.4 0.4 0.2 94.7 95.8 89.3 92.9 93.6 89.7 116.7 116.4 136.7 96.3 98.8 86.2

Contract Awards 115.4 129.7 82.1 132.1 68.9 85.1 66.7 55.3 183.0 99.6 160.4 159.2 269.3 315.4 198.0 183.6 Project 115.4 129.7 82.1 132.1 68.9 85.1 66.7 55.3 133.0 74.3 125.4 93.3 209.3 250.5 168.0 153.6 Program 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 50.0 25.3 35.0 65.9 60.0 64.9 30.0 30.0 Disbursement 112.8 95.5 119.7 120.1 91.9 98.2 66.0 76.0 118.2 91.4 123.3 149.0 194.3 213.9 216.2 185.7 Project 112.8 95.5 119.7 120.1 91.9 98.2 66.0 76.0 68.2 66.0 88.3 82.4 134.3 149.0 186.2 155.4 Program 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 50.0 25.4 35.0 66.5 60.0 64.9 30.0 30.3 Loan Approvals 156.5 161.6 180.0 185.0 120.0 148.8 146.0 208.7 155.0 146.0 210.0 236.5 165.3 275.3 190.0 195.0 Project - 161.6 - 185.0 120.0 148.8 96.0 108.7 140.0 126.0 170.0 176.5 135.3 225.3 80.0 90.0 Program 0.0 0.0 0.0 0.0 50.0 100.0 15.0 20.0 40.0 60.0 30.0 50.0 110.0 105.0 Disbursement Ratio (%) 24.2 20.8 24.4 25.0 16.0 17.9 10.8 13.2 17.1 15.1 17.2 17.6 21.6 22.3 20.3 18.3 Project - 20.8 - 25.0 16.0 17.9 10.8 13.2 11.6 13.1 14.1 11.9 16.6 17.1 19.8 17.5 Program 0.0 0.0 0.0 0.0 0.0 0.0 49.7 25.3 37.7 43.5 65.5 70.8 24.1 24.3 Net Resource Transfer - 66.0 - 93.0 - 68.0 - 40.4 54.0 - 107.0 - 162.2 - 126.1 Project - 68.8 - 95.7 - 70.8 - 44.5 33.7 46.8 - 104.8 - 105.5 Program - (2.8) - (2.8) - (2.8) - (4.1) 20.3 60.2 57.4 20.6 Loan Service Payment 29.6 27.2 30.3 35.6 - 37.4 42.0 51.7 59.6 OCR 0.0 0.0 0.0 0.0 0.2 1.3 1.1 2.8 ADF 29.6 27.2 30.3 35.6 - 37.2 40.6 50.6 56.8 No. of TA Projects Approved 8 11 11 9 7 12 11 10 7 8 6 9 9 11 5 4 No. of PS Investments Loans 0 1 1 1 1 1 0 1 0 0 0 0 0 0 0 0 Equity 0 0 1 0 1 1 0 0 1 1 0 0 0 0 0 0 - = not applicable, ADF = Asian Development Fund, OCR = ordinary capital resources, Proj. = projected, PS = private sector, TA = technical assistance. Source of basic data: Central Operations Services Office, Asian Development Bank.

7.3 0.2 0.3

115.1 200.0 66.7

Appendix 6

127

128

Appendix 6

Figure A6.3: Average Start-up Time for Loans Declared Effective, 19982006
9 8 7 6 Months 5 4 3 2 1 0 1998 1999 2000 2001 Signed 2002 Effective 2003 2004 2005 2006 2.0 2.2 2.1 2.1 2.0 2.4 2.2 2.2 2.4 3.8 4.2 3.6 3.6 5.4 5.3 5.2 4.8 5.0

Figure A6.4: Three Year Moving Averages of Contract Awards by Loan Type, 19972006
250.0 200.0

$Million

150.0 100.0 50.0 0.0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Total

Project

Program

Figure A6.5: Three Year Moving Averages of Disbursements by Loan Type, 19972006

250.0 200.0

$Million

150.0 100.0 50.0 0.0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Total

Project

Program

Source: Asian Development Bank database.

