An Independent Evaluation of Policy Based Operations in ... · iv EVALUATION OF POLICY-BASED OPERATIONS in The African Development Bank, 1999-2009 List of Tables and Figures Table

FONDS AFRICAIN DE DÉVELO

PPEMENT

AFRI

CAN D

EVELOPMENT FUND

BANQUE

AFRICAINE

DE DÉVELOPPEMENT

Evaluation of Policy-based Operations in the African Development Bank,

1999-2009

Operations Evaluation DepartmentAfrican Development Bank Group

2011

Evaluation of Policy-based Operations in the African Development Bank, 1999-2009

Operations Evaluation DepartmentAfrican Development Bank Group

2011

Evaluation Task Managers: Joanne Asquith, Odile Keller


PPEMENT

AFRI

CAN D

EVELOPMENT FUND

BANQUE

AFRICAINE

DE DÉVELOPPEMENT

© 2012 – African Development Bank (AfDB)African Development Bank Group15 Avenue du Ghana,Angle des rues Pierre de Coubertin et Hedi NouiraBP 323, 1002 Tunis BelvédèreTunisia

DisclaimerUnless expressly stated otherwise, the findings, interpretations and conclusions expressed in this publication are those of the various authors of the publication and are not necessarily those of the Management of the African Development Bank the “Bank”) and the African Development Fund (the “Fund”), Boards of Directors, Boards of Governors or the countries they represent.

Use of this publication is at the reader’s sole risk. The content of this publication is provided without warranty of any kind, either express or implied, including without limitation warranties of merchantability, fitness for a particular purpose, and non-infringement of third-party rights. The Bank specifically does not make any warranties or representations as to the accuracy, completeness, reliability or current validity of any information contained in the publication. Under no circumstances including, but not limited to, negligence, shall the Bank be liable for any loss, damage, liability or expense incurred or suffered which is claimed to result directly or indirectly from use of this publication or reliance on its content. This publication may contain advice, opinions, and statements of various information and content providers. The Bank does not represent or endorse the accuracy, completeness, reliability or current validity of any advice, opinion, statement or other information provided by any information or content provider or other person or entity. Reliance upon any such opinion, advice, statement, or other information shall also be at the reader’s own risk.

About OPEVThe mission of the Operations Evaluation Department is to help the African Development Bank to foster sustainable growth and poverty reduction in Africa through independent and influential evaluations.

Director: Rakesh Nangia, [email protected], Project and Programme Level Evaluations: Mohamed Manai, [email protected], High Level Evaluations: Odile Keller, [email protected]

Operations Evaluation DepartmentTelephone: (216) 71 102 841Fax: (216) 71 194 460Internet : http:// www.afdb.org/opevEmail: [email protected] Questions? Contact Felicia Avwontom,Knowledge Management Officer, [email protected]

Copyright© 2012 – African Development Bank (AfDB)

OPERATIONS EVALUATION DEPARTMENT March 2011 iii

Contents

List of Tables and Figures ivAbbreviations vForeword viExecutive Summary vii

1 Introduction 1

2 Overview of the Bank’s Use of PBOs 2

3 The Bank’s Institutional and Policy Framework for PBOs 63.1 Challengesintheinternationalandregionalcontext 63.2 TheBank’sstrategicandorganisationalresponse 83.3 TheBank’spoliciesandinstrumentsforPBOs 93.4 AssessmentoftheBank’sinstitutionalandpolicyframeworkforPBOs 11

4 Policy into Practice 164.1 Overviewoftheevidence 164.2 Evidencefromprojectcompletionreports 174.3 Findingsfromcountrycasestudies 184.4 Findingsfromcasestudiesofotheroperations 22

5 Conclusions 245.1 Overallassessment 245.2 ComparisonwithotheragenciesprovidingPBOs 245.3 ChallengesfortheBank 255.4 Recommendations 27

Annex: Data on Policy-based Operations 30

iv EVALUATION OF POLICY-BASED OPERATIONS in The African Development Bank, 1999-2009

List of Tables and Figures

TableA.1 ApprovalsofPBOs(UAmillion,byFinancialYear) 30TableA.2 SectoraldistributionofPBOs 30TableA.3 PBOsbycountryandfinancingsource 31TableA.4 ShareofPBOsintotalBankoperations,1999-2009 32

Figure2.1 TotalAfricanDevelopmentBankGrouploansandgrants 2Figure2.2 NumberofPBOapprovals 3Figure2.3 TotalvalueofPBOapprovals 4Figure2.4 SectoralandmultisectoralPBOs(number) 4Figure2.5 SectoralandmultisectoralPBOs(value) 5

Box4.1 ChairingthebudgetsupportgroupinBurkinaFaso 20

OPERATIONS EVALUATION DEPARTMENT March 2011 v

Abbreviations

OSVP VicePresidency,SectorOperationsPAF PerformanceAssessmentFrameworkPAR ProjectAppraisalReportPBL Policy-basedLendingPBLG Policy-basedLendingforGovernancePBO Policy-basedOperationsPBS ProtectionofBasicServicesPCN ProjectConceptNotePCR ProjectCompletionReportPEFA Public Expenditure and Financial

AccountabilityPFM PublicFinanceManagementPRS PovertyReductionStrategyPUMAIC EmergencyProgrammetoMitigatethe

ImpactoftheFinancialCrisis(DRC)RMC RegionalMemberCountrySAL StructuralAdjustmentLoanSBS SectorBudgetSupportSDBSL SectorDevelopmentBudgetSupport

LoanSECAL SectoralAdjustmentLoanSWAp Sector-wideApproachTA TechnicalAssistanceUA UnitofAccountUSD UnitedStatesDollarWB WorldBank

ADB AfricanDevelopmentBank(i.e., incontrasttoADF)

ADF AfricanDevelopmentFundAfDB AfricanDevelopmentBankAPPS Appraisal of Projects Processing

ScheduleARD AgricultureandRuralDevelopmentCPIA Country Policy and Institutional

AssessmentCSP CountryStrategyPaperDARMS DocumentsandRecordsManagement

SystemDBSL DevelopmentBudgetSupportLoanDRC DemocraticRepublicofCongoEC EuropeanCommissionEDSL Economic Diversification Support

Loan(Botswana)EPSRP EconomicandPowerSectorReform

Programme(Nigeria)ELF EmergencyLiquidityFacilityFSF FragileStatesFacilityFSRL FinancialSectorReformLoan(Egypt)GAP GovernanceActionPlanGBS GeneralBudgetSupportGECL GeneralCounselandLegalServices

DepartmentIDA InternationalDevelopmentAssociationIMF InternationalMonetaryFundMDG MillenniumDevelopmentGoalMTS Medium-termStrategyOAGL OfficeoftheAuditorGeneralOPEV OperationsEvaluationDepartmentORPC OperationalResourcesandPoliciesORPF ProcurementandFiduciaryServices

DepartmentORQR Results and Quality Assurance

DepartmentOSGE Governance,Economic,andFinancial

ManagementDepartment

vi EVALUATION OF POLICY-BASED OPERATIONS in The African Development Bank, 1999-2009

Foreword

This independent evaluation of policy-basedoperations(PBOs)wasundertakenbytheOpera-tionsEvaluationDepartment(OPEV)oftheAfricanDevelopmentBanktoexaminehoweffectivelyPBOshavebeenusedbytheBankovertheperiod1999to2009.ThemainfocusoftheevaluationisontheBank’sownpoliciesandproceduresforthedesignandimplementationofPBOs,andhowtheycomparewiththeexperienceofotherdevelopmentagenciesandwithemerginginternationalbestpractice.TheresultsoftheevaluationwillhelptoinformanewAfDBpolicyonPBOs,which iscurrentlybeingdeveloped.

Duringtheperiodcoveredbythisevaluation,theBanksoughttodevelopamoreeffectivestrategicandorganisationalapproachtoaseriesofchallengesresulting fromchanges in the internationalandregionalcontext,developmentsintheinternationalaidarchitecture,andlessonsfromtheBank’sownexperience.Theinternationaleconomicenvironmentduringtheperiodgenerallysupportedgrowthandincreasinginternationalaid,untiltheimpactoftheinternationalfinancialcrisishitattheendoftheperiod.

TheevidencepresentedinthisreviewsuggeststhattheBankhasmadesubstantialprogressinitsuseofPBOs.Ithasdevelopedastrongerorganisationalcapacityandstructureforthedesign,appraisal,andmanagementandmonitoringofPBOs,andisamajorpartnerwithotherdonorsinjointbudgetsupportoperations.However,tobuildontheseachievements,theBanknowfacessignificantchallenges.Theseincludetheneedtobuildcountrycapacitytoengageinmeaningfulpolicydialogue,buildlinksbetweenPBOsand theproject investmentportfolio, andexpandPBOknowledgeandcapacitythroughouttheBank.

Theevaluationisbasedonreviewsof(a)therel-evantliterature;(b)comparativeexperienceswithPBOsinotherdevelopmentagencies;(c)theBank’sinstitutionalandpolicyframework;(d)sixcountrycase studies (Burkina Faso, Ethiopia, Morocco,Rwanda,SierraLeone,andTanzania);and(e)fourcasestudiesofothersignificantPBOs(Botswana,DemocraticRepublicofCongo,Egypt,andNigeria).ThesebackgrounddocumentsareavailableinfullontheOPEVwebsite.

Wewouldliketothankthemainauthorsofthereview:StephenJonesofOxfordPolicyManagementandAnnBartholomewofMokoro,andallofthoseinvolvedinthecountrycasestudies.WeparticularlyappreciatedthetimeandenergygivenbyOSGEandotherswhofullyparticipatedinthisevaluationandprovidedinformationandvaluablefeedbackinevaluationworkshops.WithoutthesupportofOSGEandofAfDBcountryofficestaffinBurkinaFaso,Rwanda,SierraLeone,Morocco,Ethiopia,andTanzania,thisreportwouldnothavebeenpossible.

FranckPerrault,ActingDirector,OperationsEvaluationDepartment,AfDB

OPERATIONS EVALUATION DEPARTMENT March 2011 vii

Executive Summary

Scope of the evaluationi. ThisevaluationassessestheAfricanDevelop-mentBank’s(AfDB)useofpolicy-basedoperations(PBOs)overtheperiod1999-2009,duringwhich120PBOstotallingUA6.1billionwereapproved,repre-senting31.3percentoftotalAfDBapprovalsand21.8percentoftotalAfricanDevelopmentFund(ADF)approvals.TheevaluationexamineshoweffectivelytheBankhasusedPBOstosupportnationaldevelop-mentobjectives,withafocusontheBank’spoliciesandproceduresforPBOs.TheevaluationisbasedonareviewofliteratureandcomparativeexperiencewithPBOsinotherdevelopmentagencies,areviewoftheBank’sinstitutionalandpolicyframework,sixcountrycasestudies,andfourcasestudiesofothersignificantoperations.

Significant progress has been made…ii. Theevaluationconcludes that theBankhasmadesubstantialprogressinitsuseofPBOs.In1999,theBankwasheavilydependentontheIMFandtheWorldBankforanalysisanddesignofitsengagementinstructuralandsectoraladjustmentoperations. These operations often encounteredimplementationdifficultiesanddelaysrelatedtoweakcountryownershipandtheunsuccessfulattempttoleveragepolicychangethroughtheuseofcomplexloanconditionalities.

iii. TheBanknowoperatesasasignificantpartnerinjointdonorbudgetsupportarrangements,withalargelysuccessfulrecordofengagement.TheBankhas developed a cadre of staff (concentrated intheBank’sEconomicandFinancialManagementDepartment,OSGE)whohavestrongexperienceinthedesignandmanagementofbudgetsupportoperations.TheestablishmentofFieldOffices(eventhoughdecentralisationhasprogressedfarmore

slowlythanplanned)hassignificantlyimprovedtheBank’sabilitytoengageinnationalpolicyandbudgetprocesses,andhasstrengthenedtheBank’smonitoringandsupervisionofPBOs.

iv. TheBankhasalsodevelopedastrongerorganisa-tionalcapacityandstructureforthedesign,appraisal,management,andmonitoringofPBOs,althoughsomeaspectsstillrequirefurtherdevelopment.Inaddition,theBankprovedhighlyresponsivetothechallengesof theglobaleconomicandfinancialcrisesastheyaffectedtheBank’sRegionalMemberCountries(RMCs)during2008and2009.TheBankwasabletodesignandimplementoperationsthatnotonlymettheurgentfinancialrequirementsofitsclients,butalsoprovidedaplatformforaddressinglonger-termstructuralreforms.TheBankhasalsomadeimportantcontributionstobudgetsupportinfragilestates.

… but some improvements are still requiredv. Theevaluationidentifiedsomesignificantshort-comingsintheBank’spoliciesandpracticesregard-ingPBOs,includingincomparisontoapproachesusedbyotherdevelopmentagencies.

• First,theBankhasaproliferationofpoliciesandguidanceforPBOsthat(unlikeinotheragencies) have not been consolidated andupdated.ProceduralrequirementsforPBOsareexcessivelycomplicatedanddivertmanage-mentattentionfromfocusingonanalysisanddesign.InformationsystemsforPBOsareweak,anduncertaintypersistsabouthowauditandfiduciaryriskshouldbeaddressed.

• Second,theBanklacksbothamechanismforamedium-termprogrammaticapproachtobudget

viii EVALUATION OF POLICY-BASED OPERATIONS in The African Development Bank, 1999-2009

support;andaneffectiveinstrumenttosupportengagementinsector-wideapproaches(SWAps).Mostfundamentally,theBanklacksthecapac-ityforin-countrypolicyandmacroeconomicanalysis,ateitherthemacroeconomicorsectorallevel.ThislimitstheBank’sabilitytoengageinpolicydialogue,exploitsynergiesbetweenPBOsandotherBankactivities,orundertakeeconomicandsectorwork(ESW)toimprovethequalityofitsengagement.ThesedeficienciesalsolimittheextenttowhichtheBank’sCountryStrategyPapers(CPS)provideeffectiveguid-ancefordecisionmakingonPBOs.Inaddition,staffincentivesdonotencourageaneffectivemultisectoralapproachtobudgetsupport.

