sri lanka - inclusive development and conflict resolution

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ASIAN DEVELOPMENT BANKOperations Evaluation Department

COUNTRY ASSISTANCE PROGRAM EVALUATION

FOR

SRI LANKA

In this electronic file, the report is followed by Management’s response and the Board ofDirectors’ Development Effectiveness Committee (DEC) Chair’s summary of a discussion of thereport by DEC.



Evaluation Study

Country Assistance Program Evaluation 26194August 2007

Sri LankaInclusive Development and Conflict Resolution: MajorChallenges in the Future

Operations Evaluation Department



CURRENCY EQUIVALENTSCurrency Unit — Sri Lanka rupee/s (SLRe/SLRs)

At CountryOperational Strategy

1993−1997


1998−2003


2004−2008

At CountryAssistance Program

Evaluation 2007

(July 1993) (December 1998) (June 2003) (as of 01 August 2007) SLRe1.00 = $0.0205 SLRe1.00 = $0.0147 SLRe1.00 = $0.0103 SLRe1.00 = $0.0089$1.00 = SLRs48.71 $1.00 = SLRs68.06 $1.00 = SLRs97.07 $1.00 = SLRs111.78

ABBREVIATIONS

ADB — Asian Development BankCAPE — country assistance program evaluationCEB — Ceylon Electricity BoardEIRR — economic internal rate of return

GDP — gross domestic productNGO — nongovernment organizationNWSDB — National Water Supply and Drainage BoardOED — Operations Evaluation DepartmentSLFP — Sri Lanka Freedom PartySLRM — Sri Lanka Resident MissionSOE — state-owned enterpriseTA — technical assistanceUNP — United National Party

NOTE

In this report, “$” refers to US dollars.

Director General B. Murray, Operations Evaluation Department (OED)Director R. K. Leonard, Operations Evaluation Division 1, OED

Team Leader N. Bestari, Principal Evaluation Specialist, Operations Evaluation Division 1, OED

Team Members H. Tucker, Senior Portfolio Evaluation Specialist, Operations Evaluation Division 1, OEDR. Schenck, Evaluation Specialist, Operations Evaluation Division 2, OEDA. Morales, Evaluation Officer, Operations Evaluation Division 1, OEDH. Win, Young Professional, Operations Evaluation Division 1, OEDC. J. Mongcopa, Senior Operations Evaluation Assistant, Operations Evaluation

Division 1, OED

Operations Evaluation Department, CE-15

KEYWORDS

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



CONTENTS

Page

EXECUTIVE SUMMARY iii

MAP xiii

I. INTRODUCTION 1A. Background 1B. Report Structure and Content 1C. Objectives, Scope, Approach, and Methodology 1

II. DEVELOPMENT CONTEXT AND GOVERNMENT PRIORITIES 2A. Evolving Social, Political, and Economic Settings in Sri Lanka 2B. Millennium Development Goals in Sri Lanka 5C. Development Priorities of Sri Lanka’s Governments over the

Last Two Decades 5

III. POSITIONING OF ADB COUNTRY STRATEGIES 7

IV. LOAN AND TECHNICAL ASSISTANCE PORTFOLIO 11A. Loan and Technical Assistance 11B. Portfolio Performance 11

V. EVALUATION OF SECTOR AND THEMATIC ASSISTANCE 14A. Overview of Findings on ADB Assistance 14B. Agriculture and Natural Resources Sector 15C. Education Sector 19D. Power Sector 22

E. Transport Sector 25F. Water Supply and Sanitation Sector 28G. Thematic Assistance/Special Topics 32

The guidelines formally adopted by the Operations Evaluation Department (OED) on avoidingconflict of interest in its independent evaluations were observed in the preparation of this report.

Brenda Katon and Jennifer Simon were the consultants who provided substantial analyticalinputs to this report throughout the evaluation process. Brenda Katon collaborated with the teamleader in guiding the evaluation in accordance with OED’s evaluation guidelines and practices.

Short-term consultants collaborating intermittently with the evaluation team included SenekaAbeyratne (economist), Peter Darjes (transport economist), Swarna Jayaweera (educationspecialist), David Parish (financial analyst, power sector), and Tilak Siyambalapitiya (powersector specialist). Grace Alindogan (consultant research associate) was responsible forprocessing and analyzing the Sri Lanka Resident Mission perception survey. Various draftreports of this evaluation were shared with the Sri Lanka country team of the Asian DevelopmentBank for review and comments. To the knowledge of the management of OED, there were noconflicts of interest of the persons preparing, reviewing, or approving this report.



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VI. PERCEPTION ASSESSMENT OF THE SRI LANKARESIDENT MISSION 43

VII. OVERALL RATING, CONCLUSIONS, AND RECOMMENDATIONS 45A. Overall Rating and Conclusions 45B. Key Challenges 47

C. Recommendations 49

APPENDIXES1. Evaluation Methodology 512. Key Economic, Poverty, and Social Indicators; and Millennium

Development Goals of Sri Lanka 543. Country Strategies and Programs for Sri Lanka 604. Programs and Projects (Loans) 935. Technical Assistance to Sri Lanka 1006. Portfolio Analysis 1127. Economic, Sector, and Thematic Studies 1298. Sri Lanka Resident Mission Perception Survey 130

SUPPLEMENTARY APPENDIXES: EVALUATION WORKING PAPERSA. Agriculture and Natural Resources Sector Assistance Evaluation

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

B. Education Sector Assistance Evaluation

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

C. Power Sector Assistance Evaluation

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

D. Transport Sector Assistance Evaluation

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

E. Water Supply and Sanitation Sector Assistance Evaluation

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

F. Evaluation of Operations in Conflict-Affected North and East

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

G. Evaluation of Policy-Based Lending in Sri Lanka

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

H. Evaluation of Thematic Governance AssistanceAvailable: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Thematic-Governance-

Assistance.pdf Attachments: Management Response

DEC Chair Summary

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


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


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


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


http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-WaterSupply-Sanitation-Sector.pdf



http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Operations-Conflict-Affected.pdf



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

http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Thematic-Governance-Assistance.pdf
















EXECUTIVE SUMMARY

This is the first country assistance program evaluation (CAPE) for Sri Lanka by theOperations Evaluation Department of the Asian Development Bank (ADB). The evaluationperiod covered the two decades 1986−2006, with more emphasis on the more recent decade.The main objectives of the evaluation were to assess the performance of ADB’s operations in

Sri Lanka and to identify forward-looking lessons for the preparation of the next countrystrategy.

Development operations in Sri Lanka have taken place in a challenging environment,marked by a civil conflict that has lingered with varying intensity over more than two decades,shifts in political coalitions, complex political and social structures, and variations indevelopment agendas. Two major political parties—the United National Party and the Sri LankaFreedom Party—have alternately governed Sri Lanka. Although both have supported stateinterventions in economic activity, they have differed in their stance on the extent of stateintervention. Consequently, policy reforms have tended to follow swings in the politicalpendulum.

The structures and dynamics of the conflict are complex and manifest themselves insocial policies, language, education, and ethnic issues. At the time of the ceasefire in 2002, anestimated 65,000 lives had been lost and 800,000 people displaced due to the conflict; morethan 300,000 remained displaced at the end of 2005. These numbers exclude the toll of thetsunami (26 December 2004) that killed 35,000 people and displaced over half a million. Withrenewed fighting, at least another 200,000 people have been displaced since April 2006, withmore than 3,000 killed in 2006. The economic consequences of the conflict have been severe:(i) a reduction in economic growth by 2−3% annually, (ii) 40% less per capita income than whatcould have been achieved without the conflict, and (iii) foregone foreign investment. TheInstitute of Policy Studies in Sri Lanka estimates the total cost of the conflict at 170% of thegross domestic product (GDP) in 1984−1996. The conflict has contributed to fiscal deficits(typically about 10% of GDP), which raised the public debt to more than 100% of GDP in the

early 2000s. Although the public debt has declined, it remained high at 93% of GDP in 2006.With stalled peace negotiations, budgeted defense spending rose slightly from 2.5% of GDP in2006 to 2.7% of the projected GDP for 2007. Since Sri Lanka borrows to finance its publicinvestment budget and part of its recurrent expenditure budget, the high public debt and largefiscal deficits can undermine its capacity for public sector investments.

Despite these difficulties, the economy of Sri Lanka has remained resilient, largely dueto liberalization reforms that began in the 1970s and to the opening up of the trade economy.These reforms catalyzed the transition from a state-controlled economy to a market-basedone—a major milestone in Sri Lanka’s development history. A decade after the onset ofeconomic liberalization, privatization became state policy in 1987. By then, unprofitable state-owned enterprises (SOEs) had become fiscally unsustainable, with budgetary transfers to these

entities averaging 10% of GDP. Privatization came in two waves: (i) 1989−1994, when 43commercial SOEs were divested; and (ii) 1995 and thereafter, when several public utilities andservices, including telecommunications, were divested. During 1977−2006, the country’s realGDP growth averaged 4−5% per year. Since 2001, services (mainly telecommunications andfinancial services) have led the country’s economic growth. Sri Lanka has faced significantdevelopment challenges in the last few years, including the sharp increase in the internationalprice of oil, drought, floods, the 2004 tsunami, and the civil conflict. The economy is accustomedto operating in difficult situations. Its private sector offers diversified services with overseas



iv

connections. At present, Sri Lanka has the lowest tariff barriers in South Asia and is the secondmost open economy in the region after the Maldives.

ADB has been Sri Lanka’s development partner for four decades. Cumulative loanapprovals since 1968 amount to $3.7 billion for 130 loans. Most of this was in the last twodecades (90 loans worth $3.3 billion, of which 84% came from the Asian Development Fund

and 16% from ADB’s ordinary capital resources). Over the same period, lending was supportedby 195 technical assistance (TA) grants totaling $87.6 million—$48.8 million for 122 advisory TAgrants and $38.8 million for 73 project preparatory TA grants. Private sector operations havebeen relatively limited (11 transactions for $86.6 million).

The country strategies in the last decade were generally relevant and responsive todevelopment challenges at the time they were formulated. However, the changing politicaleconomy context since April 2004, conflict resurgence, and shifting government policies havediminished the relevance of the current country strategy (2004−2008). A strategic repositioningis called for in formulating the new country strategy. Although the poverty reduction thrust ofpast and existing country strategies continues to be relevant to national priorities and to ADB’soverarching goal of poverty reduction, several key components of the existing strategy (sector

restructuring, deregulation, and privatization of SOEs) have fallen out of line with the neweconomic policies of the Government. Another thrust of the current strategy—reconstruction anddevelopment in the North and East—was based on a peace dividend and postconflictassumptions that are no longer realistic due to conflict resurgence in July 2006.

ADB’s assistance programs for Sri Lanka were consistent with the declared strategies inthe past, but overall performance was “partly successful”. This rating underscores the need toreassess sector and crosscutting interventions for future development assistance, and toidentify the factors that have enabled or deterred performance. Across sectors, performancehas been mixed. Sectors in which the assistance program has been successful in the last twodecades include (i) transport (mainly roads), (ii) education, and (iii) water supply and sanitation.Sustained and uninterrupted ADB engagement in these key sectors has generated positive

results. Performance has been rated less than successful in (i) finance (policy-based); (ii)power; (iii) law and economic management; (iv) agriculture; and (v) multisector projects, whichhave been related mostly to irrigation, urban development, and assistance to disaster- andconflict-affected areas. Key factors contributing to success have included responsiveness todevelopment needs, a clear understanding of the objectives and expected results, and sharedcommitment and ownership from the design stage to the implementation stage. By contrast,deterrents to successful operations have included the resurgence of the civil conflict, changes ingovernment policies that compromised earlier gains, the complex political economy of decisionmaking, insufficient analysis of reform options, inadequate support for sector restructuring,shortfalls in stakeholder participation during design and implementation, unsatisfactoryperformance of contractors, complex procurement procedures, and deficient maintenance ofcertain facilities after project completion. On ADB’s part, staff turnover, lack of consistent

engagement and sector focus, incomplete assessment of the absorptive capacities of executingagencies, and lack of technical skills in some areas have hampered implementation.

ADB’s policy-based lending operations in Sri Lanka have been “partly successful”, whichdraws attention to (i) caution in the future in using this modality, (ii) strengthening the design andimplementation of policy-based programs, and (iii) more concerted efforts to explore alternativeoptions for achieving the same objectives. Complex political and social structures, along withcivil strife and a strong commitment to a welfare state, have hampered policy reforms. Policy-based programs are potentially powerful for implementing difficult reforms, but there is the



v

downside risk of policy reversal and wavering commitment to reforms when changes occur inthe Government and in political coalitions. A careful assessment of reform options andreadiness is crucial for policy-based programs.

The positioning of ADB’s governance strategy in Sri Lanka after 1995 has been“satisfactory”, but the performance of the related assistance will likely be “partly successful”.

Improving governance is crucial for the Government’s economic management agenda andpolicy reforms. Consistent with macroeconomic stabilization policies and structural reforms,ADB supported public enterprise reform, public sector management, local governmentstrengthening, and regulatory and policy reforms during 1995−2003. The subsequentgovernance strategy (2004−2008) is anchored on the broader goals of poverty reduction,reconstructing conflict-affected areas, and development. The 2004−2008 strategy highlights themainstreaming of governance in sector investments and the formulation of a service deliverypolicy framework. To sustain outcomes from governance and anticorruption efforts, however,further mainstreaming of equitable access to services and anticorruption in ADB operations isimportant, complemented by measures to strengthen accountability and transparency.Governance outcomes will likely be moderately susceptible to such risks as politicization of thepublic service, shifts in economic policies, proliferation of the number of ministries with

fragmented functions, and potential macroeconomic destabilization from high fiscal deficits andhigh public debt. Risk management in the longer term is important.

After the approval of the Anticorruption Policy (1998), ADB’s country strategies andprograms for Sri Lanka provided support to anticorruption efforts. Anticorruption measures after1998 have been pursued through (i) compliance with procurement guidelines for ADB-financedoperations, (ii) auditing of annual financial statements, (iii) use of management informationsystems to minimize fraud, (iv) ADB investigations of allegations of fraudulent practices, and (v)inclusion of measures to mitigate corruption risks. ADB’s Office of the Auditor General respondsto complaints about and allegations of corruption. Recently, ADB included commendablemitigation measures to address corruption risks in the Tsunami-Affected Areas RebuildingProject and the North East Community Restoration and Development II Project. Corruption risk

assessments and formulation of risk management plans, however, have yet to progress fromthe project level to the sector level, which is now mandatory under ADB’s Second Governanceand Anticorruption Plan. Although Sri Lanka is perceived as relatively less corrupt thanBangladesh, Pakistan, Nepal, and several other countries in the Asia and Pacific region,opportunities exist for supporting further anticorruption efforts. Transparency International’scorruption perceptions index in 2006 indicated that Sri Lanka has a score of 3.1, where 0indicates highly corrupt and 10 highly clean.

On balance, the contribution of ADB’s assistance program to development impacts hasbeen “modest”. Poverty in Sri Lanka remains high, despite the decline in the proportion of thepopulation living below the national poverty line from 26% to 23% during 1990−2002. Reducingpoverty and regional disparities and achieving sustainable outcomes from inclusive social

development and governance, given the ongoing civil strife, will continue to be majorchallenges.

Overall, the performance of ADB’s country assistance program in Sri Lanka is rated“partly successful”. This rating is derived from a combined rating of (i) top-down assessment,which includes country strategy positioning, contribution to development impacts/results, andADB performance; and (ii) bottom-up assessment of the sector assistance programs, which isbased on the five evaluation criteria of relevance, effectiveness, efficiency, sustainability, andimpact.



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Fighting poverty and bringing about the conditions for higher inclusive economic growthoffer opportunities for development assistance. The current Government prioritizes reducingregional disparities, mainly by improving connectivity and infrastructure; developing small- andmedium-scale enterprises; and supporting rural development and social protection. ADB’sSecond Medium-Term Strategy may serve as a guide for several strategic priorities but needs tobe contextualized. Specific focal areas and options need to be worked out carefully, given the

constraints posed by the resurgence of armed conflict and its effects.

The following recommendations are proposed as directional inputs for Managementconsideration during the formulation of the next ADB country strategy in Sri Lanka. Theinclusion of sectors/subsectors in a more focused portfolio will depend on (i) client demand andpreferences, (ii) staff and TA resource availability, (iii) analytical work that identifies bindingconstraints, (iv) ADB’s strategic priorities, (v) the programs of other development partners, and(vi) experience showing what has worked and what has not. These evaluation findings aremerely a component of the analytical work that should determine the new country strategy.Therefore, this evaluation should not be considered prescriptive concerning the shape of thefuture program. However, these results are important, because most of the resources beingprovided have to be paid back. If ADB decides to engage in a sector or subsector with a low

historical success rate, clear evidence must be provided that the reasons for low success havebeen determined and a plausible strategy has been put in place to deliver better results in thefuture. In addition, ADB should take on only those sectors in which its input will be substantial,sustained, and backed up with the required resources for analysis, design support, andsupervision. The following table summarizes the recommendations, with indications ofresponsibility and time frame.

Summary of RecommendationsRecommendations Responsibility Time Frame1. ADB should review its development assistance to conflict-

affected areas in the North and East from theperspectives of conflict sensitivity. The challenge for ADBis to explore options, modalities, and partnerships toprovide assistance within the in-conflict and fragileenvironment. Options for ADB to consider includetemporary suspension and changes of scope of ongoingdevelopment assistance with a view towards efficiencyand effectiveness, particularly when rising costs andsecurity risks can outweigh the expected benefits. ADBshould also explore options for outsourcing and partneringwith agencies having specialized capabilities, andspecialized administrative and management systems thatcan respond rapidly to changing conditions. Options aredetailed in Supplementary Appendix F.

South AsiaRegionalDepartment

Formulation stageof the new countrypartnershipstrategy andcontinuing

2. ADB should review the focus of its development

assistance, particularly within sectors that have fallenshort of achieving significant results (e.g., agriculture,power, policy-based programs) but are extremelyimportant for poverty reduction and economic growth. Thisreview should consider the provision of continued supportfor sector assistance programs that have performed well(e.g., education, transport, and water supply). It shouldtake into account the findings of the evaluations of sectorassistance (Supplementary Appendixes A−E). Inredefining sector strategies in the context of the new

South Asia

RegionalDepartment

Formulation stage

of the new countrypartnershipstrategy



vii

Recommendations Responsibility Time Framecountry partnership strategy, ADB should consider thesector recommendations made by the CAPE.

3. ADB should be prepared to remain engaged in policydialogue during difficult times, when the implementation ofongoing programs is slow and may even stall. The nature

and scope of the existing policy-based programs requirecontinuity and involvement of experienced staff. Greaterattention to identified lessons is required. A carefulassessment of reform options is crucial for policy-basedprograms. Resources are needed to continue thedialogue. In this context, ADB should review itsresources, skills base, and staff configuration to allowitself to play its role more effectively. A business plan toidentify the human and financial resources required toimplement the country strategy may be necessary.


Formulation stageof the new countrypartnership

strategy

4. ADB should provide assistance to Sri Lanka for results-based monitoring and development evaluation to promotedevelopment effectiveness. This will complement the

Government’s ongoing efforts to strengthen its monitoringand evaluation capacity at the Ministry of PlanImplementation.


Formulation stageof the new countrypartnership

strategy

5. ADB should assess the Sri Lanka Resident Mission’sroles and functions in order to strengthen its capacity to(i) disseminate lessons and good practices from ADBoperations in other countries, (ii) enhance its services invarious areas of concern as identified through theperception survey, and (iii) provide timely decisions andtechnical support to project administration. Thisassessment should take into account the findings of theongoing review of resident mission operations by theStrategy and Policy Department.


Strategy andPolicy Department

A soon as possibleduring 2007−2008

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

Bruce MurrayDirector GeneralOperations Evaluation Department



P a l k B a y

P a l k

S t r

a i t

Gulf o f Manna r

I N D I A N O C E A N

B a y o f B e n g a l

Mankulam

Mullaittivu

Jaffna

Kilinochchi

Kankasanturai

Vavuniya

Trincomalee

Anuradhapura

Puttalam

Chilaw

Kurunegala Matale

Kandy

Kegalle

Nuwara Eliya Badulla

Ratnapura

Colombo

Moratuwa

Kalutara

GalleMatara

Ambalangoda

Hambantota

Ampara

Batticaloa

Monaragala

Gampaha

Mannar

Dambulla

Polonnaruwa

Gampola

BalangodaPelmadulla

Wellawaya

Tangalle

Akuressa

Elpitiya

Hikkaduwa

Negombo

Madampe

Kekirawa

Horowupotana

Puliyankulam

Tanniyuttu

Tambuttegama

Talaimannar

Welikanda

Valaichchenai

Bandarawela

WelimadaTalawakele

MawanellaWarakapola

Polgahawela

Minuwangoda

Avissawella

Alutgama

Kodikamam

HattonSRI JAYAWARDENEPURA KOTTE

S A B A R A G A M U W A

S O U T H E R N

N O R T HW E S T E R N

C E N T R A L

U V A

E A S T E R N

WESTERN

N O R T H E R N

NORTH CENTRAL

National Capital

Chief Provincial Town

City/Town

National Road

Railway

River

Provincial Boundary

Boundaries are not necessarily authoritative.

SRI LANKA

0 10 20 30 40 50

Kilometers

N

07-1512 HR

81 30'Eo

81 30'Eo80 00'Eo

80 00'Eo

7 00'No 7 00'No

9 00'No 9 00'No



I. INTRODUCTION

A. Background

1. This report, prepared by the Operations Evaluation Department (OED) of the AsianDevelopment Bank (ADB), presents the findings of a country assistance program evaluation

(CAPE) of ADB’s operations in Sri Lanka. This is ADB’s first CAPE for Sri Lanka. The periodcovered is the two decades 1986–2006, with more emphasis on the more recent decade. TheCAPE is designed to contribute to the formulation of a new country strategy for Sri Lanka. 1 TheADB-Sri Lanka partnership has existed for 40 years since lending began in 1968.

B. Report Structure and Content

2. This main text of the report is divided into seven chapters: (i) introduction; (ii)development context and government priorities; (iii) positioning of the country strategies of ADB;(iv) loan and technical assistance portfolio; (v) evaluation of sector and thematic assistance; (vi)perception assessment of the Sri Lanka Resident Mission (SLRM) of ADB; and (vii) overallrating, conclusions, and recommendations. There are also several supporting appendixes: (i)

evaluation methodology (Appendix 1); (ii) key economic, poverty, and social indicators; andMillennium Development Goals (Appendix 2); (iii) ADB’s country strategies and programs for SriLanka (Appendix 3); (iv) programs and projects (Appendix 4); (v) technical assistance (Appendix5); (vi) portfolio analysis (Appendix 6); (vii) examples of economic, sector, and thematic studies(Appendix 7); and (viii) perception survey of SLRM (Appendix 8). This report is supported byworking papers on five sectors (agriculture, education, power, transport, and water supply andsanitation—Supplementary Appendixes A−E) and three themes (operations in conflict-affectedareas, policy-based lending, and governance—Supplementary Appendixes F−H). Theseprovide a more in-depth review of the context, positioning, and performance of ADB’s strategiesand assistance.

C. Objectives, Scope, Approach, and Methodology

3. This evaluation assesses the performance of ADB’s operations in Sri Lanka andidentifies forward-looking lessons for preparing the next country strategy. Specifically, theevaluation seeks to answer four key questions: (i) Have the country strategies been relevantand responsive to the development challenges facing the country? (ii) Were the strategiesaligned with national priorities and harmonized with the assistance provided by developmentpartners? (iii) Has ADB’s actual program delivery been consistent with its declared strategies?(iv) Has ADB’s assistance (lending and nonlending) achieved its desired development resultseffectively and efficiently, and are the outcomes sustainable?

4. The evaluation focuses on sectors in which ADB has been most active in its operationsover the last 10 years—namely, agriculture, education, power, roads, and water supply and

sanitation. Law, economic management, and public policy are dealt with in the context of thethematic evaluation of governance. The evaluation covers special topics: (i) operations in theconflict-affected North and East of Sri Lanka, and (ii) policy-based lending. This report does notcover private sector operations because of limited ADB-financed operations in this area. 2 While

1ADB’s country strategies and programs for Sri Lanka and their updates, from 2002 onwards, are available athttp://www.adb.org/Documents/CSPs/SRI/default.asp

2ADB has provided Sri Lanka with 11 private sector transactions totaling $86.6 million since 1968. The first loan wasin 1988 ($10.3 million) while the last was in 2001 ($0.36 million).

http://www.adb.org/SriLanka/default.asp


http://www.adb.org/Documents/CSPs/SRI/default.asp

http://www.adb.org/Documents/CSPs/SRI/default.asp





2

the evaluation does not specifically cover the financial sector, financial sector program loans arecovered under the evaluation of policy-based lending.

5. This evaluation generally follows OED’s guidelines for the conduct of CAPEs.3 Theevaluation team prepared an evaluation approach paper that was approved by OEDmanagement in July 2006.4 The evaluation uses both bottom-up and top-down assessments

(Appendix 1). The bottom-up assessment evaluates the performance of ADB’s assistanceprograms using the criteria of relevance, effectiveness, efficiency, sustainability, and impact. Atthe country level, the top-down assessment takes a broad view of the positioning of ADB’sstrategies, contribution to development results, and ADB performance. In terms of developmentresults, the evaluation identifies ADB’s contribution rather than doing the detailed analysisnecessary to reflect attribution. Assessing attribution is impractical, as there are many actorsinvolved in the achievement of results. The overall performance assessment is a weightedcombination of the bottom-up and top-down assessments.

II. DEVELOPMENT CONTEXT AND GOVERNMENT PRIORITIES

A. Evolving Social, Political, and Economic Settings in Sri Lanka

6. The social, political, and economic settings of Sri Lanka described herein haveinfluenced the positioning of ADB’s country strategies and the performance of its assistanceprogram. The context of the country assistance program has evolved over time. This report isnot designed to evaluate the performance of the Government of Sri Lanka.

7. Sri Lanka is a conflict-affected middle-income country with high achievements insocial indicators, including the Millennium Development Goals. Sri Lanka does not fall intomainstream classifications of conflict-affected countries used by multilateral agencies, whichcharacterize such countries as having low levels of income and human development, and weakgovernance systems.5 The causes of the conflict relate primarily to ethnic issues, historicalinterpretations, language, education, employment, and land. These issues are manifest in

language, education, and social policies. The conflict structures and dynamics are complex,6

and various interpretations of the history and causes of the conflict exist. In 1983, the conflic t broke out into civil war. While the Government succeeded in quelling the southern rebellion,7 the conflict in the North and East has lingered over more than two decades. 8 On 22 February

3ADB. 2006. Guidelines for the Preparation of Country Assistance Program Evaluation Reports . Manila.Available: http://www.adb.org/Documents/Guidelines/Country-Assistance-Program/guide-peparation-0206.pdf

4Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-NBESTARI-71406-complete.PDF

5(i) The World Bank refers to low-income countries under stress as fragile states characterized by a debilitatingcombination of weak governance, policies, and institutions.(ii) ADB uses the term “weakly-performing states” in its strategy (November 2006): Achieving Development Effectiveness in Weakly Performing Countries (The Asian Development Bank’s Approach to Engaging with WeaklyPerforming Countries). Available:

http://www.adb.org/Documents/Papers/Achieving-Development-Effectiveness/Achieving-dev-effectiveness.pdf6(i) International Centre for Ethnic Studies. Bibliography: Ethnicity and Conflict in Sri Lanka.Available: http://www.ices.lk/sl_database/ethnic_conflict/bibliography.shtml(ii) Goodhand, J., B. Klem, D. Fonseka, S.I. Keethaponcalan, S. Sardesai. 2005. Aid, Conflict, and Peace Building in Sri Lanka 2000 –2005. The Asia Foundation. Colombo.Available: http://www.asiafoundation.org/Locations/srilanka_publications.html(iii) Palmer, N. 2005. Defining a Different War Economy: The Case of Sri Lanka. Berghof Research Center. Berlin.Available: http://www.berghof-handbook.net/uploads/download/dialogue3_palmer.pdf

7Sri Lanka faced two violent insurrections in 1972 and 1989 in the South.

8The North and East have faced a protracted armed conflict, high poverty incidence estimated at 60−90% in someareas, and depressed economic and social development. The combined contribution of the North and East to the

http://www.adb.org/Documents/Guidelines/Country-Assistance-Program/guide-peparation-0206.pdf

http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-NBESTARI-71406-complete.PDF

http://www.adb.org/Documents/Papers/Achieving-Development-Effectiveness/Achieving-dev-effectiveness.pdf

http://www.ices.lk/sl_database/ethnic_conflict/bibliography.shtml

http://www.asiafoundation.org/Locations/srilanka_publications.html

http://www.berghof-handbook.net/uploads/download/dialogue3_palmer.pdf

http://www.berghof-handbook.net/uploads/download/dialogue3_palmer.pdf

http://www.asiafoundation.org/Locations/srilanka_publications.html

http://www.ices.lk/sl_database/ethnic_conflict/bibliography.shtml

http://www.adb.org/Documents/Papers/Achieving-Development-Effectiveness/Achieving-dev-effectiveness.pdf

http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-NBESTARI-71406-complete.PDF




3

2002, a ceasefire agreement was signed between the Government of Sri Lanka and theLiberation Tigers of Tamil Eelam.

8. After 4 years of relative peace, the conflict resurged in July 2006, with theceasefire agreement remaining intact only on paper. However, neither side has declared aformal end to the 2002 ceasefire agreement. The emergence of paramilitary groups has created

further instability. The conflict has destabilized communities, with allegations of abductions,forced conscription of adults and children, and human rights violations. The Government hasestablished a Commission of Inquiry and an International Independent Group of EminentPersons to observe the work of the Commission of Inquiry. In response to terrorist attacks in thecountry, Parliament reinstated provisions of the Prevention of Terrorism Act in December 2006.Observers have noted significant negative effects of the conflict on governance, human rights,and media freedom.9

9. The resurgence of armed conflict has resulted in displacement of people, weaksocial cohesion, food insecurity, loss of livelihoods, and disruption of services inaffected areas. It has also inhibited economic development. The Central Bank of Sri Lankareported that the conflict reduced the country’s economic growth by about 2−3% annually. Per

capita income was 40% less than what could have been achieved without the conflict. TheInstitute of Policy Studies estimated the cost of the conflict from 1984 to 1996 at 170% of thegross domestic product (GDP). 10 When the conflict escalated into civil war, private sectorconfidence fell, and the GDP growth declined to 3.4% per annum during 1984−1989. Othercosts of the conflict include (i) a rising share of defense expenditures, reaching over 20% of totalgovernment expenditures in the late 1990s; (ii) resultant curtailed public expenditures oneducation as a percentage of GDP (Appendix 2, Table A2.1); (iii) high fiscal deficits, typicallyaround 10% of GDP; (iv) a compromised investment climate, which dampens foreign directinvestment; (v) downturns in tourism and loss of earnings; (vi) damage to infrastructure andfacilities; and (vii) reduced interconnectivity due to road closures and access restrictions fromand to conflict-affected areas. With stalled peace negotiations, budgeted defense spending in2007 rose to 2.7% of the projected GDP from 2.5% a year earlier.

10. Sri Lanka has witnessed a changing political and economic context. The UnitedNational Party (UNP) and the Sri Lanka Freedom Party (SLFP) have alternately governed SriLanka. The UNP-led coalition gained power in 1977 and was responsible for initiating majoreconomic liberalization reforms. In late 1994, its 17-year rule came to an end with the election ofthe People’s Alliance, a coalition led by the SLFP. This posed a challenge to the fragile politicalcoalition under the incoming President Kumaratunga. To keep the coalition together, theGovernment expanded ministerial posts and privileges, effectively making the executivepresidency the central focus of national policymaking. President Kumaratunga was reelected in1999, and the People’s Alliance won the general elections in 2000. A year later, several keymembers of the People’s Alliance crossed over to the UNP, which led the President to dissolveparliament and call for new elections. Following parliamentary elections, the UNP returned to

power in December 2001 with Prime Minister Ranil Wickremasinghe. This engendered a difficultperiod of political cohabitation between the Government and President Kumaratunga. By late

national gross domestic product was estimated at 8.2% in 2003, much lower than the 15−20% pre-conflictcontribution in 1982 and 1983. During the war, areas under cultivation in the North and East fell by 50−80% and itsshare in rice production fell from 33% in 1980 to only 3% in 2000.

9Centre for Policy Alternatives. 2007. War, Peace and Governance in Sri Lanka: Overview and Trends. ColomboAvailable: http://www.cpalanka.org/research_papers/War_Peace_Governance.pdf

10Arunatilake, N., S. Jayasuriya, and S. Kelegama. 2000. The Economic Costs of the War in Sri Lanka. Institute ofPolicy Studies. Colombo.

http://www.cpalanka.org/research_papers/War_Peace_Governance.pdf





4

2003, the cohabitation led to a crisis, and a new SLFP-led government was formed after theApril 2004 elections. Following the presidential election in November 2005, Mahinda Rajapaksawas sworn in as the fifth executive President of Sri Lanka. In October 2006, the SLFP and theUNP signed a memorandum of understanding to work together on electoral reforms,governance, social development, and conflict in the North and East, but this cooperation wasshort-lived. Several UNP members crossed over to the SLFP-led Government and accepted

ministerial positions. Despite the crossover, the UNP remains the largest opposition party. On28 January 2007, a cabinet reshuffle resulted in the appointment of 52 cabinet ministers, 33noncabinet ministers, and 19 deputy ministers—the largest number of ministerial positions in thehistory of Sri Lanka.

11. Sri Lanka had inward-looking and state interventionist policies from the 1950s up to themid-1970s. It had unprofitable state-owned enterprises (SOEs) characterized by overstaffing,mismanagement, and pervasive government interventions. In 1977, the Government embarkedon an economic liberalization program, which helped to dismantle currency and price controls,set a single exchange rate, lower import tariffs, ease restrictions on foreign investment, andderegulate the financial sector. A majority (80%) in Parliament helped push the reforms forward.Resurgence in growth followed, fuelled by a public investment program. GDP grew by 6% per

annum during 1978−1983, compared with 3% during 1971–1977. A decade later, furtherreforms addressed privatization, the labor market, redesign of social security, and initiatives toreduce poverty.

12. The economy of Sri Lanka has been resilient, largely due to the liberalization reformsbegun in the 1970s and the reduction of trade barriers that helped open up the economy. RealGDP growth averaged 4−5% per year (1977–2006). This compares favorably with theperformance of other South Asian countries such as Pakistan and Bangladesh. Since 2000, SriLanka has faced significant development challenges, including sharply higher world oil prices,drought, floods, the 2004 tsunami, and the resurgence of armed conflict. The economy isaccustomed to operating in difficult situations, having a diversified private sector with overseasconnections. Currently, Sri Lanka has the lowest tariff barriers in South Asia. It is also the

second most open economy in the region after the Maldives, with its trade accounting for about82% of GDP. Services have been leading the country’s economic growth since 2002, especiallytelecommunications and financial services, followed by industry.

13. In its 2006 Annual Report, the Central Bank of Sri Lanka cautioned that the increasingrecurrent expenditure poses risks for the economy. The high recurrent expenditure is partlyassociated with increases in expenditures on (i) salaries and wages, and (ii) pension paymentsand transfers to households and public corporations and institutions. Tax revenue increased forthe third consecutive year, amounting to 15.3% of GDP in 2006, mainly due to reforms in taxadministration and timely enactment of legislation. These positive outcomes took place amid adifficult working environment where tax administration has become increasingly complex due totax exemptions, increased value-added tax bands, and lack of a computerized refunding

mechanism for value-added tax. Apart from high recurrent expenditures, persistent fiscal issuesinclude high borrowing from the banking system and high public debt burden. These factorstend to negate the gains in revenues, as expenditures on these three items absorb about twothirds of total revenue. The Central Bank estimated that the government debt amounted to 93%of GDP in 2006 (Appendix 2, Table A2.2).



5

B. Millennium Development Goals in Sri Lanka

14. Sri Lanka is a high achiever in relation to the human development index, ranking 93rd among 177 countries in 2006.11 It was one of the first developing countries to invest inhuman resources and to promote gender equality. Sri Lanka is primarily on track to achievemost of the Millennium Development Goals (Appendix 2, Table A2.3) including primary school

enrollment, gender parity in primary and secondary school enrollment, and provision ofreproductive health services. The country has reduced mortality rates of infants and under-five-year-old children, maternal mortality rates, and the incidence of malaria since the 1990s. Theprevalence in the country of human immunodeficiency virus/acquired immune deficiencysyndrome is generally low, and the Government has initiated programs to control its spread.

15. But Sri Lanka’s social achievements have not been accompanied by significantpoverty reduction. From 1991 to 2002, the country achieved a marginal reduction(3 percentage points) in the incidence of income poverty.12 Reduction in poverty was unevenacross sectors: urban poverty fell by half between 1990 and 2002; rural poverty declined by 5percentage points; and poverty in the estate sector increased by 9 percentage points, makingthis sector the poorest in the country.13 The skewed pattern of poverty reduction reflects uneven

regional growth.14 Economic growth throughout the 1990s up to the early 2000s significantlybenefited the Western region, particularly Colombo and surrounding districts. Provinces that relymainly on agriculture experienced marginal reduction in poverty. Consequently, the incidence ofpoverty in rural areas remained at 25% (2002). Poverty tended to be prevalent amonghouseholds that were dependent on agricultural wages. Poor access to economic opportunitiesby rural and plantation estate households contributed to unequal poverty reduction. Inadequateconnectivity to markets and growth centers, lack of electricity and transport facilities, anduneven access to quality schools were correlated with poverty incidence. Poor urban areasexhibited poor housing and inadequate access to clean water, sanitation, and electricity.

C. Development Priorities of Sri Lanka’s Governments over the Last Two Decades

16. A decade after the initiation of economic liberalization reforms, privatizationbecame a government priority in 1987. The Government built on earlier economic reforms,which catalyzed the transition from a state-controlled to a market-based economy. This was amajor turning point in Sri Lanka’s development history. Supported by the International MonetaryFund and the World Bank, the Government pursued structural adjustments. Sri Lanka focusedon short-term stabilization and medium-term structural adjustment during 1988−1995, guided byprivate sector-driven growth. The program promoted enhanced credit policies, a reduction ofsubsidies, divestment of government interests in SOEs, a freeze on the hiring of civil servants,and staff reduction in the public sector. Privatization had a slow start, partly because of the useof SOEs as instruments of political patronage and employment protection. The sale of SOEsgained momentum after 1989. Steps taken to reduce the fiscal deficit were largely negated byincreased government expenditures, including for defense and internal security. Efforts to

reduce the size of the public service diminished. By 1995, measures to scale down the civil

11The human development index is a composite index of life expectancy, adult literacy, school enrollment, andincome per capita. Available: http://hdr.undp.org/hdr2006/statistics/

12According to the Department of Census and Statistics, the percentage of households below the national povertyline rose to 28.8% during 1995/1996 from 26.1% in 1990 due to a severe drought that struck most parts of thecountry in 1996. By 2002, this percentage had declined to 22.7%.

13The conflict-affected North and East were excluded from these estimates because of the unavailability of data.

14World Bank. 2007. Sri Lanka Poverty Assessment Engendering Growth with Equity: Opportunities and Challenges. Washington, DC.

http://hdr.undp.org/hdr2006/statistics/

http://hdr.undp.org/hdr2006/statistics/



6

service had been reversed. Currently, Sri Lanka has the highest number of civil servants per100,000 people in South Asia.15

17. Finding solutions to poverty reduction and unemployment has been at the centerof the Government’s development agenda. The vision of faster economic growth to reducepoverty had earlier hinged on (i) macroeconomic stabilization and exchange rate

competitiveness; and (ii) structural reforms to dismantle protectionism, regulatory barriers, andpublic sector privileges that curbed competition. After the 1994 change of government, supportcontinued for economic liberalization, and public investment in physical infrastructure wasprioritized to facilitate private sector expansion. The Government promoted public enterprisereform, financial reforms, agricultural productivity enhancement, labor skills upgrading, andenvironmental management.