Appendix 7

129

ECONOMIC, SECTOR, AND THEMATIC STUDIES FOR SRI LANKA Year 1997 Title Country Economic Review Country Report: Sri Lanka Policy Environment and Project Performance Sri Lanka Natural Resource and Environmental Management Sri Lanka Responding to New Social Challenges Country Risk Assessment Donor Sectoral Assistance to Sri Lanka Energy Sector Strategy Study Improving Education Planning Options for ADB Assistance in Public Enterprise and Trade and Industrial Policy Reforms Public Administration in Sri Lanka: a Birds Eye View Sector Analysis for Sri Lanka Social Sector Development in Sri Lanka: Issues and Options (a background study for the 19982001 Country Operational Strategy) Women in Sri Lanka Poverty Reduction Strategy in Sri Lanka: Issues, Findings, and Approaches Borrowing Capacity Assessment Poverty Assessment Update Governance Assessment Macroeconomic Assessment and Debt Sustainability Update Private Sector Assessment Developing a Microsimulation Model for Sri Lanka to Measure the Impact of Public Policy on Poverty Financial Sector Assessment Greater Colombo Waste Water Management Sector Review Post-tsunami Needs Assessment Synopsis of Sri Lankas Industrial Policy The Power Sector in Sri Lanka: Background to Current Crisis The Sri Lankan Development Model and Income Equality

1998

2001 2003 2004

2005

Source: Asian Development Bank database.

130

Appendix 8

SRI LANKA RESIDENT MISSION PERCEPTION SURVEY 1. As part of the Country Assistance Program Evaluation for Sri Lanka, the Operations Evaluation Department of the Asian Development Bank (ADB) conducted a perception survey of ADBs Sri Lanka Resident Mission (SLRM). 1 The objective of the perception survey is to gain insight into the relevance, effectiveness, and efficiency of SLRM, and to identify areas for improving client responsiveness. The survey took place from December 2006 to February 2007. A. Methodology

2. A questionnaire was developed, pretested, and subsequently used for this survey. The questionnaire and the survey results are presented at the end of this appendix. The survey targeted persons (external and internal to ADB) and/or agencies that have had interaction or involvement with SLRM. A total of 278 persons were contacted by email and through several evaluation meetings and workshops (agriculture, education, power, transport, water supply and sanitation, and project monitoring). The respondents contacted by email were given about a month to respond to the questionnaires. 3. A total of 88 responses were received: 10 from ADB headquarters professional staff, 50 from officials representing the Government of Sri Lanka, 7 from the private sector, 10 from development partners, and 11 from civil society (i.e., researchers, observers, and members of nongovernment organizations). This represents an overall response rate of 32%. Individual respondents interactions with SLRM covered different dimensions of involvement, ranging from analytical work to country strategy and program, aid cooperation, policy dialogue, project design, and project implementation. Most of the respondents had had direct interaction with SLRM: personal interaction (43%), project implementation/portfolio management (41%), project design (28%), policy dialogue (27%), aid cooperation (25%), and analytical work (22%). As individual respondents had not interacted with SLRM in all aspects of ADB operations, only those respondents who indicated direct involvement in or familiarity with at least one of the interaction categories were included in the survey analysis. Consequently, the number of counted respondents varies for different questions, as this number depends on valid responses to specific questions. B. Relevance

4. Most of the respondents observed that SLRM staff knew the country (96%), were people with whom they could express their opinions openly (93%), had good communication skills (91%), knew the relevant sector issues in the country (70%), and had strong technical expertise (65%). Respondents generally believed that SLRM staff were accessible whenever needed (82%). This is echoed in the narrative responses, wherein nine respondents complimented SLRM staff members for making themselves available when needed and for their ability to provide advice. Most of the respondents agreed that SLRM staff had treated them as development partners/colleagues (81%). However, only 36% of the respondents believed that SLRM had enough delegated authority to operate effectively. This was also confirmed during interviews with key informants, who raised issues related to the extent to which SLRM has to rely on ADB Headquarters on (i) project implementation issues, (ii) procurement matters, (iii)
1

This report was prepared by Njoman Bestari (principal evaluation specialist) and Grace Alindogan (consultant, evaluation research associate). Brenda Katon (consultant, evaluation research associate), Alvin Morales (evaluation officer), and Jennifer Simon (consultant, evaluation research associate) participated in workshops and meetings with a number of respondents.

