CASCR Review Independent Evaluation Group

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized 1. CAS Data Country: Sri Lanka 2. Executive Summary CASCR Review CAS Year: FY08 CAS Period: FY09 FY12 CASCR Review Period: FY09 FY12 Date of this review: May 10, 2012 For Official Use Only i. This review examines implementation of the FY09-12 Sri Lanka Country Partnership Strategy (CAS) and the FY11 CAS Progress Report (CASPR), and evaluates the CAS Completion Report (CASCR). The review covers the joint program of IDA and IFC. ii. WBG s CAS was prepared before the end of the war, in May 2008, and the CASPR in June 2011, two years after the end of the conflict. The WBG strategy was organized around three pillars: (i) expanding economic opportunities in lagging regions; (ii) improving the investment climate and competitiveness; and (iii) enhancing the quality of services and accountability. Pillar 1, on expanding opportunities, focused on supporting integrated rural development, and improving economic opportunities in the Sri Lankan North and East, the conflict affected areas. Pillar 2, on the investment climate and competitiveness, aimed at improving infrastructure provision, the business environment, and the strategic relevance and transparency of public spending. Pillar 3 supported improving quality, relevance and governance of education, improving health and social protection services, and strengthening environmental protection. iii. IEG rates the overall outcome of the WBG strategy in Sri Lanka as moderately satisfactory. Sri Lanka resettled about half of those displaced by the 30-year war, and rehabilitated homes as well as the village infrastructure of part of the affected areas. The country also improved its rural electrification both in terms of coverage and the quality of the service provided, while increasing the capacity to generate electricity from renewable sources. The country s progress in providing potable water to rural areas was positive, albeit slower than in electricity. Sri Lanka made progress in improving infrastructure provision, as well as in strengthening the business environment, including by moving towards e-government. Sri Lanka also made progress in education and health, including in the administration of the systems. However, the few available indicators on environmental protection show a mixed picture, and progress in improving irrigation was slow and negligible in dams. While budget transparency improved, the strategic relevance and efficiency of public spending did not improve as expected. The WBG provided support for many of these achievements. Nevertheless, the main factors behind the strengthening of the business environment were the end of the conflict and the stable macroeconomic environment, both of which were not addressed by the WBG strategy. IEG does not consider as outcomes of the WBG strategy those outcomes that are achieved by the country without a contribution of the WBG. The WBG s dialogue with Sri Lanka in the water sector and the conservation of ecosystems was ineffective. Challenges remain in the finances of the social protection system, the regulatory framework for environmental management in the power sector, and the conservation of ecosystems. iv. IEG concurs with the lessons drawn by the CASCR, especially with the need for flexibility in a fast-changing environment. In addition, the main lesson that IEG sees stemming from this review is that committing to deliver results in areas where the government has articulated a different agenda risks opting for policy advice and approaches that the government will eventually discard. In this vein, a close dialogue on the development and implementation of the strategy, including the AAA, would CASCR Reviewed by: Peer Reviewed by: CASCR Review Coordinator Juan José Fernández-Ansola Consultant, IEGCC David P. Apgar Consultant, IEGCC Jorge Garcἰa-Garcἰa Consultant, IEGCC Steve F. Pirozzi Senior Evaluator, IEGCC Jaime Jaramillo-Vallejo Lead Economist, IEGCC

2 For Official Use Only 2 bolster the effectiveness of the WBG s dialogue with the authorities. In addition, the CASPR is the instrument to adjust the strategy to changing circumstances and priorities. Timely use of this instrument enhances the relevance of the WBG s support. Furthermore, deficient monitoring of the strategy hinders its effectiveness by frustrating the M&E that is necessary to adjust the strategy to its observed effectiveness, as well as the evolving priorities and country circumstances. 3. CASCR Summary Overview of CAS Relevance: Country Context 1. Sri Lanka s thirty-year civil war ended in May 2009, following the defeat of the Liberation Tigers of Tamil Eelam. Reflecting to some extent the return to peace as well as a sound policy framework, the economy recovered from a temporary slowdown in 2009 to an estimated 8 percent growth in The sectors that performed the best were the agriculture, tourism, and service sectors. Excluding the conflict-affected North and East (for which there is no comparable data), the poverty headcount ratio fell from 15¼ percent in 2008 to less than 9 percent in The strong economic performance also helped Sri Lanka transition from an IDA-only status to middle-income status, leading to a change to IDA-IBRD blend borrower in FY12. Sri Lanka s sovereign debt remains below investment grade, by four notches according to Standard and Poor s (B+) and by three notches according to Fitch (BB-) and Moody s (B1). Its proneness to natural hazards was underscored in late 2010 when heavy rains resulted in floods and landslides that affected more than five percent of a population of 21 million. Despite its strong economic performance and poverty reduction, Sri Lanka faces a challenging agenda of developing and reconstructing infrastructure, rehabilitating conflict-afflicted areas of the North and East, and resettling people displaced by the conflict. 2. Sri Lanka s priorities expressed in the government s 10-year Development Framework, Mahinda Chintana were issued in 2005 ( Towards a New Sri Lanka ) and revised after the end of the internal conflict in 2010 ( Vision for the Future ). The first strategy aimed at accelerating growth through increased investment in infrastructure, achieving more equitable development through accelerated rural development, and strengthening public service delivery, particularly in health and education. The post-conflict strategy retained the main direction, and emphasized the urban and middle-income country agendas. Objectives of WBG Strategy 3. The WBG s CAS was prepared before the end of the war, in May 2008, and the CASPR in June 2011, two years after the end of the conflict. The WBG strategy was organized around three pillars: (i) expanding economic opportunities in lagging regions; (ii) improving the investment climate and competitiveness; and (iii) enhancing the quality of services and accountability. Pillar 1, on expanding opportunities, focused on supporting integrated rural development, and improving economic opportunities in the Sri Lankan North and East, the conflict affected areas. Pillar 2, on the investment climate and competitiveness, aimed at improving infrastructure provision, the business environment, and the strategic relevance and transparency of public spending. Pillar 3 supported improving quality, relevance and governance of education, improving health and social protection services, and strengthening environmental protection. Relevance of the WBG Strategy 4. The WBG strategy addressed key challenges facing Sri Lanka, particularly on growth and social services, as well as the end of the internal conflict in Sri Lanka in The strategy was