18. With the change in government in December 2001, the Government renewed itscommitment to economic policy reforms, private sector-led growth, and furthereconomic liberalization. At the core of the Government’s economic strategy was fastereconomic growth by removing barriers to increased productivity, mainly by (i) acceleratingprivatization of state interests in commercial activities, (ii) reforming the legal and regulatory

system, and (iii) improving the efficiency of government functions and fiscal management.Central to the poverty reduction policies were initiatives to support macroeconomic stability,reduce the effects of the conflict on poverty, create economic opportunities for the poor, investin people, strengthen governance, and implement an effective monitoring and evaluationsystem.16 In 2003, the Government and the International Monetary Fund signed a PovertyReduction and Growth Facility. The Government called for fiscal consolidation, reduction ofsubsidies, and welfare support programs. This strategy became vulnerable to criticism. Criticsargued that (i) in the absence of tangible short-run benefits, and given the sizeable reduction ofsubsidies and welfare programs, the poor would be disadvantaged; and (ii) the growth strategyhad an urban bias that could further set the Western region apart from the rest of the country.

19. A new government came to power in April 2004 and subsequently underscored a

prominent role for the public sector in development. This marked some departure from pastpolicies and priorities. The Government’s current policy is shaped by the presidential manifesto,the Mahinda Chintana , which prioritizes social protection, development of small and mediumenterprises, infrastructure, and rural development to address regional disparities. 17 TheGovernment has emphasized that it will not pursue privatization as a way of improving theperformance of SOEs. Instead, efficiency improvement initiatives will be pursued for SOEs. Thedevelopment thrust aims at accelerating growth, with due regard for equitable development andthe participation of the public sector. Subsidies were increased and incentives were provided topromote agriculture, support food security, and raise farm incomes. In its Ten-Year HorizonDevelopment Framework (2006−2016), the Government has targeted a GDP growth rate of 8%over the next 6 years and 9−10% thereafter.18 Promoting a favorable investment climate, stablesecurity situation, and sound development management are crucial in this regard.

15After a freeze of civil service recruitment in 2002−2003, 40,000 graduate trainees were regularized as civil servantsin 2005 and 2006. In May 2007, the Government announced the recruitment of 20,000 graduates. In June 2007,Parliament approved a supplementary budget of nearly $6 million to finance the creation of seven new ministries.

16Government of Sri Lanka. 2002. Regaining Sri Lanka: Vision and Strategy for Accelerated Development. Colombo.

17Available: http://www.mahindarajapaksa.com/MahindaChinthanaEnglish.pdf

18Ministry of Finance and Planning. 2006. Mahinda Chintana, A Vision for a New Sri Lanka: Ten-Year Horizon Development Framework 2006 −2016 Discussion Paper . Colombo.

http://www.mahindarajapaksa.com/MahindaChinthanaEnglish.pdf

http://www.mahindarajapaksa.com/MahindaChinthanaEnglish.pdf



7

III. POSITIONING OF ADB COUNTRY STRATEGIES

20. The positioning of ADB’s country strategies19 was assessed using several criteria: (i)relevance and alignment of the strategies with country and ADB priorities, including countryownership; (ii) basis for strategy and program formulation; (iii) ADB’s comparative advantageand strategy coordination with development partners; (iv) focus/selectivity and synergies; (v)

long-term continuity; and (vi) risk assessment and monitoring mechanisms to achieve envisagedresults.

21. In the last decade, ADB’s country strategies for Sri Lanka evolved in response tothe principal challenge of poverty reduction. From the 1990s to the early 2000s, thesestrategies viewed the acceleration of the structural transformation process as a major strategy inreducing poverty, mainly through (i) policy and institutional reforms to create an enablingenvironment for private sector-led growth, (ii) human resource development to respond to theneed for people to have marketable skills, (iii) improving infrastructure, (iv) improved naturalresource management, and (v) mitigation of social costs and environmental impacts associatedwith economic development and transformation. Before the 2002 ceasefire agreement, ADB’scountry strategies in Sri Lanka acknowledged the existence of the conflict but did not specifically

address its causes and effects. With the shift since 2001 toward greater inclusion of the conflict-affected areas in development and a more optimistic outlook on peace at that time, thesubsequent strategy (2004−2008) underscored support for reconstruction in addition to povertyreduction, guided by the three pillars of pro-poor economic growth, social development, andgood governance. ADB’s related assistance during this period covered six core sectors: (i)agriculture, (ii) transport (roads and ports), (iii) energy (primarily power), (iv) education, (v) watersupply and sanitation, and (vi) finance. Thematic priorities covered governance; gender;environment; private sector development; and, to a lesser extent, regional cooperation.

22. ADB is a leading provider of assistance to Sri Lanka in the form of loans and grantassistance (see Figure). During 2001−2005, ADB was Sri Lanka’s second largest source ofdevelopment assistance in terms of fund disbursements (22%) after Japan (31%).

23. ADB’s strategies in the last decade were responsive to Sri Lanka’s priorities at thetime they were prepared, but the current country strategy is now less relevant. Thecountry strategies focused on economic reforms to promote an enabling environment for privatesector-led economic growth, and emphasized the importance of better infrastructure, humandevelopment, creation of opportunities for the poor, and better governance. These strategieshave been consistent with ADB’s corporate polices on poverty reduction, education, energy,private sector development, gender, governance, and anticorruption. 20 However, severaldevelopments have made the current strategy less relevant: (i) the resurgence of the conflicthas posed critical challenges to the rehabilitation of the North and East; (ii) postconflictassumptions have become irrelevant due to the renewed fighting; (iii) the Government’s currentdevelopment agenda has changed from previous economic policies, according low priority to

restructuring, rejecting privatization of SOEs, and placing greater emphasis on the role of thepublic sector in economic development; and (iv) the escalation of conflict has to some extentdiverted the Government’s attention from economic management.

19The country strategy and program integrated the earlier country operational strategy and country assistance plan.For purposes of this document, the term “country strategies” is used to simplify the discussion.

20ADB policies and strategies are available at http://www.adb.org/Development/policies.asp.

http://www.adb.org/Development/policies.asp

http://www.adb.org/Development/policies.asp



8

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

Finance and Planning.

0

50

100

150

200

250

300

2001 2002 2003 2004 2005

ADB World Bank Japan

Other Bilateral Other Multilateral Other Sources

Figure: Disbursements by Development Partners, 2001−2005($ million)

24. Since 1998, ADB has adopted participatory processes to formulate the countrystrategies. ADB country teams interacted with government entities, nongovernmentorganizations (NGOs), the private sector, development partners, and other stakeholders througha series of workshops and meetings during the strategy formulation process. The 1998−2003strategy was prepared in cooperation with a government focal group that contributed to, andreviewed, the contents at various stages of preparation. The process used to formulate the2004−2008 country strategy included a stock-taking meeting at the outset to define the rationaleand directions, followed by consultations with stakeholders throughout the formulation process.Interviews with stakeholders and a perception survey of SLRM confirmed that ADB had paidadequate attention to country context and priorities.

25. ADB identified appropriate opportunities for development assistance. The countrystrategies drew insights from (i) existing development challenges, and the country’s economicpolicies and development priorities; (ii) ADB’s corporate policies and strategies; (iii) economic,sector, and thematic studies; (iv) multilevel consultations; (v) experience and lessons drawnfrom ADB’s lending and nonlending operations; (vi) operations of development partners; and(vii) continuity in policy dialogue. There is sufficient evidence to indicate that from 1998, thestrategic choices in the strategies drew on economic analyses at the sector level (such asagriculture, education, transport, water supply, power, and economic management) andanalysis at the thematic level (governance, gender, private sector development, and poverty).

26. ADB has coordinated its programming of development assistance withdevelopment partners through regular and agenda-specific consultations. ADB supportedsector development, while the International Monetary Fund focused on structural adjustmentand macroeconomic stabilization in the 1990s. ADB coordinated its sector assistance with theWorld Bank, especially in promoting liberalization in the agriculture and industry sectors, and inaddressing constraints in infrastructure and finance. Consultations were undertaken regularly



9

with bilateral organizations in sectors where ADB was active. 21 ADB’s participation in jointneeds assessments provided opportunities to coordinate development assistance with keypartners, increasing relevance and responsiveness to the country’s priorities.22

27. The overall thrust on economic growth and poverty reduction provided coherenceto the country strategies. Policy and regulatory reforms to accelerate economic growth were

accompanied by measures to advance social development and deliver services to thepopulation. Support for good governance lent synergy, mainly by improving the effectivenessand efficiency of service delivery institutions and promoting better public resource management.The 1993−1997 and 1998−2003 strategies generally focused on the promotion of appropriatepolicies and the provision of infrastructure and services for economic growth. The existing2004−2008 country strategy calls for (i) improving infrastructure (roads, power, and watersupply), (ii) raising the quality and relevance of education, (iii) increasing access of the poor tosocial services, (iv) rebuilding conflict-affected areas and reintegrating them into the economy,(v) removing legislative and regulatory barriers to private investment, (vi) promoting enhancedrural livelihoods and commercialization, and (vii) improving governance.

28. ADB’s lending and nonlending instruments covered many sectors and subsectors.

Instruments included project loans; policy-based programs; TA grants; and economic, thematic,and sector studies. Policy-based programs complemented investment loans for sectordevelopment by aiming to (i) reduce market distortions, (ii) remove obstacles to private sectordevelopment, (iii) promote public enterprise reform, (iv) encourage fiscal management reform,and (v) develop the financial markets. ADB provided TA to support project formulation; promotecapacity development; improve service delivery; and prepare sector, policy, and issues-orientedstudies. Although the composition and spread of ADB assistance responded to theGovernment’s priorities, the diversity of the assistance programs overstretched ADB’s capacityto become an effective partner in all sectors.

29. The country strategies had long-term continuity. The strategies built on precedingstrategies and programs and provided continued support for sector policy and regulatory

reforms. Appendix 3 illustrates the major thrusts of ADB’s country strategies over time (includingsector and thematic priorities).

30. The strategies assessed implementation risks. Prior to 1998, risk assessments werenot part of ADB’s country strategy requirements. Subsequently, the country strategies identifiedpotential risks to efficient implementation and provided monitoring mechanisms to trackimplementation progress through country strategy updates, economic reviews, sector reviews,

21For example, in 2003 the Japan Bank for International Cooperation organized a joint strategy seminar, in whichADB and the World Bank participated to exchange views on their respective strategy formulation. The presence inSri Lanka of a large bilateral source (Japan) presented a strategic opportunity for ADB to enter into joint or parallelfinancing in sectors such as power and roads, and to pursue economic policy reforms through policy-based

programs. ADB was also active in mobilizing official cofinancing (grants and concessionary sources) for itsoperations.

22The conflict-related joint needs assessment (2003) identified financing needs of about $3 billion for relief,reconstruction, and rehabilitation of the North and East, of which $780 million was required for immediate and $1.2billion for medium-term interventions. The joint tsunami needs assessment (2005) identified rebuilding needs ofabout $1.5 billion for Sri Lanka; most of the resources required in the short term were for housing, transportation,institutional and community infrastructure, livelihood restoration, and small and micro enterprise assistance. A jointneeds assessment in 2005 was undertaken by ADB, the World Bank, Japan, and the United Nations system incooperation with the Government and the Task Force for Rebuilding the Nation. For tsunami aid coordination at theglobal level, ADB also organized a high-level coordination meeting in Manila (March 2005) including developmentpartners, governments of affected countries, civil society, and private sector representatives.



10

and performance reports on projects.23 The 1998−2003 strategy identified five implementationrisks: (i) security/civil conflict; (ii) the possible return to power of the opposition party, whichcould result in policy changes; (iii) effects of the Asian financial crisis, which could affectmacroeconomic stability; (iv) relaxation of fiscal discipline; and (v) procurement difficulties andproject implementation delays. The country strategy indicated that, if properly monitored, theserisks were manageable. The subsequent enactment by the Government of the Fiscal

Management Responsibility Act (2004) provided a safeguard against the relaxation of fiscaldiscipline, with its targets to reduce the budget deficit and total debt, and to promote fiscaltransparency and accountability. The subsequent 2004−2008 country strategy noted five mainrisks: the dilution or deferment of the Government’s reform program, the civil conflict, externalshocks, shortfalls in project design and targets, and social consequences of the reforms (laborlaw, land law, and privatization).

31. Overall, the positioning of ADB’s country strategies at the time they wereprepared is assessed as “satisfactory”. Table 1 summarizes the ratings for each strategyand the overall positioning.

Table 1: Rating of the Positioning of Sri Lanka Country Strategies

Criteria for Positioning

CountryStrategy

Relevance/Alignment

withPriorities

andCountry

Ownership

SufficientBasis for

Strategy andProgram

Formulation

ADB’sComparative

Advantage andStrategy

Coordination withDevelopment

Partners

Focus/Selectivity

andSynergies

Long-TermContinuity

RiskAssessment

andMonitoring

Mechanismsto AchieveEnvisaged

Results Averagea

1993−1997 2 (S) 1 (PS) 2 (S) 2 (S) 2 (S) 1 (PS) 1.67 (S)1998−2003 2 (S) 2 (S) 2 (S) 2 (S) 2 (S) 2 (S) 2.00 (S)2004−2008(when firstissued)

2 (S) 2 (S) 2 (S) 2 (S) 2 (S) 2 (S) 2.00 (S)

2004−2008(currentcontext)

1 (PS) 1 (PS) 2 (S) 1 (PS) 2 (S) 1 (PS) 1.33 (PS)

ADB = Asian Development Bank, HS = highly satisfactory, PS = partly satisfactory, S = satisfactory, US =unsatisfactory.a

Note: HS = 3, S = 2, PS = 1, and US = 0. An equal weight is applied to each of the six criteria for positioning. Theratings are as follows: (i) HS > 2.5, (ii) 2.5 ≥ S ≥ 1.6, (iii) 1.6 > PS ≥ 0.6, and (iv) 0.6 > US.

32. The changing context since 2004, including the April 2004 change of government,new development policies (Mahinda Chintana ), and the resurgence of conflict, have madethe positioning of the existing 2004−2008 country strategy “partly satisfactory”. The2004−2008 country strategy did not anticipate the 2004 change of government, the coalitionpolitics that emerged, and the ensuing implications for the country’s development policies andeconomic management. These developments provide compelling reasons for ADB to repositionits country strategy and assistance.

23In addition, supportive measures, including the strengthening of the project directors’ forum, development of actionplans, creation of a procurement bureau, and active involvement of SLRM in coordination, were meant to improveimplementation performance of projects and TA grants.



11

IV. LOAN AND TECHNICAL ASSISTANCE PORTFOLIO

A. Loan and Technical Assistance

33. ADB began lending to Sri Lanka in 1968, and the country is among ADB’s top 10borrowers. By 2006, ADB had approved 130 loans ($3.7 billion) for 110 projects (Appendix 4).

Of the 90 loans during 1986−2006, 77 loans for $2.7 billion (84%) were financed from the AsianDevelopment Fund and 13 loans for $0.53 billion (16%) were financed from ADB’s ordinarycapital resources. ADB categorizes Sri Lanka as a Group B1 country, which borrows primarilyfrom the Asian Development Fund, with limited amounts from ordinary capital resources. In thelast two decades, the largest share of loans went to agriculture (19%), transport (18%), andfinance (10%).

34. ADB had also provided 236 TA grants ($93.9 million) to Sri Lanka by 2006 (Appendix 5).During 1986−2006, $87.6 million financed 195 TA grants, of which 122 (56%) were advisory($48.8 million), and 73 (44%) for $38.8 million were project preparatory. Agriculture received thelargest share (26%) in amount of approved TA grants, followed by transport (16%), economicmanagement and public policy (12%), and finance (9%). Sri Lanka participated in at least 84

regional TA activities during 1993−2006.

B. Portfolio Performance

35. The trend per decade shows that portfolio performance improved over time, as theproportion of projects and programs rated “successful” or better increased from 43% in the1970s to 50% in the 1980s to 62% in the 1990s (Table 2). During the CAPE period(1986−2006), 56% of projects and programs were rated “successful” or better. This was 6%higher than the success rate of projects and programs (50%) before the CAPE period. Forsectors with at least four rated projects during the CAPE period, agriculture and naturalresources (33%) and multisector projects (25%) achieved the lowest success rates, whileeducation (75%) and transport (75%) registered the highest.24 To date, only one of the five

(20%) policy-based program loans has been rated “successful”, lower than the ADB-wideaverage of 51%. This poor performance is attributed mainly to a complex policy environmentmarked by policy changes and inconsistencies. A detailed analysis of the performance of policy-based program loans to Sri Lanka is found in Supplementary Appendix G.

36. These project and program performance ratings exclude the performance of ongoingprojects and programs approved since 1996; only six had been completed and rated byDecember 2006. The ratings are one of the inputs into the sector performance rating developedand used for this evaluation. To arrive at the overall sector ratings, the evaluation alsoconsidered the findings of the operations evaluation missions of September 2006 andDecember 2006, which included actual field visits and interviews with various stakeholders forboth completed and ongoing projects under the evaluation period. The performance of TA

grants was also assessed and considered in the sector ratings. However, it is limited to sectorswhere a full-blown analysis was made. These sector ratings are discussed in Chapter V.

24The target success rating for program/project completion reports and program/project performance evaluationreports is 80%. Although some sectors achieved this standard, the small number of rated projects in those sectorsduring the CAPE period precludes a firm conclusion. Among the five multisector loans during the CAPE period,three could be classified as predominantly agriculture, while two were mainly water supply projects. If the five loansare reassigned to those sectors, agriculture’s success rate during the CAPE period is reduced from 33% to 29%,and water supply from 100% to 50%.



12

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

Sector

Total

Rated

S

(%)

Total

Rated

S

(%)

Total

Rated

S

(%)

Total

Rated

S

(%)

Total

Rated

S

(%)

Total

Rated

S

(%)

Total

Rated

S

(%)

Total

Rated

S

(%)

Agriculture and Natural Resources 6 17 13 23 6 50 25 28 13 23 12 33 25 28

Education 2 50 2 100 4 75 4 75 4 75

Energy 3 100 2 100 2 50 7 86 4 100 3 67 7 86

Finance 1 0 2 100 4 50 7 57 3 67 4 50 7 57

Health, Nutrition, and Social

Protection 1 100 1 100 2 100 1 100 1 100 2 100

Industry and Trade 2 50 1 100 2 100 5 80 2 50 3 100 5 80

Law, Economic Management, and

Public Policy 1 0 1 100 2 50 2 50 2 50

Mutisector 1 0 1 100 4 25 6 33 2 50 4 25 6 33

Transport and Communications 1 100 1 0 3 100 5 80 1 100 4 75 5 80

Water Supply, Sanitation, and

Waste Management 1 100 1 100 2 100 2 100 2 100Total 14 43 24 50 26 62 1 100 65 54 26 50 39 56 65 54

CAPE = country assistance program evaluation, S = successful.

Note: For projects with both project completion report (PCR) and project or program performance audit report (PPAR) ratings, the PPAR

rating was counted instead of the PCR rating. The ratings do not include ongoing projects.

1986–2006 Total

By CAPE Period (1986–2006)

1960–70s 1980s 1990s 1968–19852000s Total

By Decade

37. Other key findings on Sri Lanka’s portfolio performance are summarized below (seeAppendix 6 for details):

(i) The apparent increase in the number of loans in Sri Lanka’s portfolio during2000–2005 was driven largely by the approval of ordinary capital resources loansbeginning in 2000 combined with the number of closed loans (96%) needing

extensions from 1997 to 2006.(ii) The standard time required from loan approval to signing is 30 days. Theaverage time from loan approval to signing, for both active and closed loans was2.2 months in 1998–2006, better than the ADB performance of 3.5 months in thesame period.

(iii) The benchmark for the time required from loan signing to effectivity is 90 days.Loans became effective after 4.5 months during 1998–2006. In 2006, loansbecame effective after 5 months, longer than the average for South Asia (4.8months) and ADB (4.5 months).

(iv) The period for TA approval to signing of the letter of agreement in Sri Lanka (1.9months) was better than the ADB average (3 months) in 1998–2006.

(v) Sri Lanka portfolio remained unfocused. By 2006, ADB had operated in ninesectors with an average of five loans per sector. Building on the analysis ofprevious OED reports, the measures of dispersion for 2006 using the Hirschman-Herfindal Index are estimated at 0.15 each for the number and value of loans.This implies that the portfolio’s sector focus was heterogeneous.

(v) The 3-year moving averages for both contract awards and disbursements haveimproved since 2001 due to the inclusion of program loans.



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(vi) In the last 4 years, the average supervision intensity25 for Sri Lanka (23.8) wasslightly lower than the regional (27.4) and ADB-wide (25.6) intensity levels. Thenumber of project administration missions fluctuated during 2003−2006 to reflectthe increasing number of projects for review.

38. Based on an analysis of the performance of ADB’s sector assistance programs in Sri

Lanka, the underlying factors explaining portfolio performance, both positive (enablers) andnegative (deterrents), include the following:

(i) Enablers: (a) clear understanding across stakeholders of the objectives andexpected results of programs, projects, or TA; (b) alignment of ADB assistance withthe Government’s evolving development agenda; (c) shared commitment andownership from the design stage through implementation; (d) sound and flexibleproject design; (e) responsiveness of the executing agency; (f) competent projectmanagement; (g) team effort and harmonious interagency coordination; (h) capacitydevelopment; (i) speedy procurement; and (j) observance of good business practicesin service delivery institutions.

(ii) Deterrents: (a) complexity of the political economy,26 which affected readiness andwillingness to undertake major reforms; (b) inadequate analysis of reform options,and impracticality of recommended actions; (c) difficult macroeconomic environment;(d) limited capacity of the Government to manage reform processes; (e) lack ofbroad-based support and consensus building for sector restructuring reforms (powerand financial sectors); (f) poor public awareness program; (g) inconsistent or shiftinggovernment policies; (h) political and security instability and resurgence of the civilconflict; (i) inadequate cost recovery (power, water, and education); (j) weakinstitutions and political interference; (k) complex interagency setup; (l) lack of readilyavailable technical expertise; (m) lack of stakeholder consultation during projectdesign and implementation; (n) procedural bottlenecks or lengthy tendering andprocurement procedures; (o) land acquisition issues (roads); (p) unsatisfactory

performance of contractors; and (q) lack of maintenance of facilities andinfrastructure after project completion (roads and educational facilities). On ADB’spart, staff turnover, lack of consistent engagement and sector focus, incompleteassessment of the absorptive capacity of the executing agency, and lack of technicalskills in some areas hampered implementation.

39. Portfolio performance could be further improved by (i) learning from the experience ofcompleted and ongoing ADB projects; (ii) shortening the time gap between loan signing andeffectivity by identifying risks and emphasizing better quality at entry of projects; (iii) practicingsector selectivity (given that ADB’s assistance is currently dispersed across nine sectors); (iv)supporting efforts to strengthen the objectivity of the project performance reports system (i.e.,project performance report training, periodic reviews); (v) revisiting staff allocation (to include

supervision intensity and delegation of loans) across sectors and their correspondingperformance; (vi) reviewing the appropriateness of ADB’s processes and conditions to minimizeloan extensions; and (vii) influencing portfolio performance by supporting results-basedmonitoring and development evaluation to promote development effectiveness, which will

25This refers to total staff-days for missions divided by the number of projects.

26Political economy refers to interrelationships between political and economic institutions and processes as theyrelate to policy decisions and reforms.



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complement the Government’s ongoing efforts to strengthen its monitoring and evaluationcapacity at the Ministry of Plan Implementation.

V. EVALUATION OF SECTOR AND THEMATIC ASSISTANCE

40. This chapter highlights the key findings on ADB’s sector and thematic assistance. In line

with the evaluation guidelines (Appendix 1), it presents a two-pronged approach: (i) it assessesthe positioning of ADB’s strategies in Sri Lanka at the sector and thematic levels, and (ii) itreviews the performance of the assistance program based on the evaluation pillars of relevance,effectiveness, efficiency, sustainability, and impact. This chapter lays some of the buildingblocks for the final chapter of this report, which presents a countrywide rating.

A. Overview of Findings on ADB Assistance

41. The overall positioning of ADB’s sector and thematic strategies in the last decade israted “satisfactory” at the time of their formulation. This is based on the six positioning criteria inChapter III that were used earlier to assess strategies at the country level. The sector andthematic strategies were basically a response to identified needs and challenges, and generally

sought to improve service delivery, provide infrastructure facilities (roads, water supply, andpower), and develop marketable skills. Complementary policy and institutional reforms weremeant to improve the enabling environment, enhance sector performance, and support theGovernment’s economic management agenda. The strengths of ADB’s sector and thematicstrategies generally lay in their (i) combined use of economic, thematic, and sector studies (seeAppendix 7 for examples); multilevel stakeholder consultations; policy dialogue; and lessonsfrom past lending and nonlending operations; (ii) alignment of the assistance program withgovernment priorities at the time of strategy formulation as well as with ADB’s corporate policiesand poverty reduction strategy; (iii) long-term continuity, mainly by building on earlier initiatives;(iv) coordination of ADB’s assistance program with development partners; and (v) incorporationof results-based monitoring mechanisms to track progress.

42. These sector and thematic strategies, however, fell short of (i) conducting riskassessments, (ii) formulating risk management plans, and (iii) assessing the absorptive capacityof the sector. While various economic, political, and security risks were identified at the countrystrategy and project/program levels, similar efforts were lacking at the sector and thematiclevels. Governance and corruption risk assessments were also non-existent in sectors whereADB was active. Now that such assessments and risk management plans are mandatory underADB’s Second Governance and Anticorruption Plan, future sector strategies need to explicitlyaddress these dimensions.

43. Overall, the performance of ADB’s sector and thematic assistance to Sri Lanka is rated“partly successful”. Table 3 presents the ratings by sector and by thematic assistance. Thebetter performing sectors in the last two decades include transport (mainly roads), education,

and water supply and sanitation, which the evaluation team rates “successful”. The rest of thesectors are rated “partly successful/likely to be partly successful”. Thematic assistance togovernance and conflict operations will likely be “partly successful”. Generally underlying thepartly successful ratings are partial achievement of expected outcomes, existence ofsustainability risks that undermine gains from the assistance program, and likelihood of amodest impact in the long term. The highlights are discussed in the subsequent sectorsummaries.



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

Evaluation CriteriaCategory Relevance Effectiveness Efficiency Sustainability Impact

OverallRating

A. Sector Assistance Transport Highly

RelevantEffective Efficient Likely to be

SustainableSubstantial Successful

Education HighlyRelevant

Effective Efficient Likely to beSustainable

Likely to beSubstantial

Successful

WaterSupply andSanitation

HighlyRelevant

Effective Less Efficient Likely to beSustainable

Substantial Successful,On the LowSide

Power HighlyRelevantDuringStrategyFormulation

Less Effective Efficient Less Likely tobe Sustainable(the sector isinsolvent)

Substantial(mainly interms of ruralelectrification)

PartlySuccessful

Agriculture Relevant Less Effective Efficient Less Likely tobe Sustainable

Modest toSubstantial

PartlySuccessfulBordering on

UnsuccessfulB. Thematic Assistance

Governance HighlyRelevant

Likely to beLess Effective

Likely to beEfficient

Likely to beSustainable

Likely to beModest

Likely to bePartlySuccessful

Assistanceto Conflict-AffectedAreas

HighlyRelevantDuringStrategyFormulation

Likely to beEffective (andpossibly toBecome LessEffective)

Likely to beLess Efficient

Less Likely tobeSustainable

Likely to beModest

Likely to bePartlySuccessful, Onthe Low Side

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

Readers who are interested in detailed discussion of the sectors and themes covered in thischapter should refer to the respective working papers footnoted in each section.

B. Agriculture and Natural Resources Sector27

44. Agriculture is important to Sri Lanka. Agriculture’s contribution to GDP declined from26% in 1990 to 17% in 2006, but it remains relevant to rural employment, engaging a third of thecountry’s labor force. Nearly 80% of the population resides in rural areas. Several factors havedeterred agricultural development: (i) low productivity, mainly due to inadequate research,extension, and other support services; (ii) a restrictive land policy; (iii) lack of rural infrastructure;(iv) high production costs; (v) limited use of modern technology; (vi) post-harvest losses (25%−

40%) and mishandling of storage and transportation; and (vii) inadequate access to power,water supply, telecommunications, financial services, and other facilities in rural areas.

45. ADB’s positioning of its agriculture sector strategies in the last decade (1996–2006) is rated “satisfactory”. Various initiatives to improve the performance of agricultureprovided long-term continuity to the sector strategies. These included crop productivity

27ADB. 2007. Sri Lanka CAPE: Agriculture and Natural Resources Sector Assistance Evaluation. Manila. Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Agriculture-Natural-Sector.pdf





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improvements, crop diversification, policy and institutional reforms, support servicesimprovement (marketing, research, extension, input supply, and access to credit), and privatesector participation. Sustaining the natural resource base to support employment has been amajor concern in the last decade. 28 The agriculture sector strategies accorded priority toperennial crops, mainly to capitalize on past ADB experience in plantation privatization andsmallholder development. Support for productivity improvements 29 was meant to promote

efficiency and to improve the social conditions of plantation workers. The sector strategiesencouraged private sector participation in research, extension, marketing, financial services,and technological applications to respond to market opportunities. The privatization of plantationcompanies provided opportunities to promote good practices in contract farming and processingof agricultural outputs for organized smallholders. Overall, the agriculture sector strategies wererelevant to the sector challenges. Strategy formulation was based on the Government’sdevelopment agenda, ADB’s Medium-Term Strategy, dialogue with development partners, andpast experience. Starting in 1998, economic, thematic, and sector studies provided a strongfoundation for strategy formulation, combined with stakeholder consultations, policy dialogue,and poverty assessment. Reducing rural poverty has been a major concern of ADB’s agriculturesector strategy. As reflected by a comparison of the 1998–2003 and 2004–2008 countrystrategies, ADB had improved its sector strategies by taking into account country ownership,

absorptive capacity, subsector selectivity, and assessment and monitoring of risks.

46. Despite satisfactory positioning, the overall performance of the agriculture sectorassistance program is rated “partly successful bordering on unsuccessful”. Overall, theagriculture sector assistance program was relevant, less effective, efficient, and less likely to besustainable. Although there were some positive impacts that would probably not have happenedwithout ADB’s involvement, the overall impact of ADB’s sector assistance is deemed “modest tosubstantial”. The sector assistance program was relevant due to the following reasons: (i) thechoice of agriculture projects responded to the country’s development challenges and priorities;(ii) the choices were relevant to ADB’s corporate objectives; (iii) policy-based programscomplemented the development initiatives of investment projects; (iv) the assistance programsupported environmental sustainability; (v) the program was consistent with ADB’s policies on

water, forestry, and the environment, as well as with ADB’s poverty reduction strategy; (vi)stakeholder participation in strategy formulation strengthened the ownership of the agriculturesector strategy; and (vii) the program was aligned with the programs of development partners.However, issues related to lack of focus and selectivity at the subsector level, risks related toinstitutional weaknesses, complex policy environment, and political economy factors were notadequately identified and mitigated, thereby reducing relevance somewhat.

47. The sector assistance program was “less effective”. The agriculture strategies andassistance were adequately reasoned, but their outcomes were mixed. Of the three agricultureprogram loans, the program completion reports rated two “successful” (Agricultural InputsProgram and Agriculture Program Loan) and one “partly successful” (Second AgricultureProgram). The subsequent project performance audit reports, however, rated all these loans

“partly successful”, mainly due to inconsistent government policies that negated earlier gains,unfavorable world prices of agricultural commodities, and a few policy reversals. For investmentprojects, there were several design flaws that could be attributed to inadequate stakeholderparticipation. Political interventions had hampered plantation reforms and affected privatization

28The Government’s State of the Environment Report (2001) identified five key environmental issues: (i) landdegradation due to soil erosion, (ii) inadequate disposal of solid and liquid waste in urban areas, (iii) pollution ofinland waters, (iv) loss of biodiversity, and (v) degradation of coastal resources.

29Productivity improvements called for replanting, rationalization of land use within the plantations, promoting anenabling policy and regulatory environment, and fostering broader commercialization of the sector.








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efforts. Natural resource management suffered from institutional issues related to multipleagencies with overlapping functions, staff capacity constraints, and competing concerns.Coordination of policies, strategies, and program or project implementation in agriculture hasbeen difficult and less effective because of the proliferation of government ministries andagencies and agency changes in the course of project implementation. Integrated ruraldevelopment projects have posed coordination challenges and resulted in an imbalance among

selectivity, focus, and coverage of project components. The performance of projects in the Northand East has been undermined by the resurgence of armed conflict, while outcomes of projectsin some coastal areas were negated by the effects of the tsunami.

48. Overall the sector assistance program was “efficient”. The economic internal rates ofreturn (EIRRs) on investments were about 12% for a number of completed and evaluatedprojects. However, the projects took about 7 years to complete, with an average delay of 2years, partly due to difficulties with certain policy processes (legal and regulatory). Lack offamiliarity of the executing agency personnel with procurement procedures affected projectimplementation. In some ways, poor coordination and high staff turnover dampened gains fromcapacity and institutional development.

49. The sector assistance program is assessed as “less likely to be sustainable”. Generally,the operating environment (as influenced by policies and the political economy context) hasposed serious challenges to performance. Specific risks to the sustainability of the assistanceprogram include (i) operation and maintenance of reforestation and coastal stabilizationprojects; (ii) frequent institutional changes; (iii) lack of capacity and resources among executingagencies to sustain project outcomes, particularly after project completion; (iv) resurgence of theconflict in the North and East that has affected outcomes in conflict-affected areas; (v) instancesof policy reversals; and (vi) conflicting government programs in some areas. The improvedrelationship between extension staff and the communities has enhanced natural resourcesmanagement, but the lack of funds to support operation, maintenance, and extension serviceswill likely undermine the gains from such partnerships.

50. The impact of the sector assistance program has been “modest to substantial”. Positivelong-term contributions to development were evident in (i) improved living conditions of estateworkers in selected areas; (ii) broader income opportunities for tea smallholders and farmers;and (iii) improved natural resource management practices, and relationships between extensionworkers and local communities (Box 1). Based on evaluation studies and project evaluations,30 and on the observations of key informants, these development results could not have beenachieved without external assistance, including ADB support.

51. The success rate of agriculture projects approved prior to 1986 was low at 23%.Although it improved to 33% for projects and programs approved after 1986, it was still lowcompared with other sectors. However, projects focusing on plantation reforms anddevelopment have averted a possible collapse of the tea industry, the major lifeblood of the Sri

Lankan economy. This has also led to improvement of the living conditions of estate workers,who are part of the poorest segments of society. The very positive results achieved in thisimportant area31 offset to some extent the disappointing results achieved by other interventions.The evaluation team observed during its field visits that the implementation of ongoing and

30(i) ADB. 1996. Impact Evaluation Study of Bank Assistance to the Industrial Crops and Agro-Industry Sector in Sri Lanka. Manila. Available: http://www.adb.org/Documents/PERs/IE38.pdf(ii) ADB. Project Performance Audit Reports . Various years. Available: http://www.adb.org/Evaluation/reports

31The plantation sector is the largest agroindustrial sector Sri Lanka, accounting for 4.8% of GDP; 70% of foreignexchange earnings from agricultural exports; and employing, directly or indirectly, 1.5 million workers.

http://www.adb.org/Documents/PERs/IE38.pdf

http://www.adb.org/Evaluation/reports

http://www.adb.org/Evaluation/reports

http://www.adb.org/Documents/PERs/IE38.pdf



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recently completed projects hadbeen satisfactory. If these trendscontinue, the performance ofsector assistance could beupgraded in the future.Nevertheless, ADB needs to be

selective in this sector, given theoperating environment that has ledto the stagnation of agriculture.ADB should examine the numberof subsectors it assists.

52. Lessons from ADB’soperations in this sector arecrucial in defining continuedsector support and improvingsector performance. Theidentified lessons include the

following: (i) a goodunderstanding of political andlegislative processes, includingpolicy and regulatoryenvironments, is a key requisite inproject preparation andimplementation; (ii) the rapiddivestment of SOEs tended tosacrifice transparency and duediligence; (iii) investing inawareness campaigns to improvebeneficiary participation is vital;

(iv) current staffing practices forproject management andimplementation units need to berevisited to ensure retention ofstaff and corporate memory; (v)continued stakeholder support forpolicy reforms is essential tosustain the reform process; (vi)monitoring changes in the macrocontext influencing the sector isnecessary, particularly the incentive environment for private sector participation; (vii) assessingthe institutional and management capacity of executing agencies is extremely important; (viii)

the complexity and diversity of the sector should be matched by flexible and robust projectdesigns that can meet evolving needs; and (ix) developing a project management andinformation system should be prioritized for effective project implementation.

Box 1: Illustrative Impacts of ADB’s Assistance to theAgriculture and Natural Resources Sector in Sri Lanka

Improving agricultural productivity has been the thrust of ADBassistance. However, in the last 10 years, the agriculture sectorregistered an annual growth of 1.0%, and only 0.4% per annum inthe last 5 years in constant prices. The minimal growth was due to

many factors, including inconsistent government policies, subsidiesthat led to market distortions, environmental problems, shortcomingsin optimizing private sector participation, and natural disasters.Despite this difficult operating environment, ADB’s sector assistancecontributed to the following outcomes:

Plantation Crops: (i) Socioeconomic conditions of plantation estateworkers were improved through better housing, sanitation, andrecreation facilities; (ii) privatization of state-owned estates exposedthem to the banking sector and professional management, andsubsequently reduced the Government’s fiscal burden; (iii)increased productivity contributed to improved profitability of severalestates, although some are still not profitable; (iv) for private teasmallholders, workers’ housing improvements resulted in improvedattendance and management-worker relations; (v) technical trainingfor tea extension workers translated into better extension servicedelivery; and (vi) improved roads reduced travel time and reducedtea leaf damage, leading to better market prices for small teafarmers, but road maintenance remains a major concern.

Perennial Crops: (i) Better access to credit and support servicesimproved farmer productivity and incomes; (ii) increased cropdiversification and nonplantation crops opened new avenues forvalue addition and commercialization; (iii) access to credit led tocultivation of additional lands, which created incrementalemployment opportunities for the landless; and (iv) newopportunities emerged for private sector involvement in extensionservices.

Natural Resources Management: (i) Some improved naturalresources management practices were adopted in soil and croppingsystems, forestry, protected areas, and tea plantations, all of whichpromoted ecological balance and sustainability; and (ii)improvements of beachfronts through coastal stabilization programssupported tourism, which generated employment and incomes forlocal residents. The tsunami affected coastal improvements.Scarcity of funds to sustain resource management initiatives afterproject completion will continue to challenge the sustainability ofoutcomes.

Source: Interviews and research by the evaluation team.

53. Identified challenges (Supplementary Appendix A) should be taken into account inplanning future operations in the agriculture sector. Rural infrastructure enhancement andimprovement of the agribusiness climate are possible options for promoting rural-urbaneconomic connectivity to reduce poverty. Achieving a balance between agricultural developmentand ecological safeguards continues to be important, considering the critical role of ecosystems



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as life support to both marine and terrestrial species. Innovations should be encouraged topromote sustainable resource use to support poverty reduction efforts.

C. Education Sector32

54. Investment in education has been a central pillar of Sri Lanka’s development

policy for decades. Successive governments have regarded education as crucial for promotingequity and social mobility, enhancing human development, and contributing to economic growth.Education opens social, economic, and political doors, and increases access to income andemployment opportunities. The government decision to introduce free education in 1945, alongwith subsequent education reforms, enabled Sri Lanka to achieve a high adult literacy rate of91% in 2001. Sri Lanka has been an early achiever in meeting the Millennium DevelopmentGoal of universal primary education, having reached a net primary enrollment ratio of nearly100% in the mid-1990s. Notwithstanding its achievements in literacy, gender equity ineducation, and universal primary education, several challenges have persisted: (i) lack ofresponsiveness of the education system to labor market requirements; (ii) disparities in accessto quality education; (iii) lack of effective linkages between secondary and tertiary education,and between general education and technical education/vocational training; (iv) shortcomings in

sector management capabilities that constrain decentralization; (v) inadequate teacherdeployment and management; (vi) declining government expenditures on education as apercentage of GDP from 3.0% to 2.6% during 1990−2005; and (vii) limited public-privatepartnerships.