Challenges for the Bank in using PBOsvi. The evaluation has identified three mainchallengesfortheBank,ifitistousePBOsmoreeffectivelytoachieveitsstrategicobjectivesandmeettheneedsofRMCs.

vii. First,whiletheBank’sengagementinbudgetsup-portarrangementsanditsstrengthenedin-countrycapacityhasenabledittoparticipatemorefullyinpolicyforumsandprocesses,theBankhas,ingeneral,contributedlittletodialogueonsubstantivepolicyissues.TheBank’scapacitytoengageinsectoralpolicyhasbeenparticularlyconstrainedbyitslackofseniortechnicalstaffinFieldOffices.WhiletheobjectiveofmostBankPBOssince2006hasbeentostrengthenpublicfinancemanagement,theBankhashadnopublicfinancemanagementspecialistsinitsFieldOffices.

viii.Second, there are few linkages between theBank’sengagementinPBOsandtherestoftheBank’sprogramme(inparticular,itsinvestmentlending),sopotentialsynergieshavenotbeendevelopedorexploited.TherehavebeeninitiativestousePBOsasanentrypointfordeeperengagementinsectoral

reformprocesses,orasopportunitiesforsubsequentinvestmentoperations,butthesehaveyettogeneratesubstantiveresults.

ix. Third, the concentrationof capacitywithinOSGEhasreinforcedthetendencyforbudget-supportPBOstobemanagedasgovernancesectoroperations,eventhoughthemajorityofthesearemultisectoralinthesenseofsupportingthewholegovernmentbudget.

x. TheBankthereforefacesachoice:whethertobuilditscapacitytoengageinpolicydialoguearoundPBOs,particularlywithinFieldOffices;ortoaddvaluebydevelopingcomplementaritiesbetweenPBOsandtherestoftheBank’sprogramme;ortoremainlargelyfocusedonitsparticularareaofstrength—theprovisionoffinance.

Areas where action is requiredxi. TheBankneedstomoreclearlydefinetheroleofPBOsinadvancingitsoverallobjectivesandcountry-levelengagements.InthemajorityofPBOs,wheretheBankparticipatesjointlywithothermultilateralandbilateraldonors,thespecificvalueaddedfromtheBank’sparticipationneedstobeidentified,asdopotentialsynergiesbetweenPBOsandtheBank’sotheractivities,notably investment lendingandsupporttocapacitydevelopment.

xii. The Bank also needs to produce a (single)comprehensivepolicyandsupportingguidelinesforPBOs,buildingonexistingpolicies(notablythe2004policyonDirectBudgetSupportLending),lessons,andbestpracticestodefineappropriateobjectivesandconditionsforsuchoperations,andotherdesignaspectssuchastranching.

xiii.Tosupporteffectiveimplementationofthenewpolicy,itsorganisationalandmanagementimpli-cationswillneedtobeaddressed.Measureswillbeneededto(a)clarifytheroleofdifferentBank

OPERATIONS EVALUATION DEPARTMENT March 2011 ix

capacityandresourcesavailabletoensurethatthesecontributionsareeffective.

• EachsectoralareaoftheBankshouldassessthescopeforusingsectoralPBOs,contributingtomultisectoralPBOs,andparticipatinginSWAps.

• TheBankshouldexaminehowpoliciesandprocedures(especiallyrelatingtoADF)canbeadaptedtoallowamoreprogrammaticmedium-termapproachtobudgetsupport.

• TheBankshoulddevelop,fullydocument,andprovidecomprehensivetrainingforstaffinasetofproceduresandtimetablesthatarespecificallytailoredtoPBOs.

• The Bank should review and substantiallystrengthenitsinformationsystemsandproce-duresforPBOs.

departmentsandorganisationalunits(inparticular,OSGEandFieldOffices)inthedesignandmanage-mentofPBOs;(b)buildcapacitywithintheBankto implement thenewpolicy; (c)where feasible,developproceduresforthedesign,appraisal,andmanagementofPBOsthatarespecificallytailoredtothistypeofoperation;and(d)improveinformationsystemstoenabletheperformanceofPBOstobemoreeffectivelymonitoredandlessonsmoreeasilyidentified.

Recommendationsxiv.Theevaluationrecommendsthat:

• TheBankshoulddeterminehowPBOswillbeusedtosupporttheBank’swiderstrategicobjectivesandtheneedsofitsRMCclients.TotheextentthatPBOsaretobeusedtostrengthenengagementinpolicydialogue,ratherthanjustasafinancingmechanism,theBankneedstobuilditscapacityandprocedurestofulfilthisrole.

• ExistingBankPBOpoliciesandguidanceshouldbeconsolidatedintoasinglepolicy.

• GuidanceforthedesignofPBOsandtheiden-tificationofresultsshouldbebasedonamorefullydevelopedmodeloftheirinterventionlogic.

• TheBankshouldidentifypotentialsynergiesbetween its engagement in general budgetsupportandrelatedPBOsandotherpartsoftheBank’sprogramme,especiallyinvestmentoperations.

• TotheextentthattheBankidentifiespotentialsynergiesandcontributionsitcanmakethroughpolicydialogueorcomplementaryactivities,includingpossiblychairingjointbudgetsupportgroups,theseshouldbeexplicitlybuiltintothedesignofPBOs.TheBankshouldmakesufficient

x EVALUATION OF POLICY-BASED OPERATIONS in The African Development Bank, 1999-2009

OPERATIONS EVALUATION DEPARTMENT March 2011 1

1. Introduction

1.4 Theremainderofthereportisstructuredasfollows.Section2summarisesthemainfeaturesoftheBank’suseofPBOsovertheevaluationperiod.Section3presentstheassessmentoftheBank’sinsti-tutionalandpolicyframeworkwithintheregionalandinternationalcontextovertheevaluationperiod.Section4examinestheBank’sexperiencewithPBOs,basedonthefindingsofthecasestudies.Section5presentstheconclusionsandrecommendationsofthestudy.

1.1 ThisevaluationassessestheAfricanDevelopmentBank’suseofpolicy-basedoperations(PBOs)overtheperiod1999-2009.ItexamineshoweffectivelyPBOshavebeenusedfortheachievementofnationallyowneddevelopmentobjectives.ThemainfocusoftheevaluationisontheBank’sinternalprocesses(policyandguidelines)fordesigninganddeliveringPBOs,andhowthesehavetranslatedintodecisionsabouthowPBOsareusedindifferentcountrysettings.

1.2 Thefindingsofthisevaluationaredrawnfromfourpiecesofbackgroundanalysis.ThefirstisareviewofliteratureandthecomparativeexperiencewithPBOsintheWorldBank,AsianDevelopmentBank,EuropeanCommission,andselectedbilateralagencies.ThesecondisareviewoftheBank’sinsti-tutionalandpolicyframeworkforPBOswithinthecontextoftheBank’swiderstrategiesandorganisa-tionalreformsovertheevaluationperiod.Thethirdcomprisessixcasestudies(BurkinaFaso,Ethiopia,Morocco,Rwanda,SierraLeone,andTanzania)oftheBank’suseofPBOsovertheevaluationperiod.ThefourthconsistsoffouradditionalcasestudiesfocusedonlargeandstrategicallysignificantPBOs.

1.3 Thisreportpresentsthefindingsfromthesestudies,theoverallconclusionsoftheevaluation,andrecommendationstoenhancetheeffectivenessoftheBank’suseofPBOs.

2 EVALUATION OF POLICY-BASED OPERATIONS in The African Development Bank, 1999-2009

2. Overview of the Bank’s Use of PBOs1

2.2 In total, over the evaluation period, PBOsaccountedfor31.3percentofADBapprovalsand21.8percentofADFapprovals.SeveralcategoriesofcountriescanbedistinguishedamongADBbor-rowersintermsoftheshareandvalueofPBOs.ThefirstgroupincludesBotswana,Mauritius,andSeychelles,whichhistoricallyhavenotbeenmajorclientsofADBbutwhichtookoutlargeloansaspartoftheirresponsetotheinternationalfinancialcrisis.InthesecondgroupareMoroccoandTunisia,whichmadesubstantialuseofPBOsovermuchoftheevaluationperiod.ThetopfiveusersofPBOs,byvalue,areallADBcountries(Morocco,Botswana,Tunisia,Mauritius,andEgypt).WithinactiveADFcountries,morethanhalf(20outof36)hadPBOs

2.1 Atthestartoftheevaluationperiod,theBank’stotallevelofapprovedloansandgrantswaslowerthanUA1.2billionperannum,withPBOsaccount-ingforUA120toUA160million(seeFigure2.1).TherewasasubstantialincreaseinBankoperationsin2001,largelydrivenbyanincreaseinPBOs.From2001to2005,thetotallevelofoperationsremainedstable,althoughtheamountgoingtoPBOsfluctu-atedmarkedlyfromyeartoyear.TheBank’stotaloperationsgrewrapidlybetween2005and2008,beforeaspectacularincreasein2009inresponsetotheinternationalfinancialcrisis.TotalPBOapprovalsover2005-2009amountedtoUA6.1billion,compris-ingUA3.6billioninAfricanDevelopmentBank(ADB)loans(21operations),UA1.8billioninAfricanDevelopmentFund(ADF)loans(68operations),andUA0.7billioninADFgrants(31operations). 1 Detailed information is provided in annex tables.

Figure 2.1 Total African Development Bank Group loans and grants, 1999-2009

Source: African Development Bank

0

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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

Million UA

Investment lending and grants Policy-based lending and grants


whichaccountedformorethan20percentoftheirtotaloperations;ineightcountries,PBOsaccountedfor10to20percentoftheiroperations;andineightothers,lessthan5percentoftheirtotalADFfinanc-ingwasprovidedasPBOs.ThelargestADFusersofPBOs,intermsoftotalfinanceprovided,wereEthiopia,Tanzania,Ghana,andMozambique,allofwhichreceivedmorethanUA200millionthroughPBOsovertheevaluationperiod.TheADFcountrieswiththelargestnumberofseparateoperationswereTanzania,BurkinaFaso,andCapeVerde(eachwithsix);andEthiopia,Mali,Zambia,BeninandLesotho(eachwithfive).

2.3 Figures2.2and2.3showtrendsinthenumberandvalueofPBOsintheformofABDloans,ADFloans,andADFgrantsovertheevaluationperiod.Inparticular,thefiguresshowthat:

• Until2009,therewere,onaverage,fewerthanoneandahalfADBPBOsapprovedeachyear,althoughtheoperationswererelativelylarge,averagingalmostUA180millioneach.

• AthirdofthetotalADBPBOsovertheperiodwereapprovedin2009,accountingfor49percent,byvalue,ofthetotalADBPBOsapprovedovertheperiod.Oneoperation(BotswanaEco-nomicDiversificationSupportLoan)dominated,withavalueofjustoverUA1billion.

• ADFPBOsweremuchsmallerthanADBPBOs;ADFloansaveragedaboutUA26million,andADFgrantsaveragedaboutUA21million.

• ADFloanPBOsshowednomarkedtrendovertheevaluationperiod,exceptforaspikeduring2008,reflectinganapparentincreaseindemandinresponsetothefoodandfuelcrisis.ADFgrantsdidnotbecomesignificantuntil2004(underADF-XandADF-XI).

Figure 2.2 Number of PBO approvals, 1999-2009


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2.4 Figure2.4showsthatonly7outof102ADFoperationswereclassifiedassectoral,andoneopera-tion(NigeriaEconomicandPowerSectorReformProramme,EPSRP,2009)accountedforalmosthalfthevalueofthoseoperations.Oftheothers,three


Figure 2.3 Total value of PBO approvals, 1999-2009


Figure 2.4 Sectoral and multisectoral PBOs (number)


Themostactivesectorwasfinance(bankingandfinancialmarketreform),withoperationsinTunisia(2001,2005),Egypt(2006),andMorocco(2009).AllotherADBsectorPBOswereinMorocco,inthecommunications,health(twooperations),water,andtransportsectors.

0

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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

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wereagriculturalsectoroperations(twoinLesothoin1999,andoneinTanzaniain2007);twosocialsector(education)operations(Rwanda2006andTanzania2007);andonefinancesectoroperation(Mauritania,2001).Bycontrast,sectoraloperationsaccountedfor9outof21ADBPBOs,andfor42percentbyvalue.

0 10 20 30 40 50 60 70 80

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ADB loans

ADF loans

ADF grants Sectoral

Multisectoral


Figure 2.5 Sectoral and multisectoral PBOs (value)


2.5 TheBankintroducedsomenewPBOinstru-ments during the evaluation period, includingDevelopmentBudgetSupportLoans(DBSL)andPolicy-basedLendingforGovernance(PBLG)(seebelow).However,theBank’smanagementinforma-tionsystem(SAP)doesnotclassifyoperationsbytypeofinstrument;nordoestheprojectdocumentationalwaysspecifytheloaninstrument.Whilethemovefromstructuraladjustmenttobudgetsupportwasthemostsignificantchange,overtheevaluationperiod,inthewaytheBankusesPBOs(asemergesclearlyfromthecountrycasestudies),itisdifficulttoanalysethischangeonthebasisoftheBank’sinformationsystems.

2.6 TheBank’sinformationsystemsclassifythelargemajorityofPBOsasmultisectoral.However,sincemostPBOsaredesignedandmanagedbytheBank’sGovernance,EconomicandFinancialManagementDepartment(OSGE),ithasbeenarguedthatmanyoftheseoperationsshouldinsteadbeclassifiedasgovernancesectoroperations.Thecodingofopera-tionsinSAPhasnowbeenamendedtoallowthistobedone(seeSection3.4).

0 500 1000 1500 2000 2500 3000 3500 4000

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Value (UA million)


3. The Bank’s Institutional and Policy Framework for PBOs

theseverebalanceofpaymentsproblemsthatmanyAfricancountriesencounteredthrough2009ledtoasharpincreaseindemandforfinanceforbalanceofpaymentssupport.

3.1.4 TheevaluationperiodalsosawanumberofRMCs(e.g.,Liberia,SierraLeone,DemocraticRepublicofCongo)emergingfromlong-runningconflictandinstability;andsomeothers(e.g.,Coted’IvoireandZimbabwe)thatsufferedpoliticalcrisisand economic collapse. There was also a steadyincreaseinthequalityofpolicyandinstitutionalcapacityacrossmostoftheGovernmentsinAfrica,includinginallofthecasestudycountries.2

Developments in the international use of PBOs3

3.1.5 ImportantchangesalsooccurredovertheperiodinthewayPBOshavebeenusedasanaidinstrumentinlow-incomecountries.Since1999,theprinciplethataidshouldbealignedwithanationalpovertyreductionstrategy(initiallydevelopedaspartoftheHighlyIndebtedPoorCountrydebtreductioninitiative)hasbeengenerallyaccepted,andbudgetsupportinstrumentsweredevelopedasaprincipalwayofprovidingaidinsupportofagreednationaldevelopmentpriorities.Thisapproachwasreinforcedbytheincreasedfocusonaideffectiveness, lead-ingtotheParisDeclarationin2005.Bythelatterpartoftheevaluationperiod,low-incomeAfricancountriesreceivingbudgetsupporthadgenerallymadeprogressinstrengtheningtheirpolicyandinstitutional capacity; and joint budget supportarrangementsincorporatingmajordonorshadbeen

3.1 Challenges in the international and regional context

3.1.1Duringtheperiodcoveredbythisevaluation,theBanksoughttodevelopamoreeffectivestrategicandorganisationalapproachtoaseriesofchallengesresulting fromchanges in the internationalandregionalcontext,developmentsintheinternationalaidarchitecture,andlessonsfromtheBank’sownexperience.Theinternationaleconomicenvironmentduringtheperiodgenerallysupportedgrowthandincreasinginternationalaid,untiltheimpactoftheinternationalfinancialcrisishitattheendoftheperiod.

