20211104 PVR Loans 3675 and 3866 UZB Economic Management ...

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Validation Report November 2021

Uzbekistan: Economic Management Improvement Program, Subprograms 1 and 2

Reference Number: PVR-818 Program Numbers: 51350-001 and 51350-003 Loan Numbers: 3675 and 3866


ABBREVIATIONS

ADB – Asian Development Bank GDP – gross domestic product IMF – International Monetary Fund JSC – joint-stock company MOF – Ministry of Finance MTBF PCR

– –

medium-term budget framework program completion report

PFM – public financial management PPP – public–private partnership PSD – private sector development PSO – private sector operation RRP – report and recommendation of the President SCS – State Committee on Statistics SOE TA

– –

state-owned enterprise technical assistance

NOTE

In this report, “$” refers to United States dollars.

OIC-Director General Director Team Leader

Sona Shrestha, Independent Evaluation Department (IED) Joanne Asquith, Thematic and Country Division (IETC) Houqi Hong, Senior Evaluation Specialist, IETC

The guidelines formally adopted by the Independent Evaluation Department (IED) on avoiding conflict of interest in its independent evaluations were observed in the preparation of this report. To the knowledge of IED management, there were no conflicts of interest of the persons preparing, reviewing, or approving this report. The final ratings are the ratings of IED and may or may not coincide with those originally proposed by the consultants engaged for this report. In preparing any evaluation report, or by making any designation of or reference to a particular territory or geographic area in this document, IED does not intend to make any judgments as to the legal or other status of any territory or area.


PROGRAM BASIC DATA Program number 51350-001 and

51350-003 PCR circulation date 23 Jun 2021

Loan and grant numbers

3675 and 3866 PCR validation date Oct 2021

Program name Economic Management Improvement Program, Subprograms 1 and 2 Sector and subsector

Public sector management

Public expenditure and fiscal management Reforms of state-owned enterprises

Strategic agenda Inclusive economic growth Safeguard categories

Environment C Involuntary resettlement C Indigenous peoples C

Country Uzbekistan Approved ($ million)

Actual ($ million)

ADB financing ($ million)

ADF: 0.00

Total program costs 3675 3866

300.00 300.00

300.00 300.00

OCR: 600.00

Loan 3675 3866

300.00 300.00

300.00 300.00

Borrower 0.00 0.00 Beneficiaries 0.00 0.00 Others 0.00 0.00

Cofinanciers 3675

World Bank Agence Francaise de Developpement

Total cofinancing WB – 500.00 AFD – 170.57 a

670.57

670.57

3866 Agence Francaise de Developpement

AFD 55.51a 55.51

Approval date 3675 3866

26 Jun 2018 27 Nov 2019

Effectiveness date 3675 3866

25 Sep 2018 10 Feb 2020

16 Aug 2018 27 Dec 2019

Signing date 3675 3866

27 Jul 2018 12 Dec 2019

Closing date 3675 3866

Financial closing date 3675 3866

31 Dec 2018 31 Dec 2019

‒ ‒

31 Dec 2018 31 Dec 2019

31 Dec 2018 31 Dec 2019

Program officer

H. Mukhopadyay C. Akin

Location ADB HQ ADB HQ

From 16 Aug 2018

(SP1 effectivity)

27 Dec 2019 (SP2 effectivity)

To 31 Dec 2018

(SP1 financial closing)

31 Dec 2019 (SP2 financial

closing) IED review Director Team leader

J. Asquith, IETC H. Hong, Senior Evaluation Specialist, IETC b

ADB = Asian Development Bank, ADF = Asian Development Fund, HQ = headquarters, IED = Independent Evaluation Department, IETC = Thematic and Country Division, OCR = ordinary capital resources, PCR = program completion report, SP1 = subprogram 1, SP2 = subprogram 2. a US dollar equivalent of AFD’s collaborative cofinancing contribution. Original contribution was €150. b Team members: B. Prakash (quality reviewer), A. Morales (Senior Evaluation Officer), B. Hitchcock (consultant).

