AFRCA AiND INA LEADPoRTmoLoi ImpRoviEmENT

ARPP RESUrLTS v

he health of the Bank's $121 billion PORTFQUO PER ORMANCE IN TRMS OFportfolio continued to improve, but CM N , 'at a slower pace than the previousthree years, reports the AnnualReview of Portfolio Performance

by QAG.

from 23% in FY97 to 21% in FY98 (Figure 1), 2

despite the negative impact of the East Asiacrisis. Although performance deteriorated in East 0

Asia, with the proportion of commitments atrisk increasing from 14% to 23% of that Region's portfolio, the performance of other regions im- AFR EAP ' LCR MNA SAR, Bankvide

proved-most notably in MNA and Africa. 0F97 '9 F9

Other ARPP findings:VWhile disbursements increased by almost

K V The realism index, which meas-ures the can- 25% in FY98 (from $19.8 billion in FY97 todor and accuracy of Bank reporting on port- $24.8 billion in FY98), much of this increase

"' -7!' ; ::: ]RP)fo FY98 which has just been completed 4.4i- -. .;

folio problems, improved slightly in FY98, is explained by the $5 billion disbursed tofrom 66% to 68%, but fell short of the 75% South Korea. The disbursement ratio, a bet-target. ter indicator of effective management of the

investment portfolio, continued at aroundV The proactivity index, which measures the 19%.

time the Bank takes to initiate major correc-tive action once a project is downgraded to V The quality of the Bank's supervision perfor-problem status, increased from 70% to 72%, mance increased substantially in FY98 (Seewhich was below the 80% target. page 4 for the results of the Rapid Supervi-

sion Assessment).V The proportion of satisfactory outcomes is (continued on page 2)

one proxy for development impact, as veri-fied by ED. Based on preliminary figures, 80% of completed projects are now satisfac-tory, up from 76% last year and just 65% in FARPP Y9 $es8uIts li1993. Rapid Supervistmn Aspsrtient 4

list Of honorees for excellence in ssupervlion 7-8

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

(conttinued from page 1)

The FY98 ARPP also reviewed the Bank's FY97Portfolio Improvement Program (PIP) and found that Pti Tinclusion in the PIP had a beneficial effect on two -

clusters-targeted countries and large projects at -ez.i1

risk-for which accountability was clearly defined.at = h Q w r t The impact was less pronounced for the targeted sec- *~e'n,wt 7 fdsusmnsa ikadadstors and subsectors and instrument clusters, reflecting 4different accountabilities for quality and performance. * X r o m e Prga

Portfolio management in the 26 targeted PIP , 5 X .

countries received greater attention (Box 1), including G r mr15% more resources for supervision in FY98 than in leeFY97, as well as higher priority in the country assis- c * a e c t c Xtance dialogue. Results were significant: ~ ~ iii fdcutcutrr udn. h lnd

V the proportion of commitments at risk in these S t e pa= =of thecountries declined from 53% to 37% in one year. -,-~n±

V The 39 projects over $200 million and at risk de-clined to only 1S projects at the end of FY98. :. .:. e ce

Committed supervision, explicit action plans, de-Th eulsLbtlenfFY8ony8%fcmi-cisive actions by both Borrowers and the Bank, and -meisriiieiL~s n ibreet a lmemonitoring by Bank management all seem to have e,gviga2%dbrsmncontributed to PIP improvement.

However, three years of experience with the PIP X ' ' X-

shows that it often takes more than one year forcountries to "graduate", and even then they benefitfrom being on a "watch" list. 2) as well as other areas where it needs to imnprove

further, in particular:Changing the Nature of Portfolio Management

' Roles and accountability of staff and managersThe Bank's traditional project-by-project approach to should be clear and monitored;portfolio management is being reinforced by a moresystemic vision: v Management needs to make timely decisions, to

provide a nurturing environment for quality, and, looking at issues on a country-wide and to correct areas of weakness such as financial

sectoral basis and within the framework of the management, development indicators and moni-Bank's overall country assistance strategy. toring and evaluation;

i targeting specific themes for special attention, v Sector leaders and networks have to become moresuch as the impact of decentralization, institu- engaged in portfolio management; andtional capacity, counterpart funding and finan-cial management. 7 Supervision resources should be allocat:ed on the

basis of individual project needs.v promoting a continuous process of supervi-

sion through greater use of field offices. The FY98 ARPP makes three other important rec-ommendations:

The ARPP, as well as the RSA2, both indicate thatthere are a number of important areas where manage- y Future lending levels should be linked more di-ment performance of supervision has improved (Box rectly to portfolio improvement.