3 For Official Use Only 3 broadly aligned with the government s both Mahinda Chintana, but the approach to achieve the objectives differed in some cases. The WBG s response to changing circumstances and events, such as peace and the rains, was flexible on size and timing of key operations. At the CASPR stage which came rather late the WBG broadened the scope of involvement to urban development, social security, and growth. The CAS put in place a conflict filter to ensure that projects addressed the causes and consequences of the conflict, and gave a balanced perception of WBG reach towards both sides of the internal conflict. IEG notes that the AAA associated with the how-to guidance was delivered in FY The WBG s analytic and advisory activities (AAA) were not fully aligned with the government s priorities, thus hindering the WBG s dialogue with the government. The authorities perceived that the focus of the WBG agenda on IDA priorities social development and poverty reduction was not in line with the shift of Sri Lanka to middle-income status. The authorities also perceived that WBG did not design solutions tailored to the country s problems (e.g. agriculture). In environment, although the authorities judged that the AAA was relevant, its impact was muted because of divergent views on the content of the AAA. The timing of the CASPR compounded this predicament, because it was prepared towards the end of FY11 and, thus, not able to respond to the evolving government priorities on a timely basis. The original strategy also committed to deliver results in areas where the government had not articulated a precise agenda or where the government opted for other policy options (e.g. ecosystems conservation). 6. IFC interventions responded to some of the country conditions. Under the previous CAS, the main areas of involvement were electric power generation, commercial bank support, and agribusiness development advice. IFC expanded the scope of involvement at the time of the CASPR, also focusing on small-business capacity building in five Southern regions, including on how to establish better linkages across the country these five regions were not the conflict affected ones. IFC invested in and provided advice to companies in the information and communication technology sector. Risk Identification and Mitigation 7. The CAS indicated that the main risks to IDA s effectiveness were: (a) a significant escalation of the conflict; (b) a serious macroeconomic crisis; (c) fiduciary risks; and (d) reputational risks from being perceived as biased against one side in the inter-ethnic conflict. In the event, the first two risks did not materialize. IEG has no information on developments under the other two. Overview of CAS Implementation: Lending and Investments 8. IDA lending amounted to about US$1 billion over the CAS period with about a third going to exclusively to conflict afflicted areas and the remainder including other areas as well. Of fourteen projects active at the outset of the CAS in FY09, three focused on conflict affected areas, and this number increased to seven out of twenty projects active at the end of the CAS. Of the21 proposed lending activities six were dropped; at the same time, four Additional Financing operations were approved, covering road projects and recovery from infrastructural damage caused by the 2010 rains on conflictafflicted areas. 9. Ten IFC investment projects were in operation at inception of the review period, for US$220 million of net commitments. Of these, seven projects were in finance and insurance, and one health, one in telecommunications and another in tourism services. IFC undertook seven additional projects amounting to net commitments of US$173million. These covered finance and insurance, health care, electric power, and a private equity fund.