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I. PROGRAM DESCRIPTION A. Rationale 1. Uzbekistan is a landlocked country in Central Asia. Its economy has a large public sector with most sectors controlled by state-owned enterprises (SOE). The economy performed very strongly from 2010 to 2016 with average gross domestic product (GDP) growth of over 7%. However, falling commodity prices for its key exports and lower remittances, notably from the Russian Federation, began to impact on economic growth. Following a change in leadership, Uzbekistan adopted a new national development plan in 2017 and committed to transforming the economy to a more open and diversified structure and improving resilience to macroeconomic shocks. 1 A major initial reform was the liberalization of the exchange rate. Key constraints identified were inefficient macroeconomic and fiscal management; poorly performing SOEs, which lacked modern corporate governance and were crowding out the private sector and failing to deliver quality services; a banking sector dominated by heavily regulated state-owned and/or controlled banks, which did not effectively perform financial intermediation; the absence of a functional public–private partnership (PPP) framework; and weaknesses in economic and financial data collection and dissemination.

2. Working with its development partners, the government initiated a wide-ranging set of economic reforms to create a more efficient public sector and support banking reforms. This would in turn create more favorable conditions for private sector development (PSD), support sustainable economic growth, and enhance macroeconomic management. ADB supported this process through the Economic Management Improvement Program.2 The program focused on improving macroeconomic data collection, analysis, and dissemination systems; strengthening fiscal and financial management; reforms to SOE governance; and support for an expanded role for the private sector operation (PSO) notably through divestment of SOE assets and PPPs.

3. The 2018 report and recommendation of the President (RRP) justified the programmatic approach to undertake what was a complex and broad set of reforms by emphasizing the strong government commitment and adequate support from all stakeholders, both of which were seen as prerequisites for a successful policy-based reform program. B. Expected Impacts, Outcomes, and Outputs 4. The program was expected to help facilitate macroeconomic stability and sustainable high growth. The planned outcome was improved environment conducive to private investment. The program outputs were improved macroeconomic data collection, analysis, and dissemination systems; strengthened fiscal and financial management; and improved SOE governance and PSOs. The program supported key elements of the government’s reform agenda, notably (i) increasing budget transparency and efficiency, (ii) improving SOE performance and reducing their reliance on the government budget, (iii) promoting the role of markets in allocating resources, and (iv) strengthening banking sector performance and supervision.

1 Government of Uzbekistan. 2017. Presidential Decree No. 4947: The Strategy of Actions on Further Development

of Uzbekistan. Tashkent. 2 ADB. 2018. Report and Recommendation of the President to the Board of Directors: Proposed Programmatic

Approach, Policy-Based Loan for Subprogram 1, and Technical Assistance Grant to the Republic of Uzbekistan for the Economic Management Improvement Program. Manila; and ADB. 2019. Report and Recommendation of the President to the Board of Directors: Proposed Policy-Based Loan for Subprogram 2 to the Republic of Uzbekistan for the Economic Management Improvement Program. Manila.