IW RMT. WU~~~~~~~~~~~~~~~~~~~~~~~<a ;,~,,,maa ,Ja

years. Portfolio riskiness increases when externalBox 2. MINNs Approach to shocks are combined with domestic vulnerabilities.

:. Grtfoilo Management Project implementation is adversely affected becauseof inadequate counterpart funds, weakened institu-

At the end of FY97, 36% of projects were at risk in the tions, delays in decision-making, and shortages inMNA portfolio, the realism index stood at 77%, the goods and services. Looking forward, the Bank shouldproactivity index at 69% and the disbursement ratio was be concerned about the potential for downside risks.17.5%. In addition, the Bank's first Rapid Supervision As- The East Asia experience has demonstrated quitesessment said that the quality of the Bank's own portfo- clearly how the current financial crisis can have an ad-lio management effort in, MNA was only satisfactory for, verse affect on the portfolio.57% of projects.. - -Even in this uncertainty, there is much the Bank

One year later, MNA had turned portfolio manage- can do in some areas to improve its own performance:ment around. Projects at risk were down to 19%, real-ism had increased .o .6% proativtyto %andtheimproving the quality of portfolio management, beingism had Increased to 86S, proactivity tO 80Yo and the peae orsrcuepoet scniin hnedisbursement ratio to 20%. The second Rapid Supervi- prepared to restructure projects as conditions change,sion Assessment showed that the quality of supervision and maintaining a high level of intensity in its drive tohad irnproved significantly to 84% of projects. create a well designed, well managed, flexible portfo-

While country factors certainly played an important lio that is responsive to peoples' real needs.role in portfolio improvement, MNA's own actions made Based on FY98 experience, the ARPP concludesa difference. In particular: - that the Strategic Compact performance targets for

FY99 are feasible, but would require continued strongV 'MNA senior'management effectively held middle' efforts.

mnanagers and staff accountable for the quality of theBak's own portfolio management effort;i

v Portfolio managers in country departments and/orsector units were consistently involved in a system-atic oversight role; and Box 3. Portfolio Priorities in FY99$ Sector managers were regularly involved in a struc-tured way in the rportfolio management process. Countries

The MNA experience suggests that rapid improve- Priority Listments in portfolio management are possible but require Algeria Malawi

.,a concerted, effort at aligning structures, processes,and., Angola Nepalaccountability systems to support a quality culture. Bulgaria Pakistan

Cameroon ParaguayCaribbean CMU RwandaGhana Sierra Leone

V Resource allocation should be more flexible to Indonesia Tanzaniarespond to shifts in the external environment, Honduras Thailandincluding a larger contingency for portfolio man- Kenya Ukraineagement in crisis countries/regions. Madagascar Vietnam

V The Portfolio Improvement Program should con- Watch Listtinue to focus on two specific clusters, targeted Morocco Uganda, ~~~~~~Nigeria Venezuelacountries and large projects at risk (Box 3). Russian Federation

Future Prospects Large Projects

In the light of economic crisis in East Asia and its 26 Operations Each With Net Commitments ofspread to Russia and other emerging markets, the glo- $200 million or morebal economy is more uncertain now than in many

M~~~~~~~~~~~Z itE,

QUALITY OF BANK SUPERVISION IMPROVES76% SATISFACTORY IN FY98 v. 63% IN FY97

The quality of the Bank's supervision in FY98 wvas Some of the best supervision was found in coun-satisfactory or better for 76% of the portfolio, accord- tries either experiencing severe macroeconomic shocksing to the Second Rapid Supervision Assessment or with well-recognized institutional/policy constraints(RSA2). This was a substantial improvement from the suggesting that with adequate attention and care, goodRSAI finding of 67% in FY97. Bank performance is possible even under highly ad-