55. Addressing the mismatch between the skills acquired through the educationsystem and the requirements of the labor market has been a priority in the last decade. This mismatch led to situations in which high unemployment among school leavers coexistedwith a growing need for skilled and semiskilled workers. The traditional focus on the certificationfunction of education in screening and selection for both higher education and the job markethad generally made the teaching-learning process subservient to passing the examinations.Consequently, most of the young school leavers found themselves unprepared, having neither

enough academic nor vocational training to fit into the job markets. The 1997 education reformssought to change this situation.

56. This positioning of ADB’s education sector strategies in the last decade was“satisfactory”. The clear focus on marketable skills development provided selectivity andcoherence to the strategies. This justified a phased education investment program thatcapitalized on earlier efforts and supported education sector reforms. The 1998−2003 countrystrategy, in particular, clearly identified marketable skills development as an area where ADBcould play a distinct role. Improving the quality of secondary education, technical education andvocational training, and distance learning in tertiary education called for a long-term effort,alongside improving the internal and external efficiency of the system. The education sectorstrategies during 1996-2006 had a sufficient basis for their formulation, taking into account (i)

economic, sector, and thematic studies; (ii) poverty assessment; (iii) government policies forhuman and social development; (iv) multilevel stakeholder consultations; (v) pertinent ADBpolicies and strategies such as the Poverty Reduction Strategy (2002) and Education Policy(2002); and (vi) operations of development partners in the sector. ADB excluded support forprimary education to avoid duplicating assistance from development partners in this area. Theeducation sector strategies specified their expected outcomes and impacts. However, they fell

32ADB. 2007. Sri Lanka CAPE: Education Sector Assistance Evaluation. Manila Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Education-Sector.pdf





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short of an in-depth assessment of absorptive capacity and risks that were specific to the sector.ADB’s education sector assistance program, as delivered, was consistent with the declaredsector strategies.33 Of the total amount of project loan approvals ($270.8 million), 43% went tosecondary education, 28% to technical education and vocational training, and 24% to tertiaryeducation.

57. The overall performance ofthe education sector assistanceprogram is rated “successful”. Itwas highly relevant to, and consistentwith, the country’s evolving prioritiesand ADB’s corporate policies. TheGovernment has been committed toimproving quality, access, andstudent competencies throughout thecountry’s education system. Sectorassistance capitalized on ADB’sstrengths in technical education and

vocational training. This wascoordinated with developmentpartners in secondary and tertiaryeducation. The education sectorassistance program is assessed as“effective”. Various outcomes wereachieved that responded to improvingthe quality of education and itsresponsiveness to the labor market(Box 2). However, actions on certainTA recommendations were delayed,such as those relating to the

enactment of the New University Act(2000), the promulgation of the policyon private education, and theestablishment of the Commission onPrivate Education. Allowing privateuniversities to emerge has yet to gainpolitical acceptance.

Box 2: Key Outcomes of the Education Sector AssistanceProgram

Secondary Education• Improved pass rates during 2001−2004 from 37% to 47.3%

at the ordinary level national examination, and from 50.5% to55.0% at the advanced level

• Relatively high qualification rates for entry to higher leveleducation: 72.7% of the students who received scholarshipsunder the Secondary Education Modernization Project Iqualified for entry to Grade 12, and 58.1% to universityeducation

• Access to senior secondary education (grades 10−13) bynearly 50,000 children from economically disadvantaged

families• Access of students, teachers, and administrators to

information and communication technology

Technical Education and Vocational Training• Planned development has replaced ad hoc interventions in

national policy• A clear sense of direction has been seen in (i) an

institutionalized competency-based training, starting with 45trades, (ii) a national vocational qualifications system thatoffers a career path and an alternative avenue to highereducation, and (iii) accreditation of vocational training centersby the Tertiary Education and Vocational Commission

• Self-employment for graduates of the entrepreneurshipdevelopment program who benefited from 823 loans

Tertiary Education• Access to tertiary education through distance learning• Quality assurance for distance learning• Employment rate of 71.5% for graduates of the ADB-assisted

science and technology institutions in 2002, based on tracerstudies

Sources: Interviews and research done by the evaluation team.

58. The education sector assistance program is assessed as “efficient” in the processesinvolved. There was no major problem with cost overruns. The project design andimplementation process involved multilevel consultations with stakeholders and recognized theshortfalls of past projects to improve performance. On average, ADB-assisted education

projects in the last two decades experienced a 2−year delay due to (i) changes in project scope,(ii) delays in procuring goods and services, (iii) lack of counterpart funds, and (iv) delayedappointment of project staff. Underutilization of some facilities for technical education andvocational training affected cost effectiveness to some extent. To address underutilization, ADBprovided advisory TA in 1996 to redistribute physical assets and staff.

33ADB financed 9 education projects ($270.8 million), 7 advisory TA grants ($2.6 million), and 10 project preparatoryTA ($4.2 million).







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59. Overall, the education sector assistance program is assessed as “likely to besustainable”. The executing agencies have pursued various measures to safeguardsustainability and to reduce the budgetary burden on the Government. Under the SkillsDevelopment Project, for example, these measures included (i) a financial and managerialscheme, which provides autonomy to two technical colleges; (ii) a performance contractingscheme that allows qualified private institutions and NGOs to take over facilities of poorly

performing technical colleges; (iii) implementation of district resource rationalization plans topromote synergies among training providers; and (iv) improvement of administrative systems ofvocational training institutions. The Technical Education Development Project, which becameeffective in April 2006, is expected to build on the achievements of the Skills DevelopmentProject and to establish the University of Vocational Technology to provide students andpersonnel with a new pathway for upward mobility. In secondary education, some computerlearning centers have started to implement cost recovery measures. Schools in poorer areas,however, may encounter difficulty in charging fees. For the Distance Education ModernizationProject, future sustainability will depend on (i) continued access to computer technologies andfacilities, (ii) affordability to the rural sector of the technology for distance learning, (iii) the costof accessing the program, (iv) mechanisms for quality assurance, and (v) continuing capacitydevelopment for preparing web-based curriculum materials and for interactive teaching and

learning. These issues are being addressed.

60. The contribution of the education sector assistance program to the country’ssocioeconomic development is “likely to be substantial”. Key informants indicated that, had ADBnot provided assistance to the education sector, it would not have been possible to introduceimportant innovations. ADB’s distinctive contributions are summarized in Box 3. During1990−2005, unemployment among the educated who had passed the advanced level nationalexaminations declined from 29% to 14%. This reduction in unemployment among the educatedis noteworthy. Although it cannot beattributed solely to the ADBassistance program, gains have beenattained by introducing a more

market-responsive curriculum,strengthening linkages betweentraining providers and industry, andimproving access to quality education.

61. The lessons identified fromADB’s operations in the educationsector cover three subsectors: (i)secondary education, (ii) technicaleducation and vocational training,and (iii) tertiary education (mainlydistance learning). In secondary

education, the lack of conceptualclarity arising from equatingproficiency in basic computer skillswith computer-assisted learning hasaffected the development of programsintegrating the use of computer skillsin curriculum development and in theteaching-learning process. The use ofteacher education institutions that are

Box 3: Distinctive Contributions of the Education SectorAssistance Program

Technical Education and Vocational Training•

Streamlined technical education and vocational trainingunder the Ministry of Vocational and Technical Training,which brought multiple and fragmented institutions under asingle umbrella

• Establishment of a national vocational qualificationsframework, which has served as a unifying policy mechanismfor bringing coherence to the sector and for formulatingqualification standards

• Introduction of competency-based training• Strengthened Tertiary and Vocational Education Commission

as a policymaking and regulatory body

Secondary Education• Establishment of computer learning centers and a school

network.

• Provision of multimedia equipment and promotion ofinteractive learning

Tertiary Education• Elevated recognition at the national level of the importance of

distance education• Distance education opened up to different educational

providers, both public and private.• A quality assurance framework to address standard setting

Source: In-depth interviews by the evaluation team.



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responsible for this function needs to be optimized. Timely recruitment and development of staffand provision of equipment must complement school infrastructure programs. In proposals forcost recovery to ensure sustainability, the relatively high poverty incidence and socioeconomicdisparities in the country must be considered. In technical education and vocational training,more social marketing programs are necessary to change the negative attitudes of privatesector employers, parents, and students toward state-run technical education and vocational

training institutions. While education policies have been gender sensitive, concomitantmotivation programs to encourage women to enroll in technical training programs are crucial.For vocational training graduates, support services must complement the provision of loans forself employment, and more tracer studies of graduates must be conducted for future planning.In distance learning, more awareness programs are necessary to promote readiness for onlinelearning as well as to expedite the participation of nonstate agencies. Priority must be given toincreasing the matching grant for small professional bodies and upgrading the capacity of publicsector institutions. A revolving fund will enable participants from non-affluent families to acquirecomputers for distance learning. Across the education subsectors, results-based monitoring andevaluation must be promoted to track achievements over time.

62. In preparing the new country strategy, ADB should take into account the

challenges and findings presented in the sector evaluation (Supplementary Appendix B). ADB should consider options to continue support for equitable access to quality education tostrengthen inclusive social development, and expansion of access to tertiary education throughpublic-private partnerships to diversify skills and increase competitiveness.

D. Power Sector34

63. Sri Lanka’s power sector struggled through the late 1980s, 1990s, and early 2000sto meet the growing demand for electricity. The power crises in 1996 and 2001−2002 drewattention to more investment in new generating plants to meet growing demand and to thevulnerability of hydropower plants to rainfall fluctuations and severe droughts. Since 1996, theGovernment has allowed private independent power producers to build, own, and operate

thermal power plants to encourage private sector participation in meeting power supplyrequirements. In recent years, power shortages have been due mainly to inadequate expansionof thermal capacity and the demand for power growing at about 8% per year. At the root of thepower sector crisis are (i) the inability of the Ceylon Electricity Board (CEB) in the past twodecades to implement plans for setting up large-scale, low-cost power generation plants and tomake the best use of the existing hydropower units; (ii) the existence of low-capacity thermalgenerating plants, operated mostly by independent power producers, all of them using costlypetroleum fuels; (iii) the inability of CEB to increase tariffs commensurate with increases incapital costs and operational costs; and (iv) institutional weaknesses. Electricity tariffadjustments have not kept pace with increased costs due to complex tariff approval procedures.To some extent, system losses have added to the problem.

64. The overall positioning of ADB’s power sector strategies in the last decade was“satisfactory”. The sector strategies recognized that uninterrupted electricity supply is afundamental element in the enabling environment for private sector investment in industries andservices. The strategic focus on power infrastructure, complemented by institutionalstrengthening and power sector reforms, provided coherence to the sector strategies. The1998−2003 strategy retained the emphasis of the previous sector strategy on providing the

34ADB. 2007. Sri Lanka CAPE: Power Sector Assistance Evaluation. ManilaAvailable: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Power-Sector.pdf





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required power infrastructure but abstained from financial support for public sector powergeneration projects (such as thermal electricity generation), as private sector financing could beattracted for such projects. Discussions during the preparation of the 1998−2003 sector strategyidentified opportunities for ADB to engage in policy dialogue on restructuring the power sector toincrease its technical and financial viability. Subsequently, the 2004−2008 sector strategycenters on power sector restructuring, rural electrification, and private sector participation. The

2004−2008 sector strategy, however, falls short of recognizing that the independent powerproducer strategy has been making headway only with oil-burning power plants. Sri Lankaventured into this strategy with no base load capacity in place, in contrast to other countries(e.g., India, Malaysia, and Thailand) that had base load plants and used arrangements withindependent power producers to make incremental contributions. The independent powerproducer strategy did not reduce the dependence of power generation on oil-burning powerplants. Politically, it was not possible to keep raising electricity tariffs to make CEB viable. Worldoil prices per barrel increased substantially from $49 to $66 during 2005−2006.

65. Over the last two decades, support for rural electrification provided continuity to thepower sector strategies. The strategies since the late 1990s were results-oriented to someextent. They indicated that success in the medium term would be measured in terms of reform

implementation and the extent to which power sector entities became financially viable. Thesestrategies, however, fell short of an in-depth assessment of absorptive capacity and of the risksarising from shifting political coalitions, which could affect readiness and willingness to carry outmajor reforms. Political opposition from within the ruling coalition and from powerful labor unionseventually led the reform process to a standstill. In hindsight, this was a political risk that wasdifficult to foresee, given a consistent policy commitment to power sector reform despite threechanges in government (late 2001, 2003, and 2004).

66. The power sector assistance program in the last two decades was consistent with thedeclared sector strategy. ADB supported the establishment of a 40-megawatt power plant atSapugaskanda in the 1990s, and then a private sector 163-megawatt power station in 2000.ADB also supported the development of transmission and distribution facilities, institutional

strengthening of CEB and the Lanka Electricity Company (Private) Limited, and power sectorreforms. ADB approved loans for six power projects ($345.1 million, of which 92% went to fivepublic sector loans and 8% to a private sector loan), seven advisory TA grants ($3.2 million),and four project preparatory TA grants ($1.6 million).

67. The performance of the power sector assistance program in the last two decadesis rated “partly successful”. The program contributed to notable gains in making poweravailable to consumers through rural electrification but fell short of completing the reformprogram and achieving financial solvency. While the preparation for restructuring have takenplace to the extent possible through the Power Sector Development Program, the politicaleconomy dimensions of reform and the dynamics of change processes in the Sri Lankancontext have posed serious challenges to the viability and sustainability of the power sector.

The power sector assistance program, at the time of formulation, was generally “highly relevant”to the needs of Sri Lanka, appropriately aligned with government priorities on rural electrificationand improving power sector efficiency, and consistent with ADB policies. In particular, it wasconsistent with the review of ADB’s Energy Policy (2000), which supported sector restructuringand advocated measures to improve the efficiency of energy supply and use, including reducingtechnical and nontechnical power losses.35 The assistance program was also in accord with

35ADB. 2000. Energy 2000: Review of the Energy Sector Policy of the Asian Development Bank. Manila.Available: http://www.adb.org/Documents/Policies/Energy/energy-review.pdf

























































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ADB’s Governance Policy (1995)36 in promoting an enabling environment to foster transparencyand predictability of decision making. Moreover, it was coordinated with the efforts of majordevelopment partners.37 With the change in economic policy that accompanied the change ofgovernment in April 2004, the relevance of power sector restructuring has diminished (but notrural electrification). The current Government is planning to submit to Parliament in the secondhalf of 2007 a new Sri Lanka Electricity Bill for Regulatory Reforms, which departs from the

previous track of unbundling the power sector institutions into generation, transmission, anddistribution. Under this proposed bill, CEB is expected to retain its identity but it will be subject tothe regulatory jurisdiction of the Public Utilities Commission, particularly with respect to licensingand tariff setting.

68. The power sector assistanceprogram, however, was “less effective”due to mixed performance. Box 4summarizes the key outcomes. ADB’sassistance enabled the development ofthe power sector through a mix ofgeneration, transmission, and

distribution infrastructure. However, thefinancial position of the utilitydeteriorated after 1999 due largely tothe politically driven tariff setting thatprecluded full cost recovery. TA wasdesigned to support the lendingprogram for the power sector. However,the Government has not fully carried outthe TA recommendations. For example,the sector restructuring plans generatedimportant recommendations but has notled to the unbundling of the power

sector, as envisaged.

69. The power sector assistanceprogram was generally “efficient”.Based on program completion reports,EIRRs of 11−20% were achieved forrural electrification, which generallyexceeded appraisal estimates. TA andthe policy-based program loan for power sector restructuring were less effective, and theintended reforms were not implemented. However, fewer resources have gone into sectorreform38 when compared with the resources that have been invested in successful projects. Interms of processes, the design of power projects generally adopted stakeholder consultations.

Box 4: Outcomes of the Power Sector AssistanceProgram

Rural Electrification• The Lanka Electricity Company (Private) Limited reduced

its system losses from 21.2% in 1986 to 8.4% in 1998 andthen to 5.3% in 2005.

• The Lanka Electricity Company (Private) Limited

succeeded in connecting 75,585 new consumers andimproving services to 53,888 consumers in previouslyelectrified areas during the implementation of Loan 870-SRI: Secondary Towns Power Distribution Project II.

• Two subsequent power projects resulted in 292,805 newconsumer connections: (i) 116,310 by CEB through Loan1021-SRI: Power System Expansion Project, and (ii)176,495 through Loan 1414-SRI: Second Power SystemExpansion Project.

Power Sector Restructuring• Largely because of policy changes adopted by the new

Government, painstaking efforts to carefully put in place thebuilding blocks for power sector restructuring have notsucceeded in taking the reform process forward to itsimplementation stage.

• Unbundling the sector into separate companies for powergeneration, transmission, and distribution has notmaterialized due to opposition from the Janatha Vimukthi Peramuna , a nationalist Marxist party, and from its affiliatedtrade unions.


36ADB. 1995. Governance: Sound Development Management . Manila.Available: http://www.adb.org/Documents/Policies/Governance/govpolicy.pdf

37The World Bank has concentrated its recent efforts on petroleum sector reforms and lending to the renewableenergy sector. ADB was the principal dialogue partner of the Government concerning power sector reforms. Itfocused on restructuring CEB while the World Bank concentrated on setting up the Public Utilities Commission asthe independent multisector regulator. ADB also collaborated with the Japan Bank for International Cooperation inpolicy dialogue and in cofinancing the program loan for restructuring the power sector.

38This involved $60 million from the program loan and $1.03 million from the TA for sector restructuring.Subsequently, about $30 million was cancelled from the total approved amount of $60 million due tononcompliance with conditions for the release of the second tranche.



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In the last two decades, ADB-supported power projects had an average delay of 2−2.5 yearsdue to procurement delays, changes in project scope, and poor contractor performance.Politicized processes and opposition from powerful labor unions have been a seriousimpediment to power sector reforms.

70. The power sector assistance program is “less likely to be sustainable”. Although Sri

Lanka has a pool of experienced and trained managers who are capable of maintaining theinvestments that ADB has funded, the current financial crisis in the power sector is likely to haveadverse effects on operation and maintenance of the transmission and distribution facilities.Many power lines and transformers are becoming overloaded. This will inevitably result in risingmaintenance costs, deteriorating performance, and higher technical losses. There are majorrisks to the sustainability of the power transmission and distribution system over the next 3−5years.

71. The contribution of the power sector assistance program to sector development hasbeen “substantial”, particularly in terms of rural electrification and institutional strengthening. Keyinformants indicated that, had ADB not been involved, it would not have been as easy for theLanka Electricity Company (Private) Limited to achieve managerial, technical, and financial

development milestones. ADB supported the development of management systems andprocedures for commercial operations and for expansion of the distribution network, helpedreduced system losses, and promoted a customer-driven focus. The national electrification ratiorose remarkably from 10.9% in 1986 to 50.5% in 1998 and to 76.7% in 2005. ADB’s contributionto this achievement was significant. However, these achievements are subject to significantrisks that may undermine their sustainability. The power sector is insolvent. Adverse politicaldecisions have affected compliance with ADB’s loan covenants to safeguard financialsustainability.

72. Several lessons can be drawn from ADB’s operations in the power sector. Powersector restructuring is a dynamic and complex process with enormous challenges. It calls for adeep understanding of the political economy; broad-based ownership of reforms; a

comprehensive sector road map that recognizes pressing needs, such as least-cost powergeneration, other than reforms; and measures to knit reforms into a broader articulation of publicinterest. Conveying the costs and benefits of the reforms versus alternative measures isimportant. Work is necessary on all fronts, not only in putting in place a legal framework or animproved market structure, but also in building constituencies for reform. Where public andpolitical resistance is likely to hinder reform implementation, provision should be made forincreasing public awareness of the reform agenda and reaching a consensus on the means forachieving objectives.

73. In preparing the new country strategy, ADB should take into account thechallenges and findings presented in the sector evaluation (Supplementary Appendix C).The power sector is insolvent, and reform is at a standstill. Several key aspects should be

considered: (i) restructuring the short-term debt of CEB, (ii) improving operating performance,and (iii) updating and implementing a least-cost power generation plan to ensure access tocheaper electricity in the medium term.

E. Transport Sector39

74. The condition of the transport network in Sri Lanka is a constraint on social and

39ADB. 2007. Sri Lanka CAPE: Transport Sector Assistance Evaluation. Manila Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Transport-Sector.pdf





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economic development. While the existing transport network provides spatial connectivity byroad and railways to all major towns and centers, the standards and conditions of the transportsystem have become inadequate to keep up with the growing freight and passenger traffic.Challenges include (i) the absence of multimodal planning and development, partly due to themultiplicity of ministries and agencies involved in the sector; (ii) lack of delineation of transportsector responsibilities between the public and private sectors; (iii) resource allocation that has

not promoted economic efficiency and performance; (iv) problems related to maintenance of theexisting asset base and inability to expand capacity in step with demand; and (v) lack of a costrecovery mechanism.

75. The positioning of ADB’s strategies for the transport sector was “satisfactory”. The strategic thrust of ADB’s sector strategies was centered on overall improvement of roadsector performance. ADB’s strategies have evolved over time and gone beyond therehabilitation of physical infrastructure and ad hoc policy engagement that characterized ADB’ssector involvement in the 1980s and early 1990s. Over the last decade, ADB paid greaterattention to networks, connectivity, and sector reforms. ADB’s 1998−2003 strategy emphasizedthe need for greater private sector participation and policy dialogue to promote sustainableproject investments. The subsequent 2004−2008 strategy reiterates ADB’s support for policy

and institutional reforms and underscores the importance of (i) policy, regulation, and planningto enable strategic management of the road network; (ii) promotion of public-privatepartnerships in road investments (particularly expressways); (iii) development of a sustainablefunding mechanism for road operation and maintenance; (iv) preparation of a road sectormaster plan; and (v) enhancement of preconstruction processes. The sector strategies werewell positioned, taking into account ADB’s extensive experience in the transport sector. ADB’ssector assistance program, as delivered, was consistent with the principles defined under thestrategies. Risk factors were not explicitly defined at the sector level but were identified on aproject-to-project basis. For performance monitoring, the strategies identified benchmarks to beused, including the accomplishment of policy and institutional reform action plans, private sectorparticipation, improved road conditions, bus transport services, and road safety.

76. ADB’s transport sector strategies have been sensitive to the country’s politicaleconomy. For example, the exclusion of Sri Lanka Railways from most of ADB’s transportsector strategies reflected a concern that the Government might not support major restructuringbecause of the political context of railways, including the opposition to reforms by trade unions.Considering the role of railways as a major public employer and the social implications that therestructuring of Sri Lanka Railways would have brought, the Government preferred to maintainthe status quo, notwithstanding the substantial inefficiencies that came from it. With no credibleprospects for reform to make railways more efficient, ADB decided not to engage in railwaydevelopment. In the context of transportation planning, multimodal transportation issues andinterface problems should have been emphasized. In hindsight, ADB could have made greateruse of its strategic positioning by engaging the Government in a dialogue to address multimodaltransport issues.

77. Coordination among development partners in the transport sector was carried outwell. In 2002, ADB initiated a road sector development framework that other developmentpartners such as the Japan Bank for International Cooperation and the World Bank fullysupported. This framework covers (i) institutional strengthening, (ii) sustainable roadmaintenance funding, and (iii) domestic private sector development. The sector strategies werebased on good sector knowledge, which was developed through sector studies financed bydevelopment partners. Complementary development assistance initiatives and their synergieshave made it difficult to claim any attribution to individual ADB-financed TA grants, given the































































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long period for the uptake of recommendations and continuing assistance from developmentpartners.

78. Overall, the performance of the transport sector assistance program is rated“successful”. ADB’s assistance to Sri Lanka’s transport sector was “highly relevant”. Projectsand TA responded to critical sector needs and addressed physical, institutional, and policy

constraints. Overall, the sector assistance program is assessed as “effective”. While outcomesin some cases fell short of expectations, all completed road projects resulted in (i) reduced usercosts, (ii) improved accessibility and connectivity, and (iii) broad social and economic benefits tothe poor. Efforts to strengthen capacity for (i) investment planning through formulation of a roadsector master plan, (ii) preparation and implementation of social and environmental safeguardsin road projects, and (iii) establishment of public and private partnerships for roads have beenkept on track and are expected to generate positive results. However, a TA for improvingpassenger transport services was ineffective due to its failure to deliver an outcome. Another TAfor reengineering road sector institutions was undermined by absorptive capacity constraints,lack of ownership, and inappropriate follow-up actions. Overall, TA could have produced morelasting effects had it been more focused and implemented over a longer period. Several TAactivities have not made progress beyond recommendations due to resource constraints, policy

changes, lack of political ownership, and changes in government.

79. The transport assistance program was “efficient”. The key indicator of efficiency is theEIRR of the projects. ADB-financed road projects mainly rehabilitated existing roads. Therobustness of the EIRRs was confirmed by reevaluation at project completion andpostevaluation. The assumptions for the ex-ante estimates of EIRRs and the economicreevaluations were reasonable. In almost all cases, the recalculated EIRRs were higher than18%. Notwithstanding the positive returns, the assistance program could have been moreefficient had there been fewer problems relating to implementation delays, cost overruns, andreduction in project scope. Overall, the outcomes are “likely to be sustainable”. Risks and futurechallenges lie in securing reliable funding for maintenance, maintenance management, andinstitutional capacity. 40 The Road Development Authority completed a comprehensive road

network survey and put a pavement management system in place, which can provide inputs tothe preparation of needs-based annual road maintenance programs. Given budgetaryconstraints, the demand for government counterpart funds for externally funded infrastructureprojects competes with and crowds out maintenance funds. Externally funded projectsexacerbate the funding scarcity for maintenance. The overall balance among maintenance,rehabilitation, and new investments is sometimes overlooked. Another risk is the inadequateinstitutional capacity for maintenance of roads by local authorities. These risks are manageableand can be mitigated with measures to strengthen capacity and with funding for maintenance.

80. In the case of the Southern Transport Development Project, noncompliance with ADB’sown operational policies affected performance. This project was subjected to a compliancereview in 2005 in response to a request from the Joint Organization of the Affected

Communities of the Colombo-Matara Highway.41

The Compliance Review Panel found that40

In 2006, the Government provided more than $30 million for road maintenance, representing 75% of the fullrequirement. The amount allocated to road maintenance was based on road conditions, and according to plan, thiswould be increased to achieve a fully maintained network by 2010.

41The requesters claimed that the Report and Recommendation of the President to the Board of Directors for theSouthern Transport Development Project was for a trace known as the Combined Trace, and at least 40% of theCombined Trace had been altered to form the Final Trace, for which the required studies and consultations had notbeen conducted according to ADB policies. The requesters claimed to be suffering from harm, including loss ofhomes, loss of livelihoods, damage to the environment, degradation of wetlands, dispersion of integratedcommunities, damage to five temples, negative effects of resettlement, and human rights violations.

































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there were lapses in compliance with ADB’s operational policies and procedures in severalareas: environmental considerations, gender and development, benefit monitoring andevaluation, formulation and implementation of loan covenants, incorporation of socialdimensions in ADB operations, involuntary resettlement, and project administration instructionson change in project scope. 42 ADB’s compliance review procedures were transparent andeffective, and enabled ADB and stakeholders to address the reported noncompliance.

81. The contribution of the transport sector assistance program to development impact israted “substantial”. Adequate levels of traffic have used completed roads, and traffic growthreflects economic growth. Evaluation case studies43 found that rehabilitated roads contributed to(i) income generation, as farming and other forms of employment are closely tied to access toroads and transportation; (ii) creation of employment options, as roads and transport servicesenable households to engage in mobile trading as part of their occupation choices; (iii) improvedquality of life, as better roads reduce physical isolation; (iv) improved access to health services;and (v) increased social capital. The poor have benefited from rural roads through better accessto services such as health, education, agricultural extension, and provision of information. Themost significant contribution of ADB assistance was the creation of the road maintenance trustfund. This achievement was not due to ADB alone. It came after a dialogue that lasted almost

two decades. The road maintenance trust fund, nevertheless, has been contentious from thestandpoint of public revenue and expenditure management because of the earmarking of taxproceeds from the sale of gasoline and diesel for road maintenance. This earmarkingrepresents only a fraction of the public revenues accruing from road transport.

82. Several key lessons were identified from ADB’s operations in the transport sector. In the context of sector reforms, country ownership and political will for implementing the reformagenda are requisites for which ADB assistance cannot serve as a substitute. Advancing policyand institutional changes requires champions and coherent support from within the country.Policy initiatives can take a long time to materialize, and such initiatives require sustainedsupport. Change management calls for an understanding of the reasons for resistance, andways of overcoming impediments. Moreover, continuing efforts are needed to arrest the decline

in the capacity of sector institutions to implement projects, mainly due to problems withrecruiting and retaining qualified staff. An improvement in the incentive and reward system isimportant.

83. In preparing the new country strategy, ADB should consider the challenges andfindings presented in the sector evaluation (Supplementary Appendix D). ADB hassupported primarily road development and maintenance, and more recently, port expansion.Greater attention should be given to intermodal transport planning. Appropriate funding for themaintenance of prioritized road networks is required to improve the sustainability ofinvestments.

F. Water Supply and Sanitation Sector44

84. One of the goals of Sri Lanka’s poverty reduction strategy is to make safe water

42(i) Compliance Review Panel. 2005. Final Report to the Board of Directors on CRP Request No. 2004/1 on the Southern Transport Development Project in Sri Lanka . Manila.(ii) Compliance Review Panel. 2006. Annual Monitoring Report 2005–2006 to the Board of Directors on CRP Request No. 2004/1 on the Southern Transport Development Project in Sri Lanka . Manila.

43ADB. 2002. Impact of Rural Roads on Poverty Reduction ─ A Case Study-Based Analysis. Manila. Available:

http://www.adb.org/Documents/IES/Regional/ies-reg-2002-15/rural-roads.asp 44

ADB. 2007. Sri Lanka CAPE: Water Supply and Sanitation Sector Assistance Evaluation. Manila Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-WaterSupply-Sanitation-Sector.pdf

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supply and improved sanitation accessible to all. Despite progress in improving access tosafe water, wide disparities in access across provinces and between urban and ruralpopulations have persisted. In response to the Millennium Development Goal, the Governmentrenewed its commitment to making water supply and sanitation accessible to all as part of itspoverty reduction strategy. The specific goals include (i) provision of safe drinking water to 85%of the population by 2015 and 100% by 2025, (ii) provision of piped water supply to 40% of the

total population by 2011, (iii) achievement of national standards for service levels and quality ofwater in both the urban and rural contexts, (iv) access to adequate sanitation by 93% of thepopulation by 2015 and 100% by 2025, (v) provision of piped sewerage systems in major urbanareas and selected centers, and (vi) standard on-site sanitation to be available to those who areconnected to a sewerage system or sanitation scheme. Several factors have hampered theachievement of these goals: (i) inadequate cost recovery; (ii) limited private sector participation;(iii) limited capacity of local governments to finance, manage, and operate water supply andsanitation schemes; (iv) absence of appropriate policies to guide investment strategies toachieve coverage, service quality, and cost recovery objectives; and (v) lack of an effectivemechanism for water resource management.

85. The positioning of ADB’s sector strategies in the water supply and sanitation

sector was “satisfactory”. Initially, ADB positioned its assistance program in secondary townsand rural areas. With the introduction of national water tariffs, new opportunities emerged forADB to deepen its presence.45 While ADB’s sector strategy continued to be guided by thepriorities of the Government in the early 1990s, the strategy also paid attention to externaldevelopments. 46 The key elements of ADB’s water supply and sanitation sector strategyincluded (i) promotion of comprehensive water resource management; (ii) conservation of waterthrough the introduction of demand management and reduction of unaccounted water; (iii)integration of water supply and sanitation; (iv) improving the financial viability, operationalefficiency, and sustainability of water utilities; (v) promoting more equitable access to water,especially among the poor; and (vi) recognizing water as an economic and social good. The1993−1997 sector strategy responded to new challenges, but it was based on an insufficientanalysis of the sociopolitical context that could influence the direction of institutional and sector

policy reforms, which were at the heart of the sector strategy. Recognition of this shortcomingwas the strength of the subsequent sector strategies.47 The Millennium Declaration in 2000 andthe government development strategy in 2002 provided much of the rationale and justificationfor ADB’s 2004–2008 country strategy. The sector strategy benefited from the cumulativeexperience of past water supply and sanitation projects, economic and sector assessments, andpolicy dialogue with the Government. Stocktaking of development assistance and coordinationwith development partners sharpened ADB’s strategies. The sector strategy was coherent andresponsive to the growing demand for sanitation and sewerage services in large urban areas aswell as to the water supply and sanitation needs of conflict-affected North and East.

86. The performance of the sector assistance program for water supply and sanitationis rated “successful”. Sector assistance has been consistent with the declared sector

strategies. The thrust centered on ensuring sustainability of service delivery, and improving45

Major development partners in the sector in the 1980s and 1990s included the Danish International DevelopmentAgency, Japan Bank for International Cooperation, Japan International Cooperation Agency, United States Agencyfor International Development, and World Bank.

46This included the International Conference on Water and the Environment (January 1992), the World Bank/UNDPInternational Conference on Water Utilities (May 1992), and the evaluation results of 20 years of World Bank-funded water supply projects (June 1992).

47For example, the 1998−2003 sector strategy and program maintained its focus on secondary urban centers andinstitutional strengthening at the local level, but highlighted the need for sector analysis. Performance monitoring ofthe sector was established for the first time.


























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sector performance through investments in sector reform and institutional development. Theassistance was “highly relevant” because it was responsive to the needs of the sector, alignedwith government priorities, and coordinated with the sector strategies and assistance ofdevelopment partners. The sector assistance program was “effective”. Box 5 summarizes keyoutcomes in terms of service coverage, capacity development, and sector reform.

Box 5: Key Outcomes of the Assistance Program for the Water Supply and Sanitation Sector

Service Coverage• Provision of safe water to 2.2 million people under three water supply and sanitation projects • Access to sanitation services for 30,000 people under the Second Water Supply and Sanitation Project• About 969,000 people expected to gain access to safe water and 171,500 people to benefit from improved

sanitation under the ongoing Secondary Towns and Community-Based Water Supply and Sanitation Project

Capacity Development• Upgraded project management capacity of the National Water Supply and Drainage Board • Functional financial reporting and management systems • Improved financial and operational efficiency through (i) private sector outsourcing of metering, billing, and

tariff collection in Greater Colombo; (ii) staff rationalization; and (iii) adoption of commercial practices • Improved capacity of community-based organizations to manage water supply schemes

Sector Reform• A policy to recover recurrent costs plus debt service and depreciation costs


87. Based on the EIRRs and least-cost options at appraisal, all projects were consideredeconomically viable. However, cost overruns reduced the efficiency of projects. Thus, the sectorassistance program became “less efficient”. In the case of the Water Supply and SanitationProject, cost overruns reduced the number of subprojects. The Third Water Supply andSanitation Project and the Secondary Towns and Community-Based Water Supply andSanitation Project experienced substantial cost overruns, and their reevaluated EIRRs werelower than the estimated EIRRs at appraisal (12%−17%). Implementation delays affected the

efficiency of output delivery, partly due to (i) inadequate feasibility assessments, (ii) proceduralbottlenecks during preconstruction, (iii) delayed approval of contract awards, (iv) occurrence ofthe tsunami, and (v) conflict resurgence in the North and East.

88. Overall, the outcomes of the sector assistance program are “likely to be sustainable”. Tosustain operations and ensure the financial viability of the National Water Supply and DrainageBoard (NWSDB), the corporate strategy included actionable measures to (i) improve the qualityand level of service, (ii) reduce nonrevenue water and the staff-to-connection ratio, (iii) improveenergy efficiency, (iv) improve collection efficiency, and (v) ensure adequate training and waterconservation campaigns. There are provisions in the NWSDB Act (1974) for levying charges forthe supply of water and sewerage services.48 However, water tariffs were not introduced in SriLanka until 1982.49 Since 1982, several tariff revisions have been progressively effected, albeit

with politicized processes.50 Nonetheless, the tariff revisions reflect consciousness of the needfor cost recovery. ADB has reviewed performance indicators and discussed various ways to

48This is stated under Section 84, Part IV of the Act.

49The Act under Section 25 has a provision for the free use of water, although this refers only to standpipe sourcesand only for domestic purposes. With regard to tariff setting, the Act states that NWSDB from time to time, with theapproval of the Minister, may fix the rates and charges to be levied.

50The first tariff revision was effected in April 1990, followed by major tariff revision in January 1994. Subsequently,two tariff revisions followed in 1997, and one revision each in 1998, 1999, 2001, and 2002. The most recentrevision to the water tariff was made in March 2005.



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achieve midterm targets: (i) operational efficiency measures, such as reductions in nonrevenuewater and improved service levels; (ii) reduced staff-to-connection ratios, improved energyefficiency, and enhancement of treatment process efficiency; (iii) improved collection efficiencyand reduction in accounts receivable; and (iv) increased frequency of training and publicawareness campaigns. These efforts are aimed at improving the efficiency and sustainability ofwater supply and sanitation systems. Considerable progress has been achieved under two

ongoing projects in strengthening the capacity of community-based organizations and localauthorities to manage water supply schemes.

89. The slow progress in the reform process and the highly politicized environment in whichpublic utility services operate may undermine sustainability. Interference in the management ofwater supply services at the system level is pervasive.51 Progress in policy reform has beenmodest since the commencement of reform discussions in the early 1990s. This modestprogress has been influenced by changes in government and the concomitant changes in theirpolicy stance. 52 The Public Utilities Commission, a multisector regulator for electricity,petroleum, and water, was established by Parliament in 2003. However, regulations for thewater sector within the framework of the Public Utilities Commission are yet to be put in place.The Government uses NWSDB as a development agent to provide water supply to the public

and provides capital investments through concessional loans. The administration andmanagement have undergone progressive transformation aimed at achieving greateroperational efficiency at regional support centers.53

90. The contribution of the sector assistance program to development impacts is assessedas “substantial”. Based on an evaluation study conducted in 2003, water supply and sanitationprojects in Sri Lanka have achieved considerable success and have raised the standard of livingof beneficiaries.54 The study highlighted the benefits of improved household access to saferwater through piped water supply. The program completion report on the first water supplyproject indicated that the population served by household connections increased by 44%. Waterquality was found to be satisfactory as a result of improved water treatment. Water supply,however, is not yet available 24 hours a day to most people.

91. Lessons associated with ADB’s operations in the water supply and sanitationsector include the following: (i) a community-based approach to rural water supply systemscan be effective in enhancing customer roles in project planning and implementation and inpromoting greater ownership; (ii) handover of management of water schemes to local authoritiesand community-based organizations requires continued support during the transition and follow-up periods to enhance the sustainability of such schemes; (iii) without continuing commitment

51There are cases where water systems are expanded beyond their technical capacities, apparently in response todemands made by local authorities and political figures.

52Major policy areas that have been discussed include (i) rationalizing water tariffs and establishing an independentregulatory authority; (ii) strengthening the capacity of local authorities to perform their devolved mandates,particularly for the delivery of water supply and sanitation services; (iii) establishing policies and procedures for the

allocation of water rights; and (iv) increasing participation of the private sector in the provision and management ofwater supply and sanitation services.

53Operational functions (including planning and design of development works) have been gradually delegated toregional support centers. While overall revenue collections are managed at the NWSDB head office, financialadministration and management are gradually devolved to the regional support centers, which independentlyadminister their operation and maintenance budgets. Billing and metering are decentralized to the district offices.There are plans to promote greater accountability and efficiency at the regional support center level, with amanagement information system capable of tracking expenditures and revenues for each of the water supplysystems.

54ADB. 2003. Impact Evaluation Study on Water Supply and Sanitation Projects in Selected Developing Member Countries . Manila. Available: http://www.adb.org/Documents/IES/Water/Water-Supply-Sanitation-Projects.asp

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from the Government, ensuring cost recovery and financial viability through ADB’s loancovenants can be effective to some extent only; (iv) least-cost options for planning water supplyand sanitation projects should consider an integrated approach, including supply and demandfactors, to achieve more sustainable resource use; and (v) benchmarking can be an effectivetool for improving the operational performance of water supply service providers.