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C. Provision of Inputs 5. Subprogram 1 was approved by ADB’s Board of Directors on 26 June 2018, declared effective on 16 August 2018 (ahead of the target date of 25 September 2018) and was closed on 31 December 2018. Subprogram 2 was approved on 27 November 2019, declared effective on 27 December 2019 (ahead of the target date of 10 February 2020), and was closed on 31 December 2019, which was the original target date. 6. The total program cost was $600 million, divided equally between the subprograms. ADB’s financing was disbursed as a single tranche of $300 million for each subprogram. There were no deviations from the planned costs and ADB’s financing. ADB’s financing was provided from ordinary capital resources. Each loan has a 15-year term, including a grace period of 3 years, an annual interest rate determined in accordance with ADB’s London interbank offered rate‒based lending facility, and a commitment charge of 0.15% per year. 7. Consulting services were provided to support the implementation of the program through an attached technical assistance (TA) grant. The total cost of the TA was $1,300,000, of which $1,000,000 was financed on a grant basis by ADB’s Technical Assistance Special Fund (TASF-other sources). The TA included a planned total of 65 person-months of consultancy services (international and national). According to the RRP for Subprogram 2, resources would be added to the existing TA to extend its implementation until the end of 2022 to strengthen relevant agencies’ legal, institutional, and human resource capacities. The program completion report (PCR) noted that a minor change in scope,3 an increase of $300,000 in TA amount and an extension of TA completion date, were subsequently approved on 4 February 2020. An additional minor change in scope and implementation arrangements and an increase of $300,000 in TA amount were approved on 14 August 2020 to support key areas on medium-term budget framework (MTBF), banking reform and debt management. On the same date, the TA was converted into a TA facility, with its closing date being set at 31 December 2022. 8. The program was classified as category C for ADB’s environmental, resettlement, and indigenous peoples’ safeguards policies. The program was originally classified as having no gender elements. However, the RRP for Subprogram 2 classified the program as having some gender elements such that, under subprogram 2, the Ministry of Finance (MOF) adopted a gender-responsive MTBF manual, and the MOF’s capacity to implement gender-responsive budgeting and gender-sensitivity assessment of public expenditures was strengthened through the TA. In addition, the State Committee on Statistics (SCS) planned to collect and update sex-disaggregated statistical data more regularly. The PPP project in health service delivery and private sector promotion was also expected to contribute indirectly to gender empowerment. D. Implementation Arrangements 9. MOF was the executing agency of the program. The implementing agencies were the Central Bank of Uzbekistan (CBU), SCS, the State Committee for Assistance to Privatized Enterprises and Development of Competition, the joint-stock company (JSC) JSC Uzbekenergo, the Ministry of Economy, and MOF for subprogram 1; and the Central Bank of Uzbekistan, the Ministry of Energy, MOF, the State Asset Management Agency, SCS, and the Public–Private Partnership Development Agency for subprogram 2. MOF supervised and coordinated the program among the implementing agencies. There were no significant changes in the

3 ADB. 2021. Completion Report. Economic Management Improvement Program for Subprograms 1 and 2 in

Uzbekistan. Manila.

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implementation arrangements. The government’s formal donor coordination mechanism was utilized to maintain close dialogue with development partners and International Monetary Fund (IMF) missions, with ADB’s Uzbekistan Resident Mission being an active participant. This validation assesses that the implementation arrangements were satisfactory, with the MOF guiding the participation of the range of government agencies and the development partners working well together to support the broad-ranging reform package. 10. The PCR assessed that the TA attached to the program contributed strongly to the program’s implementation. This validation assesses that the TA played an important role in assisting the government in undertaking the planned reforms. The TA supported the preparation of MTBF; development and implementation of PPP projects; strengthening of internal audit departments; introduction of risk-based supervision, capital adequacy assessments, and stress testing; adoption of gender sensitivity analysis; and training of staff. It also contributed to the strengthening of fiscal and financial management and improvement of SOE governance. ADB actively managed this TA and used it as a primary mechanism to help implement the reform agenda and carry ADB’s support forward to the next phase of the reform effort. 11. The two subprograms have a total of 14 loan covenants. The PCR reported that the government complied with all these covenants, including the monitoring, and reporting requirements. The 2018 RRP reported that a governance risk assessment was conducted as part of due diligence and was complemented by a review of areas of possible risk and vulnerability in state financial management. The assessment noted several risks that could affect the proposed programmatic approach, relating notably to the level of political support for and the government’s ownership of reforms, especially sensitive reforms, and weak capacity in relevant institutions, including a lack of trained staff. The financial assessment identified as areas of concern the (i) lack of integration of capital and current budgets through proper planning, (ii) lack of alignment between sector goals and resource allocation, and (iii) fund-flow arrangements between MOF and off-budget funds for carrying out development programs. An additional risk identified was that adequate and financially viable PPP projects might not be identified and developed. The planned mitigating measures focused on capacity development under the TA and policy changes to be implemented by the program.