Appendix 8

131

policy dialogue, (iv) resource allocation, and (v) various matters related to programming in specific sectors and project administration. Less than half of the respondents (43%) agreed that SLRM provided valuable lessons and practices from other countries. This is consistent with observations from many discussions with government officials and other respondents who pointed out the need for SLRM to (i) disseminate lessons from other countries, and (ii) enhance its role as an ADB conduit or facilitator for learning from the experience of ADB operations in other developing member countries. 5. In terms of meeting the countrys needs, a large majority of the respondents indicated that SLRM acted as an effective development partner (74%) and responded to the countrys development needs (71%). This is consistent with the findings of a separate survey of opinion leaders and stakeholders, in which more than three quarters of the respondents reported that the services offered by ADBs field offices or resident missions in the South Asia region had been helpful in assisting countries to meet their development goals and objectives. 2 Most of the respondents perceived that SLRM had been receptive to the changing conditions of the country (64%), while some of them (13%) disagreed with this. The majority of respondents also agreed on SLRMs sensitivity to country-specific circumstances (61%), and on taking into account various viewpoints in the country (56%). There was room for improvement in these areas, as supported by respondents comments that SLRM should develop closer relations with partners (17 responses) and be more responsive to the countrys needs (9 responses) in order to improve its delivery of products and services. 6. Interactions between the respondents and SLRM staff had been generally frequent: (i) once to more than twice per month when relating to a specific project; and (ii) once or twice every 3 months when coordinating on issues that were not project specific. Similar findings were cited in the synthesis report of the Annual MOPAN Survey 2006, wherein partners reported that they had attended more than three meetings with ADB staff during the prior 3 months, and cooperation with ADB had increased over the previous years. 3 C. Effectiveness

7. In the context of ADBs country strategy and program, a large majority of the respondents perceived that SLRM staff had adequately considered the realities, development issues, and priorities of the country (78%); and had consulted with or listened to relevant stakeholders in the country (72%). However, fewer people agreed that SLRM had adequately explained new ADB policies, knowledge products, and lending (64%). In terms of incorporating relevant experience from projects and programs in the country, 72% of the respondents believed that SLRM had done so. The 2006 MOPAN survey indicated that ADB plays a central role in policy dialogue with the Government. In the case of Sri Lanka, the MOPAN survey reported that ADB has a close working relationship with the Government because of ADBs relatively large contribution to the countrys official development assistance. By contrast, this SLRM perception survey directed questions on the range of policy dialogue between ADB and the Government. In policy dialogue, most of the respondents perceived that SLRM (i) supports the Governments leadership role in policy formulation (66%), (ii) focuses policy dialogue on the most important development needs (63%), and (iii) provides advice sensitive to human
2

ADB Perceptions Survey: Multinational Survey of Opinion Leaders 2006. Prepared by the Princeton Survey Research Associates International for the Asian Development Bank. October 2006, p. 9. Multilateral Organisations Performance Assessment Network (MOPAN). Annual MOPAN Survey 2006, Donor Perceptions of Multilateral Partnerships at Country Level. October 2006, p. 31. Survey covers perceptions on performance of the United Nations Childrens Fund, the International Labor Organisation, and the Asian Development Bank.