92. In preparing the new strategy, ADB should take into account the challenges andfindings presented in the sector evaluation (Supplementary Appendix E). ADB shouldconsider development assistance options to include expansion of service delivery tounderserved areas, support for decentralized service delivery and accountability, capacitydevelopment to improve operating efficiencies, and cost recovery. Continued efforts are neededto improve the self-financing performance of operating entities through the implementation ofsector reforms covering regulations, cost recovery, commercial discipline of service agencies,and domestic resource mobilization.

G. Thematic Assistance/Special Topics

1. Operations in Conflict-Affected North and East55

93. The implementation of projects has been disrupted by the resurgence of armedconflict in the North and East, which has made humanitarian and developmentoperations difficult. In some areas, established and rehabilitated infrastructure and facilitieshave been damaged during the renewed fighting. Physical access to conflict-affected areas iscontrolled by the armed forces. Transportation of people, materials, and supplies is restricted.Government embargos on selected construction materials, scarcity of materials, spiraling costsof goods and services, escalating risk premiums, and the falling number of contractors willing towork in conflict-affected areas have posed significant obstacles to project implementation.Security issues have affected project implementation in a number of ways. In Liberation Tigersof Tamil Eelam-controlled areas, it is simply not feasible for projects to start or continue, giventhe renewed fighting. Communication channels and logistics systems needed for projectimplementation have been disrupted. Consequently, subprojects (planned or beingimplemented) in these areas have been stopped or left at a standstill. Completed infrastructuresubprojects (such as roads and power grids/transmission) are at risk of collateral damage ordeterioration from the inability to maintain them because of the deteriorating security situation.In parts of government-controlled areas, where situations were reported to be volatile, ADB-financed subprojects were making slow progress and facing considerable difficulties. Withrestrictions in movement, there is likely to be increasing lack of control over projectimplementation and quality as monitoring and supervision frequency declines.

94. Initial ADB assistance in conflict-affected areas was timely and relevant, butgreater attention to changing contexts and challenges is required. With the signing of theceasefire agreement in 2002, ADB capitalized on its long-term presence in Sri Lanka with itsprompt entry into and assistance to the North and East. This proactive, on-the-ground presencefacilitated ADB’s assumption of a lead role in rehabilitation planning for the North and East,mobilizing local management teams, and establishing project implementation structures onwhich subsequent projects could build. ADB’s operations in infrastructure rehabilitation weresubsequently expanded and extended from the first North East Community Restoration andDevelopment Project. With the breakdown of the peace process and the resumption of conflict,this program now faces a multitude of barriers to implementation. The assistance program lacks

55ADB. 2007. Sri Lanka CAPE: Evaluation of Operations in Conflict-Affected North and East. Manila.Available: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Operations-Conflict-Affected.pdf
























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(i) systematic conflict risk assessments during project implementation; and (ii) a clearmechanism for stakeholders to substantively review, discuss, and respond to changingcircumstances and challenges affecting the projects. The changing context requiresimplementation arrangements that can easily allow reallocations of resources andrestructuring/redirection of subprojects to respond to emergent conflict situations.

95. ADB assistance was aligned with national priorities, supporting the Government’srehabilitation and development agenda for the North and East. The Government’sdevelopment and rehabilitation strategy has remained largely the same on paper regardless ofthe political party in power. However, with changes in the conflict dynamics, the application ofdevelopment policies in the North and East has varied. ADB needs to consider the politicalfactors and their ramifications on programming development assistance.

96. The continued relevance of ADB’s assistance program needs to be reviewed dueto the renewed fighting. With the exception of the first project, which started in 2001,subsequent conflict- and tsunami-related ADB assistance has been based on multidonor jointneeds assessments, which allow the allocation of resources according to identified needs andcoordination of assistance with development partners. With the deteriorating conflict situation,

the needs and contexts have changed in many dimensions, with increasing shifts in prioritiestowards humanitarian and relief needs. The existing ADB-financed projects continue to revolvearound geographically specific physical infrastructure. ADB’s overriding focus on rehabilitationand construction of physical infrastructure needs to be reassessed in terms of its feasibility andsustainability under deteriorating security conditions. Although aid coordination and jointplanning were strong during initial stages, such coordination among development partners withdivergent mandates has become increasingly difficult under the prevailing political climate.

97. The projects generated immediate benefits, but the conflict and its effectsundermine prospects for sustainability. Against a backdrop of the conflict-affectedcommunities struggling to rebuild lives in the days immediately following the ceasefireagreement, the timeliness and relevance of the first project to meet the needs of people had

visible, immediate effects. After the ceasefire, all ADB-financed projects in the North and Eastgenerally adopted do-no-harm principles, with sensitivity to local tensions and equity issues.People interviewed by the Operations Evaluation Mission confirmed their perceptions of thebenefits of ADB assistance. Sustainability issues are equally valid in other parts of Sri Lankaunder nonconflict situations. Constraints to sustainability include (i) difficulties in maintenance ofinfrastructure and facilities; (ii) repeated displacement of resettled communities; (iii) localcapacity constraints in management, operational logistics, and human resources; and (iv)challenges facing partnerships and trust in a politically sensitive environment.

98. The positioning of ADB’s past strategies for the conflict-affected North and Eastwas “satisfactory”, but a new strategy is required to cope with current circumstances.There was sufficient basis for the strategy, government ownership, coordination with

development partners, and strong prospects for long-term continuity. Risk assessment andmonitoring mechanisms to achieve envisaged results were partly satisfactory. Given the stalledpeace process and the resurgence of armed conflict, ADB needs to redefine its strategy for itsoperations in conflict-affected areas. While past strategies were suited to postconflictassumptions, essentially a peace dividend, current and future engagement requires a newstrategy that can accommodate scenarios including in-conflict situations.

99. Much distrust and many negative perceptions by the different stakeholders existabout other key actors (international NGOs, Sri Lankan NGOs, and community-based































































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organizations). The provision of aid can inadvertently exacerbate existing tensions andrivalries. Some observers pointed out that the high visibility of postceasefire developmentassistance to the North and East may have contributed to resentment and tension concerningaid distribution. Likewise, assistance that is perceived to be aimed primarily at development thatexcludes the North and East may also contribute to fuelling political tensions on aid and benefitdistribution. There has been an unprecedented international response to the tsunami (including

the conflict-affected areas that were hit by the tsunami) with large sums of money for livelihoodrecovery, reconstruction, and rehabilitation. While the availability of resources can rapidlyreplace lost assets, it can also create tensions.

100. ADB’s assistance program for the North and East Sri Lanka is “likely to be partlysuccessful”. The evaluation found that ADB’s assistance program was “highly relevant”, “likelyto be effective” (becoming “less effective” as the operational context deteriorates), “likely to beless efficient”, “less likely to be sustainable”, and with “likely modest” impacts. The resurgenceof conflict reduces the probability of success. This performance may change depending on thesituations influencing the operating environment for delivery of development assistance.

101. There is a need for reviewing immediate options for managing ADB operations

under current conditions. These include the need to (i) assess the locations in the North andEast where ADB assistance can be effectively delivered and feasibly implemented; (ii) allowgreater flexibility to deal with emergent situations, including options for changes of scope andtemporary suspension of development assistance with a view towards efficiency anddevelopment effectiveness; (iii) consider reorienting assistance to improve self-reliance of theaffected communities, with a livelihoods approach and engagement with community-basedorganizations and NGOs for service provision; and (iv) reconsider the geographical coverage ofADB’s development assistance, including adjusting the coverage areas of ongoing projects toinclude adjacent and less at-risk districts. ADB should also consider reorienting approvedcomponents under tsunami-related assistance in the conflict-affected North and East that canno longer be implemented under present conflict conditions.

102. ADB should review its presence in the North and East to respond to the emergentneeds of the affected communities. Recognizing that the delivery of assistance does notneed to wait for the conflict to end, and that communities do carry on with their lives within theconflict environment, the challenge for ADB is to continue to explore innovative options,modalities, and partnerships to continue assistance within the in-conflict environment. If conflictpersists in the North and East, a scaled-down development assistance in terms of smallsubprojects to a level similar to those under the first North East Community Restoration andDevelopment Project, may be more appropriate than mid-sized to large-scale subprojects.When the conflict deescalates, and security conditions improve with the resumption of a crediblepeace process, rehabilitation assistance under postconflict conditions may continue with carefulattention to (i) monitoring political changes affecting the project context, and (ii) recognizing thatthe sustainability of large-scale investments to stimulate regional economic growth would

necessitate conditions of more permanent peace with an enduring political solution. Agility torespond to a changing operating environment is required.

2. Policy-Based Lending56

103. ADB financed 10 policy-based loans ($569 million) during the past two decades(1986−2006), which accounted for 18% of ADB’s total lending to the country. Four of these

56ADB. 2007. Evaluation of Policy-Based Lending in Sri Lanka. ManilaAvailable: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Policy-Based-Lending.pdf





























































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loans were approved during 1986−1991, when the country faced macroeconomic instability,which stemmed largely from a growing budget deficit, loss-making SOEs, and marketdistortions. These policy-based loans built on earlier economic liberalization efforts that began in1977, sought to remove obstacles to private sector development, and provided needed fiscalsupport. Initially, ADB supported reforms in the agriculture sector that aimed to revitalize thesector and divest agricultural SOEs. Complementary financial sector reforms followed to reduce

the cost of financial intermediation and develop capital markets. No policy loans were approvedduring 1992−1999 due to unfavorable political conditions for major reforms. A new round ofpolicy-based lending occurred during 2000−2004 to support (i) the promotion of a private sector-driven growth, (ii) public enterprise reform, (iii) rural finance, (iv) fiscal management, and (v) thedevelopment of financial markets.

104. Compliance with policy conditions had been reasonable amid a complex politicaleconomy. At the time of the respective program completion or loan closing, 80% of the 191conditions were complied with, and 9% partly complied with. The others were either assessedas not complied with (9%) or amended (2%). Difficulties were experienced in enacting andimplementing measures that called for sector restructuring and pension reforms, particularlywhen the reforms were politically sensitive. Enacting regulatory measures on finance, in

contrast, proved easier.57

Certain policy reversals occurred in agriculture and industry.58

All fourprogram performance evaluation reports rated the policy-based programs “partly successful”(Table 4). These ratings reflected (i) mixed outcomes, (ii) inconsistent government policies thatnegated earlier gains, and (iii) policy reversal. One completed policy-based program was rated“successful” in the program completion report; similar reports have not yet been prepared fortwo other completed program loans. Three ongoing programs address fiscal managementreform and financial sector reform.

Table 4: Performance Ratings of Completed Policy-Based ProgramsLoan Number Title PCR Rating PPAR/PPER Rating0820 Agricultural Inputs Program S PS0994 Agriculture Program Loan S PS1127 Second Agriculture Program PS PS

1051 Financial Sector Program No rating PS1800 Private Sector Development Program S NA (no PPER yet)1894 Small and Medium Enterprise Sector

Development ProgramNo PCR yet NA

1929 Power Sector Development Program No PCR yet NANA = not available, PCR = program completion report, PPAR = program performance audit report, PPER =program performance evaluation report, PS = partly successful, S = successful.

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

57Some examples of legislation enacted in Parliament in compliance with conditions for the policy loans in thefinance sector included (i) amendment to the Finance Companies Act to permit leasing companies to transferassets to special purpose vehicles for securitization of assets, (ii) enactment of the anti-money laundering bill, (iii)

amendment to the Inland Revenue Act to harmonize tax incentives, (iv) amendment to the Banking Act andMonetary Law, (v) establishment of the Insurance Board of Sri Lanka through the Regulation of Insurance IndustryAct, (vi) amendment to the Securities and Exchange Commission Act to extend the jurisdiction of the commission,and (vii) enactment of the Fiscal Management Responsibility Act. Outside of finance-related measures, Parliamentalso enacted the Consumer Affairs Authority bill and amended the Termination of Employment of Workmen Act.

58Policy reversals included the following: (i) after program completion, the People’s Alliance-led Government

reintroduced the fertilizer subsidy (1994) as part of fulfilling its pledge to farmers and the need to help rice farmersreduce their production cost; and starting in 2006, it has provided a fertilizer subsidy to smallholders of tea, rubber,and coconut; (ii) the Government reduced the interest rate subsidy for the purchase of tea bagging machinery from75% to 50% in 1994 but reinstated it a year after before eliminating it in 1999; and (iii) the stamp duty wasreintroduced in 2006, one year after program completion.





























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reform options, and the impracticality of recommended actions; (iii) difficult macroeconomicenvironment; (iv) labor disputes and legal challenges to divestment of SOEs; (v) limited capacityof the Government to manage the reform processes; (vi) limited efforts to inform and educatepolitical leaders, decision makers, and the general public about the objectives, costs/benefits,and expected results of policy reforms; (vii) lack of broad-based support for reforms involvingsector restructuring (opposition from labor unions); (viii) lack of continuity of government

policies; and (ix) unstable political and security situation. Many of the challenges encountered inSri Lanka have also been encountered elsewhere.59 In areas where reforms were successfullyimplemented, the enabling factors included (i) political stability, (ii) a clear understanding acrossstakeholders of the reform objectives, (iii) shared commitment to reforms and ownership of thereform program, (iv) close government involvement in policy dialogue, and (v) defining the policyobjectives in accordance with the Government’s development agenda.

106. The timetable for carrying out the reforms was sometimes unrealistic, particularlymajor legislative changes that take more time to accomplish than is typically provided forin a program loan period. Often, the lack of majority in Parliament has undermined theGovernment’s ability to make policy decisions. Preserving the stability of the governing politicalcoalition, in a country faced with a two-decade conflict, sometimes took precedence over

reforms. The political economy context affects policy formulation, timing, reform acceptance,and implementation. In some cases, it may not be realistic to expect that the Government wouldbe able to implement fundamental reforms of the type that ADB would typically support withprogram loans.

107. Key lessons have emerged from ADB’s policy-based lending operations in SriLanka. Policy-based lending requires a careful assessment of the reform environment andreform readiness. Country ownership and political will are fundamental. Policy reforms that arebuilt on an apolitical process and a lack of understanding of the country’s history are bound tofail. Policymaking is often complicated by elections. Certain calls for economic reforms may notbe heeded, particularly during the rise to power of political coalitions that have differingagendas. A balance must be achieved between setting the pace of reforms and ensuring social

and political stability. Thus, the vulnerability and sensitivity of policy reform must be understoodin program design and implementation.

108. Moreover, ADB needs to consider more flexible ways of formulating trancherelease conditions, since these conditions can be achieved in different ways. Alternativeapproaches to effect change must be sought, along with consideration of their costs andbenefits. Policy conditions should not go beyond the Government’s capacity to manage reforms,monitor change, and prepare the groundwork for future efforts. Capacity development mustaccompany reform initiatives. In addition, obtaining continued support from stakeholders forpolicy reforms is essential for sustaining the reform process. While consultations are necessaryduring the formulation of a policy reform program, such a program should also provideresources for continued consultation. Well-targeted TA can support policy dialogue.

Perseverance to remain engaged in policy dialogue is critical.

3. Governance Assistance60

109. Good governance is one of the three pillars of ADB’s poverty reduction strategy.

59ADB. 2001. Special Evaluation Study on Program Lending . Manila.Available: http://www.adb.org/Documents/PERs/sst-stu-2001-16/default.asp

60ADB. 2007. Evaluation of Thematic Governance Assistance. ManilaAvailable: http://www.adb.org/Evaluation/documents/CAPES/SRI/CAPE-SRI-Thematic-Governance-Assistance.pdf

http://www.adb.org/Documents/PERs/sst-stu-2001-16/default.asp




http://www.adb.org/Documents/PERs/sst-stu-2001-16/default.asp



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Governance is defined as the manner in which power is exercised in the management of socialand economic resources for development. 61 In broad terms, it is about the institutionalenvironment in which the government, the private sector, and civil society interact. Forming partof ADB’s broader effort on governance and capacity development are anticorruption efforts. TheAnticorruption Policy (1998) defines corruption as the abuse of public or private office forpersonal gain and builds on the cornerstones of quality and effectiveness of public

administration.62 Sri Lanka is a signatory to the United Nations Convention against Corruptionand a member (since 2006) of the Anticorruption Initiative sponsored by ADB and theOrganisation for Economic Co-operation for Development. Among the countries included in theworldwide governance indicators developed by Kaufman, Kraay, and Zoido-Lobotan of theWorld Bank,63 Sri Lanka was positioned in the midrange (between the 40th and 60th percentileranks). The only exceptions were political stability and absence of violence, where Sri Lankawas ranked in the bottom 20%. The 2006 corruption perceptions index of TransparencyInternational ranked Sri Lanka as the 84th least corrupt among 163 countries.64 While it wasperceived as less corrupt than Nepal, Pakistan, Bangladesh, Viet Nam, Philippines, andIndonesia, it ranked behind Singapore, Hong Kong, Japan, Bhutan, Republic of Korea,Malaysia, Thailand, People’s Republic of China, and India. On a scale of 0 (highly corrupt) to 10(highly clean), Sri Lanka had a score of 3.1, implying that opportunities exist for supporting

anticorruption efforts.

110. The positioning of ADB’s governance strategy in Sri Lanka after 1995 has been“satisfactory”. Improving governance was closely related to the Government’s economicmanagement agenda and policy reforms. In line with this, ADB supported public enterprisereform, public sector management, local government strengthening, and regulatory and policyreforms during 1995−2003. The subsequent governance strategy (2004−2008) was anchoredon the broader goals of poverty reduction and reconstruction of conflict-affected areas and wasbased on a comprehensive governance assessment of Sri Lanka.65 It focused on (i) pro-poorservice delivery, (ii) improved public sector expenditure management, (iii) resource mobilization,(iv) decentralization of public service delivery, (v) corporate governance of SOEs, and (vi)regulatory framework (public utilities, banking, and finance). Moreover, it highlighted the

mainstreaming of governance in sector investments and the formulation of a service deliveryframework, and supported community-based decision making processes to promote equitableaccess to services. To sustain results from governance, nevertheless, further mainstreaming ofequitable access to services and of anticorruption in ADB operations is important,complemented by measures to strengthen accountability and transparency.

111. ADB’s governance assistance has been in accord with the declared strategies. Majorregulatory reforms after 1995 have been pursued through six policy-based programs, of whichthree are ongoing. The rest of the governance-related assistance covered service delivery-oriented projects. Economic management assistance was coordinated with the World Bank,particularly in removing market impediments, and with bilateral organizations in relation toprivate sector development and public service delivery. The country strategies noted certain

61ADB. 1995. Governance: Sound Development Management . Manila.Available: http://www.adb.org/Documents/Policies/Governance/govpolicy.pdf

62ADB. 1998. Anticorruption Policy . Manila.Available: http://www.adb.org/Documents/Policies/Anticorruption/anticorruption.pdf

63These indicators rely on 31 sources of surveys and polls from 25 different institutions. Definitions of the indicatorsand discussions on methodology are available: http://www.worldbank.org/wbi/governance/govdata/ .

64Transparency International. 2006. Corruption Perceptions Index . Berlin. Available: http://www.transparency.org

65ADB. 2004. Review of Governance and Public Management in Sri Lanka . Manila.

Available: http://www.adb.org/Governance/sri_report.pdf





http://www.adb.org/Documents/Policies/Anticorruption/anticorruption.pdf


http://www.worldbank.org/wbi/governance/govdata/

http://www.transparency.org/

http://www.adb.org/Governance/sri_report.pdf

http://www.adb.org/Governance/sri_report.pdf

http://www.transparency.org/

http://www.worldbank.org/wbi/governance/govdata/





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risks that could affect governance assistance: (i) dilution of public administration reforms due toopposition from political parties and vested interests, (ii) resumption of hostilities, and (iii) socialconsequences on the poor of the Government’s reform package and overambitious package.However, the strategies did not articulate corresponding risk management plans.

112. After ADB adopted its Anticorruption Policy (1998), the Sri Lanka country

strategies and programs provided support for anticorruption efforts. Anticorruptionmeasures were pursued through (i) compliance with procurement guidelines for ADB-financedoperations, (ii) regular auditing of annual financial statements, (iii) auditing of the use ofstatements of expenditures for loan disbursement applications, (iv) use of managementinformation system to minimize fraud, (v) ADB investigations of allegations of fraudulentpractices, and (vi) inclusion of measures to mitigate anticorruption risks. The Office of theAuditor General of ADB responded to complaints and allegations of corruption. From 1998 to2006, 61 cases related to Sri Lanka were filed with ADB’s Office of the Auditor General,representing about 5.8% of the 1,048 total cases filed.66 Recently, ADB included commendablemitigation measures in project design to address potential corruption risks in the Tsunami-Affected Areas Rebuilding Project and the Second North East Community Restoration andDevelopment Project.67

113. Overall the performance of ADB’s governance assistance was rated “likely to bepartly successful”. It was “highly relevant” at the time of formulation because it was (i)commensurate with the challenges in the country; (ii) consistent with ADB’s governance andanticorruption policies; (iii) consistent with the Government’s vision of establishing transparent,accountable, and responsive public services; and (iv) coordinated with the assistance ofdevelopment partners. Most governance-related projects and TA activities are still ongoing, butoverall, governance assistance is “likely to be less effective” due to mixed outcomes and policyreversals that accompanied changes in government. Initial outcomes have included (i)dismantled state monopolies (airlines, telecommunications, insurance, and petroleumdistribution); (ii) partial retirement of the public debt by using privatization proceeds; 68 (iii)opening up, during the divestment process, of opportunities for rent seeking due to asset

underpricing and inadequate safeguards in terms of monitoring and regulatory arrangements;69

and (iv) opposition from powerful vested interests to reforms that aim to improve cost recovery,efficiency, and service quality in the power and water supply sectors. Prospects for achievingthe expected outcomes of ongoing programs/projects are mixed. Service delivery-oriented

66When only project cases are counted, the number of Sri Lanka cases filed from 1998 to 2006 reached 54 cases outof a total of 757 cases. Of the 54 Sri Lanka cases, 52 had been concluded and 2 cases were still open at the endof 2006. Of the closed cases, two cases resulted in sanctions by the Integrity Oversight Committee.

67Corruption mitigation measures include (i) providing legal assistance services in the regions to help tsunami

victims; (ii) establishing a decentralized mechanism for tsunami victims for private dispute resolution and grievancereview against public officials, including working with the Commission to Investigate Allegations of Bribery andCorruption; (iii) training and awareness programs in the regions, as well as television clips on anticorruption; (iv)promoting accountability and transparency; (v) reestablishing identity registration for tsunami victims; (vi) special

and random financial and performance audits; (vii) establishing community participation in planning,implementation, and monitoring; (viii) attaching corruption sentinel officers to each of the Regional Legal AidCommission officers under the project, which is the first instance of a formalized corruption sentinel system in SriLanka at the regional level; and (ix) penalizing corruption.

68Based on the program completion report, the Private Sector Development Program generated proceeds of

SLRs24.5 billion over 2000−2004 from the sale of SOEs (telecommunications, insurance, petroleum distribution,national airline, etc.). Public debt as a percentage of GDP declined from 103.2% to 93.0% over 2001−2006.

69For example, exclusivity provisions without adequate monitoring and regulatory arrangements in the divestment oftelecommunications, gas, and airlines, and underpricing of assets became part of the Government’s privatizationstrategy. Knight-John, Malathy. Privatization and Regulation. In Saman Kelegama, editor, Economic Policy in Sri Lanka: Issues and Debates . Colombo: Institute of Policy Studies.



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projects, particularly those outside of the conflict-affected areas, are likely to achieve theirexpected outcomes. The fiscal management reform program is likely to improve revenueadministration, streamline processes, and bring about increased transparency andaccountability and results-based budgeting. The Government regards it as a flagship programand fully supports the reforms. Notwithstanding initial improvements in the ratio of total revenueto GDP, several drawbacks have occurred such as (i) high recurrent expenditures, (ii) high

borrowings from the banking system, and (iii) a high public debt burden that can threatenmacroeconomic stability. Many regulatory reforms in the financial sector are likely to occur, butongoing restructuring reforms will remain a challenge, including restructuring the People’s Bank,due to the current government policy stance that is opposed to privatization of SOEs.Governance-related TA performance has also been mixed.70

114. Overall, governance assistance is “likely to be efficient”. In general, more resourceshave been allocated to service delivery-oriented projects, where implementation bottlenecks areless likely to be more difficult than those of politically sensitive policy reforms. Based on projectperformance reports, the implementation pace has been generally satisfactory, particularly forservice delivery-oriented projects that are being implemented outside of the conflict-affectedzones. For ADB-assisted programs and projects, close interaction with government officials is

maintained, and review missions contribute to keeping implementation on track.

115. Some outcomes of governance assistance willlikely be sustainable, particularly those relating toderegulation of the telecommunications industry (nowa rapidly growing industry in Sri Lanka and one of themost deregulated in Asia) and streamlining ofrevenue administration processes. However, in thelong run, service delivery improvements in the socialsector might be moderately susceptible to risks (seeBox 6), given the politicization of the public serviceand the blurring of accountabilities of ministries with

fragmented mandates. Looking out for workable waysto address complex governance challenges willcontinue to be a challenge.

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

Box 6: Risks to Sustainable GovernanceOutcomes

• Politicization of the public service• Lack of continuity of some economic

policies• Expansion of the number of ministries with

fragmented and unclear mandates, roles,and functions

• Potential macroeconomic destabilizationfrom high fiscal deficits and high publicdebt

• Shortcomings in accountability andtransparency of public sector operations

• Inadequate enforcement of penalties onperpetrators of corruption

Source: Evaluation team.

70 The TA completion report (2001) rated TA 2950-SRI: Establishing the Sri Lanka Tender Bureau generallysuccessful. It led to an operational Procurement Support Bureau and to the implementation of revised guidelines

on government tender procedures. Similarly, TA 1900-SRI: Management Strengthening of the National WaterSupply and Drainage Board was rated generally successful. It improved the Board’s management capacity infinancial management, accounting, inventory management, and monitoring and helped put in place computerizedsystems to improve service delivery. However, other TA grants did not lead to significant outcomes. For example,the realignment of ministerial portfolios in mid-1997, which was addressed by TA 2616-SRI: Public AdministrationReform, was accepted at the highest executive level of the Government, but the implementation process lostmomentum due to resistance from vested interests. TA 3263-SRI defined the mandate and directions of theMinistry of Provincial Councils and Local Government, but the TA completion report indicated that the contributionto the devolution process was limited. The Ministry tended to focus on staffing and fund releases. Moreover, manyof the provincial councils have not followed through in approving statutes for levying the relevant devolved taxes,resulting in dependency on the center.



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public resource management; (v) an improved enabling environment for private sectorparticipation in divested industries; and (vi) reduced anti-money laundering and improvedcontrol of monetary flows. Although there is a downward trend in the fiscal deficit (from 10.1% to8.4% of GDP over 1995−2006), the fiscal deficit is still higher than the target set by the 2004Fiscal Management Responsibility Act. 71 The likely risks to sustainability could affect theachievement of impacts. If these risks persist, the overall impact of governance assistance will

likely be modest. Risk management over the longer term is important.

4. Other Thematic Assistance

a. Capacity Development

117. ADB’s country strategies in Sri Lanka have recognized that weak capacity constrainsimplementation and limits the absorption of development assistance. Consequently, severalcapacity development interventions were carried out at the institutional and beneficiary levels. Inthe education sector, for example, ADB provided support through investment projects, mainly by(i) improving school management, curricula, physical infrastructure, and equipment, (ii)providing education materials, and (iii) promoting information and communication technology in

schools through computer learning centers, which helped build school networks andpartnerships with private enterprises. In the transport sector, capacity development activitieswere pursued as components of projects or advisory TA grants. Four advisory TA grants in theroads subsector sought to strengthen the capacity of various departments within the RoadDevelopment Authority for planning, road maintenance budgeting and expenditure control,technical audit, and environmental and social monitoring. Further efforts promoted private sectorparticipation in road contracting; established a trust fund for road maintenance; and supportedsector policy formulation, interagency cooperation, and partnerships. In the water supply andsanitation sector, capacity development initially focused on NWSDB, mainly through training inproject management and financial management. Subsequently, capacity development includedactions aimed at (i) strengthening beneficiary and end-user participation in selecting, designing,implementing, and operating local water supply systems; (ii) strengthening the capacity of local

authorities to develop and manage such systems; and (iii) assisting beneficiaries in managingand maintaining water supply systems. These efforts have shown promising results, butinstitutional issues such as water supply regulation, independent tariff setting, and private sectorparticipation continue to impede improvements in organizational effectiveness.72

118. ADB’s capacity development assistance has produced mixed results. In the tree cropssubsector, for example, measures at the beneficiary level produced positive outcomes mainlydue to knowledge gained from training and the provision of complementary support services(extension and credit). In the transport sector, however, the contribution of capacitydevelopment has been relatively modest. While the capacity to plan projects has improved, thecapacity to implement projects has declined due to the difficulties in recruiting and retainingqualified staff (see Box 7).

71The objectives of the Fiscal Management Responsibility Act include (i) ensuring that the budget deficit at the end of2006 would not exceed 5% of the estimated GDP, and ensuring maintenance of such levels thereafter; (ii) prudentmanagement of fiscal risks, paying attention to changing economic circumstances; (iii) adoption of policies ongovernment spending and taxation with a reasonable degree of stability and predictability; (iv) ensuring that at theend of 2006, the total liabilities of the Government would not exceed 85% of GDP; (v) in 2013, the total liabilities ofthe Government would not exceed 65% of the estimated GDP; and (vi) ensuring that government policy decisionspay attention to the financial impact of such decisions on future generations.

72ADB. 2007. Study of Capacity Development in South Asia (draft). Manila.



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Box 7: Illustrative Capacity Development Outcomes

Agriculture and Natural Resources—Tree Crops Subsector• Training, complemented by credit and extension services, leading to the replanting of about 4,300 hectares

under the Tea Development Project, which subsequently increased tea yields by 33% and real incomes ofparticipating smallholders by 21%.

• Improved services from extension service providers

Education• Students qualifying at national examinations (ordinary level) for entry to Grade 12 from 37% in 2001 to 45%

in 2004• Students qualifying for admission to universities from 51% in 2001 to 55% in 2004• Improved access of students, teachers, and administrators to information and communication technology• Partnerships with private enterprises in operating computer learning centers

Water Supply and Sanitation• Improved capacity of NWSDB to implement projects• Operating financial reporting and management systems• Functioning community-based water supply and sanitation schemes (about 880 schemes)

Transport

• Participation of domestic private companies in road contracting due to the closure of the Road Constructionand Development Company in 2004

• Improved preconstruction processes• Increased capacity to address social and environmental concerns arising from road development• Increased capacity to plan, manage, and monitor road maintenance and road capital investments


119. An earlier OED study indicated that ADB’s capacity development assistance to SriLanka could be made more effective by adhering more closely to key operating principles: (i)fostering ownership; (ii) a clear commitment by ADB to capacity development by stayingengaged under difficult circumstances; (iii) strengthening a strategic approach to capacitydevelopment; (iv) selective sector and crosscutting focus; (v) integrating inputs into national

priorities, processes, and systems; (vi) building on existing capacities; and (vii) remainingaccountable to ultimate beneficiaries. 73

b. Gender Development

120. The egalitarian approach to the provision of education and health services has enabledSri Lankan women to attain a favorable gender development status among South Asiancountries. The Human Development Report indicated that the Gender Development Index forSri Lanka in 2004 was 0.749, higher than those of India (0.591), Bangladesh (0.524), Pakistan(0.513), and Nepal (0.51). Despite these advances, a number of issues continue to adverselyaffect Sri Lankan women. Women still face inequitable access to productive assets andresources, job discrimination, and wage disparities.74 A majority of women are trapped in low-

skill, low-income jobs, mainly as unpaid family workers in agriculture or as factory workers.

73ADB. 2006. Special Evaluation Study on Lessons in Capacity Development: Sectoral Studies in Sri Lanka. Manila.Available: http://www.adb.org/Documents/Reports/Evaluation/sst-sri-2006-04/ses-sri.pdf

74ADB. 2004. Country Gender Assessment for Sri Lanka. Manila.Available: http://www.adb.org/Documents/Reports/Country-Gender-Assessments/sri.asp

http://www.adb.org/Documents/Reports/Evaluation/sst-sri-2006-04/ses-sri.pdf

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121. Consistent with ADB’s gender and development policy (1998),75 country strategies after1998 have provided for preferential access by women to skills training, extension services inagriculture, microfinance/credit, and market information, and have promoted a gendermainstreaming approach to integrate gender equity considerations in ADB operations. Projectsfocusing on the conflict-affected North and East have integrated gender-related interventions.The resurgence of conflict has contributed to women’s vulnerability due to the disruption of

income-generating activities and to an increase in the number of female-headed households inwhich women have become the principal income earners. The Tsunami-Affected AreasRebuilding Project and the North East Community Restoration and Development Project IIreflect gender-inclusive features (see Box 8).

Box 8: Key Gender-Related Features of the Tsunami-Affected Areas Rebuilding Project and the NorthEast Community Restoration and Development Project II

• Restoration of livelihood and economic activities for women and men, while paying special attention tosupport for livelihood and enterprise activities for widows and female-headed households in the conflict-affected areas

• Equal participation of women and men in urban planning, village reconstruction, and development activitiesand processes

• Equal access of women and men to infrastructure activities in relation to planning, construction, andmaintenance

• Involvement of women and men in environmental management and coastal resource management

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

122. Other projects have addressed gender equity in access to training and services. TheSkills Development Project, for example, promoted new areas for skills development includingtechnology-oriented courses and entrepreneurship training, and provided financial assistance towomen who opted to establish and manage their own enterprises. In agriculture, the ongoing

Aquatic Resource Development and Quality Improvement Project gives importance to women intraining (leadership, entrepreneurial skills development, inland fisheries and aquaculturemanagement, credit, and bookkeeping) and access to microcredit schemes. Through thestrengthening of fishers’ associations, it also offers equitable opportunities for women’smembership and representation, and for leadership functions. The Rural Finance SectorDevelopment Program has addressed gender concerns through (i) gender awareness trainingto promote a gender balanced client outreach; (ii) encouraging rural financial institutions toformulate business plans, which include quantifiable targets for gender outreach, especially inconflict-affected areas; and (iii) allocation of 75% of the rural enterprise development credit tofemale clients of rural financial institutions. The Small and Medium Enterprise SectorDevelopment Program has given special consideration to women entrepreneurs, and isexpected to positively affect women, who traditionally account for nearly half of productionworkers in the small and medium enterprise sector. In general, ADB’s gender assistance hasbeen responsive to issues faced by women. Over time, improving the level of women’seducation, increasing their access to productive resources and credit, and providing them withbasic infrastructure and social services are expected to contribute positively to poverty reductionand to women’s empowerment.

75ADB. 1998. Gender and Development Policy. Manila.Available: http://www.adb.org/Documents/Policies/Gender/gender-policy.pdf



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c. Regional Cooperation

123. Fostering regional integration and cooperation is important for Sri Lanka, principally forrealizing the country’s potential as a regional hub for shipping, aviation, financial services, andtourism. Overall, ADB’s regional cooperation strategy in South Asia aims to help the regionrealize its potential in economic and social development, and to enable South Asia to play an

effective part in wider Asian integration.76 It seeks to improve connectivity, facilitate trade andinvestment, develop regional tourism, facilitate cooperation in energy, and promote privatesector cooperation.

124. ADB has provided regional TA grants to support the activities of the (i) South AsiaAssociation for Regional Cooperation; (ii) South Asia Subregional Economic Cooperation; (iii)South Asia Co-operative Environment Program; and (iv) Bay of Bengal Initiative forMultisectoral, Technical, and Economic Cooperation. In November 2005, the South AsiaSubregional Economic Cooperation’s Tourism Working Group welcomed Sri Lanka as amember, mainly as a result of earlier TA grants.77 To further support tourism development in theregion, ADB provided assistance for human resource development, capacity development, andpreparation of the South Asia Subregional Economic Cooperation Tourism Development Project.

Given the resurgence of conflict in Sri Lanka, however, promoting tourism in Sri Lanka is likely to bedifficult due to security risks. ADB, moreover, has supported the South Asia Co-operativeEnvironment Program and Clean Air Initiative for Asian Cities, along with development of aprotocol on air quality management. Other assistance included (i) a workshop on thereconstitution of the South Asia Development Fund into the South Asia Association for RegionalCooperation Development Fund, 78 (ii) an energy sector dialogue and an Energy CenterCapacity Development Project, which are expected to create an enabling environment foroptimizing the supply of and demand for energy in the region; and (iii) a TA grant to the Bay ofBengal Initiative for Multisectoral, Technical, and Economic Cooperation, which is expected tolead to the establishment of an efficient regional transport and logistics network. Regionalcooperation in South Asia is still evolving, and opportunities exist for ADB to make a tangiblecontribution.

VI. PERCEPTION ASSESSMENT OF THE SRI LANKA RESIDENT MISSION

125. The evaluation included a perception survey to gain insight into the relevance,effectiveness, and efficiency of SLRM, and to identify areas for improving client responsiveness(Appendix 8). The survey targeted persons who had had interaction or involvement with ADBoperations in Sri Lanka. Major observations from the survey results are described below.

126. Most of the respondents believed that SLRM knows the country. The vast majorityof respondents (96%) indicated that SLRM staff members know Sri Lanka well, are people with

76ADB. 2006. South Asia (2006-2008) Regional Cooperation Strategy and Program. Manila.

Available: http://www.adb.org/Documents/CSPs/South-Asia/2006/CSP-SA-2006.pdf77(i) ADB. 2002. Technical Assistance for Exploring Sri Lanka's Subregional Economic Cooperation Potential . Manila(TA 6079-REG, for $60,000, approved on 18 December 2002).(ii) ADB. 2002. Technical Assistance for Exploring the Maldives’ Subregional Economic Cooperation Potential .Manila (TA 6081-REG, for $60,000, approved on 18 December 2002). This TA was designed to identify economiccooperation potential between the Maldives and other South Asian countries, particularly Pakistan and Sri Lanka.

78The framework for the South Asia Association for Regional Cooperation Development Fund was approved in July2006 and the Board was subsequently constituted. The Fund has several windows. The social window coverspoverty reduction and social development. The infrastructure window deals with energy, power, transportation,telecommunications, tourism, and other infrastructure areas. The economic window is primarily devoted to non-infrastructure.

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whom they can express their opinions openly (93%), and have good communication skills(91%). Respondents generally believed that SLRM staff are accessible when needed (82%) andthat SLRM staff treat them as development partners and/or colleagues (81%). Although still amajority, responses that SLRM staff know the relevant sector issues in the country (70%) andhave strong technical expertise (65%) were significantly lower. Responses to the latter twocategories may have implications for the set of skills needed when future staffing decisions are

made at SLRM.

127. More than 70% of the respondents indicated that SLRM is an effectivedevelopment partner and responds to the country’s development needs. This is consistentwith the findings of a separate survey of opinion leaders and stakeholders in which more thanthree quarters of the respondents reported that the services offered by ADB’s field offices orresident missions in the South Asia region had been helpful in assisting countries to meet theirdevelopment goals and objectives.79 A slight majority (60%) of the current respondents believedthat SLRM is receptive to changing conditions of the country and sensitive to country-specificcircumstances. There is room for improvement in these areas, as supported by respondents’comments that SLRM should develop closer relations with partners, and be more responsive tothe country’s needs to improve its delivery of products and services.

128. Only 36% of the respondents felt that SLRM has enough delegated authority. Thiswas confirmed during interviews with key informants, who raised issues concerning SLRM’sdependence on ADB headquarters about matters related to project implementation,procurement, policy dialogue, resource allocation, and programming in specific sectors. Whilethis has implications for the way that the South Asia Regional Department delivers services inSri Lanka, the ability to address this issue will be, in part, determined by ADB’s broaderbusiness practices.

129. Fewer than half of the respondents (43%) agreed that SLRM provides valuablelessons and practices from other countries. This is consistent with observations madeduring discussions with government officials and respondents, who expressed the need for

SLRM to disseminate lessons and to enhance its role as facilitator for learning from ADB’sexperience in other countries.