II. EVALUATION OF PERFORMANCE AND RATINGS A. Relevance of Design and Formulation 12. The PCR rated the program relevant. It assessed that the program was closely aligned with the government’s newly re-oriented development objectives; ADB’s country partnership strategy, 2019–2023;4 and the country operations business plan for Uzbekistan, 2018–2020.5 The program was also aligned with ADB’s Strategy 2020 and Strategy 2030 as it supported the drivers of good governance and PSD.6 The PCR argued that the choice of a programmatic approach and policy-based lending was appropriate given the: dynamic policy environment; need for long-term support to affect changes in legal, institutional, and human resource structures; and platform it provided to coordinate the inputs of development partners, particularly TA. The structuring of the program over two subprograms facilitated the sequencing of reforms and their planning and execution.

4 ADB. 2019. Country Partnership Strategy: Uzbekistan, 2019–2023─Supporting Economic Transformation. Manila. 5 ADB. 2017. Country Operations Business Plan: Uzbekistan, 2018–2020. Manila. 6 ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 2008–2020.

Manila; and ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient, and Sustainable Asia and the Pacific. Manila.

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13. This validation considers that the wide-ranging policy reforms undertaken by the program were important first steps for a sustained reform effort. Fully operationalizing the MTBF will take several years and achieving the planned gains in budget efficiency some more time. The identification and sale of non-core assets of SOEs and the adoption of international corporate governance standards were an appropriate entry point for SOE reform. The choice of focus on unbundling the energy sector using a well-tested approach was also appropriate given ADB’s expertise in the sector. The combination of policy reform and promotion of uncomplex PPPs also proved to be a successful approach. To further advance the SOE reform, the government will need to articulate more fully the respective roles of SOEs and the private sector in the delivery of infrastructure services and other productive sectors of the economy. The government will also need to clarify the planned role for the private sector in the financial sector. The structure and modality of the program was well-suited to the need to plan and then implement the set of agreed reforms. The inclusion of the attached TA, which delivered key technical and policy support to a significant number of the reform areas, strongly contributed to the successful implementation of the program. The RRPs were notable for clearly describing the support of other development partners to the government’s reform agenda. 14. The 2019 RRP documented a considerable number of revisions to the subprogram 1 policy matrix for subprogram 2, generally reflecting faster-than-anticipated progress across the reform agenda under subprogram 1 and resulting in a more robust set of policy reforms for subprogram 2. These included compliance with the requirements of the IMF enhanced general data dissemination system (e-GDDS); policy decision to expedite the full transition to the International Public Sector Accounting Standards; publication of a draft public procurement law for public consultation; and new tariff methodology, which enabled full recovery of operational and capital costs and ensured the necessary net profit for the power sector to be financially sustainable. Only two policy actions, which were related to MTBF implementation and SOE divestment, achieved less-than-expected progress. This extensive updating of the reform agenda supports the appropriateness of using two subprograms in the design and underlines that policy reform requires a process. 15. The indicators included in the DMF to measure performance and progress were generally satisfactory. For subprogram 1, the outcome level indicator of increased bank credit to the private sector was closely aligned with the planned program outcome of an improved environment conducive to private investment. The second outcome indicator was the ratio of operating revenue to operating cost of JSC Uzbekenergo. This was intended to measure improved financial performance of the energy sector SOE in response to tariff increases. For subprogram 2, the outcome indicators were revised to reflect the changes in the reform agenda outlined above. The indicator for credit to the private sector was revised to focus on credit to small business. The indicator on JSC Uzbekenergo was replaced by an indicator requiring that policy lending to SOEs remained below 3% of GDP. All the outcome indicators had plausible cause-effect linkages to the program reforms. Output indicators were generally the accomplishment of reforms in the policy matrix against a baseline of no reform and/or action before the program.

16. The validation assesses the program relevant, given its strong alignment with the government’s reform agenda and ADB strategies, appropriate choice of modality, well-designed DMF, supported reforms closely aligned with ADB’s comparative advantage (notably energy sector, PPPs, and SOE reform), and effective coordination with other development partners.