Africa over the evaluation period3.1.2 Africa’seconomicperformanceoverthelastdecadehasbeenrelativelystrongcomparedtoearlierperiods,reflecting,inparticular,strongdemandforthecontinent’snaturalresourceexports,andtheforeigndirectinvestment(increasinglyfromChina)aimed at exploiting these resources. The strongperformancereflected,aswell,improvedmacroeco-nomicmanagementinregionalmembercountries(RMCs),andtheirgenerallymorefavourablepolicyenvironmentsforprivatesector ledgrowth.Thecommoditiespriceboominthemid-2000sgeneratedlargeincreasesinforeignexchangeearningsformanyAfricancountries.However,italsoadverselyaffectedthepoor,whoareespeciallyvulnerabletoescalatingfoodandfuelprices.

3.1.3 Beginningin2008,theinternationalfinancialcrisisadverselyaffectedboththedemandforAfricanexports,andtheprospectsforRMCs’accesstointer-nationalcapital.AlthoughthedirecteffectonAfricawassmallerthaninitiallyfeared,particularlybecausekeyexportcommoditypricestendedtoremainhigh,

2 As measured, for example, by the Country Policy and Institutional Assessments (CPIA) and Public Expenditure and Financial Accountability (PEFA) assessments.

3 This section draws on the review of literature and experience.


establishedinmanycountries.Povertyreductionstrategiesovertheperiodalsobecamefullyintegratedwithnationaldevelopmentstrategies.

3.1.6 TherehavebeenimportantshiftsinwhatwasseenasinternationalbestpracticeinPBOsoverthedecade,inresponsetothechallengesofusingPBOsforbudgetsupport,andtochangingindevelop-mentthinkingaimedatmakingaidmoreeffective.ExperiencehasledtoanemergingconsensusonbestpracticeinthedesignandimplementationofPBOs.However,thefirmempiricalevidencefromwhichconclusionshavebeendrawnremainsquitelimited.

3.1.7 ThemainelementsofthisconsensusarethatPBOsshouldbedesignedandimplementedinthefollowingway:

• Useexpostratherthanexanteconditionalities(thatis,focusondefiningagreedprioractionsanddisbursingagainstthese).

• Usedialoguetosupportpolicyreformratherthanexpectingconditionstoachievethis.

• Supportspecificpolicyreformsaspartoflonger-termsupport tonationalpoverty reductionstrategies.

• Use PBOs to explicitly strengthen nationalbudgetandpublicexpendituremanagementprocesses.

• UsePBOsaspartofjointdonoroperationsratherthanstand-aloneoperations.

• Providecomplementarycapacitybuildingandtechnicalassistance.

• Usejointassessmentframeworkstofocusonresultsandoutcomes.

3.1.8 ThisconsensussuggeststhatPBOsneedtobedesignedinpartnershipwithrecipientGovernmentsandotherdonorstoensurecountryownership;andalsothattheseoperationsneedtobeaccompaniedbypolicydialogue,technicalassistance,andcapacitybuilding.

3.1.9 Evidenceonthevalueofexanteconditionali-tiesforleveragingchangeislessclearcut.Ingeneral,policyreformismoresuccessfulifitisdomesticallyled.However,externallysupportedchangecanbesuccessfulifsupportedthroughdialogue,researchandanalysis,andcapacitydevelopment.Capacitybuildingshouldbefocusedonkeyareas,mostnotablypublicfinancialmanagement;andpolicydialogueshouldaddressbudgetprioritiesandreformagendas.Donoragencieswillrequiresufficientin-countrytechnicalcapacitytoengageinthistypeofdialogue.

3.1.10 ThisbestpracticemodelforPBOsisnotalwaysconsistentlyimplemented,foroneormoreofthefollowingreasons:

• First,thedonormaynothaveentirelyabandonedtheattempttousegrantorloanconditionali-tiestobringaboutpolicychangeandstillusesmultiple-trancheoperationstotrytoinfluencepartneractions.

• Second,jointoperations)areoftendifficulttoimplement.Donorproceduresandprioritiesdiffer,andthetendencyremainsfordifferentagenciestoseektoinclude“components”(i.e.,specifiedpolicyactions)ofparticularinterestwithinacommonpolicyframework.

• Third,donorshavedifferingapproachestotherisksofusingPBOs.Theserelate,inparticular,to(a)fiduciaryrisk(whereitisimportanttodistinguishtheriskofresourcesbeingmisusedfromtheriskofresourcesbeingusedappro-priatelybutnotleadingtothespecificresults


thedonorsareseeking);and(b)theabilitytoeffectivelymonitorresults.PBOsthatincorpo-rateassistanceaimedatstrengtheningpublicfinancialmanagement(PFM)systemsandauditfunctions;puttinginplacegoodperformancemonitoringframeworks;andcollectingbaselinedatapriortothestartofthePBO;andthatareaccompaniedbyclearlyspecifiedandresourcedcomplementaryactions,arelikelytobethebestequippedtodealwithrisks.

3.2 The Bank’s strategic and organisational response

3.2.1 TheBank’s1999VisionStatement4setouttheoverallobjectivesfortheinstitution,whichfocusedonagricultureandruraldevelopment(ARD),humanresources,andtheprivatesector.TheBankhassoughttoimplementtheVisionfirstthroughthe2003-2007StrategicPlan5, and subsequently the2008-2012MediumTermStrategy(MTS)6.TheMTSrepresentedashiftintheBank’soperationalfocustowardsinfra-structure,governance,andprivatesectoroperationsasprerequisitesforbroaderdevelopmentgoalsthatencompassedthesectors(e.g.,agriculture,health,transport).TheMTSalsoplacedgreateremphasisonpartnershiparrangementsandontheaideffective-nessagenda.Overtheevaluationperiod,therewasasignificantincreaseinthelevelofresourcesavailabletotheBank,particularlythroughsuccessiveADFreplenishments,includinganincreasedADFgrantcomponent.

3.2.2 Significantorganisational reformswereimplementedin2006toaddressweaknessesintheBank’sstructureandbusinessprocesses, includ-inganinsufficientfieldpresence,weakcountryfocusandclientorientation,weaknessesindeliveryacrosstheprojectcycle,andaninsufficientfocusonresults.TheorganisationalreformsincludedtheestablishmentoftheOperationsComplexes,andotherchangestoaligntheBank’sstructurewithstrategicpriorities.Thereformsalso includeda

processofdecentralisationandtheopeningofFieldOffices.

3.2.3 AnimportantfeatureoftheBank’sstrategyovertheevaluationperiodwastheincreasingempha-sisongovernance.Thiswasreflected,inparticular,intheestablishmentin2006oftheGovernance,EconomicandFinancialManagementDepartment(OSGE),whichassumedresponsibilityforthedesignofthemajorityofBankPBOs;andtheadoptionoftheGovernanceStrategicDirectionsandActionPlan(GAP)in2008.BeforetheestablishmentofOSGE,multisectoralPBOsweredesignedandmanagedbytheBank’sRegionalDepartments,withCoun-tryEconomiststakingtheleadrole.ThetransferofresponsibilityforbudgetsupportoperationstoOSGEwaspromptedbythelackofdedicatedskillsforPBOswithinRegionalDepartments;andalsobyconcernsaboutpossibleconflictsofinterestifRegionalDepartmentshadresponsibilityforbothdeterminingallocationsandmanagingoperations.

3.2.4 AfurtherinitiativeduringtheperiodwastheestablishmentoftheProcurementandFiduci-aryServicesDepartment(ORPF);inparticular,itsFiduciaryServiceDivision,whichfocusesontheassessmentofcountryfinancialmanagementsystems.

3.2.5 TheBankalsodevelopedspecificpoliciesandapproachesto(a)addresstheaideffectivenessagenda,bystrengtheningresultsreportingandincreasingtheuseofcountrysystems);(b)strengthenengagementinpost-conflictandfragilestates,includingthroughestablishmentoftheFragileStatesFacility(FSF);and(c)respondtotheimpactofinternationaleconomicinstabilityonRMCs.

4 African Development Bank, 1998, The Vision of the African Development Bank – A re-Invigorated Bank – An Agenda for Moving Forward – ADB/BD/WP/98/172/Rev.1,

5 The African Development Bank Group Medium Term Strategic Plan 2003-2007

6 The African Development Bank Group Medium Term Strategic Plan 2008-2012 ADB/BD/WP/2008/23/rev4


3.2.6 Policy-basedoperations,whilenotacentralfocusoftheBank’sstrategydocuments,haveplayedanimportantroleinrespondingtothechangingcontextandneedsofRMCs—specifically,through(a)thedevelopmentofinstrumentsfortheprovisionofbudgetsupportfornationallyledpovertyreductionstrategies);(b)identificationofbudgetsupportasameanstosupportthewiderobjectiveofgovernancereform;(c)policiestoenablebudgetsupporttobemoreeasilyusedinfragilecontextsandcountriesemergingfromconflict;and(d)startingin2008,policiestoenablethequickdisbursementoffundstorespondtobalanceofpaymentsandfiscaldifficultiesofRMCs.

3.3 The Bank’s policies and instruments for PBOs

3.3.1 Atthestartoftheevaluationperiod,theBank’sapproachtopolicy-basedlendingwasbasedonguidelinespreparedin1988,inlinewiththestructuraladjustmentagendabeingledbytheIMFandtheWorldBanktoaddressthedeepmacroeconomicproblemsfacingAfrica.Thisapproachdistinguishedbetweenstructuralandsectoraladjustmentlending(respectively,SALsandSECALs).Policy-basedloansundertheseguidelinesweredesignedtoprovidequick-disbursingresources(focusingprincipallyontheforeignexchangeelement,althoughnotingthatcounterpartfundsprovidedsupporttothegovern-mentbudget),oftenoverathree-yearperiod,involv-ingsuccessivedisbursementsbasedonprogressiveimplementationbytheBorrowerofagreedpolicyandinstitutionalreforms.Financialresourceswerepaidintoaspecialaccountwhoseuse(forimports)couldbeexternallyaudited.Between1986and1998,theBankengagedin71SALsand29SECALs.Policy-basedlendingapprovalsusingADBresourcesamountedtoUA2.7billion,andtoUA1.1billionusingADFresources.

3.3.2 EvaluationsofSALsandSECALsinthelate1990s7notedthattheBankhadlimitedhumanand

financialresourcestoengageinadjustmentopera-tions,andwasheavilyreliantontheWorldBankforanalysisandthesettingofloanconditions.Firsttrancheconditionsgenerallyhadprovedeasytofulfil,butthesatisfactionofconditionsforsubsequenttrancheswasmuchmoreproblematic, leadingtolongfundingdelays.

3.3.3 DesignweaknessesidentifiedintheBank’sadjustmentlendingincludedover-optimismaboutthetimeframeneededtoimplementmajorreforms;lackofcountryownershipofreformprogrammes;andexcessivelycomplicatedandnumerousreformobjectives.ImplementationweaknessesincludedBor-rowers’lackofcompliancewithlegalcovenants,espe-ciallyintermsoffinancialandauditrequirements;andlackofprogrammeimplementationsupporttofollowupappraisalandmid-termmissions,whichmeantthatrecommendationsmadeoragreementsreachedwerenotfollowedbyaction.Themainrec-ommendationsfromtheevaluationswerethattheBankshouldredesignitsnextphaseofadjustmentprogrammestofocusonlonger-termdevelopmentissues,ratherthanoncrisisresponse;andshouldbemoreselectiveinthechoiceofcountriesandareasoffocusforadjustmentloans.

3.3.4 Inresponsetotheserecommendations,theBankmadeseveralchangestoitspolicy-basedlending(PBL)overtheevaluationperiod.Themostsignificantwastheintroductionin2001ofDevelopmentBudgetSupportLending(DBSL).ThiswasconceivedasaninstrumenttosupportimplementationofaGovern-ment’spovertyreductionstrategy,withresourcestransferreddirectlytothenationalbudgetandman-agedthroughnationalsystems.Theguidance,setoutin2004,specifiedthattheuseofnationalsystemsshouldbeconditionalonafavourablefiduciaryriskassessmentandtheimplementationofmitigating

7 Operations Evaluation Dept (1997), An Evaluation of Bank Group Policy-based Lending Operations, 1986-97, ADB/ADF/OPEV/97/41 Operations Evaluation Department, November


measurestoaddressshortcomings.SectorDevelop-mentBudgetSupportLending(SDBSL)isidenticaltoDBSLexceptthatconditionsarefocusedonaparticularsector.

3.3.5 Thisdefinitionaccordswiththestrictdefi-nitionofsectorbudgetsupportsetoutinOECD/DACguidelines8.Widerdefinitionsofsectorbudgetsupportusedbysomedonorsandanalystsallowforsectorbudgetsupportfundstobeearmarkedforparticularexpenditures,ortobetraceabletoaspe-cificbudgetline.Fundingofasector-wideapproach(SWAp)generallyrequiressomeformofearmarking;acommonarrangementistheestablishmentofpooleddonorfunding.TheWorldBankhasseveralflexibleinvestmentlendinginstrumentsthatareoftenusedforfundingSWAps(suchastheSectorInvestmentLoanandtheAdaptableProgramLoan),anddoesnotusePBOs(itsDevelopmentPolicyOperations)forthispurpose.Bycontrast,theAfDBhasusedSDBSLtosupportSWAps.However,theBank’srulesoforiginhavepreventeditfromparticipatinginpooledfundingarrangements,untiltheseconstraintswererecentlyremovedforADF.

3.3.6 InadditiontoPBL,DBSL,andSDBSL,twoothernewPBOinstrumentswereestablishedovertheperiod. In2004, theBankandADFBoard’sapproved Policy Based Lending for Governance(PBLG),tosupportpackagesofgovernancereformsthrough(multiple)singletrancheoperationsaimedataddressingspecificgovernanceconstraints.In2009,theEmergencyLiquidityFacility(ELF)wasestablishedtoaddresstheimmediateimpactofthefinancialcrisisonRMCs’accesstoliquidity.Inaddi-tion,someprocedureswereacceleratedtoenableaquickerresponsetourgentfinancingneeds;andfiduciaryrequirementsforDBSLunderADFwererelaxedforcountriesqualifyingforsupplementarygrantsupportunderWindowIoftheFragileStatesFacility.

