Evaluation

Program Lending
Special Evaluation Study

ADB has supported policy reforms in its developing member countries - DMCs -- mainly through program lending. The modality was also used extensively in responding to the 1997 Asian financial crisis. This special evaluation study assessed the role of program lending in promoting policy reforms in the DMCs and identified generic measures that could enhance its effectiveness.

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Programs and Program Lending

From 1987 until the end of 2001, 102 programs or program components of sector development programs were approved with a combined loan amount of $16.1 billion, 22% of total ADB lending.

Program lending now involves a diverse range of countries, including Pacific DMCs and newer members in Central Asia; program loans now support a broader range of activities, including social infrastructure and public sector reforms, in addition to the initial focus on the agriculture, financial, and industry sectors.

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Program Outputs

The programs met their immediate targets.

Total disbursements for 58 completed programs were only 9% below the approved loan amount. Although ambitious-containing a large number of conditions within a tight time frame-nearly all program conditions for 40 programs with completion reports were met.

However, tranche releases and program completion were delayed; disbursements planned over an average of 15 months from loan effectiveness were actually completed within an average of 24 and a maximum of 52 months.

Most programs had been designed with two tranches; 72% of second tranche releases were delayed and 11% canceled altogether.

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Program Impacts

According to the performance reporting system and stakeholder consultations in seven countries, program impacts did not always achieve their potential.

DMCs made significant progress in adopting more market-oriented policies; however, the recurrence of conditionalities between loans and sectors indicated that reforms could not always be sustained.

In several cases, program conditions were enacted after program completion, indicating a problem of process and timing. In other cases, program lending provided insufficient resources for capacity building during policy reform implementation.

Greater assistance for capacity building is needed, especially in policy analysis and implementation coordination. Stakeholder consultation and commitment to the reforms, specialized skills in program implementation, and a change in the focus of economic and sector work from outputs to results, would also help in successful implementation.

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Conclusions

Overall, program lending has had and will continue to have high relevance to the needs of DMCs, and has been moderately effective in supporting substantive legislative and policy changes.

However, programs have not always been based on achievable rates of change; stakeholder participation in program formulation could be better; and analysis of the incentive structure for effecting changed behaviors could be strengthened.

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Recommendations

The study recommended specific actions for increasing the efficacy, sustainability, and development impact of program lending:

• more options should be considered in program design, including multiple and floating tranches, providing a justification in each case
• government authorship of the reform package needs to be complemented by participation of affected groups, and dissemination of information relating to proposed policy changes and the costs of not changing
• counterpart funds should be used for building government capacity for designing and implementing programs
• further evaluation of programs, including evaluation of selected programs during implementation, should be done and guidelines for program evaluation updated.

This study has already been discussed by ADB Board's Development Effectiveness Committee and at an informal Board seminar, and the Board of Directors continues to take an active interest in the objectives and design of this important lending modality.

For more details, read the full report.

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