4 For Official Use Only While the outcome of IDA projects exiting the portfolio in the period was strong, portfolio performance weakened during the CAS period. Of three projects that exited during the period and evaluated by IEG, all were rated as moderately satisfactory or better, albeit with risks to the development outcomes on the high side. As for portfolio management, the proportion of commitments at risk increased throughout the CAS period and represented about 36 percent in FY12, higher than the average for the South Asia Region (16 percent) and IBRD/IDA (14 percent). The increase in portfolio risk may reflect the shift toward projects in the conflict affected area. 11. IFC s portfolio approved during the CAS period is relatively new, and there are no IEG evaluations for the new projects yet. IEG evaluations of pre-existing IFC operations gave them positive ratings, with the exception of one focused on housing finance and another one on telecommunications. The latter s unsatisfactory financial results were tempered by a positive assessment of social and environmental effects and private-sector development impact. Advisory and Analytical Activities and Services 12. IBRD-IDA delivered 29 pieces of analytical and advisory activities (AAA), of which twelve were planned. Seventeen planned AAA products were dropped. The areas covered by AAA included an Infrastructure Assessment, a report on Growth Potential in Lagging Regions, a Demographic Transition Study, as well education, health, disaster reduction and recovery, development partner coordination, tourism, gender, urban policy, transport, agricultural policy, and competitive skills. Although the changing AAA agenda partly reflected government preferences, AAA was not fully aligned with the transformation agenda of the government as mentioned above. 13. IFC approved five advisory projects on access to finance amounting to US$2.2 million. IEG rated two of these projects positively. Partnerships and Development Partner Cooperation 14. IDA cooperated well with other development partners and played a coordinating role during the CAS period. Key external partners were the Asian Development Bank (ADB), Japan and a host of UN agencies. Within WBG, cooperation was good between IDA and IFC. Safeguards and Fiduciary Issues 15. There were no significant safeguards issues or fiduciary complaints that IEG is aware of in the WBG portfolio. Overview of CAS Implementation: Pillar 1: Expanding Economic Opportunities 16. Under this pillar the WBG s support was to focus on (i) supporting integrated rural development; and (ii) improving economic opportunities in the North and East. 17. Supporting integrated rural development. The WBG s efforts concentrated on developing rural access to electricity, improving availability of drinking water, and improving irrigation systems. These were additional to an ongoing effort to address the risks of dams. As for electricity, the share of rural households having the electricity as a source of lighting increased from 78.5 percent in 2007 to 83.2 percent in In addition, the World Economic Forum (WEF) indicator on the quality of electricity supply improved from 4.6 over 7.0 in to 5.0 in Sri Lanka, with WBG support, increased the capacity to generate electricity from renewable sources from about 110 MW in 2008 to MW in November 2011, and supplied more households and entities with off-grid

5 For Official Use Only 5 electricity. In regard to drinking water, the percentage of households with access to water in rural areas increased from 71.0 percent in 2008 to 73.8 percent in As for improving irrigation, Sri Lanka has made slow progress in repairing its large and dated irrigation system, as step deemed essential to improve flood management and raise agricultural productivity. In addition, only two out of thirty two large dams are considered as not risky for the population as of the end of Heavy rains during 2010 slowed progress in irrigation and dams. 18. Sri Lanka received support from Japan and China in power, and ADB and Japan in water supply. Within the WBG, both IDA and IFC had interventions aimed at supporting this sub-objective. IDA had the Renewable Energy for Rural Economic Development Project (FY02), which closed in FY12, the Second Community Development and Livelihood Improvement Project (FY10), and the Dam Safety and Water Resources Planning (FY08). While the first one is reported as satisfactory, the second one has been restructured and is deemed to have unrealistic goals; the third one is behind schedule. Several projects planned in the water sector were not being delivered because of authorities different priorities for the sector. IFC established a risk-sharing facility with two commercial banks that together with advisory services supported small hydro and wind power projects (65.4 MW), and provided direct financing for wind power generation. 19. Improving economic opportunities in the North and East. Under this objective the WBG intended to support resettlement of those displaced by the conflict, housing and village rehabilitation and construction, and improving access to public services and infrastructure for the rural conflictaffected areas. As of end-october 2011 over 187 thousand refugees had returned to their homes, out of about 395 thousand displaced, as estimated by UNHCR in August Moreover, those resettled have come back to more employment opportunities, fueled in part by the reconstruction efforts and the rehabilitation of farming. With involvement of communities and final beneficiaries, Sri Lanka has reconstructed some 52 thousand homes and has rebuilt basic infrastructure in several hundreds of villages. Also, the share of rural population with access to basic infrastructure facilities in the North and East increased from 9 percent in 2008 to 15 percent in As with the previous one, both IDA and IFC provided support to Sri Lanka for this subobjective. IDA interventions included the Emergency Northern Recovery Project (ENRP, FY10), the Puttalam Housing Project (PHP, FY07), the Northeast Housing Reconstruction Project (NHRP, FY05) and its additional financing (FY09), and the Second North East Irrigated Agriculture Project (FY04), which was restructured in 2007 and renamed Community Livelihoods in Conflict Affected areas (locally known as the Re-awakening Project) and which received two additional financings (in 2009, to support resettlement and scale-up support for village development and irrigation, and in 2011, to provide emergency response to the rains and flooding in late-2010 and early-2011). Of these interventions, the PHP and the NHRP closed in FY12. IFC provided advisory services to help formulate strategies to finance SMEs in the conflict areas. 21. IEG rates the outcome of the WBG strategy in Pillar 1 as moderately satisfactory. Sri Lanka improved its rural electrification both in terms of coverage and the quality of the service provided, while increasing the capacity to generate electricity from renewable sources. The country s progress in providing potable water to rural areas was positive, albeit slower than in electricity. Sri Lanka also resettled about half of those displaced by the 30-year war, and rehabilitated homes as well as the village infrastructure of part of the affected areas. However, Sri Lanka s progress in improving irrigation was slow and negligible in dams. The WBG provided support for these achievements, with the exception of those in the water sector where the WBG s views differed from the country s own priorities.