3.3.7 WhiletheBankstillmakessomedistinctionbetweenbudgetsupportandbalanceofpaymentssupport(onthebasisthatthelatterarepaidintoaspecialaccount),thepracticaldifferencebetweenPBL(inthesenseofadjustmentlendingunderthe1988guidelines)andDBSLmaybelimited,giventhefungibilityoffinancialresources.Bothtypesofoperationshavetheeffectofincreasingtheamountofforeignexchangeavailabletothecentralbank,andofmakingcounterpartfundsavailableforthegovernmentbudget.

3.3.8 TheextenttowhichtheBankappliesdifferentPBOinstrumentsisunclear.Appraisaldocumentsfor operations do not necessarily identify theseinstruments; nor does the Bank’s managementinformationsystem(otherthaninrelationtosector).Inoperationsundertakenduring2009inresponsetotheinternationalfinancialcrisis,thesystemdidnotspecifywhetherthesupportwasprovidedintheformofPBLorDBSL(generallyitwasenvisagedasprovidingbothbudgetandbalanceofpaymentssupport).TheBankdoesnotappeartohavecarriedoutanyoperationsspecificallyconceivedasPBLGor thatmatchedPBLGguidance,althoughafter2006,mostbudgetsupportoperations—eventhoseclassifiedinSAPasmultisectoral—hadtheobjectiveofstrengtheninggovernance,withafocusonpublicfinancemanagement.

3.3.9 TherulesgoverningtheapplicationofPBOsvarybetweenADBandADFcountries,withtheuseoftheADFbeingsubjecttoadditionalrequirementsandconstraints, includingtheallocationofADFfundsbetweencountriesonthebasisofperformancecriteria,and(underADF-XI)anoverallceilingof25percentofADFresourcesbeingallocatedtoPBOs.

8 DAC Guidelines and Reference Series: Harmonising Donor Practices for Effective Aid Delivery, Volume 2: Budget Support, Sector Wide Approaches and Capacity Development in Public Financial Management OECD Publishing 2006


3.4 Assessment of the Bank’s institutional and policy framework for PBOs

Overview3.4.1 TheevaluationperiodwasoneinwhichtheBankexpandeditsoperationssignificantly(particu-larlythroughADF),anddevelopedamoreambitiousandcoherentstrategicfocusthanwaspossiblewhentheemphasiswasonindividualprojects.Thischangewasreflectedbothinthestrategiesthatwereformu-latedandimplementedduringtheevaluationperiod;andintheorganisationalandmanagementreformsthatemphasisedlinkingtheBank’sstrategicobjectivesanditsactivitieswithagreaterfocusonresults.

3.4.2 TherehasbeenaconsistentemphasisonseekingtoimprovethequalityoftheBank’sport-folio,throughenhancedreportingandsupervision;organisationalreforms,includingdecentralisation;andeffortstobetterharmoniseandaligntheBank’soperationswithcountrystrategiesandtheworkofotherdonors.Therehasbeenimportantprogressin strengthening systemsandcarrying throughorganisationalreforms,althoughprogresshasbeenslowerthanenvisaged.TheBankdoesnotappeartobeoncoursetoachieveitsobjectiveofdecentralizing45percentofstaffinFieldOfficesby2012;anditwasonlyduring2010thatfullcompliancewiththetimelyproductionofprojectcompletionreports(PCRs)wasachieved.Therefore,thecontributionoftheseinitiativestoimprovingBankperformanceisnotyetapparent.

3.4.3 IntermsoftheBank’sprioritiesforengage-ment,therehasbeenamoveawayfromemphasisonARDandthesocialsectors,andtowardsafocusoninfrastructure,whichhasbeenrecognisedasakeyconstrainttoachievinggrowthandpovertyreduction.Inparallel,therehasbeenanincreasingemphasisongovernance,particularlypublicfinancialmanage-mentreform,toimprovetheoveralleffectivenessof

publicexpenditureandaid—anapproachthathasthepotentialtocontributetopovertyreductionandgrowthacrossarangeofsectors.

3.4.4 TheBankGroup’sapproachhasalsobecomemoreselectiveandtargetedtowardstheneedsofdifferentgroupsofcountries,withthedevelopmentofpoliciesandinstrumentstoenablemoreeffectiveengagementinpost-conflictandfragilecontexts,andtoaddresstheconsequencesfordifferentcountriesoftheinternationaleconomicinstabilitytowardstheendoftheevaluationperiod.

3.4.5 InrelationtotheroleplayedbytheBank’spolicy-basedoperations,andtheoperationalenviron-mentinwhichtheywereimplemented,thefollowingobservationscanbemade:

• Theincreasedemphasisonharmonisationandalignment;ontheinternationalaideffective-ness agenda, on governance (particularlypublicfinancereform);andonamorestrategicapproachatthecountrylevel(withprogrammesdrivenbycountrystrategies),hasmeantagreaterroleforPBOs(specifically,fordirectbudgetsupport)inmovingtheBank’sagendaforward.

• Organisationalreforms,includingtheprogresstowardsdecentralisation,theestablishmentofOSGE,anda rangeof initiatives seeking tostrengthenqualityandresultsfocus,havehadthepotentialtohelpimprovetheeffectivenessoftheBank’sPBOs,comparedtotheexperiencebeforetheevaluationperiod.

• NewinstrumentsandpoliciesforPBOs,anddedicatedfundingsources,havebeendevelopedtoenabletheBanktotailoritsengagementsmoreeffectivelytotheneedsofdifferentgroupsofRMCs,includingpost-conflictandfragilestates,andcountriesaffectedbyinternationaleconomicinstability.


WeaknessesintheinstitutionalandpolicyframeworkforPBOs

3.4.6 However, thereviewoftheBank’s insti-tutional and policy arrangements for PBOs hasidentifiedseveralimportantshortcomings:

3.4.7 There is a lack of consistent, readily avail-able, and unified policies and guidance on PBOs.TheBank’spoliciesandguidanceonPBOsaresetoutinanumberofdifferentdocumentsthathavebeenapprovedbytheBankandADFBoards,aswellasadditionalguidancematerialthathasnotbeenapprovedattheBoardlevel.However,thesearenotreadilyavailableinaconsolidatedform,andtherelationshipbetweenthepolicies(andtheinstru-mentstheydefine)isunclear.Forexample,whiletheBanksetoutapolicyforPolicyBasedLendingforGovernance(PBLG)9in2004,andmanyBankPBOswereregardedasgovernancesectoroperations,mostappeartohavebeendesignedaccordingtotheDBSLratherthanthePBLGmodel.Thereisalsoalackofconsistencyinterminology;forinstance,theterm“policy-basedlending”originallyappliedonlytoadjustmentoperations,buthasnowbeenextendedtocoverbudgetsupport.There is,consequently,uncertaintyandconfusionamongBankstaff(espe-ciallyoutsideOSGE)aboutaspectsofPBOpolicyandpractice.AnoverarchingandcomprehensivepolicyandsupportingguidanceonPBOsthatunifiesandreplacestheexistingplethoraofdocumentationwouldcontributetoimprovingunderstanding.

3.4.8 There is a lack of clarity about the interven-tion logic governing PBOs and how results are to be achieved.Relatedtotheweaknessofguidance,thereappearstobesomelackofclarityabouthowtheresultssoughtfromPBOsaretobeachieved,andtheprecisewayinwhichthedifferentelementsofPBOs(themoneyprovided,engagementinpolicydialogue,useofcountrysystems,thesettingofcondi-tions,complementarymeasurestaken)aresupposed

tocontributetoachievementoftheseresults.Forexample,theprovisionofbudgetsupportissupposedtoincreasetheabilityoftheclientGovernmenttofunditspublicexpenditureplans;therefore,oneofthemainevaluationcriteriafortheeffectivenessofbudgetsupportshouldbeanassessmentofhowtheprovisionofbudgetsupportaffectspublicexpendi-ture,andwhatresultsareachievedwiththepublicexpenditurethatisundertaken,butthisisnotdone.

3.4.9 There is a lack of complete, consistent, and readily available information on PBOs already implemented.WhilecompleteprojectinformationissupposedtoberecordedinSAPandcompleteprojectdocumentationavailablethroughtheDocu-mentsandRecordsManagementSystem(DARMS),considerabledifficultywasencounteredindevelopingacompletelistofPBOsovertheevaluationperiod,andanalysisofthisinformationwashamperedbyacodingsystemonSAPthatdidnotclearlyidentifywhichoperationwasusingwhichinstrument,andtheapparentincompletenessofdocumentationavailableinbothSAPandDARMS.BecauseoftheweaknessoftheinformationavailableforSAP,itisunderstoodthatalternativelistsofPBOsaremaintained,e.g.,formonitoringPBOsunderADFtoensurethatpolicies(suchastheceilingof25percentofADFXIresourcesallocatedtoPBOs)areimplemented.

3.4.10 There is uncertainty about audit and fiduci-ary risk requirements where PBOs rely on country systems.ThelackofcompleteandexplicitguidanceonallaspectsofPBOshascontributedtouncertaintyandconcernaboutwhethertheBank’sauditandfiduciaryriskassessmentpoliciesinrelationtoPBOsareadequateandproperlyapplied.ThecasestudyontheEgyptFinancialSectorReformProgrammeillustratestheproblemsthatresultedfromalackofclarityabouttheappropriateauditrequirementsfor

9 ADB/ADF (2004) Guidelines for Policy-Based Lending on Governance, Memorandum to the Boards of Directors ADB/BDWP/2003/154/Rev.1. ADB/BD/WP/2003/193/Rev.1/Approval 7th April


thatoperation.TherearealsoconcernsabouttheappropriatenessoftheBank’sresultsframeworkforPBOs.TheBankremainsfundamentallya“projectBank”whosepoliciesandprocessesarestillgearedprincipallytowardsinvestmentprojects.Therefore,ithasnotdevelopedriskassessmentinstrumentsforusewithprogrammaticoperationsthatdependongovernmentsystems.

3.4.11 Design and appraisal procedures are com-plex and time consuming, and are not tailored to the features of PBOs.TheBank’sstandardprojectprocedures,designedprincipally for investmentprojects,arewidelyconsideredtobeinflexibleandoutdated.Theyalsodonotappeartobefullydocu-mentedoravailableinconsolidatedform;forinstanceasanoperationsmanual.TheseprocedureshavenotbeenadaptedforPBOs,exceptforsomeacceleratedprocessestoimproveemergencyresponse.Ingeneral,therequirementsforpeerreview,translation,anddifferentlevelsofapprovalimposesignificantcon-straintsonhowquicklyoperationscanbeprepared.Thecompletesetofprojectprocedures(includingpreparationofafullPCR)mustbefollowedevenincaseswhereabudgetsupportoperationmaybeadirectfollow-ontoaseriesofannualoperations.OnceaProjectConceptNote(PCN)hasbeenpre-pared(whichmayinitselfrequireseveralmonths)aminimumof24daysisrequiredforthenecessaryapprovals.Then,onceaProjectAppraisalReport(PAR)hasbeenprepared(whichmayagaintakeseveralmonths),aminimumof107daysisrequiredforthePARtobeapprovedandfortheoperationtobecomeeffective—andlongerifmorenegotiationwiththeclientisinvolved.Themanagementofeachstepintheprocess(accordingtoatimetablesetoutintheAppraisalofProjectsProcessingSchedule,APPS)takesupaconsiderableamountofthetimeoftaskmanagersinacontextwherestaffingresourcesareverylimited.ThePBOdesignandapprovalprocessappears,therefore,tobeexcessivelycomplicatedandbureaucraticandtoemphasisethefulfilment

ofproceduralrequirementsratherthanencourag-ingflexibility,innovation,anddeeperanalysis—forinstance,througheconomicandsectorwork.Therequirementforeachannualoperationtohaveacompletedesignandappraisalprocessregardlessofthemedium-termcontextalsomilitatesagainstamedium-termframeworkforBankbudgetsupport.

3.4.12 There are constraints on taking a multisec-toral approach to budget support.TheDevelopmentBudgetSupportLending(DBSL)instrumentwasconceivedasameanstosupporttheimplementationofpovertyreductionstrategies(PRSs)andnationaldevelopment plans towards achievement of theMillenniumDevelopmentGoals(MDGs)usingamultisectoralapproach.ItistheinstrumenttheBankhasusedtoparticipateinjointgeneralbudgetsup-portarrangements.Since2006,however,OSGEhasdesignedandmanagedthelargemajorityoftheBank’sPBOsandhassoughttoprovideamorestreamlinedgovernancefocusinPBOdesign.OSGEisasectoraldepartmentwhosemandatecoversgovernance—bothpublic financial management (strengtheningnationalsystemsformanagingpublicresources,particularlyoversightinstitutionsandaccountabilitysystems);andeconomic management (promotionofasoundbusinessenvironmenttoencourageprivateinvestmentandsupportpro-poorgrowth).ButwhileOSGEhassoughttousePBOstoachievegovernanceobjectives,itdoesnotappeartobeusingthePolicyBasedLendingforGovernance(PBLG)instrumentforthatpurpose.MostPBOsareclassifiedintheBank’smanagementinformationsystemasmultisectoralandaredesignedasDBSLeventhoughthemajorityoftheseaimatachievinggovernanceobjectives.OSGE,however,hasarguedforthesetobeclassifiedasgovernancesectoroperationsonthegroundsthattheconditionsandobjectivesselectedfortheoperations(fromabroaderjointpolicymatrix)haverelatedtopublicfinancemanagement10.

10 At the time of writing it now appears possible to classify OSGE designed PBOs as “governance” PBOs.


3.4.13 AstrongfocusonPFMreform(includingthroughcomplementaryformsofsupportsuchastechnicalassistance)mayimprovetheeffectivenessofpublicexpenditure;andinternationalevidencesuggeststhatbudgetsupportmayplayanimportantroleinencouragingandsupportingPFMreform.However,itdoesnotappearvalidtoclaimthatthemain impactofbudgetsupport (in termsof themarginalimpactofeachadditionaldollarspent)isongovernance,ratherthanongovernmentexpenditureasawhole.TheBank’sapproachappearstomilitateagainsttakingawidermultisectoralapproachtobudgetsupport,includingseekingsynergiesbetweenbudgetsupportandinvestmentoperations.Afurtherpointisthatifbudgetsupportisconceivedprima-rilyasaninstrumentforPFM,thenthecompleteconcentrationofOSGE’s(limited)staffresourcesatheadquartersmeansthattheBankhaslimitedcapacitytoengagedirectlyinPFMprocessesatthecountrylevel.