132

Appendix 8

development goals (61%). There are several areas where there is ample room for improvement in policy dialogue. Based on perceptions, fewer respondents believed that SLRM (i) had involved interest groups in policy discussions (59%), (ii) had explained the rationale for ADBs country strategies (54%), and had provided policy advice based on practical insights (46%). 8. On project design, more than 70% of the respondents agreed that SLRM had adequately considered (i) social aspects, (ii) environmental aspects, (iii) country and sector contexts, (iv) experience drawn from previous projects, and (v) counterparts to assume responsibility. However, fewer respondents agreed that SLRM had listened to alternative views (62%), considered options proposed by stakeholders (62%), and ensured that benefits to the country justified the cost (57%). Key informant interviews with government officials revealed client desire for SLRM to be more attentive to alternative views and options, and open to the many ways to achieve the desired objectives of projects and programs. 9. On project administration, at least 60% of the respondents agreed that (i) SLRM staff had worked closely with project managers/directors to resolve issues and help reconcile differences between ADB and the Government, and (ii) SLRM had effectively managed the loan portfolio and kept partners well informed of progress and issues. Based on the respondents perceptions, more problematic areas of project administration related to procurement issues and staff flexibility to consider options when a standard solution does not work. 10. In the context of economic and sector work, fewer than 60% of the respondents agreed that SLRM had taken into account the sociopolitical realities of the country, and focused on the most important needs and issues. Similarly, less than 60% of the respondents agreed that the analytical work is a joint effort with local experts in the country. Less than 40% of the respondents agreed that SLRM (i) effectively provided inputs to development policy formulation in the country, (ii) prepared policy briefs on major studies, and (iii) did not duplicate work that had been done in the sector by others. Technical support provided by SLRM was primarily perceived (65%) to make a tangible contribution to development effectiveness. Similarly, more than half of the respondents agreed that the technical support was well focused on key capacity needs of the country, although some respondents (government officials) disagreed with this. More than half of the respondents (57%) agreed that technical support used approaches that effectively fit the country situation. On the other hand, fewer respondents agreed that SLRM had provided technical support that was accurately targeted (35%) and appropriately timed to support project implementation (48%). Many respondents believed that SLRM respects the Governments responsibility for aid coordination (73%) and helps the country obtain access to cofinancing (67%). However, fewer respondents (52%) perceived SLRM as helping the country to avoid aid duplication. This is also a shortcoming highlighted in the 2006 MOPAN survey. 4 D. Efficiency

11. Nearly 70% of the respondents perceived that SLRM provided timely responses to inquiries. Such responses are consistent with the respondents additional narrative responses stating that one of the qualities the respondents liked about SLRMs services was its ability to respond quickly to their queries. However, less than half of the respondents (44%) agreed that SLRM ensured that benefits from given actions exceeded their costs. Compared with other aid agencies with which the respondents were familiar with, perceptions among the respondents
4

In the 2006 MOPAN Survey, the section on the Quality of ADB Partnership behavior towards other development agencies mentioned that ADB could do more to avoid overlaps with others. The Sri Lanka country team noted some weaknesses... in efforts to minimize duplication with other donor work. (p. 35)

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suggested that SLRM was more responsive to country needs (60%). Several development partners also confirmed this. Slightly more than half of the respondents agreed that SLRM was better in terms of its effectiveness in project implementation (52%). However, fewer respondents perceived that SLRM was better than other aid agencies in terms of striving for tangible results (37%) and speed in delivery of services (31%). During interviews, respondents often perceived slow delivery of services as something related to SLRMs inability to take decisions without resorting to repeated exchanges with ADB Headquarters. Nevertheless, more than three quarters of the respondents reported to be satisfied with SLRM-based services, with the majority of the responses coming from government agencies and development partners. Reasons for this satisfaction are outlined in their narrative responses. The survey question on the relevance of knowledge management products generated less favorable responses (47%) as many of the respondents were not familiar with these products. However, respondents from government agencies affirmed the relevance of knowledge management products, while nongovernment respondents were the least familiar with these. E. Narrative Responses

12. Respondents were requested to highlight what they liked most about (i) SLRM products and (ii) SLRM services. For SLRM products, the majority appreciated the quality and content of reports (13 responses), confirming that they were informative, timely, and relevant to their needs. Several complimented the areas wherein ADB provides its assistance (7 responses), especially in infrastructure development, and its relevance to the countrys needs. Aside from this, some respondents appreciated ADB reports and publications which are made accessible through the Internet. Regarding SLRM services, 18 respondents appreciated SLRM friendliness, responsiveness, and technical competence, while 9 others complimented the way SLRM administered projects with good coordination with the Government. Others were pleased with the training provided, foreseeing that SLRM would continue to benefit the country in the long term. When the respondents were asked how SLRM could improve its products and services, the top response was for SLRM to achieve a closer relationship with its partners and focus more on what the country needs. Table A8 summarizes the narrative responses from the respondents.