6 For Official Use Only 6 Pillar 2: Improving the Investment Climate and Competitiveness 22. Under this pillar the WBG s support to Sri Lanka was to focus on improving (i) infrastructure provision; (ii) the business environment for stronger entrepreneurship and a knowledge-based economy; and (iii) the strategic relevance and transparency of public spending. 23. Improving infrastructure provision. The WBG s strategy in this objective focused on roads. The WEF indicator quality of overall infrastructure increased from 3.8 over 7.0 in to 4.7 in , while that for the quality of roads increased from 3.6 to 4.5 in the same period. Moreover, the International Road Roughness Index declined from 7.0 m/km in 2007 to 6.2 m/km in , and the average network vehicle operating cost estimated by the World Bank almost halved from 23.8 Rupees/km in 2005 to 14.6 Rupees/km in Sri Lanka also reduced the share of the road network in poor or bad condition from 52 percent in 2005 to 38 percent in The government appropriated additional resources to the Road Maintenance Fund in Main IDA interventions to support this objective were a loan for the Road Sector Assistance project (RSAP, FY06) and its two additional financings (FY09 and FY11), the Provincial Roads Project (PRP, FY10), and the Metro Colombo Urban Development project (MCUDP, FY12). There was only one piece of AAA delivered (in FY12). 25. Development partners supporting the roads sector worked through the Transport Forum, which was established by the three main development partners in the sector: ADB, Japan, and IDA. ADB took the lead in supporting the development of the Road Master Plan. Japan took the lead supporting the development of a competitive and competent road construction sector. IDA focused on strengthening the institutional framework for road maintenance through the establishment of the Road Maintenance Fund. IFC invested in a telecommunication company, and in a port. Its work to promote public-private partnerships (PPPs) in infrastructure development has yet to pay off because the government does not want WBG support in this area. China and ADB provided support on ports. 26. Improving the business environment for stronger entrepreneurship and a knowledgebased economy. The end of the conflict changed significantly the environment for business in Sri Lanka. The country s Global Competitiveness Index (WEF) rating increased from 4.0 over 7.0 in 2008 to 4.3 in The macroeconomic environment was the component that most improved (from 3.1 to 4.1), followed by infrastructure (from 3.6 to 4.1), and health and primary education (from 5.7 to 6.0). The WEF also reports that the share of the population using internet increased from 5.9 percent in 2008 to 12.0 in Tourism arrivals increased significantly following the end of the conflict 50 percent in 2010 alone, with 655,000 visits. 27. IDA supported Sri Lanka through the E-Lanka Development project (ELDP, FY05) and its additional financing (FY12), the Sustainable Tourism Development project (STDP, FY10), and the Small and Medium Enterprise Development facility (SMED, FY11). There were also three pieces of AAA. IFC is giving advice for the establishment of the Secured Collateral Registry, and provided performance-based grants for micro-loans in conflict (North and East) and non-conflict (South) regions. In addition, IFC provided advisory services on SMEs, including financing, and on tourism. 28. Improving the strategic relevance and transparency of public spending. The limited engagement of IDA in this area has not produced results yet. The WEF rating of wastefulness of government spending improved from 3.3 out of 7.0 in to 3.8 in Government effectiveness as measured by the World Governance Indicators, declined between 2008 and 2010, although the Open Budget Index shows some improvement in the transparency of the government 1 A measure of suspension movement of a vehicle going at 80 km/hour.

7 For Official Use Only 7 budget with its score increasing from 64 over 100 in 2008 to 67 in The public audit coverage extended from 50 percent of the public sector organizations in 2008 to 100 percent in May IDA provided financial support to Sri Lanka in this area through the Public Sector Capacity Building project (FY08), and an IDF Grant to support the Committees of Public Accounts and Public Enterprises (FY12). The Public Sector Capacity Building project (FY08) helped increase the coverage of public audit to all public sector organizations. IDA also delivered two pieces of AAA, both on procurement. 30. IEG rates the outcome of the WBG strategy in Pillar 2 as moderately unsatisfactory. Sri Lanka made progress in improving roads, as well as in strengthening the business environment, including by moving towards e-government. While budget transparency improved, the strategic relevance and efficiency did not improve as expected. WBG support was limited in roads, and ineffective in improving the strategic relevance and transparency of public spending. Moreover, the main factors behind the strengthening of the business environment and increased tourism were the end of the conflict and the stable macroeconomic environment, both of which were not addressed by the WBG strategy. IEG does not consider as satisfactory outcomes of the WBG strategy those outcomes that are achieved by the country without a contribution of the WBG. Pillar 3: Enhancing the quality of services and accountability 31. Under this pillar the WBG s strategy supported Sri Lanka s efforts at (i) improving the quality, relevance, and governance of education; (ii) improving health and social protection services; and (iii) strengthening environmental protection. 32. Improving the quality, relevance, and governance of education. Sri Lanka improved the quality of education somewhat; and launched institutional reform in higher education. School survival rates through grade 9 increased from 78 percent in 2005 to 91 percent in 2011, while the proportion of primary school students attaining competence in mathematics increased from 69 percent to 82 percent during the same period. At the tertiary level, the information technology achievement scores for undergraduates rose from 49 percent in 2008 to 56 percent at end-2010 the latest available information. Broader measures of education outcomes (WEF) show an increase in the rating of the quality of the education system from 4.1 over 7.0 in to 4.3 in , and in the rating of higher education and training from 4.0 to 4.2 in the same period. However, WEF indicators also show a decline in the rating of education in mathematics and science from 4.7 to 4.2 over the same period. Sri Lanka s general improvement in these education indicators reflects better governance for the sector. A school-based management approach was extended from 16 zones (17 percent) to all zones of the country during the CAS, with all zones adopting attendance committees and teacher training programs. 33. WBG provided support to Sri Lanka, working with provincial and local governments, through the Education Sector Development project (FY06, a SWAp) which closed in FY11, the Improving Relevance and Quality of Undergraduate Education project (FY03) which closed in FY10, and a Higher Education for the Twenty First Century project (FY10). This was complemented by two pieces of AAA. 34. Improving health and social protection services. Sri Lanka made progress in health as reflected in lower infant mortality, which declined from 15.1 per 1,000 births in 2008 to 14.2 in Similarly, DPT immunization for children ages months increased from 98 percent in 2008 to 99 percent in Broader measures on health and primary education from WEF show a significant improvement from a rating 5.7 in to 6.0 in Improvements in health partly reflect a greater focus on performance and results in the health system; all health districts are now reporting regularly on performance compared with less than 30 percent in Despite this progress, the finances of the social protection system remain to be strengthened.