3.4.14 The constraints on a multisectoral approach derive in part from the fact that skills and experience in the design and management of PBOs are heavily concentrated in OSGE,whichhasaverysmallnumberofPBOspecialistsrelativetotheshareofoperationsthatPBOsrepresent.ResponsibilitiesforPBOpolicyandforfiduciaryriskpolicyarelocated,respectively,intheDepartmentforOperationalResourcesandPolicies(ORPC),andtheDepartmentforProcure-mentandFiduciaryServices(ORPF).However,duetothelackofcapacity(untilrecently)ofthesedepart-ments,OSGEhasdevelopeditsownapproachesintheseareas.RegionalDepartments,whichmanagethepolicydialoguewithRMCs,decidewhenPBOsshouldbeused,andtheamountofresourcestobeallocatedtothemwithinacountryprogramme.Inpractice,however,theOSGEtaskmanagerplaysadominantroleinappraisingandmanagingPBOs,oftenwithlimitedsubstantiveengagementfromotherpartsoftheBank.Thelackofeffectiveincentivesforcross-sectoralworkisalsoapossibleconstraint

ontheoperationofeffectiveteams.ThedominantroleofOSGEhasledtoconcernsthattheremaybeinsufficientinternalchecksandbalances,particularlythroughindependentfiduciaryriskassessment.

3.4.15 ADB and ADF rules of origin have con-strained the Bank from participating in pooled funding arrangements.TheBank’sLegalDepart-menthasdeterminedthatrulesoforigindonotconstraintheprovisionofbudgetsupport,buttheydoconstraintheBankfromparticipatinginpooledfundingarrangements.ThishasrequiredtheBanktouseaparallelfundingmechanismtoparticipateinsectorbudgetsupportwhereotherdonorshaveusedpooledfundingaspartofaSWAp.TherulesoforiginconstraintwasrecentlyremovedforADFoperations,butitstillexistsforthosefundedbyADB.

3.4.16 Some of ADF’s rules of operation create difficulties for the effective use of PBOs, particularly for predictable multiyear programmes of budget support:

• First, policies towards PBOs have varied across ADF replenishments,andthereisuncertaintyaboutthelevelofresourcesandthepreciserulesthatwillapplyforconsecutivethree-yearADFcycles,whichlimitstheBank’sabilitytomakelonger-termADFfundingcommitments.

• Second, both ADF-XI and ADF-XII imposed limited funding for PBOs to no more than 25 per cent of total ADF resources.SincethecapappliesacrossallADFcountries,ratherthantoeachcountry,thisconstraintcouldpotentiallyimpactRMCsseekingtocarryoutrelativelylargePBOs.ThecapwasperceivedbytheauthoritiesinEthiopiaaslimitingthewillingnessoftheBanktoprovidesectoralbudgetsupport.Ingeneral,theexistenceofthePBOcapmilitatesagainstRMCchoiceofpreferredaidmodalities.


• Third, the total level of grant resources available under ADF can fluctuate from year to year in relation to the RMCs’ level of debt distress.Asacountrymovesfromamoderatetoahighriskofdebtdistress, itsADFtermschangefrom50:50loanandgranttoallgrant,butthetotalADFallocationisalsoreducedbecauseofa20percentdiscountongrants.UnderADF-XI(which allowed three-year allocations), anychangeinthedebtdistressratingandthusinthefinancingmixfromoneyeartothenextwouldapplytotheentirethree-yearallocation,i.e.,alsoretroactively,thusleadinginsomecasestofluctuationsinthefinancingmixandintheamountoffinancingduetothediscountongrants.InbothBurkinaFasoandSierraLeone,levelsofresourcestobeprovidedthroughPBOsundertheassumptionofahigheroverallADFallocationwerereduced(whileotherpartsofthecountryprogrammewereprotected)whendebtdistresswasassessedashavingincreasedandtotalADFresourcesavailablewerereduced11.

3.4.17 Finally,thedesignprocessesforADFPBOstendtostartearlyinthefinancial(andhencecalen-dar)year,whenresourceparametersareknown,withtheresult(giventhelengthyproceduresdescribedinthefollowingchapter)thatADFoperationscanrarelybecomeeffectivebeforethemiddleoftheyear.ThiscancreateproblemsinaligningPBOswithnationalbudgetcyclesorwiththetimingofjointreviewprocesses,andleadstosomeinflexibilityintheplannedtimingofdisbursements.

11 For ADF-XII, however, the Bank will calculate annual allocations, and any changes to the financing mix will only apply as of the year of the change and no longer be retroactive, which should make allocations more stable and predictable.


4. Policy into Practice

andTanzania,theBankhadongoinginvolvementinstructuraladjustmentoperationsatthestartoftheevaluationperiod,butthenshiftedfromstructuraladjustmentlendingtotheprovisionofbudgetsupportovertheevaluationperiod.

4.1.4 Ineachofthesecases(andinBurkinaFaso,where budget support to the poverty reductionstrategyhadbeenprovidedsince2001),therewasaclearstrengtheninginthejointbudgetsupportarrangementsovertheperiod,withtheBankbecom-ingafullparticipantinthesearrangementsfollowingtheestablishmentofFieldOfficesin2006.InbothEthiopiaandTanzania,significantdifficultiesinGovernment-donorrelationshaveaffectedthegeneralbudgetsupportrelationship,leading,inthecaseofEthiopia,toamovetoamorelimitedformofbudgetsupportfocusedonProtectingBasicServices.12

4.1.5 Donor-GovernmentrelationsaroundbudgetsupportweremuchstrongeroverthewholeperiodinBurkinaFaso,Rwanda,andSierraLeone(despitearelativelyweakperformanceinmeetingbudgetsupportconditionsinthelatter,largelyreflectingtheGovernment’scapacityconstraints).RwandaandTan-zaniawereamongthesmallnumberofADFcountriestohavesectoralPBOs,inwhichtheBankparticipatedinSWAparrangementswithotherdonors.Moroccopresentedaverydifferentcontextfromtheothercasestudies,withmostPBOsrepresentingsupporttosectoralreformprocesses,jointlyfundedwiththeWorldBankandtheEuropeanCommission.

Additional case studies4.1.6 Inadditiontothecountrycasestudies,fouradditionalcasestudiesoflargeandsignificantPBOs

4.1 Overview of the evidence4.1.1 ConclusionsabouttheperformanceoftheBank’sPBOsarebasedonevidencefromthreemainsources—projectcompletionreportsandotherBankmaterial;sixcountrycasestudies;andfourcasestudiesoflargeandsignificantPBOs.

Bank evaluation material4.1.2 TheevaluationincludedananalysisoftheBank’sownevaluationmaterial;specifically,projectcompletionreportsforPBOs,andinternalreviewsofBankexperiencewithPBOsundertakenatvariouspointsduringtheevaluationperiod.TherearetwomainweaknesseswiththePCRinformation.First,theBank’ssystematicproductionofPCRslargelybrokedownintheearlypartoftheevaluationperiod,sothosePCRsareeithermissingorwerecompiledaconsiderabletimeaftertheoperation.Second,whiletheBankisnowproducingPCRssystematicallyandusingaformatspecificallydesignedforPBOs,thelargenumberofoperationsapprovedin2008and2009hadnotgenerallyreachedthePCRstageatthetimethisevaluationwasundertaken.

Country case studies4.1.3 Sixcountrycasestudieswerecarriedoutfortheevaluation:BurkinaFaso,Ethiopia,Morocco,Rwanda,SierraLeone,andTanzania.ThecountrieswereselectedbecausetheyrepresentedawiderangeofcontextsinwhichtheBankprovidedPBOs;andbecause they had all had PBOs over the entireevaluationperiod,sothatchangesintheBank’sapproachandperformancecouldbeassessed.FiveofthecountrieswereADFonly(BurkinaFaso,Ethiopia,Rwanda,SierraLeone,Tanzania)andonewasADBonly(Morocco,theRMCthathasmadethemost,andthemostdiversesectoral,useofPBOs).SierraLeonewasselectedasabeneficiaryoftheFragileStatesFacility.InEthiopia,Rwanda,SierraLeone,

12 The evaluation period saw significant tensions between Ethiopia and its development partners over the conduct of elections and the treatment of opposition groups.


werecarriedout.ThreeoftheseoperationswerepartoftheBank’sresponseduring2009tothesharpincreaseindemandforquick-disbursingfinanceamongRMCsduringtheinternationalfinancialcrisis.Theoperationsreviewedwere:

• BotswanaEconomicDiversificationSupportLoan(EDSL,approved2ndJune2009).ThiswasbyfarthelargestPBOovertheevaluationperiod,totallingUA1billion.TheGovernmentrequestedtheoperationinearly2009inthefaceofasharpfall inthecountry’sdiamondearnings,whichthreatenedtoseverelyimpactonthecountry’sfiscalsituation(whileforeignexchangereservesremainedsubstantial).Theloanwasintendedtoprovideimmediatefiscalsupportwhilealsocontributingtothelonger-runstrategicobjectiveofencouragingeconomicdiversification.

• NigeriaEconomicandPowerSectorReformProgramme (EPSRP, approved 1st October2009).ThiswasthelargestsectoraloperationofanytypeapprovedinSub-SaharanAfrica.Itwasdesignedtoreplace(orcomplement)plannedpowersectorinvestmentlending,inresponsetoarequestfromtheNigerianauthoritiesforquickdisbursingsupportinApril2009.Theoperationwasenvisagedassupportingreforminasectoridentifiedasacriticalbottleneckforgrowth,aswellasaddressingshort-termliquidityneeds.However,therewasalongdelayinapprovaloftheoperationbytheNigerianlegislature(whichoccurredinDecember2010),bywhichtimearenewedprogrammeforpowersectorreformhad been announced (in August 2010) andsectoralreformhadbeenidentifiedasacriticalprioritybytheNigerianPresident.

• EgyptFinancialSectorReformLoan(FSRL,approved26thJuly2006).Thiswasthelargestsectoraloperationovertheevaluationperiod;

the Bank provided USD 500 million, alongwith World Bank financing, to support theGovernmentofEgypt’sFinancialSectorReformProgramme.Theprogrammeencounteredsomeimplementationdelays,butitsreformobjectivesweregenerallyachieved.However,theBankdidnotachieveitsobjectiveofbecomingmoredeeply involved, through this operation, infinancialsectorreforminEgypt.AlackofclarityabouttheauditconditionsrequiredfortheloanalsocreatedsomeconfusionwithintheBankandwiththeclient.

• DemocraticRepublicofCongoEmergencyPro-grammetoMitigatetheImpactoftheFinancialCrisis(approved1stMay2009).ThiswasanADFgrant,andthelargestrecentBankoperationundertakeninafragilecontext.TheprogrammewasdesignedalongwithcomplementarysupportfromtheWorldBank,IMF,andEuropeanCom-mission.Itsdualobjectiveswereto(a)provideforeignexchangeforessentialimportsinthefaceofanearexhaustionofreserves;and(b)ensurethatspecificpublicexpenditureprioritiesweremet(forHPICbenchmarks,teachers’salaries,thecrisisexitplanoftheNationalRailwaysCor-porationofCongo,andpaymentofwaterandelectricitybillsbypublicentities).Earmarkingthroughspecialaccountswasusedtoensurethatcounterpartfundswereusedforthespecifiedobjectives,andtheprogrammeappearstohavebeensuccessfulinmeetingthoseobjectives.

4.2 Evidence from project completion reports

4.2.1 Outof the65PBOsapprovedduringtheperiodforwhichPCRswereprepared,11hadanoverallratingoftwoorlower(nobetterthanFair),43aratingbetweentwoandthree(FairtoGood),and11aratinggreaterthanthree(GoodtoVeryGood).Sixteenoperationshadatleastoneelementofitsperformanceratedbelowtwo.Themostcommonreasonscitedfor


weakperformancecanbedividedintothoserelatedtoappraisalanddesignweaknesses,andthoserelatedtoimplementation.Regardingprogrammedesign,thecommonreasonsgivenwerethat:

• Thematrixofmeasureswastooambitious;

• Theindicatorschosenwereinadequate;

• Therewasnoidentificationandpreparationmission;and

• Therewasinadequatetranchedesign.

4.2.2 Regardingprogrammeimplementation,thecommonreasonscitedwere:

• Delaysintheimplementationofmeasuresornon-implementation;

• Failureofperformanceindicatorstoimprove;and

• Inadequate programme monitoring andsupervision.

4.2.3 The review of Bank evaluation material(includingPCRsandreviewsofthePBOportfolio)suggeststhatthereisaclear(underlyingorimplicit)modelforwhatcountsasgoodpracticeinthedesignandimplementationofPBOs.Thismodelincludesthreemainelements:

• Arelativelysmallnumberofconditionswhichareclearlydefined,andbasedonarealisticassess-mentofBorrowercapacity,withcomplementarysupportprovidedtoensurethatconditionscanbefulfilled,andaparticipatoryapproachtostrengthenownershipoftheprogramme.

• The allocation of sufficient resources andskills fordesignandsupervision.Itappears

thatsupervisionimprovedovertheevaluationperiod,asdidthecapacityoftheBanktoactindependentlyofotherdevelopmentpartners(particularlytheWorldBank).

• Clarityintherelationshipbetweentheobjectivesoftheprogramme(whichshouldbemeasurable)andthespecificactivitiesthatareundertaken,withriskanalysisfocusedonthecriticalactionsandrelationshipsthatwilldeterminewhetherobjectivesareachieved.

4.3 Findings from country case studies

Performance and impact4.3.1 The move from structural adjustment to participation in joint budget support arrangements led to an improvement in the performance of PBOs.Comparedwithbudgetsupportinthecontextofstructuraladjustment lending,whichcharacter-isedtheearlypartoftheevaluationperiod,PBOsperformedsignificantlybetterinbothoperationalratingsanddisbursement.

4.3.2 The main value-added of Bank engagement in the case study countries appears to have been the funding provided as part of joint donor support.ThePBOscontributedtoincreasedgovernmentspendingandverylikelytoexpandedpro-poorexpenditure.Thefindingthatthemaineffectofbudgetsupportwasincreasedpublicspendingwasinlinewithwiderinternationalexperience.However,itwasdifficulttoidentifyclearimpactsfromtheBank’scomple-mentarysupporttoPBOs(e.g.,throughtechnicalassistanceorpolicyadvice)inmostofthecasestudycountries.