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Table A8: Summary of Narrative Responses to the SLRM Perception Survey

What do you like most about ADB/SLRM products? 1. Quality of reports/guidelines (13 responses) 2. Areas of assistance/types of loan (7 responses) 3. General comment (1 response) What do you like most about ADB/SLRM services? 1. Staff qualities (18 responses) a. Responsive/gives advice (9 responses)

b. Other technical competence (5 responses) c. Friendly/accommodating (4 responses) 2. Quality of work program and project implementation (9 responses) 3. Provision of training (4 responses) 4. Conduct of review missions, deployment of consultants (3 responses) 5. Accessibility (3 responses) 6. Good staff (2 responses) 7. Other benefits (3 responses) How can SLRM further improve its delivery of products and services? 1. 2. 3. 4. 5. 6. 7. 8. 9. SLRM should achieve closer relationship with partners (17 responses) SLRM should be more responsive to country needs (9 responses) SLRM should improve information availability (5 responses) SLRM should improve operation activities (4 responses) SLRM should conduct regular meetings/trainings (3 responses) SLRM should be more transparent (3 responses) Staff need to be more efficient (3 responses) SLRM needs personnel support in some sectors (3 responses) Decentralization/dissemination of responsibilities necessary for SLRM/ADB (3 responses)

10. SLRM should improve hiring of consultants (2 responses)

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Perception Survey of Sri Lanka Resident Mission (SLRM) Questionnaires and Tables of Results Total Respondents (n = 88)
(Due to rounding, numbers in percentages do not always add up to 100%)

A.
1.

Respondents Background
Percentage 11 57 8 11 13 100

Respondent Categories Number ADB Headquarters 10 Sri Lanka Government 50 Business/private sector 7 Development partner 10 Others 11 Total respondents 88

2.

Extent of Interaction with ADB SLRM in terms of the following (%) Direct Familiarity Involvement Personal dealings with ADB staff 43 20 Country strategy and program 22 31 Policy dialogue 27 25 Project design 28 19 Project implementation/portfolio management 41 24 Analytical work 22 23 Technical support 28 19 Aid cooperation 25 30

None 36 48 48 52 35 56 52 45

Total 100 100 100 100 100 100 100 100

B.
1.

Relevance
Strongly Disagree 0 0 2 0 2 2 5 2 2 2 2 2 4 13 No Opinion 2 2 5 13 9 16 23 20 23 27 27 30 29 36

Personal Interaction: ADB SLRM staff (%) Strongly Agree Know the country 32
Are people with whom I can express my opinions openly Have good communication skills Are accessible when needed Treat me as a development partner/ colleague Communicate in a timely manner Know the relevant sector issues in the country Have good management skills Have strong technical expertise Make good use of available local expertise Deliver on commitments and carry out promises Communicate study findings and recommendations convincingly Provide valuable lessons and practices from other countries Have enough delegated authority to operate effectively

Agree 64 64 75 71 54 57 57 55 52 50 52 46 34 32

Disagree 2 5 2 5 9 13 2 13 11 9 11 14 25 16

Total 100 100 100 100 100 100 100 100 100 100 100 100 100 100

29 16 11 27 13 13 11 13 13 9 7 9 4

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2.

Country Context and Needs: SLRM staff (%) Strongly Agree Agree 16 14 9 10 9 58 57 55 51 47

Disagree 2 1 11 8 8

Strongly Disagree 2 2 2 2 3

No Opinion 22 26 23 28 33

Total 100 100 100 100 100

Act as an effective development partner in the country Respond to the development needs of this country Respond to changing conditions within the country Are sensitive to country-specific circumstances Take into account various viewpoints in the country

3.