8 For Official Use Only IDA s contribution to Sri Lanka came through the Health Sector Development project (FY04, a sector wide approach, SWAp) which closed in FY11. This was complemented by three pieces of AAA and an IDF grant to support the targeting of social assistance.). IFC invested in a hospital in Colombo during the CAS. 36. Strengthening environmental protection. There is little information available on progress in environmental protection in Sri Lanka, and the few data available show a mixed picture. The higher production of renewable energy mentioned above couples with a slight increase in the production of charcoal and bagasse from thousand tons in 2008 to thousand in The forest area declined from 29.9 percent of the country s land in 2005 to 29.0 percent in 2010, a small amount considering the conflict. The CASCR acknowledges that there was no progress on the preservation of the biodiversity of the country, and that the regulatory framework for environmental management in the power sector backed by IDA is yet to be implemented. 37. IDA s contribution came through the Renewable Energy for Rural Economic Development project (REREDP, FY02) which closed in FY12. This was complemented by AAA on Environmental Issues in the Power Sector Consequences of Coal Based Generation (FY10). A project on ecosystems conservation was cancelled because the government and IDA could not agree on the terms. IFC trained small-and-medium hotel operators energy-efficient practices that allowed them to obtain the OS Green Building Council s Certification. There is no data on how many operators earned the certification. 38. IEG rates the outcome of the WBG strategy in Pillar 3 as moderately satisfactory. Sri Lanka made progress in education and health, including in the administration of the systems. The few available indicators on environmental protection show a mixed picture. Challenges remain in the finances of the social protection system, the regulatory framework for environmental management in the power sector, and the conservation of ecosystems. Objectives Pillar 1: Expanding Economic Opportunities in Lagging Regions Pillar 2: Improving the Investment Climate and Competitiveness Pillar 3: Enhancing Quality Services and Accountability IEG Rating Moderately Satisfactory Moderately Unsatisfactory Moderately Satisfactory 4. Overall IEG Assessment Outcome: IBRD-IDA Performance: IFC Performance: Moderately Satisfactory Moderately Satisfactory Moderately Satisfactory 39. IEG rates the overall outcome of the WBG strategy in Sri Lanka as moderately satisfactory. Sri Lanka resettled about half of those displaced by the 30-year war, and rehabilitated homes as well as the village infrastructure of part of the affected areas. The country also improved its rural electrification both in terms of coverage and the quality of the service provided, while increasing the capacity to generate electricity from renewable sources. The country s progress in providing potable water to rural areas was positive, albeit slower than in electricity. Sri Lanka made progress in improving infrastructure provision, as well as in strengthening the business environment, including by moving towards e-government. Sri Lanka also made progress in education and health, including in the administration of the systems. However, the few available indicators on environmental protection show

9 For Official Use Only 9 a mixed picture, and progress in improving irrigation was slow and negligible in dams. While budget transparency improved, the strategic relevance and efficiency of public spending did not improve as expected. The WBG provided support for many of these achievements. Nevertheless, the main factors behind the strengthening of the business environment were the end of the conflict and the stable macroeconomic environment, both of which were not addressed by the WBG strategy. IEG does not consider as outcomes of the WBG strategy those outcomes that are achieved by the country without a contribution of the WBG. The WBG s dialogue with Sri Lanka in the water sector and the conservation of ecosystems was ineffective. Challenges remain in the finances of the social protection system, the regulatory framework for environmental management in the power sector, and the conservation of ecosystems. IDA Performance: 40. IEG rates IDA performance as moderately satisfactory. IDA reacted quickly to support Sri Lanka at the end of the 30 year war and in facing the 2010 floods. The WBG s strategy was aligned with Sri Lanka s development strategy at a very broad level, but differed on many aspects, particularly on the water sector and the environment. The WBG s AAA was not fully aligned with the government s priorities, thus hindering the WBG s dialogue with the government. The authorities perceived that the focus of the WBG agenda on IDA priorities social development and poverty reduction was becoming misaligned with the reality of Sri Lanka growing to middle-income status. According to the CASCR, the authorities also perceived that IDA did not design solutions tailored to the country s circumstances. The CASPR was prepared towards the end of the CAS period (FY11), yet it did not reflect the evolving government priorities on a timely basis. The original CAS also committed to deliver results in areas where the government had not articulated a precise agenda or where the government opted for other policy options (e.g. ecosystems conservation). Coordination was good with other development partners, especially in the transport sector. Within the WBG, the strategy was wellcoordinated between IBRD-IDA and IFC, who complemented each other well for good results, especially in including the private sector in Sri Lanka s broader development agenda. The results framework included indicators that were not available and, accordingly, were not monitored or updated at the time of the CASPR. IFC Performance: 41. IEG rates performance of IFC as moderately satisfactory. IFC s relevance was weak. IFC s strategy was relevant for the third pillar, but lacked focus on the post-conflict recuperation of the North and East regions as envisaged under the first pillar or the developments foreseen for the second pillar. Recovery of the post-conflict regions would call for a more pro-active stance by IFC. 5. Assessment of CAS Completion Report 42. This is a well-written and candid CASCR. It is detailed and comprehensive on the activities undertaken by the WBG but short in terms of outcomes. The CASCR could have covered better some of the country outcomes that correspond to the strategy objectives. It could also have been more direct and dealt more in-depth with the areas of the program that did not go well, to find out the reasons and draw lessons, particularly regarding the disagreements in the water sectors and the environment. The lessons drawn by the CASCR were pertinent.