4.3.3 Joint budget support arrangements in which the Bank was a partner contributed to policy, institutional, and system improvements.InBurkinaFaso,dialogueonbudgetsupportwasusedtoengage


theGovernmentonissuesrelatedtomacroeconomicsupport,publicfinance,andgovernance.InTanzania,thebudgetsupportprocessmayhaveencouragedareallocationofthebudgettoexpenditureonsocialsectors,povertyreduction,andeconomicdevelop-ment.InSierraLeone,BanksupportcontributedtosignificantprogressinstrengtheningPFMsystems(despitedelaysinimplementingtheBank’scomple-mentaryTAactivities).AndinMorocco,supporttotheGovernment’sreformprogrammefromAfDB,EC,andtheWorldBankcontributedtoastrongmacroeconomic and financial performance andtheimplementationofreformsinthesocialsectors(healthandwater).Wheresuchprogresshasbeenmade,itappearstohavebeentheresultofdialogueandtechnicalsupportratherthanconditionalities.

4.3.4 The Bank generally did not play an active role in policy dialogue in the context of general budget support.TheopeningofFieldOfficesallowedmoreengagementinpolicydialogueandbudgetsupportprocesses,butthisengagementwasgenerallylimitedtoResidentRepresentativesandeconomists.Sectorstaffwererarelyinvolved,andtheFieldOfficeshadlimitedcapacitytoparticipateintherangeofdonorandGovernmentforums.Moreover,therewasaviewamongboththeBank’sdevelopmentpartnersandRMCGovernments thatgiven thesubstantialfinancialresourcesthatAfDBbringstoPBOs,theBank“punchesbelowitsweight”bynotbringingissuestothetableorhavingclearstrategiestoinfluencepolicy.ThisledtotheperceptionthatwhileAfDBprovidesfinancing,itisnotinterestedin,orcapableof,effectiveandsustainedengagementinpolicydialogue.

4.3.5 Where the Bank participated in sector PBOs it appears that the Bank did not make significant contributions to policy dialogue.TheBankusedsectorPBOstoasignificantextentinonlyasmallnumberofcountries(includingRwanda,MoroccoandTanzania),whentheirGovernmentsrequested

supportthroughthismodality.WhiletheBank’sengagementintheseoperationsappearstohavebeenreasonablysuccessfulintermsofdisbursements,theBankdidnotmakesignificantcontributionstopolicydialogue,andlackedthestaffingresourcestoengagefullyinsectoraldonorgroupings.

4.3.6 OneexampleofsuccessfulengagementwasonpublicfinancereforminBurkinaFaso,wheretheBankledthedonorcoordinationgroupintheareaofpublicsectorreform,andconductedstudiesinsupportofpublicexpenditureprogrammingandtheinstitutionsthatmonitorandcontrolpublicspend-ing.ThesestudieswerecitedbyvariouspartiesashavingbeeninstrumentalinframingthethinkingoftheGovernmentofBurkinaFasoanditsdevelopmentpartnersonprioritiesandstrategiesforreform,andashavingcontributedtotransparency.Since2008,aclearstrategy,plan,andtimeline,jointlyagreedbytheGovernmentanditsdevelopmentpartners,havebeeninplaceoutliningthestepsneededtoimprovepublicfinance.TheBankplayedaleadingroleinachievingconsensusaroundthesepriorities.

4.3.7 The most significant non-financial contri-bution of Bank engagement in PBOs was through its chairing of donor budget support groups.TheBankResidentRepresentativechairedthedonorbudgetsupportgroupsinBurkinaFaso,Rwanda,andTanzania.InbothBurkinaFasoandRwanda,thiswasjudgedtohavemadeanimportantpositivecontributiontothesmoothfunctioningofthebudgetsupportarrangements.TheexperienceinTanzaniawaslesspositive,butittookplaceintheverydifficultcontextofaseriesofhigh-profilecorruptionscandalswhichdamageddonor-Governmentrelations.

4.3.8 PBOs appear generally to have outper-formed the Bank’s portfolio as a whole in the case study countries (intermsofPCRratings,timingdelays,anddisbursementrates),largelybecauselessgovernmentcapacitywasrequiredtomeetthedesign


andimplementationrequirementsofPBOscomparedtoinvestmentprojects.Forinstance,theaveragetimelagbetweenprojectapprovalandeffectivenessforBankoperationsinSierraLeonewas19.6months,comparedtoaBank-wideaverageof14.4months;whiledelaysfortheeffectivenessofPBOswerelessthantenmonths.IntheEthiopiacasestudy,itwasnotedthatcapacitytohandletherequirementsofAfDBprojectinstrumentswasveryweakandinBurkinaFaso,thecasestudynotedthattheBank’sengagementingeneralbudgetsupportwasmuchmoreharmonisedthanwereitssectoroperations.

Strategic issues4.3.9 The Bank was responsive to RMC demand for PBOs, particularly for general budget support.Inallthecasestudycountries,theBank’sparticipationinjointbudgetsupportarrangementsreflectedastrongdemandfromnationalGovernmentsforthisformofsupport—although,asnotedabove,therehaverecentlybeentensionsbetweendonorsand

GovernmentoverbudgetsupportarrangementsinEthiopiaandTanzania.TheBank’sparticipationinsectorbudgetsupportinMorocco,Rwanda,andTanzaniaalsoreflectedGovernmentpreferences,althoughRwandaandTanzaniawouldhavepreferredthattheBankcouldhaveparticipatedinpooledfund-ingarrangements.

4.3.10 The Bank’s Country Strategy Papers (CSP) did not provide an adequate basis for determining the appropriate mix of aid instruments needed to achieve country programme goals.TheCSPisthemaindocumentusedtoprovideguidanceonthesectorsinwhichPBOscouldbeused,andtherationalefortheiruse.Inpractice,however,theCSPsprovidedlittleguidanceontheappropriatemixofaidinstrumentsneededtoachieveCSPgoals;oronhowPBOsmighthavecomplementedtherestoftheprogramme;oronhowsectoralPBOsmighthaveprovidedsynergiesbetweentheBank’ssectoralinvestmentprojectsandotheractivities.Therealso

Box 4.1 Chairing the budget support group in Burkina Faso

The Bank played an active role in chairing the budget support group in Burkina Faso, and brought

two highly relevant points to the table. The first concerned the growing economic challenges in

Burkina Faso. The Bank emphasized the importance of a concerted dialogue about these challenges,

and of a joint approach to addressing the implications for economic growth. As Chair of the group,

the Bank encouraged partners to collectively examine the situation and develop a plan of action.

The Bank’s economist also provided valuable technical input into the discussions. The second

relevant point concerned governance and corruption. The Bank took a strong critical position,

and specifically called attention to the need to address the capacity of public institutions to lead

change in the area of governance.

Other development partners felt that AfDB was well positioned to provide leadership on both of these

issues, both because of its technical competence; and because the Bank was seen as representing

African interests while not being associated with a particular Government.

It was reported in interviews that this was “precisely the kind of role that the Bank should play more

widely” and “the Bank’s added value lay in being able to raise issues and to work with Government

and partners on finding solutions.” Birkina Faso Case Study. December 2010


wasnoguidanceonwhenPBOsshouldbeusedasopposedtoinvestmentprojects,oronwhatpropor-tionofthecountryprogrammeshouldbeintheformofPBOs.Therefore,itwasnotclearhowthelevelofspendingonPBOswasdeterminedinthecountrybudget.

4.3.11 There is lack of clarity as to how funding allocations for PBOs were determined.Inthecasestudycountries,thereappearstohavebeenlittlerelationshipbetweentheamountofmoneyallocatedforthePBOsandtheobjectivestheyweremeanttoachieve.TheamountofresourcesallocatedtoPBOsappearsinsomecasestohavebeenaresidualbetweenresourcesallocatedtoinvestmentprojectsandtheavailableADFallocation.Therewerealsoyear-to-yearfluctuationsintheamountoffundingallocatedtoPBOsasaresultoftheADFperformanceallocationsystem.Inparticular,increasesindebtdistressratings,asoccurredinSierraLeoneandBurkinaFaso,ledtounexpectedcutsintheresourcesavailableinADFcountriesforbudgetsupportPBOs.

Design4.3.12 The Bank has reduced its dependence on other development partners for PBO design, but carries out little independent analytical work.TheBankwasfullydependentonotherdevelopmentpartners(notablytheWorldBank)forPBOanalysisanddesignduringthestructuraladjustmentperiodofthe1990s.WhiletheBankisnowdesigningitsownPBOs,itisnotyetundertakingsystematicanalysisofthepoliticaleconomycontextoftheseoperations.

4.3.13 The intervention logic, intended to demon-strate the links between PBOs and expected results, was generally unconvincing.TheresultsofaPBOweregenerallybasedonobjectivesidentifiedinthe(joint)performancematrixandonloanconditionsandpreconditions.Typically,objectivesareselectedfromamenuprovidedbythejointPerformanceAssess-mentFramework,(PAF).However,nocompelling

casewasmadethattheBank’sinvolvementintheoperationwasnecessaryfortheimplementationofspecificpolicymeasuresorinstitutionalreforms.Further,theresultsidentifiedinPBOprojectdocu-mentsweregenerallynotlinkedtothequantityoffinancialresourcesprovided.Intheabsenceofawellarticulatedinterventionlogic,itwasdifficulttodeterminetheextenttowhichspecificresultswereattributabletotheoperation.

4.3.14 The design of PBOs was simplified over the evaluation period.TheBankmovedawayfromPBOsthathadmultipleconditionsandcoveredawiderangeofreforms,tosimpleroperationswithfewerconditionsandagreateremphasisonprioractions.Inallcasestudycountries,PBOsfocusedmainly(intermsofeffectivenessconditionsandtranchedisbursement)onkeyreformsingovernanceandpublicfinancemanagement.

4.3.15 The Bank made significant progress in har-monising the design and implementation of PBOs with other development partners.TheBankengagedmorewithotherdevelopmentpartners in termsofdesign,PAFs,andmonitoringmechanismsforgeneralbudgetsupportoperations.Thisengagementhascontinuedinallcasestudycountries.However,theBankisstillnotfullyengagedinalltheprocessesrelatedtojointbudgetsupport,withpolicydialogueandanalyticalworkbeingareasofweakness.TheinabilitytoparticipateinpooledfundsforSWApshasbeenaconstraint,asnotedabove,althoughthisrestrictionhasnowbeenliftedforADFoperations.

4.3.16 PBOs made strong use of government systems.AlloftheBank’sPBOsreliedongovern-mentsystemsforfunding,reporting,monitoringandevaluation,andaudit.WhatsettheBankapartfromothergeneralorbudgetsupportdonorswasthatineverycountryexceptRwandaandMorocco,PBOfundswerepaidintoaseparateTreasuryaccountatthecentralbankbeforebeingdisbursedthrough


nationalsystems.InRwanda,theGovernmenthadnotwantedtoacceptthis(separateaccount)require-ment,astheywereintroducingasingleTreasuryaccountandtheFieldOfficehadarguedsuccessfullythatthesingleTreasuryaccountbeused.

4.3.17 Predictability of PBO disbursements improved over the evaluation period, largely as a result of greater harmonisation and simplified conditions.Year-to-yeardisbursementimproved;however,in-yeardisbursement,andconsequentlyalignmentwithRMCbudgetcycles,remainedaproblem.Medium-termpredictabilityalsoremainedanissue,asFieldOfficesoftenwerenotnotifiedofADFallocationsandallocationsforPBOsinatimelyfashion.

4.3.18 While most Bank PBOs were classified as multisectoral, and were part of joint donor budget support that had multisectoral objectives, there was little cross-sectoral engagement in PBO design or management after 2006, when OSGEassumedresponsibility for budget support PBOs. OSGEfocusedprincipallyongovernanceandpublicfinancemanagementreform;andwhileothersectorswererepresentedoncountryteamsandaspeerreviewers,thisarrangementappearstohavemilitatedagainsttheBanktakingamorefullycross-sectoralperspec-tiveonbudgetsupportPBOs.

4.3.19 Monitoring of PBOs and engagement with development partners and clients improved in all case study countries, due to the opening of Field Offices; but the Bank did not have sufficient staff with the skills for this engagement.Duringtheevaluationperiod,theBankmadesignificantprogressinimprovingthewayPBOsweredesignedandimplemented.KeytothisimprovementwastheestablishmentofFieldOffices,whichledtogreaterin-countryengagementwithGovernmentandotherdevelopmentpartners,particularlyinpolicydialogueandbudgetsupportprocesses.Nevertheless,there

wasawidespreadviewamongFieldOffices,donors,andGovernmentsthatcentraliseddecisionmakingstillhindered theeffectiveoperationofcountryprogrammes. Even minor decisions had to bereferredtoTunis,asdidrecruitmentforFieldOffices,resultinginsignificantdelaysinfillingvacantposts.ThisarrangementalsoconstraineddecentralisedengagementinthePFMaspectsofthePBOs,sincetheBank’sPFMexpertiseremainedentirelycentralisedatHeadquarters.

4.3.20 The Bank provided no training or capacity building to assist Field Office staff in implement-ing PBOs.Innoneofthecasestudycountriesdidstaffreceivetraininginkeyareassuchasdesign,implementation,orengagementinnegotiationorpolicydialogue.

4.4 Findings from case studies of other operations

4.4.1 The Bank responded flexibly and rapidly to the urgent need of some RMCs for quick-disbursing finance in the wake of the international financial crisis.TheBank’sresponseincludedawillingnesstowaiveoracceleratenormalloanprocedures.ThiswaspossibleinNigeriaandDRCbecauseoftheavailabilityofunusedresources;andinBotswanabecauseofthecountry’sstrongrecordonmacroeconomicmanage-ment,favourableriskrating,andwell-developedpolicyframework.TheseoperationsdemonstratedthatcategorisingPBOsaseitherexclusivelybalanceofpaymentsorexclusivelybudgetsupportwasinap-propriate,astheyallhadmixedobjectives.

4.4.2 The Bank’s capacity to use PBOs as an entry point for substantial engagement in sectoral reform processes or complementary investment operations remains to be demonstrated.TheBotswanaEDSL,EgyptFSRP,andNigeriaEPSRPoperationswereall,atleastinpart,motivatedbytheBank’sdesiretousealargeoperation,whoseprimarypurposefortheclient(atleastintheBotswanaandNigeriacases)wasfor


short-termfiscalstabilisationpurposes,asanentrypointfordeeperengagementinsectoralreformproc-esses,potentiallyincludinginvestmentlending.TheBankhadalsohopedthattheEgyptFSRPwouldleadtocontinuedengagementinfinancialsectorreform(theEgyptianauthoritieshadexpressedinterestinhavingboththeAfDBandWorldBankparticipate),butthisdidnottakeplace,atleastintheimmediateaftermathoftheproject.

4.4.3 TheBankalsodemonstratedlittlecapacitytoengageeffectivelyinsectorreformdialogueinthecontextofPBOs,ortobuildsynergiesbetweenPBOsandinvestmentoperations.BoththeBotswanaandtheNigeriaoperationsprovidedanopportunityfortheBanktofollowthroughwithsectoralpolicydialogueandinvestment,butthispotentialwasnotfullyrealised.