130. The majority (78%) of the respondents believed that SLRM adequately considersthe development issues and priorities of the country. However, fewer respondents felt thatSLRM (i) involves interest groups in policy discussions (59%), (ii) adequately explains therationale for ADB’s country strategies (54%), and (iii) provides policy advice based on practicalinsights (46%). The 2006 Multilateral Organisations Performance Assessment Network surveyindicated that ADB plays a central role in policy dialogue, and has a close working relationshipwith the Government because of its relatively large contribution to the country’s officialdevelopment assistance. About two thirds of the current respondents stated that SLRM (i)supports the Government’s leadership role in policy formulation, (ii) focuses policy dialogue on

the most important development needs, and (iii) provides advice sensitive to humandevelopment goals.

131. Key informant interviews with government officials revealed a desire for SLRM tobe more attentive to alternative views and options. On project design, more than 70% of therespondents agreed that SLRM adequately considers social and environmental aspects, country

79ADB Perceptions Survey: Multinational Survey of Opinion Leaders 2006. Prepared by the Princeton Survey

Research Associates International for the Asian Development Bank. October 2006, p. 9.



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and sector contexts, and experience from previous projects. Fewer respondents agreed thatSLRM listens to alternative views (62%) or considers options proposed by stakeholders (62%).

132. Less than 40% of the respondents agreed that SLRM effectively provides inputs todevelopment policy formulation in the country. However, technical support provided bySLRM was primarily (65%) perceived to make a tangible contribution to development

effectiveness. Similarly, more than half (52%) of the respondents agreed that technical supportis well focused on key capacity needs of the country, although some respondents (governmentofficials) disagreed. More than half of the respondents (57%) agreed that technical support usesapproaches that effectively fit the country situation. On the other hand, fewer respondentsagreed that SLRM provides technical support that is accurately targeted (35%) andappropriately timed to support project implementation (48%).

133. According to about 60% of the respondents, SLRM staff members work closelywith project directors to resolve issues and help reconcile differences between ADB andthe Government. SLRM effectively manages the loan portfolio and keeps partners informed ofprogress and issues. Based on the respondents’ perceptions, the more problematic areas ofproject administration relate to procurement issues and staff flexibility to consider options when

a standard solution does not work.

134. Nearly 70% of the respondents believed that SLRM provides timely responses toinquiries. Compared with other aid agencies with which the respondents were familiar, amajority of respondents (60%) felt that SLRM is more responsive to country needs. However,fewer respondents believed that SLRM is better than other aid agencies in terms of striving toachieve tangible results (37%) and speed in delivery of services (31%). More than threequarters of the respondents reported that they were satisfied with SLRM-based services, withthe majority of the responses coming from government agencies and development partners.

135. Overall, while the respondents’ perceptions of ADB in Sri Lanka were generally positive,several areas require more attention by ADB to improve its client responsiveness. There is anoverall demand for ADB to delegate more authority to SLRM to make decisions in the country.During interviews, respondents often complained about the slow delivery of services assomething related to SLRM’s inability to take decisions without resorting to repeated exchangeswith ADB headquarters. This recommendation is in accord with the proposed recommendationsunder the ongoing review of resident mission operations, which supports the delegation ofauthority to resident missions based on country-specific circumstances and requirements.

VII. OVERALL RATING, CONCLUSIONS, AND RECOMMENDATIONS

A. Overall Rating and Conclusions

136. The overall performance of ADB’s country assistance program in Sri Lanka israted “partly successful”. This overall rating was derived from a combined rating of (i) top-down assessment, which included country strategy positioning, contribution to developmentimpacts/results, and views on ADB performance; and (ii) bottom-up assessment of the sectorassistance programs for key sectors (see Table 5). Not included in the bottom-up assessmentwere the health, nutrition, and social protection sector and the industry and trade sector, whichhad relatively minimal shares in ADB’s lending and nonlending portfolio.



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Table 5: Overall Rating of ADB’s Country Strategies and AssistanceItem Rating Description Score (Points)A. Top-Down Assessment, Countrywide

1. Positioning of Country Strategies in the Last Decade Satisfactory 62. Contribution to Development Impacts/Results (Pro-Poor

Growth, Inclusive Social Development, and Good Governance)Modest 4

3. ADB Performance (Based on the Perception Survey) Satisfactory 6

Countrywide Ratinga

Successful (on the low side) 16B. Bottom-Up Assessment, Sector Assistance Program

bPartly Successful 13

Overall Ratingc

Partly Successful 29a

The countrywide performance was rated as follows: highly successful = ≥20 points, successful = >15 and <20points, partly successful = >10 and ≤15 points, and unsuccessful = ≤10 points.

bThe aggregate sector performance was rated as follows: highly successful = ≥20 points, successful = >15 and <20points, partly successful = >10 and ≤15 points, and unsuccessful = ≤10 points. The total sector performance scorewas subjected to a weighted index (Wi) and was computed as: ∑ (Wi * Sector performance score)/ ∑ Wi, where Wiis equivalent to 2 for major sectors and 1 for minor sectors in the context of ADB operations in the last twodecades.

cThis combined top-down and bottom-up assessments, with equal weights. It was rated as follows: highly successful= ≥40 points, successful = 30−39 points, partly successful = 20−29 points, and unsuccessful = ≤19 points.

Sources: ADB. 2006. Guidelines for the Preparation of Country Assistance Program Evaluation Reports . Manila.Country Assistance Program Evaluation Team.

137. ADB’s country strategies the last decade were generally relevant and responsiveto development challenges at the time they were formulated. However, the changingpolitical economy context since April 2004, conflict resurgence, and new government policieshave diminished the relevance of the current country strategy (2004−2008). A strategicrepositioning is called for in formulating the new country partnership strategy. Although thepoverty reduction thrust of the strategy continues to be relevant to national priorities and ADB’spoverty reduction strategy, several components of the existing strategy (e.g., sectorrestructuring, deregulation, and privatization of SOEs no longer rank high on the currentGovernment’s development agenda. Measures to improve the efficiency of SOEs (other thanthrough privatization) have become more important. The changed political landscape meansthat some projects and programs are no longer consistent with the new economic policies.

Thus, country ownership of the strategy has fallen. Another thrust of the current strategy is onreconstruction and development in the North and East. This was based on postconflictassumptions that are no longer realistic due to renewed fighting. The incorporation of in-conflictscenarios and greater flexibility to deal with emergent situations now warrants significantattention.

138. ADB’s assistance, as delivered, has been consistent with the declared strategyand program, but performance across sectors has been mixed and, overall, is rated“partly successful”. This highlights the need for reassessing sector and crosscuttinginterventions for future development assistance, and learning from past experience to identifythe factors that have enabled or deterred performance. Greater efforts are needed to improvequality at entry, identify and mitigate risks in project design, devote adequate resources to

portfolio management, and work with executing agencies to identify and resolve problemsduring implementation. Sectors in which the assistance program has been successful include (i)transport (mainly roads), (ii) education, and (iii) water supply and sanitation. Sustained anduninterrupted ADB engagement in these sectors has generated positive results in terms ofservice delivery. In other sectors, the performance of the assistance program has been lessthan successful: (i) finance (policy-based), (ii) power, (iii) law and economic management, (iv)multisector projects, and (v) agriculture.

139. The partly successful performance of ADB’s policy-based lending operations in



47

Sri Lanka calls for (i) caution in the future in using this modality, (ii) increased efforts indesigning and implementing policy-based programs, and (iii) more concerted efforts toexplore alternative options for achieving the same policy objectives. Complex political andsocial structures, along with civil strife and a strong commitment to a welfare state, have made itdifficult for many successive governments to push through unpopular but necessary policyreforms and structural changes. A careful assessment of reform options and reform readiness is

essential for policy-based programs. Several requisites enhance the effectiveness of policy-based programs: (i) the program must be country-driven, suited to the country’s political andsocial conditions, and based on a broadly supported reform agenda within nationalconstituencies; (ii) the objectives must be clearly defined, and the reforms clearly sequenced,prioritized, and grouped in manageable proportions; (iii) performance indicators must be clearlyidentified; (iv) adequate flexibility must be provided to respond to changes in the operating andexternal environments; (v) realistic implementation schedules must be developed that recognizethat policy and institutional reform are lengthy processes requiring a continuous review ofoptions and consensus-building among decision makers; (vi) the political leadership and thepublic need to be informed about the purpose and expected effects of reforms; and (vii) a soundmacroeconomic environment and supportive policies must be recognized as an essentialcomplement to sector reform efforts. Policy-based programs have the potential to be a powerful

tool to support difficult reforms, but there is the downside risk of policy reversal and variation ofsupport for reforms when changes occur in the Government and in political coalitions.

140. Fighting poverty and bringing about the conditions for higher economic growthoffer opportunities for development assistance. Equitable regional development, inclusivesocial development, infrastructure provision, and sustainable environmental management arevital, and should be complemented by macroeconomic stability and peace. The currentGovernment has prioritized the reduction of regional disparities, mainly by improvinginfrastructure, developing small- and medium-scale enterprises, promoting rural development,and providing social protection. Specific focal areas and options for ADB assistance need to beworked out carefully in consultation with the Government, taking into account the constraintsposed by the resurgence of armed conflict and its effects.

B. Key Challenges

141. The resurgence of conflict in the North and East has made developmentoperations there difficult. With the growing threat to security in many areas, governmentattention to economic management and economic reforms will likely be diverted to conflictmanagement and resolution. The situation warrants a reassessment of ADB operations andconflict sensitivity in dealing with emergent situations. Although coordination amongdevelopment partners has been strong, coordination of development assistance among aidagencies with divergent mandates is becoming increasingly difficult. There is increasing concernamong bilateral donors about the lack of progress in the peace process. Communities havebecome more vulnerable to access restrictions, security deterioration, and loss of employment.

Distrust, dissatisfaction, and frustration have emerged among those who are affected by theconflict. The situation has become increasingly restrictive on the operations of international andnational NGOs. A system involving periodic conflict assessments could lead to more conflict-sensitive projects. However, reliance on project implementers for informal assessments andinherent sensitivity to conflict dynamics may undermine objectivity. In-conflict situations oftencome with issues related to trust, prejudice, and suspicion. Placing the responsibility ofconducting conflict assessments on project personnel may expose them to risks. A periodicexternal review of conflict risks and their effects on project implementation may help improve therelevance of conflict risk assessments.



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142. The overriding focus of subprojects on physical infrastructure rehabilitation in theNorth and East needs to be reassessed in terms of their feasibility under deterioratingsecurity conditions. It is important to recognize that not all problems resulted from the conflictescalation. Projects have faced challenges of working in an already complex environment: (i)shortage of qualified contractors; (ii) shortage of building materials, aggravated by the risingdemand for the tsunami reconstruction; and (iii) implementation delays and issues related to

staff retention. The effects of the conflict on the operating environment impose further risks tosustainability.80

143. The political economy of Sri Lanka precludes a rapid restructuring of stateagencies. Given the politicized nature of tariff setting and the unlikely prospects for significanttariff increases, measures must be taken in the power and water supply sectors to reducesystem losses and improve operational efficiency. Achieving financially viable and sustainableoperations continues to challenge the power, water supply, and education sectors. Full costrecovery for public services is difficult, as the Government has a range of social and welfareobjectives to meet. Initiatives in the water supply sector to increase tariffs gradually and reduceoperational losses need to be sustained. In the power sector, a review of options to address thefinancial indebtedness of CEB and to improve sector efficiency is imperative. In education,

avenues for feasible public-private partnerships should be further explored to reducedependence on the government budget.

144. Notwithstanding improvements in access to water supply, rural electrification, andsecondary education, disparities in access to basic services across regions still exist. Poorer regions continue to suffer from inadequate services. For example, in education,continuing problems of teacher deployment to poorer areas work against equitable servicedelivery. In water supply and sanitation, further attention to decentralized service delivery isneeded to reach underserved areas.

145. Improving governance is fundamental to making institutions more transparentand accountable, and less prone to corruption. Governance and anticorruption initiatives

should be mainstreamed in sector operations. Part of the challenge lies in strengtheningeconomic management, improving the quality of public service, and reforming public financialmanagement through fiscal discipline, strategic resource allocation, and establishment ofresults-based reporting systems.81 Notwithstanding initial improvements in fiscal management,several challenges remain in public financial management: (i) high recurrent expenditures, (ii)high borrowings from the banking system, and (iii) high public debt burden. This requires apublic debt management strategy, with due regard for the country’s borrowing approach andability to service debt.

146. The multiplicity of ministries, with dispersed responsibilities and accountabilities,poses challenges to policy coherence, coordination of sector assistance programs, andeffective sector development. Creative ways of bringing various offices and groups to work

together to achieve a common goal comprise a formidable challenge. The increasing80

Sustainability issues include potential destruction of physical assets from the fighting, difficulties in maintenance ofinfrastructure and facilities, repeated displacement of resettled communities, and local capacity constraints.

81The Government’s Ten-Year Horizon Development Framework (2006−2016) highlighted inadequacies in severalareas: (i) systemwide accountability and transparency in the conduct of government business, (ii) public policymanagement, (iii) client orientation in the delivery of public services, (iv) management of public resources, (v)matching of task demands with available human resources, and (vi) horizontal consultation and engagement indecision making. Ministry of Finance and Planning. 2006. Mahinda Chintana: Vision for a New Sri Lanka. A Ten- Year Horizon Development Framework 2006–2016. Discussion Paper. Colombo. Available:http://www.treasury.gov.lk/EPPRM/npd/pdfdocs/budget2007/MahindaChintanaTenYearDevelopmentPlan.pdf

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49

politicization of the civil service and of SOEs will likely hamper effective service delivery,efficient operations, and harmonized policymaking.

147. In terms of curbing corruption, examples of the types of efforts needed includethe following: (i) policy, procedural, and institutional reform to reduce the opportunities forcorruption; (ii) awareness raising (promoting zero tolerance towards corruption); (iii) prevention

(establishing the administrative rules and procedures, separation of functions, and conflict ofinterest rules to limit opportunities for corruption); (iv) detection (establishing internal controlsand administrative complaint mechanisms as a precursor to judicial review); and (v) ensuringprosecution of corruption, including sanctions and disciplinary measures. Coordination amongthe independent constitutional commissions (including the Commission to InvestigateAllegations of Bribery and Corruption), strengthening capacity, providing legal assistance,addressing legal loopholes, enforcing penalties, mobilizing civil society participation, andpursuing complementary measures are essential to increase accountability. These areopportunities for ADB to actively support the Government’s anticorruption agenda.

C. Recommendations

148. Several recommendations are put forward as directional inputs for Managementconsideration during the formulation of the next Sri Lanka country strategy. Decisions aboutwhich sectors or subsectors to include in a more focused portfolio depend on factors such as (i)client demand and preferences, (ii) staff and TA resource availability, (iii) analytical work thatidentifies binding constraints, (iv) ADB’s strategic priorities, (v) the programs of otherdevelopment partners, and (vi) experience showing what has worked and what has not. TheCAPE findings are just one part of the analytical work that should determine the new countrypartnership strategy. Therefore, the CAPE should not be prescriptive about the shape of thefuture program. However, results are important, particularly since most of the resources beingprovided have to be paid back. If ADB decides to engage in a sector or subsector with a lowhistorical success rate, clear evidence must be provided that the reasons for low success havebeen determined and a plausible strategy has been put in place to deliver better results in the

future. In addition, ADB should take on only those sectors in which its input will be substantial,sustained, and backed up with the required resources for analysis, design support, andsupervision. Table 6 summarizes the recommendations, with indications of responsibility andtime frame.

Table 6: Summary of Recommendations

Recommendation Responsibility Time Frame1. ADB should review its development assistance to conflict-

affected areas in the North and East from theperspectives of conflict sensitivity. The challenge for ADBis to explore options, modalities, and partnerships toprovide assistance within the in-conflict and fragile

environment. Options for ADB to consider includetemporary suspension and changes of scope of ongoingdevelopment assistance with a view towards efficiencyand effectiveness, particularly when rising costs andsecurity risks can outweigh the expected benefits. ADBshould also explore options for outsourcing and partneringwith agencies having specialized capabilities, andspecialized administrative and management systems thatcan respond rapidly to changing conditions. Options aredetailed in Supplementary Appendix F.


Formulation stageof the new countrypartnershipstrategy andcontinuing






























































50

Recommendation Responsibility Time Frame2. ADB should review the focus of its development

assistance, particularly within sectors that have fallenshort of achieving significant results (e.g., agriculture,power, policy-based programs) but are extremelyimportant for poverty reduction and economic growth. The

review should consider the provision of continued supportfor sector assistance programs that have performed well(e.g., education, transport, and water supply). It shouldtake into account the findings of the evaluations of sectorassistance (Supplementary Appendixes A−E). Inredefining sector strategies in the context of the newcountry partnership strategy, ADB should consider thesector recommendations made by the CAPE.


Formulation stageof the new countrypartnershipstrategy

3. ADB should be prepared to remain engaged in policydialogue during difficult times, when the implementationof ongoing programs is slow and may even stall. Thenature and scope of the existing policy-based programsrequire continuity and involvement of experienced staff.

Greater attention to identified lessons is required. Acareful assessment of reform options is crucial for policy-based programs. Resources are needed to continue thedialogue. In this context, ADB should review itsresources, skills base, and staff configuration to allowitself to play its role more effectively. A business plan toidentify the human and financial resources required toimplement the country strategy may be necessary.



4. ADB should provide assistance to Sri Lanka for results-based monitoring and development evaluation to promotedevelopment effectiveness. This will complement theGovernment’s ongoing efforts to strengthen its monitoringand evaluation capacity at the Ministry of Plan

Implementation.



5. ADB should assess the Sri Lanka Resident Mission’sroles and functions in order to strengthen its capacity to(i) disseminate lessons and good practices from ADBoperations in other countries, (ii) enhance its services invarious areas of concern as identified through theperception survey, and (iii) provide timely decisions andtechnical support to project administration. Thisassessment should take into account the findings of theongoing review of resident mission operations by theStrategy and Policy Department.


Strategy andPolicy Department

A soon as possibleduring 2007−2008

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
















































































Appendix 1 51

EVALUATION METHODOLOGY

1. This study followed the Asian Development Bank’s (ADB) country assistance programevaluation (CAPE) guidelines.1 It drew extensively from a broad range of evaluation methods,including (i) literature review of studies, reports, policies, strategies, and references from ADB,the Government, and independent sources; (ii) in-depth interviews with key informants from

government and nongovernment organizations, private sector entities, academe, developmentpartners, ADB staff, in-country experts and observers, beneficiary organizations, and otherstakeholders; (iii) perception survey of the performance of ADB’s Sri Lanka Resident Mission(SLRM); (iv) interactive meetings and consultations throughout the CAPE process; (v) fieldobservations of selected projects; (vi) presentation of sector performance results to countrystakeholders through workshops; (vii) dissemination of the draft CAPE report (including workingpapers) on Sri Lanka to the country team, ADB operations staff, executing agencies,government officials, and other groups for their review and comments; and (viii) triangulation. Aninnovative feature of the CAPE process was information sharing with and dissemination of theCAPE evaluation working papers to the public, mainly by posting draft papers on the website ofADB’s Operations Evaluation Department (OED).

2. Assessment of the Positioning of Sectors and Thematic Assistance. The CAPE forSri Lanka assessed the positioning of five sectors (agriculture and natural resources, education,power, transport, and water supply and sanitation) and of two thematic areas (governance andassistance to conflict-affected provinces in the North and East). This was done to determine thedegree of coherence of the strategies and programs at the sector and thematic levels. Sixcriteria guided the assessment of positioning: (i) ownership and alignment with country and ADBpriorities, (ii) basis for formulating the strategies and programs, (iii) ADB’s comparativeadvantage and strategy coordination with development partners, (iv) focus and/or selectivity andsynergies, (v) long-term continuity, and (vi) risk assessment and monitoring mechanisms toachieve envisaged results.2 Table A1.1 presents a four-point scale to assess positioning, alongwith the overall rating.

Table A1.1: Assessment of the Positioning of Sector and Thematic Assistance

Criteria for Positioning

RatingDescription

Ownership/Alignment

withCountryand ADBPriorities

Basis forFormulatingthe Strategyand Program

ADB’s ComparativeAdvantage and

StrategyCoordination with

OtherDevelopment

Partners

Focus/Selectivity

andSynergies

Long-TermContinuity

Risk Assessmentand MonitoringMechanisms to

AchieveEnvisaged

Results Averagea

HS 3 3 3 3 3 3S 2 2 2 2 2 2PS 1 1 1 1 1 1US 0 0 0 0 0 0Overall Rating:

a(i) HS > 2.5, (ii) 2.5 ≥ S ≥ 1.6, (iii) 1.6 > PS ≥ 0.6, and (iv) 0.6 > US.

ADB = Asian Development Bank, HS = highly satisfactory, PS = partly satisfactory, S = satisfactory, US =unsatisfactory.

aThis overall rating of positioning can be translated to an equivalent scale of (i) HS = 8 points, (ii) S = 6 points, (iii)PS = 4 points, and (iv) US = 0 point, for purposes of subsequently aggregating the overall performance score of theADB assistance program at the country level. This equivalent scale harmonizes it with the top-down rating systemin Table A1.3.

1ADB. 2006. Guidelines for the Preparation of Country Assistance Program Evaluation Reports . Manila.Available: http://www.adb.org/Documents/Guidelines/Country-Assistance-Program/guide-peparation-0206.pdf

2 ADB. 2006. Country Assistance Program Evaluation for Lao People’s Democratic Republic . Manila.Available: http://www.adb.org/Documents/CAPES/LAO/cap-lao-2006-05.pdf







http://www.adb.org/Documents/CAPES/LAO/cap-lao-2006-05.pdf





Appendix 1 52

3. Overall Assessment of the ADB Assistance Program. Consistent with the prescribedguidelines for the overall assessment of the ADB country assistance program, the CAPE for SriLanka involved (i) a bottom-up assessment of the performance of the sector assistance programand (ii) a top-down assessment that rated ADB’s overall positioning of its country strategies andprograms in the last decade, the contribution of the assistance program to development results,and the quality and responsiveness of ADB’s services. The performance of the sector

assistance program was evaluated against five criteria: (i) relevance, (ii) effectiveness, (iii)efficiency, (iv) sustainability, and (v) impact. Twice as much weight was given to effectiveness,sustainability, and impact to highlight the importance that ADB accords to making a durablecontribution to development results. A performance rating of the sector assistance program wasderived by adding up the scores accorded to each criterion. The next step was to use aweighted index of 2 for major sectors and 1 for minor sectors to obtain the aggregate sectorperformance rating (Table A1.2). Major sectors are those sectors in which ADB either was thelead development partner, had an extensive portfolio of lending and nonlending operations, orprovided assistance that has generated major development results. Subsequently, the scoresderived from the bottom-up and top-down assessments were added up and given equal weightsto arrive at the overall assessment of the ADB country assistance program (Table A1.3).

Table A1.2: Bottom-Up Assessment of the Sector Assistance ProgramEvaluationCriterion Description Rating

Score(Points)

Relevance Relevance refers to the alignment of ADB’s sector strategyand program with evolving development challenges andpriorities of the developing member country, and with themission, policies, and strategies of ADB.

Highly RelevantRelevantPartly RelevantIrrelevant

3210

Effectiveness Effectiveness refers to the extent to which the outcomes of theassistance program were achieved.

Highly EffectiveEffectiveLess EffectiveIneffective

6420

Efficiency Efficiency describes the extent to which ADB’s resources wereused to achieve results. Measures include cost effectiveness,economic internal rates of return, and the degree to which thebenefits of the assistance program have reached the poor,among others.

Highly EfficientEfficientLess EfficientInefficient

3210

Sustainability Sustainability focuses on the likelihood that the achievement ofsector results will be sustained into the future and will proveresilient to identified risks. Sustainability has important fiscal,social, political economy, and environmental dimensions.

Most LikelyLikelyLess LikelyUnlikely

6420

Impact Impact refers to ADB’s contribution to long-term changes indevelopment conditions, including attainment of the MillenniumDevelopment Goals, goals of the ADB assistance program,and improved institutional capacity.

HighSubstantialModestNegligible

6420

Performance ofthe SectorAssistanceProgram

The performance rating of the sector assistance program isderived by adding up the scores given to each evaluationcriterion (relevance, effectiveness, efficiency, sustainability,and impact).

Highly SuccessfulSuccessfulPartly SuccessfulUnsuccessful

≥20≥15 and <20>10 and <15

≤10

Aggregate SectorPerformance

Aggregate sector performance score = ∑ (Wi * Sectorperformance score)/ ∑ Wi, where Wi is equivalent to 2 formajor sectors and 1 for minor sectors.


≥20≥15 and <20>10 and <15

≤10

Source: ADB. 2006. Guidelines for the Preparation of Country Assistance Program Evaluation Reports . Manila.































































































































http://www.adb.org/Documents/Guidelines/Country-Assistance-Program/default.asp






Appendix 1 53

Table A1.3: Overall Assessment of the Country Assistance Program(Top-Down and Bottom-Up)

Item Description RatingScore

(Points)

Positioning ofADB’s Country

Strategies

Positioning refers to the degree of coherence of ADB’s countrystrategies, given existing constraints. Its assessment is based

on (i) ownership/alignment with country and ADB priorities(relevance); (ii) basis for formulating the strategies andprograms; (iii) ADB’s comparative advantage and strategycoordination with development partners; (iv) focus/selectivityand synergies; (v) long-term continuity; and (vi) riskassessment and monitoring mechanisms to achieve envisagedresults.

Highly SatisfactorySatisfactory

Partly SatisfactoryUnsatisfactory

86

40

Contribution todevelopmentresults

This assesses the extent to which ADB’s overall countryassistance program contributed to the achievement ofdevelopment results such as pro-poor economic growth,inclusive social development, and good governance.

HighSubstantialModestNegligible

8640

ADBperformance

The assessment of ADB performance focuses on theprocesses that underlie ADB’s discharge of responsibilities as a

development partner. This assessment reflects theperceptions/views of various groups and individuals who havedealings with ADB.

Highly SatisfactorySatisfactory

Partly SatisfactoryUnsatisfactory

86

40

Top-downassessment,countrywide

This refers to the sum of the scores given to the three foregoingcriteria (positioning, contribution to development results, andADB performance).


≥20≥15 and <20>10 and <15

≤10

Bottom-upassessment,aggregatesectorperformance

This refers to the overall performance of the sector assistanceprogram, using a weighted index of 2 for major sectors and 1for minor sectors.


≥20≥15 and <20>10 and <15

≤10

OverallAssessment

The overall assessment of the country assistance programcombines the scores derived from the top-down countrywideassessment and the bottom-up assessment of aggregate sectorperformance. Equal weights are assigned to each assessmentrating.


≥ 4030−3920−29≤ 19

Source: ADB. 2006. Guidelines for the Preparation of Country Assistance Program Evaluation Reports . Manila.

4. The Operations Evaluation Mission visited Sri Lanka several times: from 23 March to 7April 2006, from 25 August to 25 September 2006, and from 15 November to 14 December2006. Existing OED evaluation reports on Sri Lanka also were used in this CAPE.Communications were conducted through meetings, workshops, email, telephone, andvideoconferences. The evaluation included a perception survey to assess the relevance,effectiveness, and efficiency of SLRM. The survey targeted persons (external and internal to

ADB) who have had interaction or involvement with SLRM. A total of 278 persons werecontacted, and 88 responses were received, a response rate of 32%. The evaluation teamconducted several workshops in December 2006 in Sri Lanka.




http://www.adb.org/Evaluation/reports.asp?s=3&ctry=7

http://www.adb.org/Evaluation/reports.asp?s=3&ctry=7




A. Population Indicators

1. Total Population, Mid-Year (Million) 12.5 14.7 (1980) 16.3

17.9

(1990)

(1998)

18.5 (2

2. Annual Population Growth Rate (%) 2.1 1.8 (1980) 1.4 (1990) 1.3 (2

1.3 (1998)

B. Social Indicators

1. Total Fertility Rate (Births per Woman) 4.3 3.9 (1980) 2.5 (1990) 2.0 (2

2. Maternal Mortality Ratio (per 100,000 Live Births) - - 42.3 (1991) -3. Infant Mortality Rate (Below 1 year per 1,000 Live Births) 65.0 34.4 (1980) 26.0 (1990) 16.0 (2

4. Life Expectancy at Birth (Years)

a. Female 66.9 (1971) 72.1 (1981) 74.0 (1990) -

b. Male 64.1 (1971) 67.2 (1981) 69.0 (1990) -

5. Adult Literacy (%) 78.2 (1971) 87.2 (1981) - 90.7 (2a. Female 70.9 (1971) 83.2 (1981) - 89.2 (2

b. Male 85.6 (1971) 91.1 (1981) - 92.3 (26. Net Primary School Enrollment Ratio (%)

a. Female - - 96.3 (1996) -

b. Male - - 96.9 (1996) -7. Net Secondary School Enrollment Ratio (%)

a. Female - - 93.7 (1996) -

b. Male - - 94.3 (1996) -

8. Child Malnutrition (% Below Age 5) - - 38.0 (1993) 29.4 (29. Population with Access to Improved Water Sources (%) - -

a. Rural - - 62.0 (1990) -

b. Urban - - 91.0 (1990) -

10. Population with Access to Improved Sanitation (%) - - 70.0 (1990) -

a. Rural - - 64.0 (1990) -b. Urban - - 89.0 (1990) -

11. Public Expenditure on Education (% of GDP) 3.3 1.7 (1980) 3.0 (1990) 2.5 (2

2.6 (1998) -

12. Public Expenditure on Health (% of GDP) - - 1.6 (1990) 1.6 (2

1.4 (1998) -13. Public Expenditure on Defense (% of GDP) 5.3 (1995) 4.5 (2

14. Human Development Index (Value) 0.61 (1975) 0.65 (1980) 0.73 (1998) 0.75 (2Rank - -

15. Gender-Related Development Index (Value) - - 0.73 (1998) -

Rank - - -

C. Poverty Indicators

1. National Poverty Line (in Rupees per Capita per Month) - - 833 (1995/96) 1,423 (2

Indicators

Table A2.1: Poverty and Social Indicators, Sri Lanka

84 out of 174 96 out of

1970 1990s Early 201980s

68 out of 143

KEY ECONOMIC, POVERTY, AND SOCIAL INDICATORS; AND MILLENNIUM DEVELOPMENT GOALS O



2. Povert Headcount Ratio (%)c

a. National - - 28.8 (1995/96) -Rural - - 30.9

d (1995/96) -

Urban - - 14.0d (1995/96) -

Estate - - 38.4e (1995/96)

b. By Province - - (1995/96) -

Western 17.0 -

North-Central 25.0 -Central 36.0 -North-Western 27.0 -Southern 32.0 -Sabaragamuwa 42.0 -Uva 47.0 -

3. Poverty Depth or Poverty Gap (%)f - - (1995/96)

National 6.6 -Western 3.3 -North-Central 4.7 -Central 8.9 -North-Western 5.3 -Southern 7.4 -Sabaragamuwa 10.3 -Uva 12.6 -

4. Poverty Severity (%)g - - (1995/96)

National 2.2 -Western 1.0 -North-Central 1.3 -Central 3.2 -North-Western 1.6 -Southern 2.5 -Sabaragamuwa 3.6 -Uva 4.8 -

5. Gini Coefficient of Per Capita Consumption Expenditure - - 0.32 (1995/96) -6. Human Poverty Index - - 20.3 (1998) -

Rank -

a Data are given for only 18 districts where the 2001 Census of Population and Housing was carried out completely. The years 1971 and b Not a census year.c Percentage of the population below the national poverty line.d Rural and urban figures for 1995/1996 are not comparable with 2002 data. The classification of rural and urban areas was different at the

The 1995/96 estate data are not comparable with 2002 data due to a sampling difference.f Poverty depth/gap is the mean distance separating the population from the poverty line (with the nonpoor being given a distance of zero

as a percentage of the poverty line.g

The poverty severity index gives a weight to the poverty gap (more weight to very poor than to less poor).

- = not available, GDP = gross domestic product.

35 out of 174

Indicators 1970 1980s 1990s Early 20



58 Appendix 2

Table A2.3: Status of Sri Lanka’s Targets for the Millennium Development Goals

MDG TargetGoal Indicator 1990s

LatestYear 2015 Status

Proportion of population below the national poverty line (%) 26.1 22.7(2002)

13.1 Slow, not ontrack

Proportion of population below $1 a day (PPP) 3.8 5.6

(2002)

5% On track

Poverty gap ratio 0.7 0.8(2002)

— Not on track

1

Poorest quintile’s share in national consumption (%) 8.9 7.0(2002)

— Not on track

Prevalence of underweight children under 5 years old (%) 38.0 29.4(2000)

19.0 On track2

Population below minimum level of dietary energyconsumption (%)

50.9 51.3(2002)

25.0 Not on track

Net enrolment ratio in primary school (%) 91.7 97.1(2004)

100 Earlyachiever

1

Proportion of pupils in Grade 1 who reach Grade 5 92.7 97.6(2002)

100 Earlyachiever

1

3

Literacy rate, 15-24 years of age 92.7 95.1(2004)

100 On track

Girls to boys ratio, primary education 1.0 1.0(2003)

1.0 Earlyachiever

1

Girls to boys ratio, secondary education 1.1 1.0(2004)

1.0 Earlyachiever

1

Girls to boys ratio, tertiary education 0.6 — 1.0 On trackRatio of literate women to men, 15-24 years of age 1.0 1.0

(2004)1.0 Early achiever

Women in wage employment, non-agriculture (%) 39.1 43.2(2004)

— Not on track

4

Proportion of seats held by women in national parliament (%) 4.9 4.9(2006)

— Not on track

Under-5 mortality rate per 1,000 live births (%) 32.0 14.0(2004)

12.0 Early achiever

Infant mortality rate per 1,000 live births (%) 26.0 12.0

(2004)

12.8 Early achiever

5

Share of 1-year-old children immunized against measles (%) 80.0 96.0(2004)

99.0 On track

Maternal mortality ratio per 1,000 live births 0.92 0.47(2001)

0.36 On track6

Share of births attended by skilled health personnel — 96.0(2000)

99.0 On track

HIV prevalence among 15−24 years old pregnant women Sri Lanka has low HIV prevalence. Antenatalpopulation is not screened for HIV.

HIV prevalence rate among women (15−24 years old)attending antenatal clinics (%)

— <0.1(2001)

<1 On track

Increase in percentage of sex workers who report condom usewith most recent client (%)

— 40(2001)

80 On track

Increase in percentage of clients of sex workers who reportcondom use in commercial sex

— 30(2001)

70 On track

7

Ratio of school attendance of orphans to attendance of non-orphans, 10−14 years old

As of 2005, there were only six suchorphans.

Incidence of malaria per 100,000 1,520 350(2001)

— On track

Death rate associated with malaria (number) 50 53(2001)

— Not on track

Proportion of population in malaria-risk areas using effectivemalaria prevention and treatment measures

This is a new indicator for Sri Lanka. Dataare not available.

Incidence of tuberculosis per 100,000 39.1 44.1(2001)

Reverseincidence

Not on track



Appendix 2 59

MDG TargetGoal Indicator 1990s

LatestYear 2015 Status

Death rate associated with tuberculosis per 100,000 2.4 1.8(2001)

Reverseincidence

Early achiever

Proportion of tuberculosis cases detected and cured underdirectly observed short course (%)

— 75(2001)

100 On track

Forested land area as a percentage of land area (%) 36.4 29.9

(2005)

Reverse

loss

Regressing

Ratio of protected area to maintain biological diversity tosurface area

15.5 17.2(2005)

Reverseloss

On track

Carbon dioxide emissions, metric tons per capita 0.2 0.5(2003)

Reverseemissions

Regressing

Ozone-depleting chlorofluorocarbons consumption (ozonedepleting potential, metric tons)

209.5 155.7(2004)

Reversetrend

Early achiever

Proportion of population using solid fuels (%) 89.0 80.2(2001)

— Not on track

Proportion of population with access to an improved watersource, urban and rural

72 82(2001)

86 On track

Proportion of population with access to improved sanitation,urban and rural

73 80(2001)

93 On track

Slum population as percentage of urban (proportion ofhouseholds with access to secure tenure)

24.8 13.6(2001)

— Not on track

8 Youth unemployment rate, both sexes, 15−24 years of age 33.3 27.2(2003)

— On track

Youth unemployment rate, men, 15−24 years old 22.8 21.9(2003)

— On track

Youth unemployment rate, women, 15−24 years old 46.9 36.1(2003)

— On track

Telephone lines and cellular subscribers per 100 population 0.7 16.5(2004)

— On track

Internet users per 100 population 0.0 1.4(2004)

— On track

Personal computers per 100 population 0.0 2.7(2004)

— On track

— = not available, HIV = human immunodeficiency virus, MDG = millennium development goal, PPP = purchasingpower parity.1 Early achiever in terms of the education indicators also means that the 95% cut-off value had been achieved.Sources: (i) United Nations Development Programme. 2005. Millennium Development Goals Country Report: Sri

Lanka. Colombo. Available: http://www.mdg.lk(ii) United Nations Economic Commission for Asia and the Far East, United Nations Development

Programme, and Asian Development Bank. 2006. The Millennium Development Goals: Progress in Asia and the Pacific . Bangkok. Available: http://www.mdgasiapacific.org

http://www.mdg.lk/

http://www.mdgasiapacific.org/

http://www.mdgasiapacific.org/

http://www.mdg.lk/



60 Appendix 3

COUNTRY STRATEGIES AND PROGRAMS FOR SRI LANKA

Table A3.1: Major Thrusts of the Country Strategies and Programs in Sri Lanka

Country Strategy and Program and Its UpdatesMajor Thrusts 1993−1997 1998−2003 2004−2008

Overall Thrust • Reduction of poverty andunemployment throughaccelerating sustainablegrowth, improving the policyframework, and focusing onsector initiatives

• Poverty reduction throughstructural transformation,improved targeting of socialprograms, and naturalresource management

• Poverty reduction througheconomic growth, socialdevelopment, and goodgovernance.Reconstruction anddevelopment

Sector Priorities (i) Agriculture • Improvement of agricultural

performance through a shift tohigher income productionsystems and enhanced policyand institutional reforms

• Private sector involvement• Environmental sustainability

• Policy reform consolidationin the perennial cropssector

• Public-private interface inresearch, extension, andmarketing

• Productivity improvements• Improvements in the

condition of plantationworkers

• Natural resourcemanagement

• Continuing support forsector productivity throughimproved policy andregulatory environment andbroader sectorcommercialization

• Greater private sectorparticipation in research,extension, marketing, andfinancial services

• Agribusiness capacityexpansion

• Natural and environmentalresource management

• Flexibility in responding torehabilitation needs in theNorth and East

(ii) Transport • Road network upgrading andexpansion

• Private sector involvement

• Integration of the roadnetwork with othertransport modes

• Capacity building of sectorinstitutions

• Financing of road operationand maintenance

• Private sector participation

• Emphasis on roads andsecondarily on ports

• Public-private partnerships• Sustainable funding of road

maintenance• Capacity development

(iii) Power • Expansion of powerinfrastructure/ruralelectrification

• Support for tariff adjustments• Institutional strengthening

• Policy reforms• Provision of

complementary powerinfrastructure

• Power sector restructuring• Continuing investment in

transmission anddistribution and in ruralelectrification

• Private sector participation

(iv) Water Supplyand Sanitation

• Rehabilitation andaugmentation of water supplyand sanitation systems

• Capacity development of

sector agencies• Strengthening service delivery

• Improvement of servicecoverage, cost recovery,and self-financing capacityof sector agencies

• Decentralization of servicedelivery

• Improvement of operationalefficiency and sustainability

• Increased attention tosanitation needs

(v) Education • Improvement of the quality oftechnical education andvocational training and itsinstitutional framework

• Strengthening links withindustry

• Equitable access to qualitysecondary education

• Development of marketableskills and attitudes atvarious educational levels

• Rationalization offragmented institutions andprograms in the technicaleducation and vocationaltraining subsector

• Improving access toquality education andinformation technology

• Skills-basedcompetitiveness

• Narrowing the gender gapin access to skills training



Appendix 3 61

Country Strategy and Program and Its UpdatesMajor Thrusts 1993−1997 1998−2003 2004−2008

• Curriculum designimprovement

• Public-private partnerships

(vi) Industry andFinance

• Improving policies and

institutions• Reforming the financial sector• Development of financial

intermediaries• Development of new market

instruments and financingschemes

• Supporting small and mediumenterprises

• Capital markets deepening

and broadening• Regulatory framework

development• Development of long-term

government securities• Further support for public

enterprise reform• Introduction of safety nets

and labor market flexibility• Microfinance (regulatory

framework)

• Strengthening nonbank

financial markets• Regulatory framework for

nonbank institutions• Deepening the capital

market• Financing availability for

small and mediumenterprises

• Improving access tobusiness developmentservices

Thematic Priorities(i) Private Sector

Development• Support for a market-oriented

economy• Enabling environment

for private sector-led

growth

• Growth acceleration, jobcreation, and improvements

in efficiency and productivity

(ii) Governance • Public enterprisereform/privatization ofcommercial state-ownedenterprises

• Public enterprise reform• Regulatory and policy

reforms (small andmedium enterprises andrural finance)

• Public sectormanagement

• Dialogue with theGovernment on publicadministration reform

• Decentralization• Anticorruption

• Pro-poor service delivery• Public sector expenditure

management• Resource mobilization• Decentralization• Corporate governance of

state-owned enterprises• Regulatory framework

(public utilities, finance, andbanking)

• Anticorruption

(iii) Gender andDevelopment

• Integration of gender concernsinto appropriate projectcomponents

• Preferential or equalaccess by women toskills training andsupport services,including microfinanceand self-employment

• Upgrading the role ofwomen in development

• Mainstreaming of genderconsiderations in all sectors

(iv) Environment • Compatibility of projects withtheir environmental setting

• Focus on issues of concern(water resource management,land use planning, coastal zonerehabilitation, forest depletion,

and urban blight)

• Support for master plans(forest management,biodiversityconservation, coastalresources management,and integrated water

resource management)• Sustainable natural

resource management

• Sustainable naturalresource management

(v) RegionalCooperation

• Not mentioned • Trade/market expansion• Tourism

• Support for the South AsianAssociation for RegionalCooperation

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



Country Operational Strategy(1998–2003)

CSP Update(2002–2004)


CSP(2004–2008)

CSP U(2005–

and electricity wereseen to impact onprice levels and to

push inflation to9.5%. Maintaininga tight monetarypolicy stance wasneeded to containinflation.

be continuefiscal consoplans imple

D. Environment

Most significant environmentalissues were related to naturalresource management,principally in the areas of forestcover and biodiversity, coastalzone management, soil erosion,

and water resources.