10 For Official Use Only Findings and Lessons 43. IEG concurs with the lessons drawn by the CASCR, especially with the need for flexibility in a fast-changing environment. In addition, the main lesson that IEG sees stemming from this review is that committing to deliver results in areas where the government has articulated a different agenda risks opting for policy advice and approaches that the government will eventually discard. In this vein, a close dialogue on the development and implementation of the strategy, including the AAA, would bolster the effectiveness of the WBG s dialogue with the authorities. In addition, the CASPR is the instrument to adjust the strategy to changing circumstances and priorities. Timely use of this instrument enhances the relevance of the WBG s support. Furthermore, deficient monitoring of the strategy hinders its effectiveness by frustrating the M&E that is necessary to adjust the strategy to its observed effectiveness, as well as the evolving priorities and country circumstances.

11 11 Annex Table 1a. Planned and Actual Lending, FY09-12 Annex Table 1b. Trust Funds, FY09-12 Annex Table 2. Planned and Actual Analytical and Advisory Work, FY09-12 Annex Table 3a. IEG Project Ratings for Sri Lanka, FY09-FY12 Annex Table 3b. IEG Project Ratings for Sri Lanka and Comparators, FY09-12 Annex Table 4. Portfolio Status for Sri Lanka and Comparators, FY09-12 Annex Table 5. IBRD/IDA Net Disbursements and Charges Summary Report for Sri Lanka (in US$ million) Annex Table 6. Total Net Disbursements of Official Development Assistance and Official Aid, (in US$ million) Annex Table 7. Economic and Social Indicators for Sri Lanka and Comparators, Annex Table 8. Sri Lanka: Millennium Development Goals Annex Table 9. List of IFC's Investments in Sri Lanka That Were Active During FY09-12 Annex Table 10. List of IFC's Advisory Operations in Sri Lanka, FY09-12 Annex Table 11. Summary of Achievements of the CAS Objectives

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13 13 Annex Table 1a. Planned and Actual Lending, FY09-12 Project Proposed Approval Proposed Approved Project ID FY FY Amount Amount P Public Sector Capacity Building Project P Additional Financing of Health Sector Development P Road Sector Assistance Project : Additional Credit P Additional Financing Community Livelihoods in Conflict Affected Areas Project P Emergency Northern Recovery Project P Sustainable Tourism Development Project P Higher Education for the Twenty First Century Project P North East Local Services Improvement Project (NELSIP) P Provincial Roads Project P Second Community Development and Livelihood Improvement Project Second Additional Financing for the Community Livelihoods in Conflict Affected P Areas Project P Small and Medium Enterprise Development Facility P Road Sector Assistance Project - Second Additional Financing P Metro Colombo Urban Development Project P Transforming the School Ed System as the Foundation of a Knowledge Hub Health Sector Development Project 2012 slipped to P Agric Research and Productivity Improvement 2011 Dropped Irrigation Maintenance and Water 2011 Dropped 50.0 Community Water and Poverty Alleviation in Plantation Districts Project 2011 Dropped 40.0 Provincial Water Supply 2012 Dropped Water Supply in the Northern Easter and Sabaragamuwa Province Dropped 75.0 Environmental Resource Management 2010 Dropped 20.0 Total Programmed projects CAS FY (*) 1,022.1 Non-programmed projects P SL: E-Sri Lanka Development Project Additional Financing Total non-programmed projects 11 Total projects CAS FY ,033.1 ONGOING PROJECTS Project Approval Closed Approved Project ID FY FY Amount P Renewable Energy for Rural Economic Development P Improving Relevance and Quality of Undergraduate Education P Second Community Water Supply and Sanitation Project P Health Sector Development P Community Livelihoods in Conflict Affected Areas Project ( Yali Pibedemu Viyapruthiya) (Maru Eluchchithittum) 2004 Active 64.7 P Community Development and Livelihood Improvement "Gemi Diriya" Project P North East Housing Reconstruction Program P E-Lanka Development 2005 Active 53.0 P Tsunami ERL P SL- Road Sector Assistance Project 2006 Active P Education Sector Development Project P Puttalam Housing Project P Dam Safety and Water Resources Planning (DSWRPP) 2008 Active 65.3 P Second North East Housing Reconstruction Program Total Ongoing Projects Source: Sri Lanka FY CAS/CASPR and WB Business Warehouse Tables 2a.1, 2a.4 and 2a.7 as of 01/26/2012. *Total planned was US$900 million, but not all of it was identified at CAS stage.