4.4.4 The Bank demonstrated the capacity to use PBOs effectively in fragile contexts. In thecaseoftheEmergencyProgrammetoMitigatetheImpactoftheFinancialCrisis(PUMAIC)intheDRC,therewaseffectivecollaborationwithotherdevelopmentpartnerstoensureasequencedjointresponsetoaddressurgentfinancingandbalanceofpaymentsneeds.Theuseofearmarkedspecialfundstoensurethatcounterpartfundswereutilisedforagreedpurposesappearstohavebeeneffective,whilereducingfiduciaryriskinanenvironmentofveryweakgovernmentcapacity.

4.4.5 TheDRCoperationdidnottakeplacewithintheframeworkoftheFragileStatesFacility(FSF).However,experiencewiththeFSF,forinstanceinSierraLeone(reviewedinthecountrycasestudy)andLiberia,hasdemonstratedthatbudgetsupportcanbeusedsuccessfullyinweakinstitutionalcontexts,wheretherearemajorconstraintstotheimplementa-tionofinvestmentprojects.TheBank’sinitiativeintakingtheleadamongdonorsinprovidingbudgetsupport toLiberiawasregardedbytheLiberian

authoritiesasofparticularimportanceinhelpingtodemonstratetheabilityofgovernmentsystemstomanageandusefundseffectively.


5. Conclusions

under the Fragile States Facility; in Liberia, forinstance,theBankplayedaleadingroleinmovingotherdonorstowardsbudgetsupport.

5.1.4 WhiletheBankhassucceededinengagingeffectivelyinjointbudgetsupportarrangementsandinmobilisingrapidresponsesforfragileandcrisis-affectedcountries,theInstitutionalandPolicyReview13identifiedshortcomingsintheBank’spoli-ciesandpractices.Theseincludeaproliferationofpoliciesandguidancethathavenotbeenconsolidatedorupdated;projectproceduresthatarenotfullydocumented,andaredesignedforinvestmentopera-tionsratherthanspecificallytailoredtoPBOs;lackofclarityabouthowresultsshouldbedefinedandmeasured for PBOs; weaknesses in informationsystems;andpersistinguncertaintyabouthowauditandfiduciaryriskissuesshouldbeaddressed.

5.2 Comparison with other agencies providing PBOs

5.2.1 Thereviewofexperiencefromotheragencies(especiallytheWorldBank)suggestssomespecificconclusionsandcomparisonswithcurrentAfricanDevelopmentBankpractice:

• First,otheragencieshavesimplifiedanduni-fiedtheinstrumentstheyuseforPBOs;andhavedevelopeddetailedprocedurestoguideallaspectsofdecisionmakingthatarespecifictothePBOinstrument.TheBankappearstosignificantly lag the other agencies in bothrespects;intheBank,thereisaconsiderablelackofclarityaboutthepoliciesandguidanceforPBOs.

5.1 Overall assessment5.1.1Over theperiodcoveredby thisevaluation,theAfricanDevelopmentBankmadesubstantialprogressinitsuseofPBOs.In1999,theBankwasheavilydependentontheIMFand(inparticular)theWorldBankforanalysisanddesignofPBOs.TheonlyinstrumentsavailabletotheBankwerestructuralandsectoraladjustmentoperations(SALsandSECALs),whichoftenencounteredimplementationdifficultiesanddelaysresultingfromweakcountryownershipand theunsuccessful attempt to leveragepolicychangethroughtheuseofcomplexconditionalities.

5.1.2 The Bank now operates as a significantpartnerinjointdonorbudgetsupportarrangements,andtherecordofitsengagement,asshownbythecountrycasestudies,islargelyoneofsuccess.TheBankhasdevelopedacadreof staffwithstrongexperienceinthedesignandmanagementofbudgetsupport.TheestablishmentofFieldOffices(eventhoughdecentralisationhasprogressedfarmoreslowlythanplanned)hassignificantlyimprovedtheBank’sabilitytoengageinnationalpolicyandbudgetprocesses,andhasstrengtheneditsmonitoringandsupervisionofPBOs.

5.1.3 TheBankhasdevelopedastrongerorganisa-tionalcapacityandstructureforthedesign,appraisal,management,andmonitoringofPBOs,althoughsome aspects still require further development.TheBankhasalsoprovedhighlyresponsivetothechallengesofinternationaleconomicandfinancialinstability,astheyaffectedRMCsduring2008and2009.TheBankwasabletodesignandimplementoperationstomeettheurgentfinancialrequirementsofitsclients;andtheseoperationsalsoprovidedaplatformtoaddresslonger-termstructuralreforms.TheBankhasalsomadeimportantcontributionstothedevelopmentofbudgetsupportarrangements

13 Evaluation of Policy Based Operations in the African Development Bank, 1999-2009: Institutional and Policy Review 2010


• Second,thereisageneral(thoughnotuniver-sal)movetowardssingle-trancheoperations,oftenbasedonprioractions,within(asintheWorldBank)aprogrammaticframeworkofsequencedoperationsinsupportofamedium-termGovernmentprogram,suchasanationallyownedpovertyreductionstrategy.Thisapproachprovidesflexibilityintheselectionofcondi-tionsonayear-to-yearbasis,butalsoallowsengagementwithsustainedreformprocesses.TheBankiscurrentlyconstrainedfromdevelop-ingamedium-termframeworkofthiskindforbudgetsupport.

• Third,otheragenciesdonotappeartooperatewithspecificquantitativerestrictionsontheproportionoftotalloansorgrantsthatcanbeprovidedasPBOs,whereastheshareofPBOsprovidedbytheAfricanDevelopmentFundiscapped.Otheragenciesmay,however,settargetsfortheuseofPBOsforfiduciaryriskmanage-mentorotherstrategicpurposes,oraspartofanoverallcountrystrategy.

• Fourth,theBanklacksanaidinstrument(similartotheWorldBank’sSectorInvestmentLoanorAdaptableProgramLoan)suitableforsupport-ingSWApsjointlywithotherdonors.TheBankhasusedSectorDevelopmentBudgetSupportLoans(SDBSL),buthashadtoprovidetheminparalleltopooleddonorfundingarrangements.

• Fifth,incomparisontootheragencies,whichhaveusedPBOsasameanstoparticipateinpolicydialogue,theBanklacksthepolicyandanalyticalcapacitytodoso,particularlyin-country.ThisisreflectedintherelativelackofeconomicandsectorworkthattheBankproduces;thesmallnumberofstaffavailabletoparticipateindonor-Governmentworkinggroupsandotherforums;andtheweakrolethattheCountryStrategyPaperisperceivedto

haveinshapingmajordecisionsaboutbudgetsupport.

5.3 Challenges for the Bank5.3.1 TheevaluationidentifiedseveralissuesthattheBankmustconfrontifitistobuildonitsachieve-mentsandenhancedcapacityfortheeffectiveuseofPBOs.Specifically:

• WhiletheBank’sengagementinbudgetsupportarrangementsanditsstrengthenedin-countrycapacityhaveenabled it toparticipatemorefullyinpolicyforumsandprocesses,theBankhasingeneralcontributedlittletodialogueonsubstantivepolicyissues.TheBank’scapacitytoengageinsectoralpolicydialogue(forinstance,inMorocco,Rwanda,andTanzania,whereitprovidesBudgetsupport)hasbeenparticularlyconstrainedbyitslackofsenior-leveltechnicalstaffbasedinFieldOffices.Whiletheobjec-tiveofmostBankPBOssince2006hasbeentostrengthenpublicfinancemanagement,theBankhashadnopublicfinancemanagementspecialists in itsFieldOffices.ThishasalsolimitedtheBank’scapacitytoengageeffectivelyinPFMprocesses,althoughinsomecasesithasprovidedcomplementarytechnicalassistance.

• There are few linkages between the Bank’sengagementinPBOsandtherestoftheBank’sprogramme(investmentlending,inparticular),sopotentialsynergieswithintheprogrammehavenotbeendevelopedorexploited.TherehavebeeninitiativestousePBOsasanentrypointfordeeperengagementinsectoralreformsandtoprovideopportunitiesforsubsequentinvestmentoperations(forinstance,theBotswana,Egypt,andNigeriaoperationsreviewedfortheevaluation),butthesehaveyettogeneratesubstantiveresults.

• With the establishment of OSGE and itsassumptionofadominantroleinthedesign


andmanagementofPBOs,theBank’stechnicalcapacityinthisareahassignificantlyimproved.ThiswasreflectedinimprovedPBOdesignandperformanceovertheevaluationperiod,andintheBank’sabilitysuccessfullytohandleasubstantial increase in the volume of PBOsduring2008and2009.However,theconcentra-tionofcapacitywithinOSGEhasreinforcedthetendencyforbudgetsupportPBOstobemanagedasgovernancesectoroperations,eventhoughthemajorityofthemaremultisectoralinthesenseofsupportingthewholegovernmentbudget.

5.3.2 TheseissueschallengeanumberoffeaturesoftheBank’sorganisationalculture.First,theRegionalDepartments,whichareresponsibleforthestrategicapproachofthecountryprogramme,includingdeci-sionsoninstrumentsandpolicydialogue,appeartolackthestaffingresources(andpossiblytheauthority)tofulfilthisroleeffectively.Inaddition,whiletheBankhasmadesomeprogresstowardsdecentrali-sation,thishaslaggedbehindwhatwasplanned,andprojectmanagement responsibility remainsoverwhelminglylocatedintheBank’sheadquartersinTunis.AlthoughtheBankhasstrengtheneditsstaffcapacitytoengagewithpolicyissues(ratherthanfocusingexclusivelyonstaffcapacitytodesignandimplementinvestmentprojects),thiscapacityremainslimited,bothwithinsectorsandonmacr-oeconomicpolicyandgovernance.

5.3.3 TheBank’sabilitytousePBOsmorestrategi-cally,andbringagreaterlevelofsectoralandthematicexpertisetotheseoperations,thereforedependsonbothcapacityandorganisationalissues—i.e.,thelevelofrequiredskillsinFieldOfficesandatHead-quarters;andwhetherincentivesandmanagementstructuresfavourcross-sectoralwork.Botharebeingconstrainedbytheslowpaceofdecentralisation.

5.3.4 TheBankfacesachoicewithregardtoitspolicy-basedoperations:whetherto(a)buildthecapacitytoengageinpolicydialoguearoundPBOs,particularlywithinFieldOffices,anddevelopcomple-mentaritiesbetweenPBOsandtherestoftheBank’sprogramme;or(b)limititsroletotheprovisionoffinance.WhilethelattermaybeanappropriatestrategyforlendingonADBterms,theBankwilllikelyneedtodemonstratetoADFdonorsthatitisprovidingsomesignificantvalueaddedthroughitsuseofADFresourcesforPBOs.

5.3.5 AfurtherissueidentifiedintheevaluationwasthelackofconvincinginterventionlogicinthedesignofPBOs;i.e.,failuretoshowhowtheinputs(e.g.,finance,engagementinpolicydialogue,agree-mentofconditions,advice,andtechnicalassistance)wouldleadtotheanticipatedresults.Thoseresultsgenerallycomprisedaselectionofitemsfromajointpolicymatrix(withaparticularfocusongovernanceandpublicfinancereforms),andtheimplementationofmeasuresagreedasconditionsofthePBO.InmostofthePBOsreviewed,theresultsidentifiedappeartohavebeenlargelyindependentoftheamountoffinancetheBankprovided.14

5.3.6 Itisalsoproblematictoclaimthatmeasuresdefinedasconditionsarethe“results”ofaPBO,sincethepracticehasincreasinglybeentodefineascondi-tionsmeasurestowhichgovernmentsarealreadycommitted,andwhicharelikelytobeimplementedregardlessofwhetherthePBOproceeds.Thisapplies,inprinciple,tojointbudgetsupportaswellastothesmallnumberofPBOsthatareindependentofajointbudgetsupportoradjustmentoperation.Eveninjointoperations,though,theBankshouldseektoidentifyandmeasurethevaluethatitisaddingthroughitsengagement, inbothfinancialandnon-financialterms.

14 An exception is the DRC Emergency Programme, PUMIAC (2009), where specific expenditure items were defined and resources earmarked for these through special accounts.


5.3.7 Goingforward,whiletheevidencecollectedforthisstudysuggeststhat jointbudgetsupportarrangementsareworkingwellandthatthereisscopeforthemtocontinueintheshorttomediumterm,thereareseveralfactorsthatmaycallintoquestiontheroleofbudgetsupportoverthelongerterm,inatleastsomecontexts.First,fiscalpressuresonmanyofthemainbilateraldonorswhohavepromotedbudgetsupport,andincreasedconcernsaboutdemonstrat-ingresultstotheirconstituencies,maymakethesedonorslesswillingtoprovidebudgetsupport,eitherdirectlyorthroughtheADF).Second,someRMCGovernmentsmaydecidethatjointbudgetsupportarrangementsaretoounwieldy,toounreliable(ifdonorswithdrawfromfundingpledges),orthattheygenerateanexcessivelyconfrontationaldialogueoverpolicyandgovernanceissues.

5.4 Recommendations5.4.1 ThreemainactionswillenabletheBanktousePBOsmoreeffectively,insupportofitsoverallobjectivesandtheneedsofitsclients:

• First,theBankneedstodefinemoreclearlyandauthoritatively the role thatPBOshaveinadvancingtheBank’soverallmandateandobjectives,anditsengagementatcountrylevel.WhentheBankparticipates in jointbudgetsupportoperations,asitdoesinthemajorityofcases,thespecificvalueaddedfromtheBank’sparticipationneedstobeidentified,aswellaspotentialsynergieswithotherBankactivities,notably investment lending and support tocapacitydevelopment.

• Second,theBankneedstoproducea(single)comprehensivepolicyandsupportingguidanceonPBOs(replacing,wherenecessary,existingpoliciesandguidance),buildingonthe2004policyonDirectBudgetSupportLending.Thepolicyandguidanceshouldclearlystatetheinterventionlogictobeusedinthestatement

oftheobjectivesanddesignofthePBOs;andshoulddrawonlessonsandbestpracticeindefiningobjectives,conditionalities,andotherdesignaspectssuchastranching.