The rate of deforestation hadbeen about 1.3 % per yearbetween 1981 and 1990. Withreforestation, forest cover isnow approximately 32% of thetotal land area. Pastdeforestation led to flooding anderosion in most rainfedagricultural areas, causing soillosses, lower land productivity,siltation of reservoirs, andreducing the useful life ofirrigation and hydroelectric

infrastructure. Whilereforestation had led toincreased forest cover,management was weak.

Economic development andurbanization generatedincreasing pressure and conflictbetween alternative water uses,which needed to be harmonized

Forests cover 28% of the country’sland area, with about 1.65 millionhectares of natural forests. Highpopulation density and sustainedefforts to improve living standardshave placed tremendous pressure

on the country’s naturalenvironment. The Government’sState of the Environment Report2001 identified five keyenvironmental issues:(i) land degradation due to soil

erosion,(ii) inadequate disposal of solid

and liquid waste in urbanareas,

(iii) pollution of inland waters,(iv) loss of biodiversity, and(v) degradation of coastal

resources.

Land is the most critical andseverely threatened naturalresource, given its importance toagriculture, from which the majorityof Sri Lanka’s poor continue toobtain their livelihoods.Deforestation had led to floodingand erosion in rainfed agriculturalareas, triggering loss of fertiletopsoil and increased siltation,






CSP(2004–2008)

CSP U(2005–

through a comprehensive andmultisectoral approach.

The coastal environment haddeteriorated. Sand and coralmining and mangrove depletionhad accelerated erosion,threatening existinginfrastructure. Wastewater fromindustrial, domestic, andagricultural activities andoverfishing were endangeringthe fragile ecological balance inthe southern and western coast.Encroachment of agriculture intoprotected areas had alsoendangered preservation ofendemic flora and fauna.

The Government had developeda number of plans to deal withthese issues, envisaging agradual shift from thedevelopment of an institutionalframework to pollution controland natural resourcemanagement.

which had impaired the efficiency ofirrigation and hydropower systems.

The regulatory and institutionalframework is inadequate to dealeffectively with emergingenvironmental challenges. Capacitystrengthening for natural resourceand environmental management isin process.

The Ministry of Environment andNatural Resources was establishedin 2001. A new environmental policyand national environmental actionplan were prepared. A number ofnatural resource subsector policiesand plans (e.g., in forests, wildlife,

biodiversity, fisheries, waterresources, watersheds, and coastalresources) were also beingprepared. Progress was beingmade at the subsector level withdevelopment planning, drafting ofnew legislation, and capacitybuilding in the relevant governmentinstitutions. However,implementation of the evolvingnatural resource and environmentalmanagement framework—which isoften the responsibility of localgovernment agencies that lack therequired institutional, human, andfinancial capacity—remainedinadequate.






CSP(2004–2008)

CSP U(2005–

elimination of infrastructure andhuman capital gaps that hinderdevelopment.

greater influence to trigger policyand institutional reforms.

2. The major deficiencies in projectimplementation must beaddressed to improve the overallperformance of the Sri Lankaproject portfolio. Portfolioperformance will have a directimpact on the future assistanceprogram in Sri Lanka due toADB’s PBA of ADF resources toall its developing membercountries.

3. The undisbursed amount of ADFresources associated with slowprojects represents anunnecessary waste of

increasingly scarce ADF funds.Moreover, ongoing assistancewill help establish the necessarypolicy and institutionalenvironment as well asstrengthen implementationcapacity. New projects will bebased on these improvements.

4. ADB has a large ongoingportfolio in natural resources,covering forestry; protected areaand upper watershedmanagement; and water, coastal,

and aquatic resources. Similar toother sectors, this portfolio hasencountered delays in loaneffectiveness, recruitment, andother implementation problems.More fundamental issues haverelated to delays in policy andinstitutional reforms, which havebeen prominent in ADB's lendingfor natural resources






CSP(2004–2008)

CSP U(2005–

management. Natural resourcesprojects are inherently complex,as they create a nexus between

common property resources,poor rural communities, and, inmany cases, entrenched publicinstitutions that have notintegrated the interests ofmultiple resource users in naturalresources management. Soundnatural resources andenvironmental management withstrong community participationwill be of enduring importance,both for long-run developmentand for sustained rural and urbanpoverty reduction in Sri Lanka.

5. Greater use of sector and sector

development program loans isneeded to combat projectimplementation deficiencies,aside from identifying andreallocating loan savings frompoorly performing loans. Theywould provide more flexibility tothe process of project execution,and allow greater attention topotential policy and institutionalobstacles prior to, or alongside,the physical investments. At thesame time, up-front projectactivities such as environmentalclearances, land acquisition, andresettlement need to becompleted before the investmentloan is contracted. Theseactivities often delay thedisbursements of approvedinvestment loans.

II. THE GOVERNMENT’S DEVELOPMENT STRATEGY

No distinct section on theGovernment’s development

No distinct sectionin the CSP Update

No distinct section Please refer to the sectionimmediately below on Regaining

The newGovernmen






CSP(2004–2008)

CSP U(2005–

of the resettlement andreconstruction activities.

supported thefindings. Followingapproval of the

CSP Update, aPRPA reflectingkey priorities of theCSP would beprepared,discussed, andsigned with theGovernment.

monitoringmechanism withstakeholder

participation toregularly observeachievement oftargets under thepoverty reductionstrategy. TheGovernment andADB agreed that theimpact of ADB’sassistance onpoverty reduction inSri Lanka would bestronger if policy andinstitutional reformsimproved the

economic and sectorinvestmentenvironment.

Governmenstrengthenipoverty mo

and analysimonitoring tpoverty impforeign-fundprojects. ThGovernmenup an MDGits National for EconomDevelopmemonitor protoward achiMDGs.

B. ADB Country Strategy and Program Focus Areas/ Thematic Priorities

Key Areas of ADBInvestment:(i) Policy and institutional

reform at the national level(private sector

ThematicPriorities:

1. EconomicGrowth

Continuing emphasison the sectordevelopmentapproach to helpstrengthen sector

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

Focus of Astrategy: (ieconomic regovernancerehabilitatio






CSP(2004–2008)

CSP U(2005–

shifting the roleof Governmentfrom direct

producer andservice providerto regulator inmany areas

(ii) Supportingpolicy andinstitutionalreforms insectors whereADB operationsare focused(roads, power,ports, education,water supplyand sanitation,

environmentaland naturalresourcesmanagement,and ruralfinance)

(iii) Strengtheningthe capacity andperformance ofpublic sectormanagement

(iv) Supporting theGovernment’sdecentralizationprocess

5. Private SectorDevelopment

(i) Promoting anenablingenvironment forprivate sectoractivities

(ii) Assessingspecific

and reducing regionaldevelopment imbalance

(ii) Advancing social

development —secondaryand distance education;human resources investment;and water supply, sanitation,and waste management

(iii) Supporting improvedgovernance —pro-poorservice delivery; publicexpenditure management;resource mobilization; localand corporate governance;and regulatory framework inpublic utilities, finance, andbanking






CSP(2004–2008)

CSP U(2005–

investmentopportunities forprivate sector

participation inpublic sectorprojects

(iii) Continued focusof ADB’s PrivateSector Groupoperations oninfrastructureprojects

6. EnvironmentalProtection

(i) Emphasis ongreen issues

(ii) Legal framework

modernization,stakeholderinvolvement, anddecentralization

(iii) Sustainablenatural resourcemanagement

7. RegionalCooperation

(i) Trade/marketexpansion

(ii) Tourism

C. Coordination of External Funding and Partnership Arrangements

ADB routinely consulted with

multilateral and bilateral fundingbodies, and in the pastcofinanced operations with someof them in a sector or geographicarea of interest. The WorldBank’s program was fairlydiversified among sectors—general education and healthservices, food crops andplantation agriculture,

Germany, the

Netherlands, and theOrganization ofPetroleum ExportingCountries Fund forInternationalDevelopment hadprovided $12 millioncofinancing in two outof four ADB projectsapproved in 2001.

ADB has regularly consulted with

multilateral organizations, includingIMF, and the main bilateralagencies. Twenty or morecountries and internationalorganizations attended the LocalDevelopment Forum in June 2002,and even more attended the TokyoConference on Reconstruction andDevelopment in June 2003. Due tothe large proportion of external

Cooperatio

developmepartners in is very goodFunding agmeetings bysubgroup egood collaband sharinginformationchairs of the






CSP(2004–2008)

CSP U(2005–

agriculture; and power sectorreform, the latter in closecooperation with the World

Bank.

Private sector development andpublic sector reform will requirecareful aid coordination. Due tothe broad approach to privatesector development, promotionof an enabling environment willaffect multiple dimensions(financial and capital markets;public enterprise reform; trade,industrial, and competitionpolicy; and labor marketrigidities). A proportionatelylarge number of external

assistance sources includedboth the World Bank and IMF.Both will be consulted given thepotential for conflicting policyadvice.

cofinancingopportunities forcommercially viable

private and publicsector projects.

A local developmentforum, led by theGovernment, was heldin Colombo in June2002. ADB wasrepresented among40 funding agenciesand local delegations.Forum representativesnoted that efforts toimprove projectimplementation must

be expedited andnecessary policymeasures pursued toachieve the goals andtargets identified inthe documents.

coordination and cofinancingopportunities. In support of itsoverall thematic priorities, ADB will

continue to pursue officialcofinancing (particularly from grantand concessional sources) forpublic sector projects andcommercial cofinancing (includingthe use of guarantees) for viableprivate sector projects in line withthe Government’s externalborrowing policy.

also supporsector. TheInternationa

DevelopmeAgency supADB's efforimproving thfinancial seenvironmenthe NorwegAgency forDevelopmeCooperatioclosely withstrengthen country's pooil and gasexploration

also cofinansupported pconflict rehaoperations.

The opening of the residentmission in Sri Lanka offered theopportunity to pursuecoordination at the micro level interms of project design andaddressing implementationissues related to the loans andTA portfolio.

Interaction with ADB and the SriLanka NGO community hadbeen sporadic in the past, buthad recently begun tostrengthen. Past experienceshowed that NGOs could bevery effective in identifyingbeneficiaries and stimulatingcommunity participation in






CSP(2004–2008)

CSP U(2005–

Lanka’sdisbursement ratiohad fallen below

the ADB averagesince 1996. Thereason was thatnew loans in theportfolio were notyet effective.Portfolioperformance hadalso been markedby delays in projectstartup andimplementation.

For infrastructure,the delays were

due to complexand time-consumingcontracting andprocurement rulesand procedures ofthe Government,and delay in landacquisition andresettlement. TheGovernmentrecently initiatedseveral measuresto accelerateprocurement andreduce otherimpediments.

Program Loan,approved in 2000,and slow contract

awards in theeducation, naturalresources, andinfrastructuresectors.

During 2001, the lackof counterpart fundsconstrained projectimplementation,affectingprocurement forongoing contractsand new contractawards, and

compensation forresettlement.Although local fundswere sufficient by theend of 2001, theirrelease wassometimes delayed.Given theGovernment’s tightfiscal position,counterpart fundingrequired closemonitoring.

procedures, delays in awardingcontracts had persisted.

The disbursement ratio (excludingprogram loans) was low at 11.9%.The disbursement ratio includingprogram loans was noticeablyhigher at 17.6%, but still below theADB-wide average of 22.2%.Delayed loan effectiveness, slowproject progress, and poor contractaward and disbursementperformance all contributed to slowimplementation and unnecessarydelay. The Sri Lanka ResidentMission has initiated measures toenhance project implementation:annual country portfolio review

exercise and monthly meetingswith all project directors to reviewthe progress of the action plan andresolve implementation issues.

program loaat 22%, aboADB-wide a

of 20%.

Private sector guaranteeoperations ($115 million), inconjunction with two privatesector window OCR loanstotaling $10 million, had beenpioneered in 1997 and 1998 to






CSP(2004–2008)

CSP U(2005–

The scope of thecountry programwas reduced to

focus on sevensectors: agricultureand ruraldevelopment;transport; energy(i.e., power andpetroleum);finance; education;water supply andsanitation, andurbandevelopment; andenvironment andnatural resourcesmanagement.

Lanka are triggered by country-specific performance indicators: (i)macroeconomic management, (ii)

reforms in major infrastructuresectors, and (iii) portfoliomanagement as agreed upon inthe CSP update of July 2002. Inthis context, official reserves haveincreased to 2.7 months of imports,the budget deficit has beenreduced to 8.9% of GDP, and theGovernment has started toimplement improved budgetingprocedures and to pilot multiyearbudgeting in the preparation of its2003 budget. Spending ceilingswere introduced in 2003.

The Government also created thePublic Utilities Commission (aregulatory authority for all publicutility services), and madeprogress in improving the financialviability and the planning andimplementation capabilities of thesector agencies in energy, roads,and water supply, althoughportfolio management is still notsatisfactory.

and rehabiliwork in the and East.

Sri Lanka weligible for agrant elemeADF allocatstarting in 2

Given the numberof externalagencies alreadyinvolved in thehealth sector andthe need to focuson fewer sectors,ADB’s involvementin the health sectorwill be limited torural water supplyand sanitationprojects, education

Accordingly, an overall assessmentof these performance triggersconcludes a base-case lendingscenario for 2004. The main focusis on structural reforms andportfolio performance, asadherence to the agreement withIMF’s poverty reduction and growthfacility and extended fund facilityconditions should ensuremacroeconomic stability. However,control of the fiscal deficit andextension of the tax base have






CSP(2004–2008)

CSP U(2005–

program for 2002– 2004 included 22TAs with a total

value of $13.8million. Effortswould be neededto augment TAresources throughcofinancing.

sector development,including policy andinstitutional support.

2. Economic, Thematic, and Sector Work

A. In support of strategyimplementation —analysis of constraints toprivate sector development,institutional developmentneeds for capital marketdevelopment, public sector

development, institutionalarrangements for skillsdevelopment, transportsector options andintermodal links,reassessment of ADB’s roleand perspectives in ruralarea development projects,and road sector policy actionplan

B. In support of preparationof the next strategy

—needs assessment inwater supply and sanitation,

status and prospects forpower sector reforms,plantation sector reformprocess, food crop sectorpolicy environment andinvestment needs, andtransport sector options

The planned low-income housingstudy, sustainablenatural resourcesmanagement,policy review forcommercial

agriculturedevelopment, ruralfinance, andformulation of anintegrated energysector master planwould help guidefuture ADBassistance in theregionaldevelopment,agriculture andrural development,and energysectors. The

ongoing support topublic expendituremanagement,project contractmanagement, andSME developmentwill be furtherstrengthened over2002–2004.

Economic, thematic,and sector work wasproposed oncommercialization ofagriculture to reviewinternational goodpractices and identify

interventions toimprovecommercialization invarious subsectors inagriculture.

No discussi






CSP(2004–2008)

CSP U(2005–

Sustainable Eco-ManagementProject in 2003

was deferred to2004. TheIntegrating CleanerProduction intoIndustrialDevelopmentProject waschanged from afirm to a standbyproject in 2004.Small and MediumEnterpriseDevelopmentProject was addedin 2004, and the

Housing FinanceProject in 2004was deleted. ThePetroleumSubsectorDevelopmentProject wasincluded in 2004.

The PPTA fCommercia

Agriculture moved from2005. As a the prioritizaprocess, thrprojects weremoved fro2005 nonleplan. The toon the nonleprogram forwas an incr$1 million. Oproject, EduSector Deve

was include2006 nonleprogram.

ADB = Asian Development Bank, ADF = Asian Development Fund, CSP = country strategy and program, GDP = gross domestic proJBIC = Japan Bank for International Cooperation, LTTE = Liberation Tigers of Tamil Ealam, M&E = monitoring and evaluation, MDG nongovernment organization, OCR = ordinary capital resources, PBA = performance-based allocation, PPTA = project preparatorreduction partnership agreement, SME = small and medium enterprise, SOE = state-owned enterprise, TA = technical assistance, UN



Table A4.2: Approved Loan Projects for Sri Lanka with Cofinancing, 1970–2006

($ Million)

Loan ADB ADB

No. Pro ect Name A roval Amount Cofinancier Grant Loan T

2217 National Highways Sector 15-Dec-05 150.0 OPEC Fund 8.0 2168 North East Community Restoration and

Development II

14-Apr-05 40.0 Sida 5.9

2167 Tsunami-Affected Areas RebuildingProject

14-Apr-05 157.0 Agence Francaise deDéveloppement

13.5

Agence Francaise de

Développement

34.5

European Commission 53.2

26-Jun-06 15.0 Netherlands 8.7

2043-

2044

Conflict-Affected Areas Rehabilitation 11-Dec-03 80.0 JBIC (ODA) 20.0

09-Oct-06 Norway 8.6

2027 North East Coastal Community

Development

28-Nov-03 20.0 NET 1.5

1986 Road Sector Develo ment 19-Dec-02 56.5 OPEC Fund 8.5 19-Dec-02 JBIC (ODA) 80.0

1929 Power Sector Development Program 31-Oct-02 60.0 JBIC (ODA) 75.0 1913-

1914

Plantation Development 13-Sep-02 30.0 JBIC (ODA) 25.0 Participating Financial

Institutions in Sri Lanka1910-

1911

Aquatic Resources Development and

Quality Improvement

05-Sep-02 20.0 NDTF 1.6

1896 Small and Medium Enterprise Credit

Assistance

20-Dec-01 60.0 Commercial lenders with

ADB Partial Credit

Guarantee1849 Southern Province Rural Economic

Advancement

26-Oct-01 25.0 OPEC Fund 5.0

1846 North East Community Restoration and

Develo ment

16-Oct-01 25.0 GTZ 5.5 NET 0.5

OPEC Fund 4.0 1815 AES Kelanitissa Power 19-Dec-00 26.0 Commercial lenders with

ADB Political Risk

Guarantee1800-

1801

Private Sector Development Program 12-Dec-00 100.0 Sida 1.0

1767 Protected Area Management and Wildlife

Conservation

19-Oct-00 12.0 GEF 9.0 NET 4.0

1756 Secondary Education Modernization 12-Sep-00 50.0 NDF 7.0



Loan ADB ADBNo. Pro ect Name A roval Amount Cofinancier Grant Loan T1716 Coastal Resource Management 07-Dec-99 40.0 NET 12.8 1711 Southern Trans ort Develo ment 25-Nov-99 90.0 JBIC ODA 180.0

NDF 6.7 Sida 1.0

1707 Skills Development 28-Oct-99 18.8 NDF 7.0 OPEC Fund 7.4

1689 South Asia Gateway Terminals (Private)Ltd for the Colombo Port Development 11-May-99 35.0 CDC 35.0 IFC 'A' 35.0 Private Sector Infrastructure

Development Company

Limited1649 Road Network Im rovement 08-Dec-98 80.0 JBIC ODA 16.0 1629 Credit Enhancement Facility for Private

Enterprises

08-Sep-98 5.0 ABN-AMRO Bank N.V.

Banca Nazionale del Lavoro

S.p.A.Bank of Ceylon Bank of Nova Scotia Berliner Bank Citibank, N.A. KBC Bank N.V. Tokyo-Mitsubishi Intl. Ltd.

Unicredito Italiano SpA

1575 Third Water Supply and Sanitation Sector 06-Nov-97 75.0 France 15.0 NORAD 7.3

1535 Science and Technology Personnel

Development

11-Sep-97 20.0 OPEC Fund 6.5

1402 Plantation Reform 09-Nov-95 70.6 JBIC ODA 40.0 1183 Participatory Forestry 05-Nov-92 10.5 AusAID 3.9

1084 Second Small and Medium Industries 30-May-91 30.0 IDA 45.0 1038 Second Telecommunications 18-Oct-90 41.1 IBRD 58.0 0993 A riculture Rehabilitation 28-Nov-89 22.3 SWI 4.5 0896 Development Financing II 04-Aug-88 40.0 IDA 40.0 0888 Emergency Schools Restoration 30-Jun-88 15.0 CIDA 4.0 0873 Small and Medium Industries 08-Dec-87 15.0 IDA 15.0 0864 Second Road Im rovement 24-Nov-87 36.5 UNDP 0.2 0712 Plantation Sector 04-Dec-84 45.0 IDA 55.0

NET 8.3 NOR 5.5 ODA 5.5

0612 Kirindi Oya Irrigation and Settlement

(Supplementary)

09-Dec-82 10.0 GER 7.6 IFAD 6.0



Loan ADB ADBNo. Pro ect Name A roval Amount Cofinancier Grant Loan T0585 Technical Education 30-Sep-82 16.1 ODA 0.2 0526 Coconut Develo ment 24-Se -81 12.0 IFAD 8.0 0496 Anuradha ura Dr Zone A riculture 15-Dec-80 15.0 IFAD 14.5 0472 Third Tea Development 07-Oct-80 12.8 OPEC Fund 5.0 0436 Rural Electrification 10-Dec-79 11.3 OPEC Fund 6.0 0403 Urea Fertilizer Su lementar 21-Jun-79 3.0 GER 3.0

KFAED 2.1 0324 Kirindi-Oya Irrigation and Settlement 09-Dec-77 24.0 GER 13.3 IFAD 12.0

0231 Urea Fertilizer 18-Se -75 30.0 GER 24.5 India 12.5 KFAED 25.0

0118 Bowatena Power 19-Dec-72 8.0 OPEC Fund 3.2

Total 1,758.5 142.0 995.4 1

ADB = Asian Development Bank, AusAID = Australian Agency for International Development, CDC = Commonwealth Development Corpo

Development Agency, GEF = Global Environment Facility, GER = Germany, GTZ = Gesellschaft fϋr Technische Zusammenarbeit, IBRD =

and Development, IDA = International Development Association, IFAD = International Fund for Agricultural Development, IFC = Internation

Bank for International Cooperation, KFAED = Kuwait Fund for Arab Economic Development, NDF = Nordic Development Fund, NDTF = Nat

Netherlands, NORAD = Norwegian Agency for Development Co-operation, ODA = official development assistance, OPEC = Organization

Sida = Swedish Agency for International Development Cooperation, SWI = Switzerland, UNDP = United Nations Development Programme.



100 Appendix 5

TECHNICAL ASSISTANCE TO SRI LANKA

Table A5.1: ADB Advisory Technical Assistance to Sri Lanka, 1968–2006

Sector/ TA Amount Date of

Subsector No. Title ($) Approval

Agriculture and Natural Resources 11,496,500Agriculture Production, Agroprocessing, and Agrobusiness 2,782,000

0261 Sevanagala Sugar Development 205,000 29-Nov-780317 Second Rural Credit 260,000 06-Dec-790962 Review of Crop Production Incentives 300,000 10-Mar-881139 Pigeonpea Varietal Adaptation and Production Studies in

Collaboration with Institutional Crops Research Institute for theSemi-Arid Tropics

230,000 16-Mar-89

1166 Sugar Sector Rationalization Study 387,000 16-Jun-891742 Pigeonpea Intercropping and Diversification Study 350,000 18-Aug-922352 Impact Evaluation Study of Bank Assistance to the Industrial and

Agro-Industry Sector

100,000 30-Jun-95

2438 Tree Crop Plantation and Monitoring 400,000 09-Nov-952877 Privatization of Extension Services for Perennial Crops 550,000 25-Sep-97

Ag triculture Sector Develo men 1,767,5000840 Rural Credit Review 177,500 09-Jan-871480 Study of Irrigation Management and Crop Diversification (Phase

II)750,000 19-Feb-91

1613 Institutional Strengthening of the Southern Provincial Council 420,000 26-Nov-911614 Promotion of Micro-Enterprises through Strengthening of

Marketing320,000 26-Nov-91

2315 Support to Public Enterprises Reform in the Agriculture Sector 100,000 29-Mar-95

Water Resource Management 1,570,0002422 Institutional Strengthening for Comprehensive Water Resources

Management

1,570,000 12-Oct-95

Environment and Biodiversity 1,550,0002765 Institutional Strengthening for Environmental Impact Assessment 600,000 10-Mar-973271 Sustainable Natural Resource Management for Development 800,000 06-Oct-993274 Cost Recovery Mechanism Analysis for Coastal Zone Protection 150,000 13-Oct-99

Irrig geation and Draina 1,395,0000020 Walawe Development 400,000 23-Oct-690846 Study of Irrigation Management and Crop Diversification 350,000 16-Jan-871176 Resource Mobilization for Sustainable Irrigation Management 50,000 14-Jul-891705 Monitoring and Evaluation of Participatory Irrigation System

Management Policy595,000 25-May-92

Fishery 1,260,0000018 Ceylon Fisheries Corporation 165,000 02-Oct-690410 Second Fisheries Development 360,000 20-Aug-810872 Fisheries Sector Study 175,000 08-May-871795 Rationalization of Fishery Harbor and Other Charges 560,000 01-Dec-92

Forest 822,0001777 Institutional Strengthening of the Forest Department 822,000 05-Nov-92

Livestock 350,0001540 Livestock Sector Policy Review 350,000 18-Jul-91



Appendix 5 101


Subsector No. Title ($) ApprovalLaw, Economic Management, and Public Policy 8,199,000

Public Finance and Exp genditure Mana ement 4,200,0002433 Improvement of Contract Approval and Implementation 100,000 26-Oct-952433 Improvement of Contract Approval and Implementation

Procedures (Supplementary)

20,000 10-Oct-96

2950 Establishing the Sri Lanka Tender Support Bureau 1,000,000 12-Dec-973301 Strengthening Public Expenditure Management Systems 3,000,000 16-Nov-993329 Capacity Building in Imprest Accounts 80,000 08-Dec-99

Economic Management 2,946,0000051 ILO-Sponsored Comprehensive Employment Strategy Mission 7,000 16-Mar-711002 Urban Sector Profile 98,000 05-Jul-881500 Study on the Privatization of the National Development Bank of

Sri Lanka98,000 02-Apr-91

1735 Study on Policy Impact of Agricultural Program Loan 98,000 21-Jul-922745 Improvement of Project Implementation in Sri Lanka 45,000 07-Jan-972810 Strengthening Project Performance Evaluation Capability of the

Ministry of Plan Implementation, Ethnic Affairs and NationalIntegration

350,000 16-Jun-97

3567 Governance and Institutional Support for Private SectorDevelopment

1,900,000 12-Dec-00

4278 Poverty Assessment and Information Management 350,000 18-Dec-03

National Government Administration 583,0000890 Support for the Administrative Reforms Committee 60,000 31-Jul-871579 Strengthening Post-Evaluation Capability of the Ministry of Policy

Planning and Implementation100,000 17-Oct-91

2616 Public Administration Reform 275,000 24-Jul-963038 Institutional Modernization of the Ministry of Finance 148,000 03-Jul-98

Subnational Government Administration 470,000

3263 Institutional Strengthening of the Ministry of Provincial Councilsand Local Government

470,000 24-Sep-99

Transport and Communications 6,521,000Roads and Hig yshwa 4,961,000

0718 Institutional Strengthening of MOH 200,000 19-Nov-851110 Institutional Strengthening of Road Development Authority 575,000 17-Jan-892152 Road Safety Study 800,000 15-Sep-943110 Reengineering of Road Sector Institutions 640,000 08-Dec-983110 Reengineering of Road Sector Institutions (Supplementary) 360,000 17-May-003691 Road Maintenance Budgeting and Expenditure Control 150,000 27-Jul-014075 Passenger Transport Services Improvement 500,000 19-Dec-02

4315 Road Sector Master Plan 1,000,000 20-Jan-044736 Capacity Building of the Environmental and Social Division of theRoad Development Authority

400,000 14-Dec-05

4748 Independent External Monitoring of Resettlement Activites of theSouthern Transport Development

336,000 19-Dec-05

Telecommunications and Communications 1,260,0001388 Institutional Strengthening of Sri Lanka Telecommunications 460,000 18-Oct-904110 Community Information Services for the Poor 800,000 09-May-03



102 Appendix 5



Ports, Waterway gs, and Shippin 150,0004121 Port Sector Master Plan 150,000 27-May-03

Railways 150,0003410 TA to Establish Public-Private Partnerships for Railways 150,000 08-Mar-00

Finance 6,853,000Finance Sector Develo ment 2,630,000

1420 Review of the Role of National Savings Bank 108,000 20-Nov-901421 International Financial Audit of Bank of Ceylon and People's Bank 822,000 20-Nov-904421 Implementing Products and Services for the Domestic Debt

Market (TA Cluster)1,700,000 26-Oct-04

Housing Finance 1,605,0001100 Housing Development Finance Corporation 295,000 05-Jan-891555 Institutional Support to HDFC and SMIB 630,000 29-Aug-911556 Housing Sector Development 680,000 29-Aug-91

Banking yS stems 1,226,0000186 Development Finance Corporation of Ceylon 75,000 21-Dec-761541 Securities Council Training and Research Assistance Program 240,000 23-Jul-912111 Institutional Strengthening of National Savings Bank 713,000 28-Jun-942112 Development of an Institutional and Regulatory Framework for the

Leasing Industry in Sri Lanka198,000 28-Jun-94

Ca ital Markets and Funds 792,0001023 Establishment of a Domestic Unit Trust 230,000 04-Aug-881024 Institution-Building for Capital Development and Investment

Company Ltd. (CDIC)100,000 04-Aug-88

1025 Establishment of an Investors' Compensation Fund andWorkshops for Training in Securities

170,000 04-Aug-88

1419 Study of the Regulatory Framework of the Securities Market 292,000 20-Nov-90Microfinance 600,000

4761 MicroInsurance Sector Development 600,000 03-Jan-06

Industry and Trade 4,417,000Small- and Medium-Scale Enter rises 2,238,000

1519 Study of SME Development Policies and Strategies 238,000 30-May-911520 Institutional Strengthening of Credit Information Bureau of Sri

Lanka0 30-May-91

3578 Small and Medium Enterprise Development 400,000 11-Dec-003578 Small and Medium Enterprise Development (Supplementary) 200,000 08-Aug-013822 Enabling Small and Medium Enterprise Growth 1,250,000 20-Dec-01

4018 Investment Climate and Productivity Study for Sri Lanka: AnApproach to Long-Term Poverty Reduction 150,000 06-Dec-02

Industry 2,179,0000058 Mineral Sands 50,000 11-Nov-710597 Review and Evaluation of the Operations of the Urea Fertilizer 220,000 17-May-841361 Review of Industrial Pollution Regulations 87,000 24-Aug-901478 Rationalization of the Fertilizer Marketing System 97,000 09-Feb-912153 Quarry Industry Study 430,000 15-Sep-942161 Industrial Sector Policy Review 345,000 21-Sep-94



Appendix 5 103



3624 Integrating Cleaner Production into Industrial Development 800,000 25-Jan-013655 Study of Pricing Policy in the Petroleum Subsector 150,000 24-May-01

Multisector 4,133,500

Multisector 4,133,5000387 Anuradhapura Dry Zone Agriculture 200,000 15-Dec-800812 Institution Building (Irrigation Department and Irrigation

Management)500,000 30-Oct-86

0812 Institution Building (Irrigation Department and IrrigationManagement) (Supplementary)

276,400 27-Aug-91


85,000 25-Oct-88


227,600 27-Aug-91

0812 Institution Building (Irrigation Department and IrrigationManagement)

400,000 30-Oct-86

0957 Accelerated Development of Southern Province 60,000 22-Feb-881719 Institutional Strengthening of the North Western Provincial 400,000 25-Jun-921797 Urban Land Management 290,000 08-Dec-921918 Institutional Assessment for Comprehensive Water Resources

Management188,000 30-Jul-93

2441 Study on Financing of Social Services 350,000 09-Nov-954040 Needs Assessment in Conflict-Affected Areas 150,000 16-Dec-024040 Needs Assessment in Conflict-Affected Areas (Supplementary) 6,500 17-Mar-054567 Sri Lanka Post-Tsunami Needs Assessment and Preparation for

Emergency Assistance Implementation Strategies500,000 18-Feb-05

4703 Strengthening Local Government Infrastructure 500,000 28-Nov-05

Energy 3,605,000

Energy Sector Develo ment 3,280,0000523 Energy Planning Support 80,000 16-Jun-830660 Energy Planning Support (Phase II) 50,000 26-Dec-840930 Institutional Strategy Study of LECO 230,000 03-Dec-871307 Rural Electrification Development 445,000 31-May-901309 Institutional Review and Development of CEB 700,000 31-May-901309 Institutional Review and Development of CEB (Supplementary) 125,000 28-Jun-912595 Power Distribution Restructuring and Regulation 0 26-Jun-962795 Energy Sector Strategy Study 100,000 19-May-973857 Restructuring of the Power Sector - Phase II 1,050,000 15-Apr-024113 Energy Sector Master Plan 500,000 12-May-03

Coventional Ener ( y p )gy Generation other than h dro ower 325,000

3450 Promotion of Private Sector Involvement in Oil and GasExploration

325,000 01-Jun-00

Education 2,803,000Education Sector Development 1,205,000

0985 Education and Training Sector Study 405,000 15-Jun-883073 Improving Education Planning 800,000 23-Sep-98



104 Appendix 5



Technical, Vocational Training p, and Skills Develo ment 1,040,0001672 Second Technical Education 670,000 20-Feb-922612 Resource Rationalization Action Plan under the Department of

Technical Education and Training100,000 22-Jul-96

3219 Capacity Building of the Ministry of Vocational Training and RuralIndustries Project Implementation Management

150,000 05-Jul-99

4663 Strengthening Technical Education 120,000 03-Oct-05

Basic Education 400,0001937 Organizational Development and Institution Building 400,000 24-Aug-93

Tertiary Education 158,0000705 Accounting and Audit Education Master Plan 158,000 13-Sep-85

Water Supply, Sanitation, and Waste Management 1,827,000Water Su ly and Sanitation 1,677,000

1150 Rural Water Supply and Sanitation Sector Development Planning 600,000 26-Apr-891486 Financial Accounting and Reporting Assistance to the National

Water Supply and Drainage Board

100,000 27-Feb-91

1900 Management Strengthening of the National Water Supply andDrainage Board

552,000 17-Jun-93

3434 Accounting Review of the National Water Supply and DrainageBoard

100,000 10-May-00

4049 Strengthening the Regulatory Framework for Water Supply andSanitation

285,000 18-Dec-02

4049 Strengthening the Regulatory Framework for Water Supply andSanitation (Supplementary)

40,000 13-Dec-06

Waste Management 150,0004184 Greater Colombo Wastewater Management Sector Review 150,000 26-Sep-03

Health, Nutrition, and Social Protection 1,381,000Social Protection 956,000

3246 National Policy on Involuntary Resettlement 250,000 27-Aug-993697 Support to Transport Sector for Resettlement Capacity Building 56,000 07-Aug-013792 Capacity Building for the National Policy on Involuntary

Resettlement150,000 11-Dec-01

4245 Implementing the National Involuntary Resettlement Policy 100,000 15-Dec-034442 Psychosocial Health in Conflict-Affected Areas 400,000 23-Nov-04

Health Systems 425,0001786 Management Information System and Health Insurance Study 425,000 17-Nov-92

Total 51,236,000ADB = Asian Development Bank, CEB = Ceylon Electricity Board, HDFC = Housing Development Finance Corporation,

ILO = International Labor Organization, LECO = Lanka Electricity Company (Private) Limited, MOH = Ministry of Highways,SME = small- and medium-scale enterprise, SMIB = State Mortgage and Investment Board, TA = technical assistance.