RSA2 looked at a random sample of projects from verse circumstances. The fact that examples of bothacross the Bank representing about 17% of the portfo- good and bad supervision were found often within thelio. The survey, carried out by a panel of 19 experi- same country indicates that Bank task team/manage-enced Bank staff and retirees, aided by a team of fi- ment performance is a major determinant of the qual-nancial management specialists, focused on four key ity of the Bank's supervision.areas: development impact, attention to fiduciary as- Among networks, ESSD showed the most im-pects, appropriateness of supervision inputs and pro- provement going from 54% to 80% satisfactory, andcesses, and realism of project ratings and reporting. FPSI continued to perform the best. Contrary to Re-RSA2 also included a survey of task leader views on gional results, variances from Bankwide averages havemanagement's contribution, the adequacy of supervi- not been significant for networks/sectors, reflectingsion budgets, and the importance of supervision in in- perhaps the large diversity within each network's port-dividual staff performance evaluation. folio.

While all Regions (Figure 2) in the Bank im- RSA2 also found:proved between RSAI and RSA2, MNA stands out asthe region with the most notable improvement. Less V Younger projects are supervised better than olderthan satisfactory supervision was reduced from 43% ones (more than five years)-81% v. 42%, andin RSAI to 16% in RSA2. The ECA Region continued non-risky projects better than risky projects-to have the best performance with Africa needing the 82% v. 59%.most improvement.

V Supervision quality is virtually the same for IDAand IBRD and for large and small projects.

j~ ~ ~, V Management inputs, a key ingredient of supervi-sion quality, are less than satisfactory in one thirdof projects reviewed, with substantial regional

~ Prj&t etfr~dc~s~~se~ i~aisfa~~yb~&~ d~ :~variation. Task leaders believe country directors4ev~~Idri~rfts~ ~~dYa~h~r have a major and positive impact on supervision

~~ ~~~. ~quality while sector managers have little impact,

Figure 2. Regional Results_ pr~a i~Iy~~s~d ~ Satis~ctory or aatyrt

on gk~baI b~ p~a t' ~4~ed te t~it1y~cfr- 0

~~ Fucfact ~~~~~~~~~~~ 20/n

~~ ~~sii~~ k~~~~'i e ~~~ AFR EAP ECA LCR MNA SAR TOTAL

'~~~~~~~' ~~~~~~~~~~ ~~0 RS I RSA21

except in MNA and SAR (Figure 3). The RSA2 signed, ready for implementation at Board ap-panel members echoed this, finding that overall proval, and have strong Borrower commitment re-supervision was satisfactory in 93% of cases where ceive satisfactory supervision in 92% of cases.supervision benefited from strong management Thus, supervision efforts need to be redoubled forsupport in terms of adequate and timely manage- those projects with a weak "project context" orment attention and decisions. In contrast, when where circumstances require restructuring duringadequate management support was not forthcom- implementation.ing, satisfactory supervision declined to 42%.

FY98's results are an encouraging start towards theV Bank supervision is better at: (a) identifying prob- Strategic Compact goal of 100% supervision quality

lems than proposing effective solutions; (b) build- by FY01. This target can only be envisaged, however,ing relations with borrowers and stakeholders than if the Regions with the lowest supervision ratings andestablishing project performance indicators; and large portfolios, especially Africa and East Asia/Pacific(c) ensuring compliance with environment safe- (adding up to 45% of the Bank's project portfolio),guards than financial management; make substantial progress.

V One-third of task leaders feel supervision perfor- (continued on page 6)mance does not count in their individual perfor-mance evaluation.

o 5. SpervOwiskion ofV Field offices are playing an increasingly important Financial Managementt

role in supervision, especially in providing support, fin m e is e f all projectsbut the quality of field-based task management and goe beon sang an acconting, beoming aneeds improvement. .- -a&e uti a'cu -n a'';'::ii means of measuring results and outcomes;

The peiformance of B fnancal ;man-V Projects with a supervision budget between agement was saisf or beter for 68% ohe

$70,000 and $105,000 have satisfactory supervi- sample lower than the 8 f%-}or t,he supervisin of all fitsion ratings of 86% compared to only 72% for duciary aspects and below the 77% level reported in-projects below, or above, this range. Dramatic RSAL IThis overall decline,for all Regions except MtNA,improvements in the quality of financial manage- -may be eplained by mor.e inensive sctiny of financiatment supervision come from spending relatively management in RSA2. The most important finifngs onmodest amounts of money for specialized exper- financial rnanagement were _.:tise in this area.