14 14 Annex Table 1b. Trust Funds, FY09-12 Project ID Project TF ID Approval FY Closing FY Approved Amount P Renewable Energy for Rural Economic Development TF Norway 5th Dimension- Sri Lanka TF Active 2.90 P E-Lanka Development TF P Sri Lanka Tsunami ERL TF P Sri Lanka: North East Housing Reconstruction Program TF P Community Peace Councils/Deshodaya Fora for Sri Lanka TF P P Second Community Development and Livelihood Improvement Project Sri Lanka: Avian and Human Influenza Control and Preparedness TF TF P Poverty and Conflict Program TF P P P Enabling Civil Society to Influence the Process of Negotiations in Sri Lanka The FCE Human Security Program: Providing early warning and implementing rapid response by collecting info on local level conflicts Effective, Safe and Sustainable Humanitarian Assistance and Dvt Cooperation of Agencies in SL: Mainstreaming Conflict Sensitivity TF TF TF P IDF Grant for COPE/COPA TF P Improving Monitoring and Evaluation of Samurdhi Safety Net Program TF Active 0.45 P ICT Regulatory Capacity Building TF Active 0.47 P Study of Politics of State Reform TF P Strengthening Parliamentary Oversight Committees TF P TA for Regulatory Agencies (IDF Grant for telecom sector) TF P IDF to improve targeting and administration of Samurdhui TF Active 0.29 P Local Level Nutrition Interventions for the Northern Province - RE TF Active 2.73 P Emergency Northern Recovery Project TF P North and East Pilot WASH for Post-Conflict Resettlements (NEP WASH) TF Active 2.01 Total FY Source: Sri Lanka FY09-12 CAS/CASPR and WB Business Warehouse Tables 2a.1, 2a.4 and 2a.7 as of 03/07/2012

15 15 Annex Table 2. Planned and Actual Analytical and Advisory Work, FY09-12 Planned (CAS FY09-12) Project ID ECONOMIC AND SECTOR WORK Proposed FY Delivered to Client FY Output Type Cost of No Reform P Policy Note Growth Potential in Lagging Regions P Report Country Environmental Analysis (A Review of the Sri Lanka Environmental Assessment System) P Policy Note Infrastructure Assessment P Active Report Coal Power Assessment (renamed: Environmental issues in the power sector-consequences of coal based gen) P Report Health Service Delivery Strategy (renamed Health Services Delivery in Sri Lanka: Retooling for the 21st Century ) P Report Public Financial Management Assessment 2010 Dropped Growth, Outsourcing and Jobs 2010 Dropped Pre-feasibility assessment of the conditions of degradation of the Sigiriya Frescoes in Sri Lanka P How-To" Guidance Excellence in General Education P Report Sri Lanka Development Partners Coordination P Advisory Services Document 2020 Raising the Game: Middle Income Age P Active Report Post FSAP, Crisis Management, Financial Safety Net & Lender of Last Resort P Report Support for Post-Crisis PPP framework development in Sri Lanka P Active Advisory Services Document Sri Lanka - Competitive Skills for a Middle Income Country (MIC) P Active Policy Note Strategic Development Framework Eastern Province 2012 Dropped Private Health Sector Assessment P Active Report Demographic Transition Study P Active Report Post Disaster Needs Assessment 2012 Dropped Disaster Reduction and Recovery in Sri Lanka P Active Non-planned Advisory Services Document Towers of Learning: the Sri Lanka Higher Education Report P Report Nature Based Tourism and the Human Elephant Conflict in Sri Lanka P Policy Note Lagging Regions Phase 2 P Report Valuation of Environmental Services in Sri Lanka: A case study of agriculture and watershed benefits in the Southern Province P Policy Note Sri Lanka: Benchmarking of Procurement Systems P Report Agricultural Policy Options P Policy Note Gender Analysis of Sri Lanka P Report Sri Lanka Urban Policy Note P Policy Note Sri Lanka Public Procurement Review P Report

16 16 Project ID Proposed FY Delivered to Client FY Output Type LK: Investment Climate Assess PN P Policy Note LK: Financial Sector Policy Note P Policy Note Promoting Broad Based Agriculture Growth in Sri Lanka - Policy and Investment Priorities P Active Policy Note Sri Lanka - Policy Note on Transport P Active Policy Note SL: Fiscal Policy Note P Active Policy Note LK: Use of Country Financial Management Systems P Active Policy Note FIRST Sri Lanka: Risk Sensitive Capital Rule for Insurance Supervision P Active Advisory Services Document Assessment of Secondary Cities of Sri Lanka: The Eastern and the Northern Advisory Services P Active Provinces Document Sri Lanka: Amendment to SEC Act # P Active Advisory Services Document TECHNICAL ASSISTANCE Planned (CAS FY09-12) Female Migration P Dropped Knowledge-Sharing Forum Social Protection P "How-To" Guidance Government Debt Management P "How-To" Guidance Implementing the Sri Lanka Conflict Filter P "How-To" Guidance Strengthening Samurdhi Targeting Systems P Active "How-To" Guidance Non-planned Sri Lanka - Knowledge Economy Report P "How-to" Guidance Sri Lanka Housing Finance for the Poor P Institutional Development Plan Poverty Impact of Crisis (including TA for Poverty Mapping and HIES); formerly poverty analysis, monitoring & evaluation P "How-to" Guidance Sri Lanka PDNA P "How-to" Guidance FIRST: Sri Lanka Accounting and Payment System P "How-to" Guidance Inclusive Financial Services for North and East P "How-to" Guidance Sri Lanka: Decentralization and Sub-national Capacity Building P Active "How-to" Guidance Source: Sri Lanka CAS/CASPR and WB Business Warehouse Table ESW/TA as of 01/27/2012.