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



Appendix 5 105

Table A5.2: ADB Project Preparatory Technical Assistance to Sri Lanka, 1968–2006



Agriculture and Natural Resources 14,831,600

Environment and Biodiversity 4,200,000

0351 Geological Survey 130,000 24-Apr-80

0712 Land Use Planning 290,000 29-Oct-852942 Biodiversity Conservation 800,000 12-Dec-973034 Coastal Resource Management 850,000 25-Jun-983273 Protected Area Management and Wildlife Conservation 330,000 13-Oct-993479 Eastern Province Coastal Community Development 1,000,000 16-Aug-00

4059 Delivering Natural Resource and Environmental ManagementServices Sector

800,000 19-Dec-02

Agriculture Production, Agroprocessing, and Agrobusiness 4,971,000

0064 Gal Oya Sugar Industry Rehabilitation 49,000 17-May-720191 Sevanagala Sugar Development 350,000 14-Apr-770276 Integrated Tea Development 98,000 12-Feb-790338 Coconut Development 99,000 28-Dec-79

0747 Subsidiary Crops Production and Processing 400,000 06-Feb-860765 Agricultural Inputs Program 75,000 13-May-860897 Smallholder Tea 150,000 27-Aug-871213 Agricultural Extension Rationalization 350,000 30-Oct-891260 Second Coconut Development 250,000 26-Dec-891869 Sustainable Development of Tree Crop Plantations 350,000 16-Apr-932608 Perennial Crops and Seed Project 600,000 11-Jul-962784 Second Smallholder Tea Development 600,000 24-Apr-973594 Plantation Development 800,000 18-Dec-004800 Agribusiness Development 800,000 16-Jun-06

Water Resource Management 1,500,000

3030 Western River Basins Sector 1,500,000 11-Jun-98

Forest 1,244,0000359 Community Forestry 94,000 16-Jul-801157 Preparation of the Participatory Forestry 350,000 16-May-893047 Forest Resource Management 800,000 20-Jul-98

Fishery 1,195,000

0336 West Coast Fisheries Development 90,000 27-Dec-790412 Aquaculture Development 105,000 02-Sep-811368 Fisheries Sector 200,000 06-Sep-903639 Aquatic Resources Development and Quality Improvement 800,000 19-Mar-01

Agriculture Sector Development 774,600

0972 Crop and Fisheries Rehabilitation 75,000 21-Apr-882132 Second Agriculture Rehabilitation 99,600 05-Aug-94

2619 Upper Watershed Management 600,000 25-Jul-96

Livestock 600,000

0371 Livestock Development 200,000 03-Nov-802126 Second Livestock Development 400,000 20-Jul-94

Irrigation and Drainage 347,000

0168 Lunuganwehera Reservoir (Irrigation and AgriculturalDevelopment)

49,000 07-Jul-76

0407 Kirindi Oya Irrigation and Settlement 50,000 23-Jul-810512 Walawe Irrigation Rehabilitation and Improvement 248,000 09-May-83



106 Appendix 5

Sector/ TA Amount Date ofSubsector No. Title ($) Approval

Transport and Communications 7,798,000

Roads and Highways 5,988,000

0292 Mahaweli Area Roads Development 98,000 27-Apr-790618 Trunk Road Maintenance 250,000 31-Jul-84

0792 Second Road Improvement 350,000 27-Aug-860922 Third Road Improvement 150,000 24-Nov-872151 Road Network Improvement 700,000 15-Sep-942335 Southern Provincial Roads Improvement 600,000 24-May-952892 Southern Transport Corridor 1,000,000 09-Oct-972904 Second Provincial Roads Improvement 1,000,000 30-Oct-973184 Preparation of the Southern Transport Development Project 190,000 14-Apr-994074 Feasibility Study of National Highways Development 850,000 19-Dec-024178 Public-Private Partnership Expressway 800,000 17-Sep-03

Ports, Waterways, and Shipping 1,460,000

3276 Port of Colombo South Harbor Development 1,460,000 13-Oct-99

Telecommunications and Communications 350,000

0988 Telecommunications Development Study 350,000 21-Jun-88



0300 Anuradhapura Dry Zone Agriculture 300,000 05-Jul-790730 Kirindi Oya Phase II 75,000 09-Dec-851337 Southern Province Development 420,000 13-Jul-901387 North Western Province Water Resources Development 400,000 11-Oct-901508 Urban Development 600,000 18-Apr-912217 Area Development Project in the North Central Region 600,000 02-Dec-942791 Urban Development and Low-Income Housing 1,100,000 08-May-973385 Southern Province Rural Economic Advancement 800,000 29-Dec-99

3542 Preparation of the North East Emergency Rehabilitation Project 150,000 10-Nov-00Education 4,395,000

Technical, Vocational Training, and Skills Development 1,644,000

0353 Technical Education 150,000 26-May-800808 Second Technical Education 294,000 24-Oct-863051 Skills Development 600,000 24-Jul-984090 Human Resources Investment 600,000 19-Mar-03

Education Sector Development 1,502,000

1316 Education Development 302,000 06-Jun-903973 School Computerization 500,000 05-Nov-024733 Education Sector Development Program 700,000 13-Dec-05

Tertiary Education 999,000

1611 Accounting, Auditing and Financial Management Education andTraining

99,000 22-Nov-91

2278 Scientific and Technical Personnel Development 400,000 03-Jan-953598 Postsecondary Education Modernization 500,000 19-Dec-00

Basic Education 250,000

3241 Secondary Education Modernization 250,000 12-Aug-99



Appendix 5 107



Water Supply, Sanitation, and Waste Management 3,645,000

Water Supply and Sanitation 2,795,000

0744 Water Supply Rehabilitation 75,000 29-Jan-861584 Second Water Supply Sector 250,000 25-Oct-91

2609 Rural Water Supply and Sanitation Sector 600,000 17-Jul-963587 Secondary Towns Water Supply and Sanitation 1,000,000 15-Dec-004853 Small Towns Rural Arid Areas Water and Sanitation 870,000 23-Oct-06

Waste Management 850,000

4531 Greater Colombo Wastewater 850,000 23-Dec-04

Law, Economic Management, and Public Policy 2,630,000

Economic Management 1,630,000

3075 Private Sector Development Program 830,000 23-Sep-984248 Private Sector Development Program (Subprogram II) 800,000 12-Dec-03

Public Finance and Expenditure Management 500,000

3906 Public Sector Resource Management 500,000 23-Aug-02

Subnational Government Administration 500,000

4296 Basic Social Infrastructure Development 500,000 19-Dec-03

Energy 2,236,000

Energy Sector Development 1,600,000

3141 Power Sector Restructuring 1,000,000 23-Dec-984262 Rural Electrification and Network Expansion 600,000 16-Dec-03

Transmission and Distribution 440,000

0219 Rural Electrification 190,000 09-Dec-770578 Secondary District Towns Power 250,000 29-Dec-83

Coventional Energy Generation (other than hydropower) 150,000

0551 Trincomalee Thermal Power 150,000 17-Nov-831308 Preparation of CEB's New Thermal Power Station 0 31-May-90

Hydropower Generation 46,000

0083 Preparation of the Samanala Wewa Power 46,000 11-Apr-73

Finance 1,330,200

Microfinance 550,000

3707 Rural Finance Sector Development 550,000

Banking Systems 336,200

0241 Rural Credit 91,200 22-Aug-781202 Second Rural Credit 245,000 01-Sep-89

Capital Markets and Funds 336,0001108 Feasibility Study of Establishing a Venture Capital Company 75,000 13-Jan-892355 Establishment of a Credit Rating Agency 261,000 30-Jun-95

Housing Finance 108,000

1293 Low-Income Housing Development 108,000 26-Apr-90

Industry and Trade 1,251,300

Small and Medium Scale Enterprises 550,000

4633 Small and Medium Enterprise Sector Development Program II 550,000 18-Aug-05



108 Appendix 5

Sector/ TA Amount Date ofSubsector No. Title ($) Approval

Industry 451,300

0046 Oleo Chemical 25,300 25-Jan-710060 Urea Fertilizer Plant 165,000 18-Jan-720384 Graphite Mining 186,000 15-Dec-80

0649 Graphite Mining- World Market and Marketing Analysis 75,000 17-Dec-84Trade 250,000

1346 Koggala Export Processing Zone 250,000 01-Aug-90

Health, Nutrition, and Social Protection 100,000

Health Systems 100,000

1291 Second Health and Population 100,000 18-Apr-90

Total 42,662,100

ADB = Asian Development Bank, CEB = Ceylon Electricity Board, TA = technical assistance.




Appendix 5 109

RETA Amount Approval

Number Title ($'000) Date

5528 Acid Rain and Emissions Reduction Project in Asia 450.0 16-Apr-93

5573 South Asia Cooperative Environment Programme (SACEP) for

Regional Environment and Natural Resources Information Centre II

98.9 14-Mar-94

5590 Coconut Genetic Resources Network in Asia and the Pacific Region 800.0 29-Jul-945603 Strengthening Regional Collaboration on Cereals and Legumes

Research in Asia600.0 24-Nov-94

5614 Study on Issues Related to Private Sector Growth in the Health Sectorin Asia

550.0 27-Dec-94

5626 Development Policy Issues in Asia 85.0 28-Mar-955664 Governance and Development in South Asian and Other DMCs 350.0 22-Dec-955670 Low-Income Women Entrepreneurs in Asia 600.0 18-Jan-965719 South Asia Vegetable Research Network (Phase II) 600.0 10-Jan-97

5766 Second Agriculture and Natural Resources Research at CGIARCenters

5,500.0 29-Dec-97

5808 Policy Options for Pension Reform in Asia: Challenges in Design andImplementation

375.0 05-Oct-98

5811 Workshop on the Enhancement of DMC Participation in the Bank'sOperational Businesss Processes

125.0 15-Oct-98

5824 Regional Study of Nutrition Trends, Policies, and Strategies in Asia andthe Pacific

750.0 23-Dec-98

5828 Study of Large Dams and Recommended Practices 800.0 28-Dec-985832 Evaluation Studies in the Bank's Developing Member Countries 1,000.0 12-Feb-995857 Asian Vaccination Initiative 400.0 a 27-Aug-995890 First Meeting of the Private Sector Forum on Economic Cooperation in

the Eastern South Asian Subregion30.0 23-Dec-99

5897 Strategies for Improved Social Protection in Asia 700.0 28-Dec-99

5898 Prospects and Benefits of Economic Cooperation in Eastern South

Asia Subregion

150.0 29-Dec-99

5916 Year 2000 Special Evaluation Studies of Asian Development BankOperations in Developing Member Countries -- Part II

760.0 18-May-00

5922 Regulatory Systems and Networking of Water Utilities and RegulatoryBodies

500.0 19-Jul-00

5959 Enhancing Municipal Services Delivery Capability Phase 2 425.0 08-Dec-005974 Coastal and Marine Resources Management and Poverty Reduction in

South Asia600.0 06-Mar-01

6005 Sixth Agriculture and Natural Resources Research at CGIAR Centers 4,000.0 06-Nov-016006 Regional Conference on National Poverty Reduction Strategies 50.0 21-Nov-016007 Enhancing Social and Gender Statistics in Selected DMCs 150.0 26-Nov-016014 Strengthening the Regional Training Capability of the Asian

Organization of Supreme Audit Insitutions650.0 18-Dec-01

6016 Clean Air Initiative for Asian Cities (CAI-Asia) 150.0 b 19-Dec-016022 Thematic Evaluation Studies of Asian Development Bank Operations in

Developing Member Countries1,600.0 08-Mar-02

6026 Promoting Urban Poverty Reduction Through Participation in the CitiesAlliance

670.0 13-Mar-02

6035 Capacity Building for Developing Member Countries on the WorldTrade Organization Trading System

450.0 04-Jun-02

6052 Government Accounting Standards (Second Phase) 245.0 10-Oct-026072 Good Practice on Pro-Poor Service Delivery by Local Governments 250.0 16-Dec-026079 Exploring Sri Lanka's Subregional Economic Cooperation Potential 60.0 18-Dec-02

Table A5.3: Regional Technical Assistance Involving Sri Lanka



110 Appendix 5



6080 Seminar on Regional Challenges to Governance: Experiences of Asiaand Latin America

75.0 18-Dec-02

6081 Exploring the Maldives' Subregional Economic Cooperation Potential 60.0 18-Dec-026082 Supporting Country-Driven Private Sector Development Strategies 500.0 19-Dec-02

6086 Public-Private Infrastructure Advisory Facility 500.0 19-Dec-026088 Strengthening and Collection of Purchasing Power Parity Data in

Selected Developing Member Countries1,200.0 c 19-Dec-02

6090 Private Sector Cooperation in the SASEC Subregion 150.0 19-Dec-026092 Enhancing Gender and Development Capacity in Developing Member

Countries - Phase 2400.0 d 20-Dec-02

6093 Promoting Effective Water Management Policies and Practices - Phase2

1,000.0 31-Jan-03

6096 Supporting the Sector Approach and Results-Based Management inADB Operations

300.0 07-Mar-03

6097 Thematic Evaluation Studies for 2003 1,400.0 10-Mar-036105 A Review of the Asian Development Bank's Poverty Reduction Strategy 300.0 06-May-036108 Emergency Regional Support to Address the Outbreak of Severe Acute

Respiratory Syndrome (SARS)2,000.0 e 23-May-03

6109 NGO Partnerships for Poverty Reduction 500.0 f 27-May-036111 2003/04 Seminars on Capacity Building for Project Implementation and

Administration600.0 13-Jun-03

6120 Social Protection Index for Committed Poverty Reduction 600.0 27-Aug-036123 Promoting Effective Water Management Policies and Practices - Phase

34,300.0 03-Oct-03

6132 Private Sector Cooperation in the South Asia Subregional EconomicCooperation (SASEC) Subregion (Phase II)

150.0 05-Nov-03

6138 Asia Recovery Information Center Phase III 404.6 g 13-Nov-036142 Capacity Building on Selected WTO Issues 450.0 28-Nov-036143 Promoting Gender Equality and Women's Empowerment 1,500.0 28-Nov-03

6144 Better Air Quality Management in Asia 300.0 h 28-Nov-036145 Assessing Private Sector Development Outcomes in Projects 400.0 28-Nov-036148 Strengthening the Capacity of Financial Sector Regulators and

Supervisors400.0 i 15-Dec-03

6150 Poverty and Environment Program 3,920.0 16-Dec-036152 Development of Domestic Consultant Services in Developing Member

Countries180.0 16-Dec-03

6170 Pilot Project on Institutionalizing Civil-Society Participation to CreateLocal Pro-Poor Projects

400.0 06-Apr-04

6180 Preparation of Asian Development Outlook 2005 400.0 20-Jul-046181 2004-2006 Orientation Program for Officials of the Asian Development

Bank's Developing Member Countries725.0 23-Jul-04

6187 Promoting South Asian Regional Economic Cooperation 500.0 27-Sep-046196 Implementation of the ADB-OECD Anticorruption Initiative for Asia-Pacific

250.0 j 02-Nov-04

6219 Promoting Effective Water Management Policies and Practices - Phase4

5,600.0 20-Dec-04

6224 Pilot Testing Participatory Assessment Methodologies for Sustainableand Equitable Water Supply and Sanitation Services

550.0 23-Dec-04

6233 High Level Coordination Meeting on Rehabilitation and ReconstructionAssistance to Tsunami-Affected Countries

150.0 03-Mar-05

6291 Rolling Out Air Quality Management in Asia 655.0 19-Dec-05

6303 Competition Law and Policy Roundtable 100.0 21-Dec-05



Appendix 5 111



6308 Scaling Up of the Social Protection Index for Committed Poverty

Reduction

900.0 06-Mar-06

6311 Regional Seminars on Anticorruption 2006-2007 300.0 28-Mar-06

6312 Selected Evaluation Studies for 2006 1,400.0 28-Mar-066314 Asia Regional Integration Center 780.0 20-Apr-066331 Support for Strengthening the Tsunami Development Assistance

Database800.0 k 28-Jul-06

6333 Statistical Capacity Building in the Asia and Pacific Region 600.0 31-Jul-066335 BIMSTEC Transport Infrastructure and

Logistics Study960.0 14-Aug-06

6337 Development Partnership Program for South Asia 8,500.0 l 18-Aug-066349 Free Trade Agreements in Asia: The Way Ahead 600.0 23-Oct-066350 Sustainable Urban Transport 1,000.0 26-Oct-066354 Asian Development Outlook 2007 380.0 22-Nov-06

6355 Capacity Development of Selected Developing Member Countries onthe Implementation of the Trade Facilitation

450.0 23-Nov-06

6356 Improving Administrative Data Sources for the Monitoringof the Millennium Development Goal Indicators

500.0 24-Nov-06

6362 Preparing the South Asia Subregional EconomicCooperation Tourism Development Project

950.0 13-Dec-06

6368 Preparing the Energy Sector Dialogue and South Asian Association for

Regional Cooperation Energy Center Capacity Development Project

1,000.0 14-Dec-06

aExcludes $80,000 counterpart financing from the Government of Australia and World Health Organization.

bWith cofinancing of $1,328,000 from various sources.

c The amount of $1,200,000 is budgeted over a 3-year implementation period, approved for $400,000 a year.d

With $1.2 million grant finance from the Government of Denmark.e

In September 2003, the President approved an increase of $3 million in the TA amount. The TA totals $5.45

million, including $450,000 counterpart funds from the World Health Organization.

In June 2004, the President approved an increase of $500,000 in the amount to total $1,000,000, consistent

with the change in scope.g

With $381,013 grant finance from the Government of Australia.h

In November 2004, the President approved ADB administering additional funds of $245,000 on behalf of

various organizations.

Excludes $200,000 contribution from other funding agencies.

Excludes $200,000 contribution from OECD and $10,000 of government counterpart funds.

k UNDP provided $800,000 on a parallel basis through the Regional Project for Capacity Development for

Tsunami Aid Coordination.l Total TA cost estimated at A$11 million (about US$8.5 million) would be financed on a grant basis

by the Australia-ADB South Asia Development Partnership Facility, funded by the Government of Australia.

Source: Asian Development Bank database.

ADB = Asian Development Bank, BIMSTEC = Bay of Bengal Init iative for Multi-Sectoral Technical and EconomicCooperation, CGIAR = Consultative Group on International Agricultural Research, DMC = developing member country,

NGO = nongovernment organization, OECD = Organisation for Economic Co-operation and Development, SASEC =South Asia Subregional Economic Cooperation, TA = technical assistance.



Appendix 6 112

PORTFOLIO ANALYSIS

1. During 1986−2006, the period covered by the country assistance program evaluation,ADB approved 90 loans ($3.3 billion) to Sri Lanka. The highest amount of loan approvals was$275.3 million in 2003, while 2006 registered the lowest volume ($60 million) since 1996 (FigureA6.1). Project loans accounted for 54 (60%) of the 90 approvals during 1986−2006.

Figure A6.1: Annual Approved Loans for Sri Lanka, 1986–2006

127.3 146.0

44.0

198.0

60.0

195.0

253.0275.3

236.5

148.8

208.7

185.0

161.6

140.0130.0

119.6

84.0108.3

106.3

102.3

195.4

0

50

100

150

200

250

300

1 9 8 6

1 9 8 7

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

$ M i l l i o n

Source: Asian Development Bank Loan Financial Information System.

2. By 2006, ongoing loans in Sri Lanka’s public sector portfolio consisted of 47 loans1 ($1.7billion), comprising 39 project loans ($1.46 billion), 3 program loans ($155 million), 2 lines ofcredit for development finance ($70 million), and 3 loans for investment/credit ($38 million).During 1986–2005, an average of four loans was approved for Sri Lanka, rising to six or sevenper year during 2000–2005.2 Since 2004, ADB has classified public sector loans as (i) targetedor general interventions as per the approach to poverty, (ii) thematic areas, and (iii) primarysectors. Of the 12 projects approved during 2004–2006, 83% were classified as generalinterventions. By theme, sustainable economic growth was dominant (47%), followed by private

sector development (18%). Table A6.1 and Figure A6.2 illustrate ADB loans by sector andsource of funds.

Loan Project $M %Share Loan Project $M %Share

Agriculture and Natural Resources 23 21 607 19 12 10 240 13

Transport and Communications 11 11 584 18 7 7 432 23

Finance 10 7 400 12 5 2 135 7

Multisector 12 11 365 11 8 7 243 13

Energy 5 4 319 10 2 1 130 7

Education 9 9 271 8 6 6 189 10

Water Supply, Sanitation, and Waste Management 7 5 315 10 5 3

245 13

Industry and Trade 6 4 155 5 3 1 86 5

Law, Economic Management, and Public Policy 6 3 183 6 5 2 170 9

Health, Nutrition, and Social Protection 1 1 26 1

90 76 3,225 100 53 39 1,870 100


Table A6.1: Sector Composition of ADB Public Sector Loans to Sri Lanka, 1986–2006

Sector/Subsector

Total

1986–2006 1997–2006

Number Amount Number Amount

1The average age of ongoing loans was 4.3 years in 2006, which was higher than the ADB average (3.8 years), and1 year older than the average age of active loans during 1998−2005.

2The increase reflects loans from ordinary capital resources, which Sri Lanka started to receive in 2000.



Appendix 6 114

averages for South Asia (4.8 months) and ADB (4.5 months).4 For TA grants, the average time(1998–2006) from approval to signing of the letter of agreement was 1.9 months, which wasbetter than the ADB-wide average of 3.0 months.

5. Sri Lanka’s portfolio remained unfocused. By 2006, ADB had operated in ninesectors with an average of five loans per sector. Building on the analysis of previous Operations

Evaluation Department reports,5 the measures of dispersion for 2006 using the Hirschman– Herfindal Index6 were estimated at 0.15 each for the number and value of loans. This impliesthat the portfolio’s sector focus was heterogeneous. It became more dispersed from 2004 to2006 in terms of the number of loans. A similar conclusion was reached using the value of loansto estimate the Hirschman–Herfindal Index. The results are not surprising, as a cursory reviewof the loan portfolio in the last decade indicates that five sectors in Sri Lanka’s portfolioaccounted for 72% of the total loan amount.

6. Among South Asian countries, Sri Lanka ranked second during 2001−2006 interms of the percentage of loans requiring extension (90%). A total of 43 loans were closedduring 1986−2006, of which 40 (93%) required extensions before they were closed; 34 loans(79%) had two or more extensions. During 1997–2006, 96% of the 27 closed loans were

extended. For comparison, during 1986−1996, 88% of the 16 closed loans had extensions. Theaverage duration of loan extensions for Sri Lanka was 1.8 years, mainly due to (i) delayedcompliance with the conditions for loan effectiveness, (ii) changes in project scope, and (iii) timetaken to finalize subsidiary loan agreements and other credit agreements. ADB may need toreview the appropriateness of its processes and conditions.

7. From 1997 to 2001, the 3-year moving average of contract awards declined by41%, but it has since improved. The value of contract rewards increased from $104.7 millionin 2002 to $170.6 million in 2006. This recovery reflects the inclusion of program loans startingin 2001. During the last decade (1997–2006), Sri Lanka achieved 96% and 89% of its annualprojected targets for contract awards for projects and programs, respectively, and 95% overall.Moreover, Sri Lanka’s average contract commitment ratio was the second lowest (19.2%) in the

South Asia region, behind Nepal (18.7%). From 1998–2006, the country’s contract commitmentratio (18.6%) was lower than the overall ADB ratio (22.4%).

8. The 3-year rolling average for disbursements declined from 1997 to 2001 but hassince increased with the fund disbursements from program loans. The average annualdisbursements in the last 10 years achieved 93% of the projected target. Actual disbursements(19%) were close to the targeted average disbursement ratio (19.8%). The averagedisbursement ratio was 20% during 2003−2006, higher than the 16% during 1999−2002.

4Several loans approved during 1986−2006 took more than a year to become effective after loan signing: (i)Southern Transport Development Project (Loan 1771-SRI), 35 months; (ii) Perennial Crops Development Project(Loan 899-SRI), 13 months; and (iii) Water Resources Management Project (Loan 1757-SRI), 12.3 months.

5 (i) ADB. 2005. Annual Report on Loan and Technical Assistance Portfolio Performance for Year Ending December 2004 . Manila.(ii) ADB. 2006. Annual Report on Loan and Technical Assistance Portfolio Performance for Year Ending December 2005 . Manila.

6The Hirschman–Herfindal Index formula is Σ[n/p]

2, where n is the number of loans a country has in a sector, and p

is the country’s total number of loans. The squares of n/p are summed up across all sectors. The maximum indexvalue of 1 is reached when all of a country’s loans are in a single sector. The minimum index value approacheszero when there is one loan per sector for an infinite number of sectors; however, in this case, with 10 sectors, theminimum possible index value of 0.1 would occur if a country had just one loan in each of the 10 sectors. As thevalue of p increases, it becomes increasingly difficult to achieve a higher index. When two countries have roughlythe same index, the country with the larger number of loans is considered to have a more focused portfolio.



Appendix 6 115

9. Project performance reports show that portfolio performance is satisfactory, butthese reports are generally overoptimistic. Based on performance in the last 9 years(1998−2006), 94% of ongoing projects (average of 32 projects per year) were rated satisfactory,4.7% (an average of 2 per year) partly satisfactory, and the rest (1.3%) unsatisfactory. Thepercentage share of projects and programs rated “satisfactory” was higher than the ADB-wideaverage (83%). On average, two or three projects per year (7%) were reported at risk during

2001−

2006.7 This increased to eight projects (17%) in 2006, higher than average in the SouthAsia region (12%) and ADB-wide (10%). Projects at risk were associated with implementationdelays, problems with compliance of loan covenants, and disbursement delays. Other factorsthat affected portfolio performance included (i) the December 2004 tsunami, (ii) resurgence ofcivil conflict, and (iii) weak capacity at the local government levels. The evaluation teamreviewed all existing (41) project performance reports for the current portfolio of active projects.This revealed a number of issues related to project performance reports: (i) inconsistentinformation and inaccurate data transcription from other sources; (ii) loan closing dates notextended, or loans not closed on time; (iii) underestimated time allocations for loaneffectiveness; (iv) planned project implementation periods cut short; and (v) unrealistic projectimplementation schedules as a result of delayed start-ups. Overall, the performance ratings inthe project performance reports are not a reliable indicator of portfolio performance. They are

useful mainly for identifying implementation issues, risks, and projects that perform relativelyless well in the portfolio. Nonetheless, since project management and monitoring is a sharedresponsibility between ADB and developing member countries, efforts should be undertaken toachieve better development results.

10. The average supervision intensity8 for Sri Lanka in 2006 was 24, slightly lowerthan the regional and ADB-wide intensity levels. The number of project administrationmissions fluctuated during 2003−2006 to reflect the increasing number of projects for review. Inthe last 4 years, an average of 47 missions involving 689 staff-days per year was devoted tosupervision of 29 projects. This represents a staff-days/project ratio of 23.8, which is lower thanboth the averages for 2003 and 2004, as well as for South Asia (27.4) and ADB (25.6).Increasing delegation of loans to the Sri Lanka Resident Mission (SLRM) to possibly improve

project performance should be reviewed, given implications on resident mission staff capacity.Most loans administered by SLRM are ongoing.

11. Improving portfolio performance calls for several measures. These include (i)learning from the experience of lending and nonlending operations; (ii) improving quality at entryof ADB assistance; (iii) improving sector focus/selectivity; (iv) reviewing the appropriateness ofADB’s processes and loan conditions; (v) revisiting supervision intensity and delegation of loansto SLRM; (vi) strengthening the objectivity of the project performance report system; and (vii)promoting results-based monitoring and evaluation to increase development effectiveness.

7Data are available from 2001 onwards.

8This refers to total staff-days for missions divided by the number of projects.



Loan Project $M %Share Loan P roject $M %Share

Agriculture and Natural Resources 38 35 797.7 21.6 23 21 607.1 18.8

Agriculture Production, Agroprocessing, and Agrobusiness 14 14 309.2 8.4 6 6 186.3 5.8Agriculture Sector Development 7 6 232.3 6.3 7 6 232.3 7.2Fishery 6 5 79.9 2.2 3 2 46.0 1.4Environment and Biodiversity 3 3 68.7 1.9 3 3 68.7 2.1Forest 3 3 47.5 1.3 2 2 37.5 1.2

Water Resource Management 2 2 36.3 1.0 2 2 36.3 1.1Livestock 1 1 15.2 0.4Irrigation and Drainage 2 1 8.6 0.2

Transport and Communications 16 15 623.8 16.9 11 11 584.1 18.1

Roads and Highways 11 11 565.0 15.3 9 9 533.0 16.5Telecommunications and Communications 3 2 46.2 1.3 1 1 41.1 1.3Ports, Waterways, and Shipping 2 2 12.6 0.3 1 1 10.0 0.3

Finance 14 11 445.0 12.1 10 7 400.0 12.4

Banking Systems 10 8 280.0 7.6 6 4 235.0 7.3Finance Sector Development 3 2 145.0 3.9 3 2 145.0 4.5Housing Finance 1 1 20.0 0.5 1 1 20.0 0.6

Multisector 17 14 439.3 11.9 12 11 364.6 11.3

Multisector 17 14 439.3 11.9 12 11 364.6 11.3

Energy 10 9 371.8 10.1 5 4 319.1 9.9 Energy Sector Development 3 2 204.3 5.5 3 2 204.3 6.3Transmission and Distribution 4 4 138.5 3.8 2 2 114.8 3.6Hydropower Generation 2 2 25.5 0.7Conventional Energy Generation (other than hydropower) 1 1 3.5 0.1

Education 10 10 286.9 7.8 9 9 270.8 8.4

Technical, Vocational Training, and Skills Development 4 4 90.9 2.5 3 3 74.8 2.3Basic Education 2 2 81.0 2.2 2 2 81.0 2.5Tertiary Education 2 2 65.0 1.8 2 2 65.0 2.0Senior Secondary General Education 1 1 35.0 0.9 1 1 35.0 1.1Education Sector Development 1 1 15.0 0.4 1 1 15.0 0.5

Water Supply, Sanitation, and Waste Management 7 5 315.3 8.5 7 5 315.3 9.8

Water Supply and Sanitation 6 4 265.3 7.2 6 4 265.3 8.2Integrated 1 1 50.0 1.4 1 1 50.0 1.6

Industry and Trade 10 6 193.2 5.2 6 4 155.0 4.8 Small- and Medium-Scale Enterprises 5 3 131.0 3.5 5 3 131.0 4.1Industry 5 3 62.2 1.7 1 1 24.0 0.7

Law, Economic Management, and Public Policy 6 3 183.0 5.0 6 3 183.0 5.7

Economic Management 2 1 100.0 2.7 2 1 100.0 3.1Public Finance and Expenditure Management 4 2 83.0 2.2 4 2 83.0 2.6

Health, Nutrition, and Social Protection 2 2 35.4 1.0 1 1 26.1 0.8

Health Systems 2 2 35.4 1.0 1 1 26.1 0.8130 110 3,691.2 100.0 90 76 3,225.1 100.0

ADB = Asian Development Bank.

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

Table A6.2: Sectoral Composition of ADB Public Sector Loans to Sri Lanka, 1968–2006

Number AmountSector/Subsector

Total

1968–2006 1986–2006 Number Amount



Appendix 6 117

$ ('000) %Share $ ('000) %Share $ ('000) %Share

Agriculture and Natural Resources 65 26,328.1 28.0 47 23,086.1 26.4 15 11,180.0 21.3

Agriculture Production, Agroprocessing, and Agrobusiness 23 7,753.0 8.3 17 6,692.0 7.6 4 2,750.0 5.2

Environment and Biodiversity 10 5,750.0 6.1 8 5,330.0 6.1 8 5,330.0 10.1

Water Resource Management 2 3,070.0 3.3 2 3,070.0 3.5 1 1,500.0 2.9 Agriculture Sector Development 8 2,542.1 2.7 8 2,542.1 2.9

Fishery 8 2,455.0 2.6 4 1,735.0 2.0 1 800.0 1.5

Forest 4 2,066.0 2.2 3 1,972.0 2.3 1 800.0 1.5 Irrigation and Drainage 7 1,742.0 1.9 3 995.0 1.1Livestock 3 950.0 1.0 2 750.0 0.9

Transport and Communications 27 14,319.0 15.2 24 13,771.0 15.7 16 9,786.0 18.6

Roads and Highways 21 10,949.0 11.7 18 10,401.0 11.9 12 7,226.0 13.8 Ports, Waterways, and Shipping 2 1,610.0 1.7 2 1,610.0 1.8 2 1,610.0 3.1 Telecommunications and Communications 3 1,610.0 1.7 3 1,610.0 1.8 1 800.0 1.5 Railways 1 150.0 0.2 1 150.0 0.2 1 150.0 0.3

Law, Economic Management, and Public Policy 22 10,829.0 11.5 21 10,822.0 12.4 12 9,953.0 19.0

Public Finance and Expenditure Management 6 4,700.0 5.0 6 4,700.0 5.4 3 4,560.0 8.7 Economic Management 10 4,576.0 4.9 9 4,569.0 5.2 6 4,275.0 8.1 Subnational Government Administration 2 970.0 1.0 2 970.0 1.1 2 970.0 1.8 National Government Administration 4 583.0 0.6 4 583.0 0.7 1 148.0 0.3

Multisector 24 8,578.5 9.1 21 8,003.5 9.1 7 3,206.5 6.1

Multisector 24 8,578.5 9.1 21 8,003.5 9.1 7 3,206.5 6.1

Finance 21 8,183.2 8.7 19 8,017.0 9.2 3 2,850.0 5.4

Finance Sector Development 3 2,630.0 2.8 3 2,630.0 3.0 1 1,700.0 3.2 Housing Finance 4 1,713.0 1.8 4 1,713.0 2.0Banking Systems 6 1,562.2 1.7 4 1,396.0 1.6Capital Markets and Funds 6 1,128.0 1.2 6 1,128.0 1.3Microfinance 2 1,150.0 1.2 2 1,150.0 1.3 2 1,150.0 2.2

Education 19 7,198.0 7.7 17 6,890.0 7.9 9 4,220.0 8.0

Education Sector Development 5 2,707.0 2.9 5 2,707.0 3.1 3 2,000.0 3.8 Technical, Vocational Training, and Skills Development 8 2,684.0 2.9 7 2,534.0 2.9 4 1,470.0 2.8 Tertiary Education 4 1,157.0 1.2 3 999.0 1.1 1 500.0 1.0 Basic Education 2 650.0 0.7 2 650.0 0.7 1 250.0 0.5

Energy 18 5,841.0 6.2 12 5,075.0 5.8 6 3,575.0 6.8

Energy Sector Development 12 4,880.0 5.2 10 4,750.0 5.4 5 3,250.0 6.2 Conventional Energy Generation (other than hydropower) 3 475.0 0.5 2 325.0 0.4 1 325.0 0.6 Transmission and Distribution 2 440.0 0.5

Hydropower Generation 1 46.0 0.0

Industry and Trade 20 5,668.3 6.0 14 4,947.0 5.6 7 3,500.0 6.7

Small- and Medium-Scale Enterprises 7 2,788.0 3.0 7 2,788.0 3.2 5 2,550.0 4.9 Industry 12 2,630.3 2.8 6 1,909.0 2.2 2 950.0 1.8 Trade 1 250.0 0.3 1 250.0 0.3

Water Supply, Sanitation, and Waste Management 13 5,472.0 5.8 13 5,472.0 6.2 7 3,295.0 6.3

Water Supply and Sanitation 11 4,472.0 4.8 11 4,472.0 5.1 5 2,295.0 4.4 Waste Management 2 1,000.0 1.1 2 1,000.0 1.1 2 1,000.0 1.9

Health, Nutrition, and Social Protection 7 1,481.0 1.6 7 1,481.0 1.7 5 956.0 1.8

Social Protection 5 956.0 1.0 5 956.0 1.1 5 956.0 1.8 Health Systems 1 425.0 0.5 1 425.0 0.5Health Programs 1 100.0 0.1 1 100.0 0.1

Total 236 93,898.1 100.0 195 87,564.6 100.0 87 52,521.5 100.0ADB = Asian Development Bank.

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

1997–2006

Number

Amount

Table A6.3: Sectoral Composition of ADB Technical Assistance to Sri Lanka, 1968–2006

Sector/Subsector Number

Amount

Number

Amount

1968–2006 1986–2006



Table A6.5: Sri Lanka and ADB Portfolio Management Indicators

1998–2006

SRI Average ADB Average Re

Indicators Unit 1998–2006 1998–2006 2

Public Sector Loans

A. Loan Portfolio

1. Active Loan Portfolio No.|$M 34.8 1,299.0 499.1 34,921.4 155a. Project Loans (number) No.|$M 28.0 1,039.1 420.8 26,960.2 134b. Program Loans No.|$M 2.9 138.3 47.4 6,335.4 12c. DFI/Credit Loans No.|$M 1.3 56.5 18.9 1,185.2 6d. Combined Projects and DFI Loans No.|$M 2.6 65.1 12.0 440.2 3

2. Average Age of the Active Loan Portfolio Years 3.4 3.6 3.93. Inactive Loan Portfolio No.|$M 0.0 0.0 0.1 5.6 0

B. Start-Up Compliance

1. Loans Approved During the Year No.|$M 5.3 189.8 72.1 5,543.0 152. Loans Not Yet Signed No. 2.3 45.0 83. Loans Awaiting Effectiveness No. 2.2 21.6 44. Average Time from Approval to Signing Months 2.2 3.5 3.85. Average Time from Signing to Effectivity Months 4.5 4.1 4.86. Loans That Became Effective More than No.|% 20.7 67.3 235.2 54.3 89

90 Days after SigningC. Financial Performance

1. Contract/Commitment Achievement $M 152.9 4,435.9

2. Contract/CommitmentRatiob% 18.6 22.4

3. Disbursement Achievement $M 146.7 4,496.64. Disbursement Ratio % 18.9 21.95. Imprest Fund Turnover Ratioc

% 1.9 1.46. Submission of APA and AFS (PC & NC)

a. Less than 6 Months Overdue No.|% 6.8 25.5 54.3 17.1 35

b. Greater than 6 Months but Less than No.|% 0.6 2.0 6.3 1.9 612 Months Overdue

c. More than 12 Months Overdue No.|% 0.0 0.0 3.5 1.1 27. Loan Service Payments $M 48.9 4,591.38. Net Resource Transfer $M 97.9 (94.8)

D. Portfolio Performance

1. Project Ratings (Number of Loans)a. Highly Satisfactory No.|% 0.2 0.5 6.6 1.3 1




Indicators Unit 1998–2006 1998–2006 2

b. Satisfactory No.|% 32.3 93.5 414.3 82.9 135c. Partly Satisfactory No.|% 1.8 4.7 55.4 11.2 14d. Unsatisfactory No.|% 0.4 1.4 22.9 4.6 5

2. Projects at Risk (Number of Loans) No.|% 2.8 6.5 75.3 14.9 19a. Problem Projects (IP or DO is rated PS or U) No.|% 2.2 6.0 78.3 15.8 19b. Potential Problem Projects No.|% 0.2 0.4 10.7 2.1 0

(4 or more problem flags)c. Problem Projects

i. Implementation Progress (PS & U) No.|% 1.9 5.3 67.6 13.7 15ii. Development Objectives (PS & U) No.|% 0.7 1.4 28.6 5.8 6

3. Risk Ratiosa. Project Implementation Delays No.|% 5.0 13.3 137.0 28.0 55b. Loan Utilization Delays No.|% 0.0 0.0 3.8 12.4 45c. Established, Staffed, and/or Operation No.|% 1.3 4.1 18.8 4.1 1

of PMU/PIUd. Fielding of Consultants No.|% 2.3 5.9 30.0 6.1 21

e. Environmental or Social Problems No.|% 0.0 0.0 23.3 5.4 1f. Poor Compliance with APA and AFS No.|% 1.0 2.3 19.3 4.3 4g. Poor Compliance with Other Covenants No.|% 7.3 17.5 67.0 13.3 2h. Shortage of Counterpart Funds/Cofinancing No.|% 0.5 1.4 20.3 4.2 6i. Unsettled Cost Overrun No.|% 0.3 0.8 2.3 0.5 8

j. Significant Disbursement Delays No.|% 13.3 33.1 155.5 30.7 10k. In Risk Sector or Country with History No.|% 4.2 10.7 126.7 25.1 1

of Past Problemsl. Project Fielded Missions No.|% 16.7 40.6 154.8 30.6 50

4. Overall Risk Ratio of the Portfolioe% 12.2 14.3

E. Portfolio Supervision

1. Proactivity Indexf

No.|% 7.3 50.1 56.5 66.5 14

2. Average Supervision Intensity Days 18.8 21.5 27.4(Staff-Days/Project)

3. Loans with Settled Cost Overruns No. 0.3 6.7 14. Loans with Changes in Project Scope No. 2.6 47.9 195. Loans with Changes in Implementation No. 3.6 40.6 23

Arrangements 0.06. Loans with Extensions No. 5.8 127.6 407. Loan Cancellations $M 8.0 1,037.9




Indicators Unit 1998–2006 1998–2006 2

Technical Assistance

A. Active TA Portfolio No.|$M 34.5 23.2 1,117.0 778.3

B. Average Time from Approval to Signing of TA Months 1.9 3.0

Letter/Agreement

C. TAs Completed but not Financially Closed(Potential Savings) No.|$M 9.3 0.9 249.0 26.6

AFS = audited financial statement, APA = audited project account, DFI = development finance institution, DOimplementation progress, No. = number, na = not applicable, NA = not available, NC = not complied, PC =implementation unit, PMU = project management unit, PS = partly satisfactory, SRI = Sri Lanka, TA = technical a

Notes:

1. The South Asian Region comprises Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and2. For 1998 to 2001, figures are based on the contract awards and exchange rates as of 31 December 2001.3. The annualized turnover rate is computed as the ratio of total liquidation over the time-weighted average fun4. Percent of problem-flagged projects (loans) to the total number of loans in the various loan portfolio categ

Delays refer to all loans except credit loans, which are dealt with under Loan Utilization Delays. Significant D

loans whose disbursement is less than 70% of the projected loan disbursement for the year.5. The weighted average of the 12 risk ratios.6. Percent of problem projects changed through upgrading, restructuring, closure, or cancellation during the preSource: Central Operations Services Office (COSO), Asian Development Bank.



