Portfolio review: 1998
Overview
1. As a follow-up to the implementation of the re-engineering exercise and in response to IFAD’s corporate strategy, the review of the Fund’s project portfolio has taken a new turn in 1998. The Guidelines for Portfolio Review provide the framework and project status reports (PSRs) the building blocks to monitor and manage IFAD’s project portfolio. The new tools for portfolio review facilitate assessment of the performance of individual projects. However the ultimate goal of the review is not to label each project according to its performance, but rather to identify implementation issues and apply timely measures for their resolution. The knowledge acquired in this exercise is being used to improve the quality of new projects as they enter the portfolio.
2. In 1998 30 projects were approved by the Executive Board, bringing to 520 the total number of projects approved since IFAD’s inception. Accelerated lending to sub-Saharan African countries in 1998 is clearly evident in IFAD’s operations. During 1998, a total of 24 projects were completed. As a result, 249 projects remain in the current portfolio. This includes 211 active projects, 18 still to be signed and 20 not yet effective.
3. Based on the information derived from PSRs, it is possible to classify IFAD’s portfolio into four broad categories: (1) problem free, (2) minor problems, (3) major problems but improving, and (4) major problems but not improving. About one-third (33%) of the year-end portfolio fell under categories 3 and 4 combined, which is in line with similar ratings for other international financial institutions (IFIs). This point is of considerable importance, bearing in mind that IFAD’s projects have unique characteristics that significantly influence their implementation performance. These include the relatively weaker institutional capacity of implementing agencies that deal with the rural poor, the time required to mobilize the support of implementing agencies and participation of beneficiaries, and the remoteness of IFAD project areas from mainstream economic activities.
4. A number of key portfolio indicators continued their promising trends in 1998. Disbursement performance, for example, which has gained a new impetus in recent years, reached the unprecedented level of SDR 220.6 million in 1998, representing an increase of 17% over 1997. This upward trend in disbursement performance is the result of intensified efforts to resolve issues hampering the flow of funds.
5. In 1998, the actual number of IFAD projects cofinanced by others increased from 13 to 15, half the number of projects approved. The amount of cofinancing for IFAD-initiated projects approved in 1998 amounts to USD 150.6 million, the highest level since 1985. The amount of cofinancing resources mobilized for each dollar lent for IFAD-initiated projects was USD 0.44 in 1998, as compared to USD 0.38 overall. The overall improvement in cofinancing is due to a deliberate policy of strengthening strategic partnerships with bilateral, regional and subregional financial institutions. The main element of this policy is to encourage cofinanciers to scale up IFAD best practices and vice versa. In the case of bilateral donors, more contacts have been established at the headquarters and field level, and joint staff meetings are held on a more regular basis.
6. In the context of its tight budgetary policy, IFAD is closely monitoring the overall size of its portfolio. New entries into the project portfolio are carefully considered against the number of closed projects, using a three-year moving average framework. Of the 24 projects closed in 1998, 15 had been extended, involving an average period of extension of 1.3 years. This compares favourably with the historical average of 1.8 years. This is also reflected in a decrease in the percentage time overrun of the implementation period since 1993. In the cases where project extension has been granted, the prime consideration has been if and how any given extension improves the achievement of project objectives. Similarly, non-extension of the loan closing date and, under certain circumstances, advance cancellation of part of a loan are used as instruments of portfolio management. During implementation, the environment may change significantly, necessitating cancellation or reduction of components and activities originally envisaged.
7. In addition to the above-mentioned generic issues, IFAD’s new approach to the review of its projects, in both the regional and IFAD-wide portfolios, has provided an opportunity to identify other common issues. These include project management performance and institutional capacity, insufficient monitoring and evaluation (M&E), complexities related to implementation of the classical credit components, counterpart funding and audit reports. Some generic issues are particularly evident in areas of Africa; besides political turmoil and macroeconomic problems in some African countries, weak implementation capacity has aggravated implementation of the portfolio. IFAD is pursuing a variety of measures to resolve the problems facing its project portfolio. Notable among them are the increased IFAD participation in supervision missions conducted by cooperating institutions (CIs) and the launching of follow-up missions. In addition, training courses have been provided to a large number of staff of the Programme Management Department (PD), e.g., in the use of logical frameworks, in order to improve staff capacity for both project design and implementation. Preparatory work is underway for an outreach programme on logical frameworks based on feedback from IFAD’s trained staff.
8. The active project portfolio (at year-end 1998) is being administered by IFAD and ten CIs, of which the United Nations Office for Project Services (UNOPS) is responsible for 100 projects (47%) and the World Bank for 42 (20%). The Arab Fund for Economic and Social Development (AFESD) and the Andean Development Corporation (CAF) are responsible for 15 projects (7%) each. Due to supervision cost considerations, at the beginning of 1999 15 projects were transferred from the World Bank to other CIs – 14 to UNOPS and one to CAF.
9. During 1998, IFAD’s Executive Board approved ten projects for direct supervision, bringing the total to 13. Since the majority of these projects were recently approved, it is too early to make meaningful comparisons with the work of the CIs. Nevertheless, two projects, which had been approved in 1997 and whose loans have become effective, are showing good progress in implementation performance, fully following IFAD’s concerns for the discharge of its mandate and related policy issues. Indicators have been developed to compare the impact of directly supervised projects in the course of project implementation with that of CI-supervised projects.
10. Participation, the selected theme for reporting on IFAD’s portfolio in 1998, has been a main feature of IFAD’s approach in the past several years. The theme also embodies the first thrust of IFAD’s corporate strategy, which envisages support for projects/programmes driven by beneficiary participation in design and implementation. At the aggregate level, this is clearly evident in an upward trend in beneficiary contributions to total project costs; from 2.5% in 1993 to nearly 8% in 1997 and 1998. Section VII of the report demonstrates instruments, processes and practices of participatory approaches in IFAD-assisted projects. The section also indicates measures to further promote and consolidate participatory approaches in IFAD’s project portfolio.