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B. Effectiveness in Achieving Program Outcomes and Outputs 17. The PCR rated the program highly effective. It noted that the program fully achieved all target outcome indicators in the DMF. Credit extended to small businesses in 2020 increased over 147% as compared to 2017 baseline data, significantly exceeding the target increase of 50%. Policy lending to SOEs was at 1.4% of GDP in 2020, remaining below 3% of GDP as targeted. The PCR commented that the achievement of the outcome indicators reflected direct improvements in financial intermediation to the private sector and a reduction in directed lending, which was central to achieving the planned program outcome for improving the environment conductive to private investment. The PCR indicated that the program achieved or exceeded all targeted output indicators in the DMF, and that the government fully achieved all 29 policy actions in the program by the closing date. It assessed that the program strengthened economic management, facilitated better public financial management (PFM), supported improved performance of SOEs, and created effective financial intermediation facilities. The improvements achieved in macroeconomic data collection, analysis and dissemination will contribute to better macroeconomic management and the quality and reliability of the national budget. 18. The PCR provides a comprehensive summary of the gender achievements of the program. It noted that MOF adopted a gender-responsive MTBF manual, and the MOF’s capacity to implement gender-responsive budgeting and gender-sensitivity assessment of public expenditures was strengthened under the TA, which improved targeting of expenditures for women. With support from the TA, SCS is now more regularly collecting and updating sex-disaggregated statistical data. The PPP project in health service delivery and private sector promotion will also indirectly improve gender empowerment. 19. This validation notes the extensive updating of policy actions, as reflected in subprogram 2’s RRP. It is also noted that the two outcome indicators set in subprogram 1 were replaced by new indicators in subprogram 2’s DMF, and that the original indicators were not therefore monitored. The indicator for local currency bank credit to private sector was replaced by an indicator for loans extended to small businesses, which were essential for inclusive growth and job creation. The unbundling of JSC Uzbekenergo made the indicator for its revenue performance no longer relevant. This was replaced by an indicator for policy lending to SOEs. This indicator aimed to measure the whole result of SOE reforms with improved performance resulting in less need for policy lending. This validation considers the indicator for policy lending a better indicator as it has a more direct connection to the reforms undertaken by the program. The validation assessed performance against the revised indicators in subprogram 2. The almost complete achievement of the agreed policy actions reflected the government’s strong commitment to undertake the reforms, as well as careful preparation and sequencing of the policy actions. In this regard, the government and its partners benefited from lessons learned from other Central Asian economies undergoing transition. The TA provided by ADB, supplemented with additional resources as more areas requiring support emerged, was seen as an important contributor to the program’s successful implementation. The scope of the reforms generally proved manageable for the government to undertake in the available timeframe. The role of the Uzbekistan Resident Mission in processing, program supervision, ongoing policy dialogue and donor coordination made a positive contribution to the program’s outcome. Many of the outputs accomplished by the program were considered important first steps toward more substantial reforms. These steps must be consolidated through institutional capacity building and training. Ongoing TA support will continue to be required to support this process. The validation assesses the program effective. The areas where the program exceeded its targets were not sufficiently significant for a highly effective rating.