Appendix 6 123

Table A6.6: Targeting and Thematic Classifications of Loans and Projects

Approved from 2004–2006

Distribution of Loans by Number Projects

Loan Classification OCR ADF Total % Number %

A. By Targeting Classification

1. Targeted Intervention 0 1 1 8.3 1 12.5 2. General Intervention 4 6 10 83.3 6 75.0 3. Others 0 1 1 8.3 1 12.5

Total 4 8 12 100.0 8 100.0

B. By Theme Classification

1. Sustainable Economic Growth 4 4 8 47.1 5 41.7 2. Governance 2 2 11.8 2 16.7 3. Inclusive Social Development 2 2 11.8 2 16.7 4. Environmental Sustainability5. Gender and Development 2 2 11.8 1 8.3 6. Private Sector Development 1 2 3 17.6 2 16.7 7. Regional Development8. Capacity Development

Theme Factor 1.75 1.75 1.75 1.57

ADF = Asian Development Fund, OCR = ordinary capital resources.

Notes:

1. Theme factor is computed as the average number of themes per loan or project.

2. The number of approved loans does not include the two supplementary loans signed in 2006, as targeting and

theme classification were not indicated in the project performance audit/evaluation report.

3. Loan 2084-SRI: North East Community Restoration and Development, approved in 15 June 2004, was excluded,

as ADB was still using poverty classification (instead of targetting classification) during that time.



HS/GS/S PS US Total HS/GS/S PS US Total 1960–197

A. Programs

1. Agriculture and Natural Resources 3 3 0 100 0 100

2. Finance 1 1 0 100 0 100

3. Law, Economic Management, and Public

Policy 1 1 100 0 0 100

Subtotal 1 4 5 20 80 0 100

B. Projects

1. Agriculture and Natural Resources 7 12 3 22 32 55 14 100 17

2. Education 3 1 4 75 25 0 100

3. Energy 6 1 7 86 14 0 100 100

4. Finance 4 2 6 67 33 0 100 0

5. Health, Nutrition, and Social Protection 2 2 100 0 0 100

6. Industry and Trade 4 1 5 80 0 20 100 50


Policy 1 1 0 100 0 100

8. Multisector 2 4 6 33 67 0 100 0

9. Transport and Communications4 1 5

80 20 0100 10010. Water Supply, Sanitation, and Waste

Management 2 2 100 0 0 100

Subtotal 34 22 4 60 57 37 7 100 27

C. Total

1. Agriculture and Natural Resources 7 15 3 25 28 60 12 100 17

2. Education 3 1 0 4 75 25 0 100

3. Energy 6 1 0 7 86 14 0 100 100

4. Finance 4 3 0 7 57 43 0 100 0

5. Health, Nutrition, and Social Protection 2 0 0 2 100 0 0 100

6. Industry and Trade 4 0 1 5 80 0 20 100 50


Policy 1 1 0 2 50 50 0 100

8. Multisector 2 4 0 6 33 67 0 100 0

9. Transport and Communications 4 1 0 5 80 20 0 100 10010. Water Supply, Sanitation, and Waste

Management 2 0 0 2 100 0 0 100

Total 35 26 4 65 54 40 6 100 43

GS = generally successful, HS = highly successful, PCR = project/program completion report, PPAR = project/program performance audit repor

evaluation report, PS = partly successful, S = successful, US = unsuccessful.

Source of basic data: Project/program completion reports and project/program performance audit/evaluation reports containing a rating circulate

Proportion: All Ratings, 1968–2006 (%)

Table A6.7: Project/Program Performance Ratings in Sri Lanka

(Combined PCR and PPAR/PPER Ratings)

Number of Rated Projects/Programs

Sector

Proport



Appendix 6 125

Loans HHI by HHI by

Total Total per Number Amount

Year T&C ANR Edu En WSS LEP Fin HNS I&T Multi Loans Sector Sector of Loans of Loans

2004 7 14 5 2 2 3 5 _ 3 5 46 9 5.1 0.1642005 6 14 6 2 3 3 5 _ 2 7 48 9 5.3 0.160 0.143

2006 6 12 5 1 5 3 5 _ 2 8 47 9 5.2 0.151 0.148

Source: Operations Evaluation Department and Central Operations Services Office.

ANR = agricul ture and natural resources; Edu = education; En = Energy; Fin = finance; HHI = Hirschman-

Herfindahl Index; HNS = health, nutrition, and social protection; I&T = industry and trade; LEP = law, economic

management, and public policy; Multi = multiple sectors; T&C = transport and communications; WSS = water

supply, sanitation, and waste management.

Note: There were no ongoing loans for the health, nutrition, and socia l protection sector for these years.

Table A6.8: Distribution of Ongoing Loans to Sri Lanka by Sector, 2004–2006

Sector

Item Number % Number % Number %

1. Total Loans Closed 16 27 43

2. Loans without Extensions 2 12.5 1 3.7 3 7.0

3. Loans with Extensions 14 87.5 26 96.3 40 93.0

a. 1 Extension 4 25.0 2 7.4 6 14.0

b. 2 Extensions 3 18.8 15 55.6 18 41.9

c. 3 Extensions 3 18.8 7 25.9 10 23.3

d. 4 Extensions 4 25.0 1 3.7 5 11.6e. 5 Extensions 1 3.7 1 2.3


1986–1996 1997–2006 1986–2006

Table A6.9: Number of Extensions to Loan Closing Date for Closed Loans

Number Late % Late Number Late % Late

Sri Lanka 18 17 94 1.84 10 9 90 1.81

Bangladesh 26 24 92 2.05 26 17 65 2.33

Bhutan 3 3 100 2.56 8 4 50 1.16India 19 16 84 2.48 21 9 43 3.09Maldives 2 2 100 1.98 1 1 100 2.53Nepal 23 21 91 2.92 12 12 100 1.75Pakistan 36 33 92 3.18 30 21 70 2.93

DMC = developing member country.


Table A6.10: Average Delay in Loan Closings, South Asia, 1996–2006

Loans (1996–2000) Loans (2001–2006)Average

(Years)

Average

(Years)DMC



126 Appendix 6

Status 2001 2002 2003 2004 2005 2006 Average

Number of Loans Closed 3 0 1 1 2 1 1.3Loan Amounts ($ million) 94.7 0.0 71.8 55.3 72.7 60 59.1

Cumulative Disbursements ($ million) 81.9 0.0 71.2 54.2 72.6 30.6 51.8Cumulative Loan Cancellations ($ million) 12.8 0.0 0.6 1.1 0.2 29.4 7.4Percent Cancelled 13.5 0.0 0.8 2.0 0.3 49.0 12.4

Source: Central Operations Services Office, Asian Development Bank.

Table A6.11: Annual Loan Closings, Disbursements, and Cancellations

Table A6.12: Portfolio Indicators for Closed Loans, Sri Lanka, 1986–2006

Item Number % Number %

Total Closed Loans 43Loans with Extension 40 93.0Loans without Extension 3 7.0

Average Extensions (months)All Closed Loans 20.7All Closed Loans with Extension Only 22.7

Average Time from Approval to Signing (months) 1.47

Loans Signed Within:< or = 30 days 19 44.2 2 8.3> 30 days 24 55.8 1 4.2

Average Time from Signing to Effectivity (months) 3.74Loans Made Effective

< 90 days 17 39.5 2 11.8> 90 days 26 60.5 1 4.2

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

Loans Completed on Time

Year Number of Projects Total Total Staff-Days Staff-Days/Project

2003 24 37 587 24.52004 28 44 714 25.52005 31 49 660 21.32006 33 57 793 24.0

Average 29 47 689 23.8


Table A6.13: Project Administration Missions, Sri Lanka, 2003–2006



1997 1998 1999 2000 2001 2002 2003 2004 2005

Item Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actual Proj. Actu

Contract Awards 115.4 129.7 82.1 132.1 68.9 85.1 66.7 55.3 183.0 99.6 160.4 159.2 269.3 315.4 198.0 183.6 245.0 201

Project 115.4 129.7 82.1 132.1 68.9 85.1 66.7 55.3 133.0 74.3 125.4 93.3 209.3 250.5 168.0 153.6 205.0 181Program 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 50.0 25.3 35.0 65.9 60.0 64.9 30.0 30.0 40.0 20

Disbursement 112.8 95.5 119.7 120.1 91.9 98.2 66.0 76.0 118.2 91.4 123.3 149.0 194.3 213.9 216.2 185.7 253.7 206

Project 112.8 95.5 119.7 120.1 91.9 98.2 66.0 76.0 68.2 66.0 88.3 82.4 134.3 149.0 186.2 155.4 213.7 186Program 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 50.0 25.4 35.0 66.5 60.0 64.9 30.0 30.3 40.0 20

Loan Approvals 156.5 161.6 180.0 185.0 120.0 148.8 146.0 208.7 155.0 146.0 210.0 236.5 165.3 275.3 190.0 195.0 210.0 253

Project - 161.6 - 185.0 120.0 148.8 96.0 108.7 140.0 126.0 170.0 176.5 135.3 225.3 80.0 90.0 210.0 253Program - 0.0 - 0.0 0.0 0.0 50.0 100.0 15.0 20.0 40.0 60.0 30.0 50.0 110.0 105.0 0.0 0

Disbursement Ratio (%) 24.2 20.8 24.4 25.0 16.0 17.9 10.8 13.2 17.1 15.1 17.2 17.6 21.6 22.3 20.3 18.3 24.4 19

Project - 20.8 - 25.0 16.0 17.9 10.8 13.2 11.6 13.1 14.1 11.9 16.6 17.1 19.8 17.5 24.2 20Program - 0.0 - 0.0 0.0 0.0 0.0 0.0 49.7 25.3 37.7 43.5 65.5 70.8 24.1 24.3 25.9 13

Net Resource Transfer - 66.0 - 93.0 - 68.0 - 40.4 - 54.0 - 107.0 - 162.2 - 126.1 - 133Project - 68.8 - 95.7 - 70.8 - 44.5 - 33.7 - 46.8 - 104.8 - 105.5 - 125Program - (2.8) - (2.8) - (2.8) - (4.1) - 20.3 - 60.2 - 57.4 - 20.6 - 8

Loan Service Payment - 29.6 - 27.2 - 30.3 - 35.6 - 37.4 - 42.0 - 51.7 - 59.6 - 72OCR - 0.0 - 0.0 - 0.0 - 0.0 - 0.2 - 1.3 - 1.1 - 2.8 - 7ADF - 29.6 - 27.2 - 30.3 - 35.6 - 37.2 - 40.6 - 50.6 - 56.8 - 64

No. of TA Projects Approved 8 11 11 9 7 12 11 10 7 8 6 9 9 11 5 4 5

No. of PS Investments

Loans 0 1 1 1 1 1 0 1 0 0 0 0 0 0 0 0 0

Equity 0 0 1 0 1 1 0 0 1 1 0 0 0 0 0 0 0

- = not applicable, ADF = Asian Development Fund, OCR = ordinary capital resources, Proj. = projected, PS = private sector, TA = technical assistance.Source of basic data: Central Operations Services Office, Asian Development Bank.

Table A6.14: Sri Lanka Financial Performance Indicators, 1997–2006 ($ million)



128 Appendix 6

Figure A6.3: Average Start-up Time for Loans Declared Effective, 1998–2006

2.0 2.2 2.1 2.1 2.0 2.4 2.2 2.2 2.4

5.3 5.2 5.04.8

5.4

4.2

3.63.63.8

0

1

2

3

4

56

7

8

9

1998 1999 2000 2001 2002 2003 2004 2005 2006

M o n t h s

Signed Effective

Figure A6.4: Three Year Moving Averages of Contract Awardsby Loan Type, 1997–2006

0.0

50.0

100.0

150.0

200.0

250.0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

$ M i l l i o n

Total Project Program

Figure A6.5: Three Year Moving Averages of Disbursementsby Loan Type, 1997–2006

0.0

50.0

100.0

150.0

200.0

250.0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

$ M i l l i o n

Total Project Program




Appendix 7 129

ECONOMIC, SECTOR, AND THEMATIC STUDIES FOR SRI LANKA

Year Title

1997 Country Economic ReviewCountry Report: Sri LankaPolicy Environment and Project Performance

Sri Lanka Natural Resource and Environmental ManagementSri Lanka Responding to New Social Challenges

1998 Country Risk AssessmentDonor Sectoral Assistance to Sri LankaEnergy Sector Strategy StudyImproving Education PlanningOptions for ADB Assistance in Public Enterprise and Trade and Industrial PolicyReformsPublic Administration in Sri Lanka: a Bird’s Eye ViewSector Analysis for Sri LankaSocial Sector Development in Sri Lanka: Issues and Options (a background study for

the 1998−

2001 Country Operational Strategy)Women in Sri Lanka

2001 Poverty Reduction Strategy in Sri Lanka: Issues, Findings, and Approaches

2003 Borrowing Capacity AssessmentPoverty Assessment Update

2004 Governance AssessmentMacroeconomic Assessment and Debt Sustainability UpdatePrivate Sector Assessment

2005 Developing a Microsimulation Model for Sri Lanka to Measure the Impact of PublicPolicy on PovertyFinancial Sector AssessmentGreater Colombo Waste Water Management Sector ReviewPost-tsunami Needs AssessmentSynopsis of Sri Lanka’s Industrial PolicyThe Power Sector in Sri Lanka: Background to Current CrisisThe Sri Lankan Development Model and Income Equality




130 Appendix 8

SRI LANKA RESIDENT MISSION PERCEPTION SURVEY

1. As part of the Country Assistance Program Evaluation for Sri Lanka, the OperationsEvaluation Department of the Asian Development Bank (ADB) conducted a perception survey ofADB’s Sri Lanka Resident Mission (SLRM).1 The objective of the perception survey is to gaininsight into the relevance, effectiveness, and efficiency of SLRM, and to identify areas for

improving client responsiveness. The survey took place from December 2006 to February 2007.

A. Methodology

2. A questionnaire was developed, pretested, and subsequently used for this survey. Thequestionnaire and the survey results are presented at the end of this appendix. The surveytargeted persons (external and internal to ADB) and/or agencies that have had interaction orinvolvement with SLRM. A total of 278 persons were contacted by email and through severalevaluation meetings and workshops (agriculture, education, power, transport, water supply andsanitation, and project monitoring). The respondents contacted by email were given about amonth to respond to the questionnaires.

3. A total of 88 responses were received: 10 from ADB headquarters professional staff, 50from officials representing the Government of Sri Lanka, 7 from the private sector, 10 fromdevelopment partners, and 11 from civil society (i.e., researchers, observers, and members ofnongovernment organizations). This represents an overall response rate of 32%. Individualrespondents’ interactions with SLRM covered different dimensions of involvement, ranging fromanalytical work to country strategy and program, aid cooperation, policy dialogue, projectdesign, and project implementation. Most of the respondents had had direct interaction withSLRM: personal interaction (43%), project implementation/portfolio management (41%), projectdesign (28%), policy dialogue (27%), aid cooperation (25%), and analytical work (22%). Asindividual respondents had not interacted with SLRM in all aspects of ADB operations, onlythose respondents who indicated direct involvement in or familiarity with at least one of theinteraction categories were included in the survey analysis. Consequently, the number of

counted respondents varies for different questions, as this number depends on valid responsesto specific questions.

B. Relevance

4. Most of the respondents observed that SLRM staff knew the country (96%), were peoplewith whom they could express their opinions openly (93%), had good communication skills(91%), knew the relevant sector issues in the country (70%), and had strong technical expertise(65%). Respondents generally believed that SLRM staff were accessible whenever needed(82%). This is echoed in the narrative responses, wherein nine respondents complimentedSLRM staff members for making themselves available when needed and for their ability toprovide advice. Most of the respondents agreed that SLRM staff had treated them as

development partners/colleagues (81%). However, only 36% of the respondents believed thatSLRM had enough delegated authority to operate effectively. This was also confirmed duringinterviews with key informants, who raised issues related to the extent to which SLRM has torely on ADB Headquarters on (i) project implementation issues, (ii) procurement matters, (iii)

1This report was prepared by Njoman Bestari (principal evaluation specialist) and Grace Alindogan (consultant,evaluation research associate). Brenda Katon (consultant, evaluation research associate), Alvin Morales(evaluation officer), and Jennifer Simon (consultant, evaluation research associate) participated in workshops andmeetings with a number of respondents.



Appendix 8 131

policy dialogue, (iv) resource allocation, and (v) various matters related to programming inspecific sectors and project administration. Less than half of the respondents (43%) agreed thatSLRM provided valuable lessons and practices from other countries. This is consistent withobservations from many discussions with government officials and other respondents whopointed out the need for SLRM to (i) disseminate lessons from other countries, and (ii) enhanceits role as an ADB conduit or facilitator for learning from the experience of ADB operations in

other developing member countries.

5. In terms of meeting the country’s needs, a large majority of the respondents indicatedthat SLRM acted as an effective development partner (74%) and responded to the country’sdevelopment needs (71%). This is consistent with the findings of a separate survey of opinionleaders and stakeholders, in which more than three quarters of the respondents reported thatthe services offered by ADB’s field offices or resident missions in the South Asia region hadbeen helpful in assisting countries to meet their development goals and objectives.2 Most of therespondents perceived that SLRM had been receptive to the changing conditions of the country(64%), while some of them (13%) disagreed with this. The majority of respondents also agreedon SLRM’s sensitivity to country-specific circumstances (61%), and on taking into accountvarious viewpoints in the country (56%). There was room for improvement in these areas, as

supported by respondents’ comments that SLRM should develop closer relations with partners(17 responses) and be more responsive to the country’s needs (9 responses) in order toimprove its delivery of products and services.

6. Interactions between the respondents and SLRM staff had been generally frequent: (i)once to more than twice per month when relating to a specific project; and (ii) once or twiceevery 3 months when coordinating on issues that were not project specific. Similar findings werecited in the synthesis report of the Annual MOPAN Survey 2006, wherein partners reported thatthey had attended more than three meetings with ADB staff during the prior 3 months, andcooperation with ADB had increased over the previous years.3

C. Effectiveness

7. In the context of ADB’s country strategy and program, a large majority of therespondents perceived that SLRM staff had adequately considered the realities, developmentissues, and priorities of the country (78%); and had consulted with or listened to relevantstakeholders in the country (72%). However, fewer people agreed that SLRM had adequatelyexplained new ADB policies, knowledge products, and lending (64%). In terms of incorporatingrelevant experience from projects and programs in the country, 72% of the respondentsbelieved that SLRM had done so. The 2006 MOPAN survey indicated that ADB plays a centralrole in policy dialogue with the Government. In the case of Sri Lanka, the MOPAN surveyreported that ADB has a close working relationship with the Government because of ADB’srelatively large contribution to the country’s official development assistance. By contrast, thisSLRM perception survey directed questions on the range of policy dialogue between ADB and

the Government. In policy dialogue, most of the respondents perceived that SLRM (i) supportsthe Government’s leadership role in policy formulation (66%), (ii) focuses policy dialogue on themost important development needs (63%), and (iii) provides advice sensitive to human

2ADB Perceptions Survey: Multinational Survey of Opinion Leaders 2006. Prepared by the Princeton SurveyResearch Associates International for the Asian Development Bank. October 2006, p. 9.

3Multilateral Organisations Performance Assessment Network (MOPAN). Annual MOPAN Survey 2006, Donor Perceptions of Multilateral Partnerships at Country Level. October 2006, p. 31. Survey covers perceptions onperformance of the United Nations Children’s Fund, the International Labor Organisation, and the AsianDevelopment Bank.



132 Appendix 8

development goals (61%). There are several areas where there is ample room for improvementin policy dialogue. Based on perceptions, fewer respondents believed that SLRM (i) hadinvolved interest groups in policy discussions (59%), (ii) had explained the rationale for ADB’scountry strategies (54%), and had provided policy advice based on practical insights (46%).

8. On project design, more than 70% of the respondents agreed that SLRM had adequately

considered (i) social aspects, (ii) environmental aspects, (iii) country and sector contexts, (iv)experience drawn from previous projects, and (v) counterparts to assume responsibility.However, fewer respondents agreed that SLRM had listened to alternative views (62%),considered options proposed by stakeholders (62%), and ensured that benefits to the country

justified the cost (57%). Key informant interviews with government officials revealed client desirefor SLRM to be more attentive to alternative views and options, and open to the many ways toachieve the desired objectives of projects and programs.

9. On project administration, at least 60% of the respondents agreed that (i) SLRM staffhad worked closely with project managers/directors to resolve issues and help reconciledifferences between ADB and the Government, and (ii) SLRM had effectively managed the loanportfolio and kept partners well informed of progress and issues. Based on the respondents’

perceptions, more problematic areas of project administration related to procurement issues andstaff flexibility to consider options when a standard solution does not work.

10. In the context of economic and sector work, fewer than 60% of the respondents agreedthat SLRM had taken into account the sociopolitical realities of the country, and focused on themost important needs and issues. Similarly, less than 60% of the respondents agreed that theanalytical work is a joint effort with local experts in the country. Less than 40% of therespondents agreed that SLRM (i) effectively provided inputs to development policy formulationin the country, (ii) prepared policy briefs on major studies, and (iii) did not duplicate work thathad been done in the sector by others. Technical support provided by SLRM was primarilyperceived (65%) to make a tangible contribution to development effectiveness. Similarly, morethan half of the respondents agreed that the technical support was well focused on key capacity

needs of the country, although some respondents (government officials) disagreed with this.More than half of the respondents (57%) agreed that technical support used approaches thateffectively fit the country situation. On the other hand, fewer respondents agreed that SLRM hadprovided technical support that was accurately targeted (35%) and appropriately timed tosupport project implementation (48%). Many respondents believed that SLRM respects theGovernment’s responsibility for aid coordination (73%) and helps the country obtain access tocofinancing (67%). However, fewer respondents (52%) perceived SLRM as helping the countryto avoid aid duplication. This is also a shortcoming highlighted in the 2006 MOPAN survey.4

D. Efficiency

11. Nearly 70% of the respondents perceived that SLRM provided timely responses to

inquiries. Such responses are consistent with the respondents’ additional narrative responsesstating that one of the qualities the respondents liked about SLRM’s services was its ability torespond quickly to their queries. However, less than half of the respondents (44%) agreed thatSLRM ensured that benefits from given actions exceeded their costs. Compared with other aidagencies with which the respondents were familiar with, perceptions among the respondents

4In the 2006 MOPAN Survey, the section on the Quality of ADB Partnership behavior towards other developmentagencies mentioned that “ ADB could do more to avoid overlaps with others.” The Sri Lanka country team noted “some weaknesses... in efforts to minimize duplication with other donor work ”. (p. 35)



Appendix 8 133

suggested that SLRM was more responsive to country needs (60%). Several developmentpartners also confirmed this. Slightly more than half of the respondents agreed that SLRM wasbetter in terms of its effectiveness in project implementation (52%). However, fewer respondentsperceived that SLRM was better than other aid agencies in terms of striving for tangible results(37%) and speed in delivery of services (31%). During interviews, respondents often perceivedslow delivery of services as something related to SLRM’s inability to take decisions without

resorting to repeated exchanges with ADB Headquarters. Nevertheless, more than threequarters of the respondents reported to be satisfied with SLRM-based services, with themajority of the responses coming from government agencies and development partners.Reasons for this satisfaction are outlined in their narrative responses. The survey question onthe relevance of knowledge management products generated less favorable responses (47%)as many of the respondents were not familiar with these products. However, respondents fromgovernment agencies affirmed the relevance of knowledge management products, whilenongovernment respondents were the least familiar with these.

E. Narrative Responses

12. Respondents were requested to highlight what they liked most about (i) SLRM products

and (ii) SLRM services. For SLRM products, the majority appreciated the quality and content ofreports (13 responses), confirming that they were informative, timely, and relevant to theirneeds. Several complimented the areas wherein ADB provides its assistance (7 responses),especially in infrastructure development, and its relevance to the country’s needs. Aside fromthis, some respondents appreciated ADB reports and publications which are made accessiblethrough the Internet. Regarding SLRM services, 18 respondents appreciated SLRM friendliness,responsiveness, and technical competence, while 9 others complimented the way SLRMadministered projects with good coordination with the Government. Others were pleased withthe training provided, foreseeing that SLRM would continue to benefit the country in the longterm. When the respondents were asked how SLRM could improve its products and services,the top response was for SLRM to achieve a closer relationship with its partners and focus moreon what the country needs. Table A8 summarizes the narrative responses from the

respondents.



134 Appendix 8

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

What do you like most about ADB/SLRM products? What do you like most about ADB/SLRM services?

1. Quality of reports/guidelines (13 responses) 1. Staff qualities (18 responses)

2. Areas of assistance/types of loan (7 responses) a. Responsive/gives advice (9 responses)

3. General comment (1 response) b. Other technical competence (5 responses)

c. Friendly/accommodating (4 responses)

2. Quality of work program and project implementation (9responses)

3. Provision of training (4 responses)

4. Conduct of review missions, deployment of consultants(3 responses)

5. Accessibility (3 responses)6. Good staff (2 responses)7. Other benefits (3 responses)

How can SLRM further improve its delivery of products and services?

1. SLRM should achieve closer relationship with partners (17 responses)

2. SLRM should be more responsive to country needs (9 responses)

3. SLRM should improve information availability (5 responses)

4. SLRM should improve operation activities (4 responses)

5. SLRM should conduct regular meetings/trainings (3 responses)

6. SLRM should be more transparent (3 responses)

7. Staff need to be more efficient (3 responses)

8. SLRM needs personnel support in some sectors (3 responses)

9. Decentralization/dissemination of responsibilities necessary for SLRM/ADB (3 responses)

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



Appendix 8 135

Perception Survey of Sri Lanka Resident Mission (SLRM)Questionnaires and Tables of Results

Total Respondents (n = 88) (Due to rounding, numbers in percentages do not always add up to 100%)

A. Respondent’s Background

1. Respondent Categories

Number Percentage

ADB Headquarters 10 11Sri Lanka Government 50 57Business/private sector 7 8Development partner 10 11Others 11 13

Total respondents 88 100

2. Extent of Interaction with ADB SLRM in terms of the following (%)Direct

Involvement Familiarity None TotalPersonal dealings with ADB staff 43 20 36 100

Country strategy and program 22 31 48 100

Policy dialogue 27 25 48 100

Project design 28 19 52 100

Project implementation/portfolio management 41 24 35 100

Analytical work 22 23 56 100

Technical support 28 19 52 100

Aid cooperation 25 30 45 100

B. Relevance

1. Personal Interaction: ADB SLRM staff… (%)Strongly

Agree Agree DisagreeStronglyDisagree

NoOpinion Total

Know the country 32 64 2 0 2 100Are people with whom I can express my

opinions openly 29 64 5 0 2 100Have good communication skills 16 75 2 2 5 100Are accessible when needed 11 71 5 0 13 100Treat me as a development partner/ colleague 27 54 9 2 9 100Communicate in a timely manner 13 57 13 2 16 100Know the relevant sector issues in the country 13 57 2 5 23 100Have good management skills 11 55 13 2 20 100

Have strong technical expertise 13 52 11 2 23 100Make good use of available local expertise 13 50 9 2 27 100Deliver on commitments and carry out promises 9 52 11 2 27 100

Communicate study findings andrecommendations convincingly 7 46 14 2 30 100

Provide valuable lessons and practices fromother countries 9 34 25 4 29 100

Have enough delegated authority to operateeffectively 4 32 16 13 36 100



136 Appendix 8

2. Country Context and Needs: SLRM staff… (%) Strongly


NoOpinion Total

Act as an effective development partner inthe country 16 58 2 2 22 100

Respond to the development needs of thiscountry

14 57 1 2 26 100Respond to changing conditions within thecountry 9 55 11 2 23 100

Are sensitive to country-specificcircumstances 10 51 8 2 28 100

Take into account various viewpoints in thecountry 9 47 8 3 33 100

3. Frequency of Interaction: SLRM staff… (%)

Every 1 Month Every 3 Months Every 6 Months Every 12 Months

Onceor

Twice

Morethan

Twice

Onceor

Twice

Morethan

Twice

Onceor

Twice

Morethan

Twice

Onceor

Twice

Morethan

Twice

NoOpinion

Total

Interact with me (related tospecific project)

18 19 17 5 16 0 6 0 19 100

Interact with me (on otherissues, nonproject)

3 9 16 2 10 2 7 3 47 100

C. Effectiveness

1. Country Strategy Formulation and Programming: In preparing the country strategy andprogram, SLRM staff…(%)

StronglyAgree Agree Disagree

StronglyDisagree

NoOpinion Total

Adequately consider the realities, development

issues, and priorities of the country

13 65 7 2 13 100

Consult with/listen to relevant stakeholders in thecountry

13 59 11 2 15 100

Incorporate relevant experience from previousprograms and projects in the country

11 57 11 2 20 100

Adequately explain new ADB policies and changesto ADB's lending and Knowledge Managementproducts

7 57 11 2 24 100

2. Policy Dialogue: SLRM staff… (%) Strongly


NoOpinion Total

Support the Government's leadership role in policyformulation 7 59 4 0 30 100

Focus policy dialogue on most importantdevelopment needs 9 54 7 2 28 100Provide advice sensitive to human development

goals 7 54 2 2 35 100

Involve interest groups in policy discussions 11 48 9 2 30 100

Explain the rationale for ADB's country strategies 11 43 9 0 37 100

Provide policy advice based on practical insights 7 39 15 2 37 100



Appendix 8 137

3. Project Design: In assisting with project design, SLRM staff… (%) Strongly


NoOpinion Total

Take into account social aspects 17 69 5 2 7 100Consider environmental aspects 21 64 0 2 12 100Adequately consider country realities and sector

context 14 69 7 2 7 100Incorporate experience from previous projects 10 64 10 5 12 100Get involved in the project at an early stage,

including in the design and implementation ofthe PPTA 10 64 12 0 14 100

Assess the quality of the existing feasibility study (ifany) 2 69 2 7 19 100

Follow up in areas where gaps exist 2 69 10 2 17 100Help counterparts to assume responsibility 5 67 12 0 17 100Use available local expertise 17 52 12 2 17 100Consider alternative options proposed by

stakeholders 2 60 19 2 17 100Listen to alternative views 5 57 17 2 19 100Ensure that benefits to the country justify the cost

5 52 10 5 29 100

4. Project Administration/Portfolio Management: In relation to project administration, SLRMstaff… (%)


StronglyDisagree

NoOpinion Total

Help reconcile differences between ADB and theGovernment 16 51 11 0 23 100

Closely work with project managers/directors toresolve issues 11 56 12 2 19 100

Keep me well informed of ADB's position onprogress and issues 9 54 9 5 23 100

Effectively manage the loan portfolio 7 53 7 0 33 100Help ensure that disbursements are not delayed 5 53 18 2 23 100

Respond to requests requiring a no objection ruling 5 51 7 0 37 100Provide training opportunities for executing and

project staff 11 46 11 5 28 100Help the government to resolve negative project

impacts 5 49 7 4 35 100Provide explanations when declining requests 7 47 11 2 33 100Help country project managers/directors to

restructure projects 7 44 12 2 35 100Help ensure that procurement is not delayed 11 33 21 5 30 100Are flexible when a standard solution does not work 7 32 26 4 32 100

5. Economic and Sector Related Work: The analytical work the SLRM is involved in… (%) Strongly

Agree Agree Disagree

Strongly

Disagree

No

Opinion TotalFocuses on the most important needs/issues of the

country 5 51 8 0 36 100Takes into account the sociopolitical realities of the

country 13 44 5 0 38 100Is a joint effort with local experts in this country 5 51 5 3 36 100Makes a valuable contribution to the design of

projects 5 49 8 3 36 100Makes a valuable contribution to the design of

policies 3 38 15 0 44 100



138 Appendix 8


StronglyDisagree

NoOpinion Total

Effectively applies experience from other countries 0 41 10 3 46 100Effectively provides inputs to development policy

formulation in this country0 38 13 0 49 100

Prepares/ provides policy briefs on major studies 3 36 15 0 46 100

Does not duplicate work that has already beendone in the sector by others

8 28 10 0 54 100Produces results that reach the right people 3 33 13 3 49 100Identifies all feasible options 0 31 15 3 51 100Works to fill in gaps that exist in the sector literature 0 18 13 3 67 100

6. Technical Support: The technical support provided by SLRM… (%) Strongly


NoOpinion Total

Makes a tangible contribution to developmenteffectiveness 5 60 2 2 31 100

Is well focused on key capacity needs in thiscountry 5 52 12 0 31 100

Uses approaches that effectively fit countrysituations 0 57 14 2 26 100

Improves individual capacity within this country 0 55 10 0 36 100Improves institutional/organizational capacity within

this country 0 55 7 2 36 100

Makes optimal use of local expertise 5 45 19 2 29 100Is effectively timed to support project

implementation 5 43 26 2 24 100

Provides benefits that exceed the costs 0 40 5 5 50 100

Is accurately targeted 2 33 19 2 43 100

7. Aid Support: SLRM's role in aid cooperation… (%) Strongly

Agree Agree Disagree

Strongly

Disagree

No

Opinion TotalRespects the government's responsibility for aid

coordination 6 67 4 0 23 100Helps the country obtain access to and manage

project cofinancing4 63 6 0 27 100

Takes a lead role in designated sector assistance 13 52 10 0 25 100Helps attract optimal external support for the

country 8 56 4 2 29 100Helps the country avoid aid duplication 6 46 10 0 38 100

D. Efficiency

SLRM staff… (%) Strongly

AgreeAgree Disagree

StronglyDisagree

NoOpinion

Total

Provide timely response to inquiries 11 57 13 2 17 100

Improve their interactions by learning fromexperience

9 55 9 1 26 100

Ensure that benefits from given actions exceedtheir costs

5 39 8 1 48 100



Appendix 8 139

E. Other

1. Development/Aid Agency Comparison: Compared with other aid agencies with which I amfamiliar, SLRM shows… (%)

MuchBetter Better Worse

MuchWorse

NoOpinion Total

Responsiveness to country needs8 52 8 0 31 100Value of country strategy and program 4 50 4 0 42 100

Effectiveness of project implementation/ assistance 10 42 10 2 35 100

Usefulness of policy advice 4 44 4 0 48 100Overall effectiveness 4 44 4 2 46 100Flexibility in adapting to country conditions 2 44 6 2 46 100Quality of project design 6 35 6 2 50 100Frequent monitoring of project progress

indicators 8 33 10 4 44 100Striving for tangible results/development

outcomes 6 31 2 2 58 100Speed of services 2 29 10 4 54 100

2. Other Respondent Feedback

a. Overall, how satisfied are you with the SLRM-based services? (%) Very

SatisfiedSatisfied Dissatisfied

VeryDissatisfied

NoOpinion

Total

ADB Headquarters 20 50 20 0 10 100

Sri Lanka Government 10 66 6 4 14 100

Business/private sector 0 86 14 0 0 100

Development partner 0 100 0 0 0 100

Others 0 64 0 9 27 100

Total 8 69 7 3 13 100

b. Overall, what is your opinion of knowledge management products provided by SLRM? (%)

HighlyRelevant

RelevantPartly

RelevantNot

RelevantNo

OpinionTotal

ADB Headquarters 0 30 20 0 50 100

Sri Lanka Government 8 46 6 4 36 100

Business/private sector 0 29 29 0 43 100

Development partners 0 40 20 0 40 100

Others 0 45 18 0 36 100

Total 5 42 13 2 39 100

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



MANAGEMENT RESPONSE TO THE COUNTRY ASSISTANCE PROGRAMEVALUATION FOR SRI LANKA

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

I. General Comments

1. We appreciate OED’s Country Assistance Program Evaluation (CAPE) forSri Lanka. We find it comprehensive and well prepared.

2. Overall, the CAPE rates ADB’s assistance to Sri Lanka as ‘partlysuccessful’. We share this view. We also agree with the CAPE that continuingpriority should be given to further improving project implementation and projectreadiness. However, we note that much has been achieved in Sri Lanka despite(i) a difficult political environment; and (ii) the conflict, a fact that is also

acknowledged in the detailed sector reports of the CAPE. As indicated in theCAPE, while only 54% of all loans approved since 1968 to Sri Lanka are rated assuccessful, the trend is encouraging. The success rate improved from 43% in the1970s, to 50% and 62%, respectively in the 1980s and 1990s.1

3. While we broadly agree with the CAPE findings, we disagree with theCAPE’s rating for post conflict operations as ‘likely to be partly successful, on thelow side’. The CAPE rating is determined largely due to its assessment onefficiency (‘less likely to be efficient’) and on sustainability (‘less likely to besustainable’). Regarding efficiency, the CAPE could take into account the factthat providing assistance to ‘post-conflict’ or ‘in conflict’ areas often costs morethan conventional support thereby reducing ‘efficiency’.

4. We note that the decision to work in such environments, whether in SriLanka or elsewhere, is an institutional choice taken deliberately by ADB. Webelieve that while every effort must be made to remain cost effective, we must bewilling to accept some degree of higher cost and indeed risk in such situations.The question of sustainability is also particularly complex in Sri Lanka. Thesustainability concerns raised by the CAPE reflect to a considerable extent theresurgent conflict after August 2006. However, we note that damage toinfrastructure supported by ADB, such as schools and hospitals, roads, has beenminimal. At the same time, while the situation in the Eastern Province remainsfragile and fluid, this region is once again moving towards a ‘post-conflict’situation with fewer operational constraints.

II. Comments on Key Recommendation

5. Refocus ADB’s priorities. We agree with the CAPE suggestion to havea stronger focus in the next Country Partnership Strategy (CPS). We believe thenext CPS will achieve this. However, the choice of sectors will include somewhere performance has not been fully satisfactory. One such case is the power

1Since only one project has received a rating since 2000, it is not possible to assess whether thistrend has continued.



sector. The reasons for the relative failure of ADB’s support in the power sectorwere largely those of underestimating rapid political change and the complexpolitical economy. Urgent assistance is needed to prevent imminent systemcollapse, and support the government in policy reforms where some progress isonce again being made. Further investment is required over the medium to longterm to avoid the lack of power becoming a major constraint on economicdevelopment. We believe that by adopting a cautious but realistic approach, ADB

can help to sustain the new reform momentum and the sector’s longer-termviability.

6. As for policy-based program lending, we note that reforms in Sri Lankaremain very important and in many instances, policy distortions remain a bindingconstraint to sector development and growth. While ADB could have easilydisengaged from policy-based lending activities in Sri Lanka in the future, webelieve that despite the difficulties, as a committed development partner, thiswould not be a responsible response. However, under the new CPS, policyreforms will be addressed primarily in conjunction with project investments andcomplemented by selective and limited program lending. As recognized by theCAPE, policy reforms will need to take proper account of Sri Lanka’s complex

political economy. The new CPS will look at more innovative ways to remainengaged in difficult areas such as economic reforms.

7. Post-conflict operations. We agree with the CAPE observation thatADB‘s operations in the North and East have to be ‘conflict sensitive’. We notethat this has been a basic operational principle in all ADB’s support to Sri Lanka’sconflict affected areas to date. However, the term ‘conflict sensitivity’ can meandifferent things to different people or groups and may vary over time and must,therefore, be kept under constant review. Equally, while the new CPS will lookclosely at the modalities ADB can employ to work effectively in both ‘post conflict’and ‘in-conflict’ affected areas, existing modalities, whereby ADB primarily worksthrough government agencies, has proven both effective and flexible. A notable

feature of the Sri Lankan conflict is that government agencies have continued tooperate in conflict affected areas. This is true even in Liberation Tigers of TamilEelam (LTTE) controlled areas.

8. Results-based management and monitoring. We agree with the CAPEsuggestion that ADB provide assistance to the government for results-basedmonitoring. We note that the scope of RETA 6306-REG “Mainstreaming MfDRfor Poverty Reduction in South Asia” was expanded to include Sri Lanka in early2007. The Sri Lanka Resident Mission (SLRM) is working with the Ministry forPlan Implementation that is piloting the results based approach with education,health, highways, and agriculture.

9. Strengthen capacity of SLRM. We have carefully reviewed the CAPE’sSLRM perception survey and found it very useful. We agree in principle with theCAPE suggestion that the roles and functions of SLRM need to be furtherstrengthened. However, these are ADB-wide generic issues, which involveadditional costs. We note that the ongoing review of RM policy will inform theserecommendations.