v: the quality,of financial management depends on &

v The project context is strongly linked to the qual- tions taken during pojeepaton to esrabflshand.implement.a aproritecaactyan, apprahity of supervision. Projects which are well de-

Yery much at the heartof .th 4 on 'AdministratioanChange nkitiative (LAC..;

Figure 3. Task Leader Survey Results ,y' devoting specialized resourcs toifinancial manage-Adequate SuppordMentoring Recelved from CDs and 3Ms met-supervision improves its quality. RA2 d

spentSLpervprojct foyupriso ofkfincaltanshow ti, during FY9$'an average of $ i70&was -

.. ;. . .... ., , , . ..... :E: :-- :--:sp3t;pr projec- tpervislono fin.anial mart- :agement rdsulting in the6 6 sa tifactory rain.

ES atisctoy supervisio improved ma with60% - 57 higher levels of expenditure ie., 78% sabsfactory at

$2,80 to$S~QO ad S%, aibove $5,000;% -- -fr; 1 : l1goodfnancal management redu the risk of

project failure, especially where: (i) project funds are20% 1 .transferred to many beneficiaries; (i9 project, opera-

I donsoare located in man dispersed lotns andAFR EAP ECA LCR MNA SAR TOTAL ;(Wii the project resides in an environmm with3 weak

,,finantial,,con,t3r,ols.,, ............... .;,--; --OCD USM

7-~,UM MI NNOMMMCD SW E I E; P T-: 7 A : -E . .7..7, -; -- _ E > S _ _ S~~~~~~~~~~~~~~~~~~~~~~

(continued from page 5)Assuming that the last ten percentage points of V Review with task teams the status of supervision

getting to 100% quality will be the hardest, the sug- of all projects at least twice a year and include thisgested target for FY99 is for all Regions to achieve at assessment as part of the performance review pro-least 85% satisfactory supervision. The rapid improve- cess for staff.ment in MNA in FY98, the high rates of satisfactorysupervision achieved by ECA and LCR, and the turn- Regional Vice Presidentsaround in individual projects between RSA1 andRSA2 all suggest that the FY 99 goal is achievable. v Review the contribution of regional quality assur-

Quality in supervision is not a matter of making a ance mechanisms as they pertain to supervisionfew bureaucratic adjustments but a combination of quality. If the mechanisms are inadequate, im-many factors adding up to a culture of quality assur- prove them... .fast.ance. Supervision management, in particular, needs tobe strengthened through improved accountability, in- F Ensure supervision performance-good or bad-iscreased use of portfolio/implementation specialists in adequately reflected in staff/managerial evaluations.Headquarters and in field offices, and better determi-nation of budgets and specialist skill needs. Learning Networks/Sector Boardsfrom the examples of highly satisfactory supervisionwhich exists throughout the Bank, a menu of sugges- VF Establish sector specific training programs to en-tions emerges from RSA1 and RSA2 for different parts hance supervision, including the establishment ofof the World Bank. appropriate development indicators to improve

development impact monitoring.Task Teams

Mlanagirig DirectorsV Ensure that Work Program Agreements have (a) a

clear supervision strategy-objectives, major issues, T Make clear to all managers and staff that projectbudget resources, skills mix and the criteria by restructuring is a normal part of Bank operationswhich supervision performance will be judged; and and not a sign of task team failure.(b) detailed plans for any project restructuring thatmay be needed. 'V Hold Regional managers accountable for the qual-

ity of supervision in their annual performanceV Rate progress more realistically, on the basis of ac- plans.

tions taken not promises made, so that problemscan be dealt with frankly and efficiently.

Country Directors B t p ovi/g_th

V Provide adequate budgets to Task Teams based on AsheRArossamlsrje4ia4my,7oproject requirements rather than on undifferenti- jhRA rj~swr sseaannRA nldnated coefficients. t p rn

V Strengthen resident missions' supervision capacity, mrydamtcl,'nhligfsiscoyadteincluding through recruiting high-level interna- cte ostsaty h anraosfripoetional implementation specialists for coaching! p iomentoring local staff aein teto nldntkn~ocfldcsosi

Sector Managersmetmpc.redsifaoy

V Get involved in Work Program Agreement prepa- R and also assessed S ir toration to ensure the best people are doing supervi- t i te projeixrea=e i gision with appropriate resources in an environment tai.y satist, sggesth0 }tas and t flage.Jthat supports quality services for Borrowers.