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C. Efficiency of Resource Use 20. The PCR rated the program efficient. It noted that all policy actions were completed on time and that the loan was fully disbursed. The PCR argued that the program was efficiently implemented due to thorough program preparation, appropriate design, full alignment with government and ADB priorities, effective policy dialogue, strong government political commitment, and the TA’s capacity building and implementation support. 21. This validation confirms that the program met its targets for effectiveness, disbursements, and program completion. The policy actions were largely achieved on schedule, with only minor exceptions. In addition to the reasons cited by the PCR for the achieved efficiency, this validation would emphasize the phasing of the reforms over the two subprograms with the emphasis in the first subprogram on planning and preparation and in the second subprogram on implementation. The TA was managed efficiently with minor changes of scope and additional funding approved as new areas for reform and capacity building needs emerged as anticipated in the RRP. The PCR noted no fiduciary deficiencies. This validation assesses the program efficient. D. Preliminary Assessment of Sustainability 22. The PCR rated the program likely sustainable. The PCR noted that the government was continuing to pursue its reform agenda in the post program period in the policy areas supported by the program. This indicated that the reforms achieved under the program were likely sustainable and would be subject to further strengthening. The PCR documented the continued legislative, policy and institutional changes, which will support an expanded role for PPPs in the economy. It reported that power sector modernization work has continued under ADB’s Power Sector Reform Program.7 The PCR also noted that the program resulted in a more stable banking sector and its enhanced ability to finance private sector investments. It further noted that the government recently launched a five-year strategy, 2020–2025 for transforming the banking industry. 23. This validation assesses that the reform process and the achieved gains will not be reversed and will form the basis for further reforms, particularly in PFM, the energy sector, and the role of PPP’s in delivering infrastructure and other services in the financial sector. Continued momentum evidenced in further legislative reforms, policy development and sector implementation indicates that the reforms initiated under the program are being actively pursued. The 2016 change in the political leadership provided an opportunity for the government to launch the most ambitious structural reforms by far, beginning with a major depreciation in the value of its domestic currency. Since then, the scope of the reforms has deepened and widened into many macroeconomic areas and other sectors. IMF reports that reforms have included: (i) trade and foreign exchange liberalization, (ii) price liberalization, (iii) tax reforms, (iv) PFM reforms, (v) monetary and financial sector reforms, and (vi) agriculture sector reforms. The ongoing TA’s continued support to key reform areas and the prospect of a Second Economic Management Improvement Program commencing in 2022 give further reassurance that reform momentum in these areas will be maintained. It is less clear whether the initial corporate governance reforms for SOEs will be sustained and built on. This will depend in part on the government’s broad plans for redefining the role of SOEs in the economy. There is also some uncertainty about the future

7 ADB. 2020. Report and Recommendation of the President to the Board of Directors: Proposed Programmatic

Approach and Policy-Based Loan for Subprogram 1 to the Republic of Uzbekistan for the Power Sector Reform Program. Manila.

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reform path to improve the environment for PSD and the extent to which the private sector will be provided opportunities to participate in key sectors of the economy currently dominated by SOEs. This validation rates the program likely sustainable.

III. OTHER PERFORMANCE ASSESSMENTS A. Preliminary Assessment of Development Impact 24. The PCR rated the development impact of the program satisfactory. It stated the program improved economic management by introducing important fiscal reforms that enhanced fiscal sustainability and the allocative efficiency of public sector expenditures; improved governance in SOEs, which made their operations more financially viable and improved delivery of public goods and services; strengthened access to bank finance by improved bank supervision to facilitate competitive financing of PSOs; and improved economic data collection, analysis, and dissemination systems to better support economic decision-making. The PCR argued that these outcomes had an indirect impact on poverty reduction through higher budget allocations for the poor and vulnerable groups, improved access to finance, and private sector job creation. 25. This validation assesses that the PFM reforms will have an impact in the medium-term through greater efficiencies in public expenditure, improved transparency and predictability in budgetary allocations, and better alignment of budget expenditures with sector policies and development plans. The MTBF reforms will need time to be fully embedded in the sector, but overtime improvements can be expected in the quality of expenditure and the generation of more realistic sector plans and projects. This will be supportive of improved macroeconomic management and sustainable economic growth. The unbundling of power sector assets opens the way for efficiency gains and the possible entry of the private sector. The growth of PPPs will enable the private sector to participate in the delivery of infrastructure and other services and reduce the financing burden on government. The financial sector reforms will support the role of the banking system in more efficiently allocating capital, but a more comprehensive reform needs to be considered involving private sector ownership of banks, capital market development, and expansion of non-bank financial institutions. This validation sees the accomplished reforms contributing to the development objective of the program of enhancing macroeconomic stability and sustainable high growth. The validation assesses the development impact of the program satisfactory. B. Performance of the Borrower and Executing Agency 26. The PCR rated the performance of the borrower and executing agency as highly satisfactory. It emphasized that the government demonstrated strong ownership and was actively involved in the successful program outcome. The government met the deadlines for loan effectiveness, disbursements, and program completion, and ensured full compliance with all loan covenants. 27. This validation notes the government’s strong commitment to the reform process and its successful efforts to accomplish a wide-ranging set of reforms within the agreed timeframe. The government also successfully coordinated the inputs of the range of development partners supporting the reform effort. The performance of the government is assessed as highly satisfactory.