17 17 Annex Table 3a: IEG Project Ratings for Sri Lanka, FY09-FY12 Total Exit Proj ID Project Name Evaluated IEG Outcome FY (US$M) IEG Risk to Development Outcome* 2009 P Sri Lanka Tsunami ERL 69.2 Moderately Satisfactory Significant 2010 P Relevance and Quality of Undergrad. Educ 29.6 Moderately Satisfactory Moderate 2010 P LK: Community Dev & Livelihood "Gemi 33.3 Highly Satisfactory High Source: WB Business Warehouse Table 4a.6 as of as of 02/24/2012. * With IEG new methodology for evaluating projects, institutional development impact and sustainability are no longer rated separately. Annex Table 3b. IEG Project Ratings for Sri Lanka and Comparators, FY09-12 Region Total Evaluated ($M) Total Evaluated (No) Outcome % Sat ($) Outcome % Sat (No) RDO % Moderate or Lower Sat ($) RDO % Moderate or Lower Sat (No) Sri Lanka Bangladesh Nepal Vietnam SAR 2, World 16, Source: WB Business Warehouse Table 4a.5 as of as of 02/24/2012. * With IEG new methodology for evaluating projects, institutional development impact and sustainability are no longer rated separately.

18 18 Annex Table 4. Portfolio Status for Sri Lanka and Comparators, FY09-12 Fiscal Year Sri Lanka # Proj # Proj At Risk % At Risk Net Comm Amt 954 1,188 1,229 1,068 Comm At Risk % Commit at Risk Bangladesh # Proj # Proj At Risk % At Risk Net Comm Amt 2,767 3,562 4,975 5,580 Comm At Risk % Commit at Risk Nepal # Proj # Proj At Risk % At Risk Net Comm Amt Comm At Risk % Commit at Risk Vietnam # Proj # Proj At Risk % At Risk Net Comm Amt 5,428 6,308 7,704 7,831 Comm At Risk % Commit at Risk SAR # Proj # Proj At Risk % At Risk Net Comm Amt 24,031 31,679 37,540 36,075 Comm At Risk 3,120 4,807 5,128 5,841 % Commit at Risk World # Proj 1,408 1,449 1,454 1,385 # Proj At Risk % At Risk Net Comm Amt 128, , , ,632 Comm At Risk 19,539 27,684 22,573 22,069 % Commit at Risk Source: WB Business Warehouse Table 3a.4 as of 02/24/2012.

19 19 Annex Table 5. IBRD/IDA Net Disbursements and Charges Summary Report for Sri Lanka (in US$ million) FY Disb. Amt. Repay Amt. Net Amt. Charges Fees Net Transfer Total (09-12) Source: WB Loan Kiosk, Net Disbursement and Charges Report as of 02/06/2012 Annex Table 6. Total Net Disbursements of Official Development Assistance and Official Aid, (in US$ million) Development Partners Bilaterals Canada Denmark France Germany Japan Korea Netherlands Norway Spain Sweden United Kingdom United States DAC Countries, Total Kuwait Non-DAC Countries, Total Multilaterals AsDB Special Funds GAVI IDA IFAD IMF (Concessional Trust Funds) Nordic Dev.Fund OFID UNDP WFP Multilateral, Total All Development Partners Total Source: OECD DAC Online database, Table 2a. Destination of Official Development Assistance and Official Aid - Disbursements, as of 02/06/2012.

20 20 Annex Table 7. Economic and Social Indicators for Sri Lanka and Comparators, South Sri Lanka Sri Lanka Bangladesh Nepal Vietnam Series Name Asia World Average Growth and Inflation GDP growth (annual %) GDP per capita growth (annual %) GNI per capita, PPP (current international $) GNI, Atlas method (billions current US$) Inflation, consumer prices (annual %) Composition of GDP (%) Agriculture, value added (% of GDP) Industry, value added (% of GDP) Services, etc., value added (% of GDP) Gross fixed capital formation (% of GDP) Gross domestic savings (% of GDP) External Accounts Exports of goods and services (% of GDP) Imports of goods and services (% of GDP) Current account balance (% of GDP) External debt, total (% of GNI) Total debt service (% of GNI) Total reserves in months of imports Fiscal Accounts /1 Revenue and Grants (% of GDP) Total Expenditure (and net lending, % of GDP) Overall Balance (% of GDP) Public Sector Gross Debt (% of GDP) Social Indicators Health Life expectancy at birth, total (years) Immunization, DPT (% of children ages months) Improved sanitation facilities (% of population with access) Improved water source (% of population with access) Mortality rate, infant (per 1,000 live births)