STAFF HONORED FOR EXCELLENCE IN St PERVISION

List of Hono

Albania Rural Roads Luis Revuelta, TM, Peter ParkerElena IKastlerova \ albona Kullak0ii

Bangladesh Second Road Rehab. Steini L undebve, TM, Jaswant ChanneMohi hiz Zaman QUazi, Roziah Baba

Benin Rural Credit II Ousmane Sissoko, TM,Nicolas Ahouissoussi, Nfichel Aklam av

Brazil Mato Grosso Natural Resources Francesco Vita, TM, Graciela LitumaDaniel Gross, John Garrison

Cambodia Social Fund Christopher Chamberlin, TMWVijava WVickrema, Rodrigo CisnerosScott Pendergast, Caroline Robb

Caribbean CDB VI Mariluz Cortes, TM, Anil KapurMax Pulgar-Vidal, Alberto Ninio

Chad Population & AIDs Michele Lioy, TMTshiya Subayi-Cuppen, Laura McDonald

China Shanghai Waigaoquia Power Hsiao-Yun Elaine Sun, TMNoureddine Berrah, Weigong CaoBernard Baratz

Costa Rica Water Supply Oscar Alvarado, TM, Augusta DianderasAlberto Sturla, Emma Cubillas

Eritrea Development Fund Laura Frigenti, TM, Maria Theresa CruzJan Bojo, Marylou Bradley

Honduras Public Sector Mod. SAC Antonio Martin del Campo, TMMonica Fidel, Eloy VidalMarcelo Osorio, Javier Burgos

India Tamil Nadu Agricultural Development I Hamdy Eisa, TMA. Venkatraman, N. K. BandyopadhyayChintamani S. Nawathe, Dhimant BaxiMargaret Anne D'Costa

India Forestry Research, Extension & Training Jessica Mott, TM, Irshad Khan, Co-TMIan David Hill, Former TMDhimant J. Baxi

Indonesia Solar Home Systems Arun P. Sanghvi, TM, Anil CabraalSubodh Mathur, Yogana Prasta

Indonesia Sumatra Secondary Education Brigitte Duces, TM, Basilius BengotekuJerry Strudwick, Sujani Eli

Jamaica Student Loan Kin Bing Wu, TM, Hongyu Yang, Co-TMDaniel Boyce, William GallagherQue Bui, Rosalia Sanchez-Rushton

4w--i-,,'-ws 5 _ __ _ _

* Transport LU Teije WakInthl George h arakanKarim-Jacquesdin, Eugenia Dennis

_ * * Highway II & III Denis Robitaille, TM, Eva Monteblanco,Linda Schneider, Milton Sivalingam

* Municipal Services Ricad SOO:TSari SodersIriis , co T,

_ *X Siauai Environment SariSoesr, Co0 MInesis K ikis, Co-TMBenot lMiovic

_* Legal Refor Andrew%VorTk:K, TMKatharine MaLubomira 1di0iyA sProskuryakov

* Community Water Supply hM WM,:Xqfa f ;At ; ~~~~Anthon'' NQsf

JackWilams

4 PvPublic Sector Management Paul Ballard, ITM ,D WoodLuke Hagprty ReyCAstroVedasto Rwedhimg

Secn Forty Trayambkeshwar S;ia, TMJean Louis BlanchezIdah Pswaayi-Rlddlhough, Sylvie Pittman

Municipal Development II Laura RaimondoTM, Masype D. GautierJohn Keith ReOnni Dominique Dietrich

- TEK Restrucuring Ragh eu lsazoYolaine Jo u e Canlas

Legal Development Hadi Abushalcra, TMMaria ia a g ss

STAFF HONORED FOR EXCELLENCE IN PROJECT SUPERVISION

Twenty-eight project teams won recognition for excellence in supervision. These projects were selected from atotal of 200 projects supervised in FY 98 and reviewed by RSA2. Those honored were identified by their manag-ers and colleagues as having made a major contribution to project supervision.

The Managing Directors plan to host a reception later in the year to honor the staff selected.

Qtw~ sisan asiou tio Ada

PLa- Ien /omnsadiqiist rmOr i -nla grl