Frequency of Interaction: SLRM staff (%)

Every 1 Month Once or Twice More than Twice 19 9 Every 3 Months Once or Twice 17 16 More than Twice 5 2 Every 6 Months Every 12 Months Once or Twice 16 10 More than Twice 0 2 Once or Twice 6 7 More than Twice 0 3 No Total Opinion 19 47 100 100

Interact with me (related to specific project) Interact with me (on other issues, nonproject)

18 3

C.
1.

Effectiveness
Country Strategy Formulation and Programming: In preparing the country strategy and program, SLRM staff(%)
Strongly Agree 13 13 11 7 Agree 65 59 57 57 Disagree 7 11 11 11 Strongly Disagree 2 2 2 2 No Opinion 13 15 20 24 Total 100 100 100 100

Adequately consider the realities, development issues, and priorities of the country Consult with/listen to relevant stakeholders in the country Incorporate relevant experience from previous programs and projects in the country Adequately explain new ADB policies and changes to ADB's lending and Knowledge Management products

2.

Policy Dialogue: SLRM staff (%)

Strongly Agree Agree Disagree 59 54 54 48 43 39 4 7 2 9 9 15 Strongly Disagree 0 2 2 2 0 2 No Opinion 30 28 35 30 37 37 Total 100 100 100 100 100 100

Support the Government's leadership role in policy formulation Focus policy dialogue on most important development needs Provide advice sensitive to human development goals Involve interest groups in policy discussions Explain the rationale for ADB's country strategies Provide policy advice based on practical insights

7 9 7 11 11 7

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3.

Project Design: In assisting with project design, SLRM staff (%)

Strongly Agree Agree 69 64 69 64 Disagree 5 0 7 10 Strongly Disagree 2 2 2 5 No Opinion 7 12 7 12 Total 100 100 100 100

Take into account social aspects Consider environmental aspects Adequately consider country realities and sector context Incorporate experience from previous projects Get involved in the project at an early stage, including in the design and implementation of the PPTA Assess the quality of the existing feasibility study (if any) Follow up in areas where gaps exist Help counterparts to assume responsibility Use available local expertise Consider alternative options proposed by stakeholders Listen to alternative views Ensure that benefits to the country justify the cost

17 21 14 10

10 2 2 5 17 2 5 5

64 69 69 67 52 60 57 52

12 2 10 12 12 19 17 10

0 7 2 0 2 2 2 5

14 19 17 17 17 17 19 29

100 100 100 100 100 100 100 100

4.

Project Administration/Portfolio Management: In relation to project administration, SLRM staff (%)

Strongly Agree Agree 51 56 54 53 53 51 46 49 47 44 33 32 Disagree 11 12 9 7 18 7 11 7 11 12 21 26 Strongly Disagree 0 2 5 0 2 0 5 4 2 2 5 4 No Opinion 23 19 23 33 23 37 28 35 33 35 30 32 Total 100 100 100 100 100 100 100 100 100 100 100 100

Help reconcile differences between ADB and the Government Closely work with project managers/directors to resolve issues Keep me well informed of ADB's position on progress and issues Effectively manage the loan portfolio Help ensure that disbursements are not delayed Respond to requests requiring a no objection ruling Provide training opportunities for executing and project staff Help the government to resolve negative project impacts Provide explanations when declining requests Help country project managers/directors to restructure projects Help ensure that procurement is not delayed Are flexible when a standard solution does not work

16 11 9 7 5 5 11 5 7 7 11 7

5.

Economic and Sector Related Work: The analytical work the SLRM is involved in (%)
Strongly Agree Agree 51 44 51 49 38 Disagree 8 5 5 8 15 Strongly Disagree 0 0 3 3 0 No Opinion 36 38 36 36 44 Total 100 100 100 100 100

Focuses on the most important needs/issues of the country Takes into account the sociopolitical realities of the country Is a joint effort with local experts in this country Makes a valuable contribution to the design of projects Makes a valuable contribution to the design of policies

5 13 5 5 3

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Appendix 8

Strongly Agree Effectively applies experience from other countries Effectively provides inputs to development policy formulation in this country Prepares/ provides policy briefs on major studies Does not duplicate work that has already been done in the sector by others Produces results that reach the right people Identifies all feasible options Works to fill in gaps that exist in the sector literature 0 0 3 8 3 0 0

Agree 41 38 36 28 33 31 18

Disagree 10 13 15 10 13 15 13

Strongly Disagree 3 0 0 0 3 3 3

No Opinion 46 49 46 54 49 51 67

Total 100 100 100 100 100 100 100

6.