• Third, the organisational and managementimplicationsofthenewpolicywillneedtobeaddressedtosupportitseffectiveimplementa-tion.Thiswillinclude(a)clarifyingtheroleofdifferentBankdepartmentsandorganisationalunits(including,inparticular,OSGEandFieldOffices)inthedesignandmanagementofPBOs;(b)buildingcapacitywithintheBanktoensurethatorganisationalchangesareeffectivelyimple-mented;(c)developingproceduresspecificallytailoredtothedesign,appraisal,andmanage-mentrequirementsofPBOs,toreplacetheuseofgenericprojectpreparationprocedures;and(iv)improvinginformationsystemstoenabletheperformanceandresultsofPBOstobemoreeffectivelymonitoredandlessonsidentified.

5.4.2 Tosomeextent,thesepolicyandorgani-sationalrecommendationscanbetakenforwardindependentlyofanybroaderstrategicdecisionsabouttheroleofPBOsintheBank;althoughanysubsequent strategic decisions will have furtherimplicationsatthepolicyandorganisationallevel.

5.4.3 The specific recommendations from theevaluationareasfollows:

a) TheBankshouldtakeadecisionabouthowthePBOinstrumentistobeusedtosupporttheBank’swiderstrategicobjectivesandtheneedsofitsRMCclients.TotheextentthattheBankdecidesthatPBOsshouldbeusedtostrengthenengagement in policy dialogue, rather thanjustafinancingmechanism,theBankneedstobuilditscapacityanddevelopitspoliciesandprocedurestofulfilthisrolemoreappropriately.Thiswouldrequirestrongertechnicalandpolicy


capacity,particularlyinFieldOffices;adeeperengagementineconomicandsectorwork;anddepartmental and individual incentives toencouragecross-sectoralworking.

b) GuidanceforthedesignofPBOsandidentifica-tionofresultsshouldbebasedonamorefullydevelopedmodeloftheirinterventionlogic;andthedesignframeworkshouldlinkthelevelsoffinancingtothescaleofresults.TheBank’sresultsreportingshouldbebasedonthePBO’scontributiontogovernmentexpenditure;iden-tifyadditionalvalueaddedthroughtheBank’sparticipationinpolicydialogueandcomple-mentarysupport;andclarifyoutstandingissuesaboutfiduciaryriskmanagementforPBOs.ThismayinvolveuseofpoliticaleconomyanalysisasanintegralpartofthedesignandmonitoringofPBOs.

c) ExistingPBOpoliciesandguidance shouldbeconsolidatedintoasinglepolicy.ThismayinvolveconsolidationofexistinginstrumentsintoasingleinstrumentbasedonthecurrentDBSLinstrument.TheBankshouldreviewtheuseofthetermof“policy-basedoperation”torefertoalltypesofbudgetsupportoperations,as the term has the inappropriate connota-tionthattheseoperationsseektobringaboutpolicyreform,eveniftheydonotincludepolicydialogue.

d) TheBankshouldidentifypotentialsynergiesbetweenitsengagementingeneralbudgetsup-portandotherpartsoftheBank’sprogramme,especiallyinvestmentoperations,aspartofthepreparationandreviewofCountryStrategyPapers,aswellasduringthedesignofindividualoperations.

e) TotheextentthattheBankidentifiespoten-tialsynergiesandcontributionsitcanmake

through policy dialogue or complementaryactivities—includingbychairingjointbudgetsupportgroups—theseshouldbeexplicitlybuiltintothedesignofPBOs.Theyshouldalsobesup-portedwithappropriatecapacityandresources(especiallyinFieldOffices)toensurethattheyareeffective.

f) AspartoftheprocessofdevelopingtheBank’snewpolicyonPBOs,eachsectoralareaoftheBankshouldreviewitsscopeforusingsectoralPBOs,contributingtomultisectoralPBOs,andmoreeffectivelyparticipatinginSWAps.ThisreviewshouldincludeadiscussionofspecificissuesrelatingtoPBOsforthatsector,whilerecognisingthatthescopeforsectoralPBOsdependsonboththepreferencesofclientsandtheextenttowhichsectoral(ratherthangeneral)budgetsupportprogrammesareabletoaddresskeyconstraintsonsectoralperformance,whichmayrequirecross-sectoralaction.

g) TheBankshouldexaminehowpoliciesandprocedures(especiallyrelatingtoADF)canbeadaptedtoallowamoreprogrammaticmedium-termapproachtobudgetsupport.ThiscouldbemodelledontheWorldBank’sprogrammaticapproachtoDevelopmentPolicyOperations,basedontheuseofsingle-trancheoperationswithinamulti-yearframework.

h) TheBankshoulddevelop,fullydocument,andprovidecomprehensivetrainingforstaffinasetofproceduresandtimetablesthatarespecificallytailoredtotheneedsofPBOsandtakeaccountlessonsfromtheBank’srapidresponsetotheurgentneedsofRMCsduringtheinternationalfinancialcrisis.Theseprocedures shouldbemoreflexiblethanthosecurrentlysetoutintheAppraisalofProjectsProcessingSchedule,whileencouraginggreaterattentiontoanalysis


andmoreeffectivecross-sectoralteamworkthancurrentlytakesplace.

i) The Bank should review and substantiallystrengthenitsinformationsystemsandproce-duresforPBOs,whichcurrently(inSAP)containsignificantweaknessesandapparentinconsist-encies,whichconstraineffectiveevaluationandmonitoringoftheBank’sPBOportfolioasawhole.


Annex: Data on Policy-Based Operations15

Table A.1 Approvals of PBOs (UA million, by financial year)ADB Loans ADF Loans ADF Grants Total

Year No. Amount No. Amount No. Amount No. Amount1999 1 140.8 2 15.0 1 1.3 4 157.22000 0 0.0 5 120.8 0 0.0 5 120.82001 2 316.0 11 242.6 1 0.5 14 559.22002 1 110.0 6 91.4 0 0.0 7 201.42003 1 215.0 8 206.7 0 0.0 10 421.72004 3 419.6 9 207.5 2 57.1 14 684.22005 1 101.3 4 127.0 3 73.3 8 301.62006 2 407.5 8 218.3 5 94.7 15 720.42007 1 20.0 3 74.9 2 39.5 6 134.42008 2 127.2 9 413.0 5 162.5 16 702.72009 7 1,780.7 4 119.2 13 234.2 23 2,134.2Total 21 3,638.1 68 1,813.2 31 663.1 123 6,137.6

Table A.2 Sectoral distribution of PBOs, 1999-2009Number Amount (UA million)

ADB Loan ADF Loan ADF Grant Total ADB Loan ADF Loan ADF Grant TotalAgriculture 0 2 1 3 0.0 43.5 1.3 44.8Communications 1 0 0 1 100.0 0.0 0.0 0.0Finance 4 1 0 5 791.5 10.0 0.0 801.5Power 0 1 0 1 0.0 100.0 0.0 100.0Social 2 2 0 4 180.0 35.0 0.0 215.0Transport 1 0 0 1 240.0 0.0 0.0 240.0Water/sanitation 1 0 0 1 215.0 0.0 0.0 215.0Multisector 12 63 31 106 2,111.6 1,646.6 661.8 4,420.0Total 21 69 32 123 3,638.1 1,834.9 663.1 6,137.6

15 Source: Institutional and Policy Review, AfDB, year?


Table A.3 PBOs by country and financing sourceADB ADF ADF Total ADB ADF ADF Total

Loan Grant Loan GrantMorocco 9 0 0 9 1,110.9 0.0 0.0 1,110.9Botswana 1 0 0 1 1,001.6 0.0 0.0 1,001.6Tunisia 4 0 0 4 625.1 0.0 0.0 625.1Mauritius 3 0 0 3 461.6 0.0 0.0 461.6Egypt 1 0 0 1 333.9 0.0 0.0 333.9Ethiopia 0 3 2 5 0.0 209.7 120.0 329.7Tanzania 0 0 6 6 0.0 0.0 300.0 300.0Ghana 0 0 4 4 0.0 0.0 207.6 207.6Mozambique 0 0 4 4 0.0 0.0 200.0 200.0BurkinaFaso 0 1 5 6 0.0 25.0 113.6 138.6Madagascar 0 0 4 4 0.0 0.0 136.0 136.0Congo,Dem.Rep. 0 1 1 2 0.0 65.0 44.5 109.5Mali 0 0 5 5 0.0 0.0 104.4 104.4Regional 0 3 0 3 0.0 103.0 0.0 103.0Rwanda 0 2 2 4 0.0 63.3 36.9 100.2Nigeria 0 0 1 1 0.0 0.0 100.0 100.0CôteD’Ivoire 0 2 1 3 0.0 83.9 15.0 98.9Gabon 1 0 0 1 74.8 0.0 0.0 74.8Senegal 0 0 3 3 0.0 0.0 74.0 74.0Zambia 0 1 4 5 0.0 0.5 62.7 63.2Benin 0 2 3 5 0.0 16.1 44.2 60.3SierraLeone 0 2 2 4 0.0 20.7 27.3 48.0Cameroon 0 0 2 2 0.0 0.0 45.5 45.5Niger 0 0 3 3 0.0 0.0 41.1 41.1Uganda 0 0 1 1 0.0 0.0 40.5 40.5Malawi 0 1 2 3 0.0 10.0 26.9 36.9CapeVerde 1 1 4 6 17.3 0.8 13.4 31.5Kenya 0 0 1 1 0.0 0.0 28.3 28.3Chad 0 1 1 2 0.0 17.6 8.7 26.3Burundi 0 3 0 3 0.0 21.4 0.0 21.4Lesotho 0 2 3 5 0.0 7.0 10.7 17.7Centrafrique 0 2 0 2 0.0 13.0 0.0 13.0Seychelles 1 0 0 1 13.0 0.0 0.0 13.0Liberia 0 2 0 2 0.0 12.4 0.0 12.4Guinea 0 0 1 1 0.0 0.0 12.3 12.3Mauritania 0 0 1 1 0.0 0.0 10.0 10.0Togo 0 1 0 1 0.0 10.0 0.0 10.0Congo,Rep.of 0 0 1 1 0.0 0.0 7.0 7.0Comoros 0 1 1 2 0.0 2.0 2.0 4.0Gambia 0 1 0 1 0.0 3.0 0.0 3.0Djibouti 0 0 1 1 0.0 0.0 2.4 2.4SaoTome 0 0 1 1 0.0 0.0 1.6 1.6Total 21 31 69 123 3,638.1 663.1 1,834.4 6,158.8


Table A.4 Share of PBOs in total Bank operations by country, 1999-2009 (UAmillion)

Country Category All Bank Operations PBOs % PBOs

Botswana ADB 1,186.9 1,001.6 84.4Mauritius ADB 599.2 461.6 77.0Seychelles ADB 21.7 13.0 59.9Morocco ADB 2,427.3 1,110.9 45.8Tunisia ADB 2,007.1 625.1 31.1Egypt ADB 1,674.8 333.9 19.9Gambia ADB 73.3 3.0 4.1Algeria ADB 397.0 0.0 0.0EquatorialGuinea ADB 63.5 0.0 0.0Namibia ADB 113.4 0.0 0.0SouthAfrica ADB 2,666.6 0.0 0.0Swaziland ADB 111.2 0.0 0.0Libya ADB 0.0 0.0 ..

Total ADB 11,342.0 3,549.0 31.3

CapeVerde ADF 69.1 31.5 45.5Ethiopia ADF 793.7 318.5 40.1Rwanda ADF 259.3 100.2 38.6Mozambique ADF 544.0 200.0 36.8Tanzania ADF 889.9 300.0 33.7CentralAfricanRep. ADF 38.8 13.0 33.5Madagascar ADF 426.3 136.0 31.9BurkinaFaso ADF 446.4 138.6 31.0SierraLeone ADF 169.0 48.0 28.4Liberia ADF 44.7 12.4 27.7Mali ADF 389.5 104.4 26.8Burundi ADF 81.2 21.4 26.4Zambia ADF 242.3 63.2 26.1Ghana ADF* 815.6 207.6 25.5Lesotho ADF 73.9 17.7 24.0Comoros ADF 17.4 4.0 23.0Niger ADF 192.9 41.1 21.3Benin ADF 286.5 60.3 21.0Congo,Dem.Rep. ADF 523.2 109.5 20.9Côted’Ivoire ADF 489.8 98.9 20.2Congo,Rep.of ADF 39.0 7.0 18.0Togo ADF 56.3 10.0 17.7Gabon ADF 432.1 74.8 17.3Senegal ADF 459.8 74.0 16.1Chad ADF 167.4 26.3 15.7


Country Category All Bank Operations PBOs % PBOs

Malawi ADF 254.0 36.9 14.5Cameroon ADF 388.7 45.5 11.7SaoTomeandPrincipe ADF 15.0 1.6 10.6Guinea ADF 261.1 12.3 4.7Kenya ADF 623.0 28.3 4.5Uganda ADF 969.7 40.5 4.2Mauritania ADF 257.0 10.0 3.9Djibouti ADF 88.2 2.4 2.7Angola ADF* 75.2 0.0 0.0Eritrea ADF 43.2 0.0 0.0Guinea-Bissau ADF 44.1 0.0 0.0

Total ADF 10,967.4 2,395.6 21.8

Nigeria Blend 1,019.2 100.0 9.8Zimbabwe Blend 120.2 0.0 0.0

Total Blend 1,139.4 100.0 8.8

Somalia Inactive 1.0 0.0 0.0Sudan Inactive 11.0 0.0 0.0

Total Inactive 12.1 0.0 0.0

AllCountries 23,460.9 6,044.6 25.8

Regional 2,949.0 103.0 3.5

Note: ADF *: Hardened terms

The production of this publication was coordinated byFelicia Avwontom, Principal Communications and Knowledge Management OfficerOperations Evaluation DepartmentAfrican Development Bank.

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PPEMENT

AFRI

CAN D

EVELOPMENT FUND

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AFRICAINE

DE DÉVELOPPEMENT

Evaluation of

Policy-based Operations in the African Development Bank, 1999-2009

Evaluation of Policy-based Operations in the African Development Bank,

1999-2009

About the AfDB: The overarching objective of the African Development Bank Group is to spur sustainable economic development and social progress in its regional member countries (RMCs), thus contributing to poverty reduction. The Bank Group achieves this objective by mobilizing and allocating resources for investment in RMCs; and providing policy advice and technical assistance to support development efforts.

The mission of the Operations Evaluation Department is to help the Bank to foster sustainable growth and poverty reduction in Africa through independent and influential evaluations. Such evaluations assess the Bank Group’s policies, procedures and operations, review performance and report on results in order to draw useful lessons and promote accountability.

Director: Rakesh Nangia, [email protected], Project Level Evaluations: Mohamed Manai, [email protected], High Level Evaluations: Odile Keller, [email protected]

Operations Evaluation Department, African Development BankBP 323, 1002 Tunis-Belvedere, TunisiaTel : (216) 71 102 841 Fax : (216) 71 194 460

Helpdesk: [email protected] Website: www.afdb.org/opev