Technical Support: The technical support provided by SLRM (%)

Strongly Agree Agree 60 52 57 55 55 45 43 40 33 Disagree 2 12 14 10 7 19 26 5 19 Strongly Disagree 2 0 2 0 2 2 2 5 2 No Opinion 31 31 26 36 36 29 24 50 43 Total 100 100 100 100 100 100 100 100 100

Makes a tangible contribution to development effectiveness Is well focused on key capacity needs in this country Uses approaches that effectively fit country situations Improves individual capacity within this country Improves institutional/organizational capacity within this country Makes optimal use of local expertise Is effectively timed to support project implementation Provides benefits that exceed the costs Is accurately targeted

5 5 0 0 0 5 5 0 2

7.

Aid Support: SLRM's role in aid cooperation (%)

Strongly Agree Agree 67 63 52 56 46 Strongly Disagree Disagree 4 6 10 4 10 0 0 0 2 0 No Opinion 23 27 25 29 38 Total 100 100 100 100 100

Respects the government's responsibility for aid coordination Helps the country obtain access to and manage project cofinancing Takes a lead role in designated sector assistance Helps attract optimal external support for the country Helps the country avoid aid duplication

6 4 13 8 6

D.

Efficiency

SLRM staff (%)

Strongly Agree Provide timely response to inquiries Improve their interactions by learning from experience Ensure that benefits from given actions exceed their costs 11 9 5 Agree 57 55 39 Disagree 13 9 8 Strongly No Disagree Opinion 2 1 1 17 26 48 Total 100 100 100

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E.
1.

Other
Development/Aid Agency Comparison: Compared with other aid agencies with which I am familiar, SLRM shows (%)
Much Better Better 52 50 42 44 44 44 35 33 31 29 Worse 8 4 10 4 4 6 6 10 2 10 Much Worse 0 0 2 0 2 2 2 4 2 4 No Opinion 31 42 35 48 46 46 50 44 58 54 Total 100 100 100 100 100 100 100 100 100 100

Responsiveness to country needs Value of country strategy and program Effectiveness of project implementation/ assistance Usefulness of policy advice Overall effectiveness Flexibility in adapting to country conditions Quality of project design Frequent monitoring of project progress indicators Striving for tangible results/development outcomes Speed of services

8 4 10 4 4 2 6 8 6 2

2.

Other Respondent Feedback

a. Overall, how satisfied are you with the SLRM-based services? (%)
Very Satisfied 20 10 0 0 0 8 Satisfied 50 66 86 100 64 69 Dissatisfied 20 6 14 0 0 7 Very Dissatisfied 0 4 0 0 9 3 No Opinion 10 14 0 0 27 13 Total 100 100 100 100 100 100

ADB Headquarters Sri Lanka Government Business/private sector Development partner Others Total

b. Overall, what is your opinion of knowledge management products provided by SLRM? (%)
Highly Relevant ADB Headquarters Sri Lanka Government Business/private sector Development partners Others Total 0 8 0 0 0 5 Relevant 30 46 29 40 45 42 Partly Relevant 20 6 29 20 18 13 Not Relevant 0 4 0 0 0 2 No Opinion 50 36 43 40 36 39 Total 100 100 100 100 100 100

PPTA = project preparatory technical assistance. Notes: 1. Others = academe, nongovernment organizations, researchers, observers, etc. 2. No Opinion includes responses to "Not Applicable" in the questionnaire.

MANAGEMENT RESPONSE TO THE COUNTRY ASSISTANCE PROGRAM EVALUATION FOR SRI LANKA

On 28 August 2007, the Director General, Operations Evaluation Department, received the following response from the Managing Director General on behalf of Management:

I.

General Comments

1. We appreciate OEDs Country Assistance Program Evaluation (CAPE) for Sri Lanka. We find it comprehensive and well prepared. 2. Overall, the CAPE rates ADBs assistance to Sri Lanka as partly successful. We share this view. We also agree with the CAPE that continuing priority should be given to further improving project implementation and project readiness. However, we note that much has been achieved in Sri Lanka despite (i) a difficult political environment; and (ii) the conflict, a fact that is also acknowledged in the detailed sector reports of the CAPE. As indicated in the CAPE, while only 54% of all loans approved since 1968 to Sri Lanka are rated as successful, the trend is encouraging. The success rate improved from 43% in the 1970s, to 50% and 62%, respectively in the 1980s and 1990s. 1 3. While we broadly agree with the CAPE findings, we disagree with the CAPEs rating for post conflict operations as likely to be partly successful, on the low side. The CAPE rating is determined largely due to its assessment on efficiency (less likely to be efficient) and on sustainability (less likely to be sustainable). Regarding efficiency, the CAPE could take into account the fact that providing assistance to post-conflict or in conflict areas often costs more than conventional support thereby reducing efficiency. 4. We note that the decision to work in such environments, whether in Sri Lanka or elsewhere, is an institutional choice taken deliberately by ADB. We believe that while every effort must be made to remain cost effective, we must be willing to accept some degree of higher cost and indeed risk in such situations. The question of sustainability is also particularly complex in Sri Lanka. The sustainability concerns raised by the CAPE reflect to a considerable extent the resurgent conflict after August 2006. However, we note that damage to infrastructure supported by ADB, such as schools and hospitals, roads, has been minimal. At the same time, while the situation in the Eastern Province remains fragile and fluid, this region is once again moving towards a post-conflict situation with fewer operational constraints. II. Comments on Key Recommendation

5. Refocus ADBs priorities. We agree with the CAPE suggestion to have a stronger focus in the next Country Partnership Strategy (CPS). We believe the next CPS will achieve this. However, the choice of sectors will include some where performance has not been fully satisfactory. One such case is the power
1

Since only one project has received a rating since 2000, it is not possible to assess whether this trend has continued.

sector. The reasons for the relative failure of ADBs support in the power sector were largely those of underestimating rapid political change and the complex political economy. Urgent assistance is needed to prevent imminent system collapse, and support the government in policy reforms where some progress is once again being made. Further investment is required over the medium to long term to avoid the lack of power becoming a major constraint on economic development. We believe that by adopting a cautious but realistic approach, ADB can help to sustain the new reform momentum and the sectors longer-term viability. 6. As for policy-based program lending, we note that reforms in Sri Lanka remain very important and in many instances, policy distortions remain a binding constraint to sector development and growth. While ADB could have easily disengaged from policy-based lending activities in Sri Lanka in the future, we believe that despite the difficulties, as a committed development partner, this would not be a responsible response. However, under the new CPS, policy reforms will be addressed primarily in conjunction with project investments and complemented by selective and limited program lending. As recognized by the CAPE, policy reforms will need to take proper account of Sri Lankas complex political economy. The new CPS will look at more innovative ways to remain engaged in difficult areas such as economic reforms. 7. Post-conflict operations. We agree with the CAPE observation that ADBs operations in the North and East have to be conflict sensitive. We note that this has been a basic operational principle in all ADBs support to Sri Lankas conflict affected areas to date. However, the term conflict sensitivity can mean different things to different people or groups and may vary over time and must, therefore, be kept under constant review. Equally, while the new CPS will look closely at the modalities ADB can employ to work effectively in both post conflict and in-conflict affected areas, existing modalities, whereby ADB primarily works through government agencies, has proven both effective and flexible. A notable feature of the Sri Lankan conflict is that government agencies have continued to operate in conflict affected areas. This is true even in Liberation Tigers of Tamil Eelam (LTTE) controlled areas. 8. Results-based management and monitoring. We agree with the CAPE suggestion that ADB provide assistance to the government for results-based monitoring. We note that the scope of RETA 6306-REG Mainstreaming MfDR for Poverty Reduction in South Asia was expanded to include Sri Lanka in early 2007. The Sri Lanka Resident Mission (SLRM) is working with the Ministry for Plan Implementation that is piloting the results based approach with education, health, highways, and agriculture. 9. Strengthen capacity of SLRM. We have carefully reviewed the CAPEs SLRM perception survey and found it very useful. We agree in principle with the CAPE suggestion that the roles and functions of SLRM need to be further strengthened. However, these are ADB-wide generic issues, which involve additional costs. We note that the ongoing review of RM policy will inform these recommendations.