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C. Performance of the Asian Development Bank and Cofinanciers 28. The PCR rated the performance of ADB as highly satisfactory. It noted that ADB performed well in program processing and in consulting with the government and development partners. ADB also adequately resourced program implementation and the fielding of review missions. It assessed that ADB provided timely guidance and inputs and played an important role in ensuring significant achievements in macroeconomic reform to improve Uzbekistan’s economy. The PCR highlighted that a national officer from the Uzbekistan Resident Mission was co-team leader and that this provided more efficiency, clearer expectations, and closer coordination between the government and ADB. 29. Working with the government and other development partners, ADB designed a program that met the objective of the government to begin a process to reorient the structure of its economy. Supported by an ADB-financed TA, the two subprograms, enabled a step-by-step approach, which the government proved capable of implementing. ADB also performed well in coordinating with development partners supporting the reform effort, notably the World Bank, IMF, Agence Française de Développement, and the United Nations Development Programme. ADB and the World Bank jointly delineated complementary reforms. The World Bank provided two development policy operations of $500 million each in 2018 and 2019 as budget support. Agence Française de Développement provided €150 million in collaborative cofinancing with €1 million TA under subprogram 1, and also approved €50 million of collaborative cofinancing for subprogram 2. The validation also notes that the review mission undertaken was effective in providing technical inputs, monitoring implementation progress, and coordinating with other development partners. However, the reforms undertaken by the program in PFM, SOE governance and financial sector followed models previously developed and tested in other member countries rather than innovative approaches. This validation assesses ADB’s performance as satisfactory.

IV. OVERALL ASSESSMENT, LESSONS, AND RECOMMENDATIONS A. Overall Assessment and Ratings

30. The PCR rated the program successful. It rated the program relevant as it was closely aligned with the government’s newly reoriented development objectives and ADB’s corporate priorities; highly effective as it achieved or exceeded all output and outcome targets set in the DMF; efficient as all policy actions were completed on time and the loan was fully disbursed; and likely sustainable. 31. This validation assesses the program relevant given its strong alignment with the government’s reform agenda, appropriate choice of modality, well-designed DMF, and effective coordination with other development partners. The program is rated effective with the almost complete achievement of the agreed policy actions and intended outcomes. The program is assessed efficient as it met its targets for effectiveness, disbursements, and program completion on schedule with only minor exceptions. The program is also rated likely sustainable. Continued momentum evidenced in additional legislative reform, policy development and sector implementation indicates that the reforms initiated under the program are being actively pursued. ADB performed to a high standard that responded to Uzbekistan’s needs, but the program consisted of reforms tested well elsewhere, rather than innovative approaches. Overall, this validation assesses the program successful.

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Overall Ratings

Validation Criteria PCR IED Review Reason for Disagreement

and/or Comments Relevance Relevant Relevant Effectiveness Highly effective Effective The areas where the program exceeded its

targets were not sufficiently significant for a highly effective rating.

Efficiency Efficient Efficient Sustainability Likely

sustainable Likely sustainable

Overall Assessment Successful Successful Preliminary assessment of impact

Satisfactory Satisfactory

Borrower and executing agency

Highly satisfactory

Highly satisfactory

Performance of ADB Highly satisfactory

Satisfactory ADB performed to a high standard, but the program consisted of reforms well-tested elsewhere, rather than innovative approaches.

Quality of PCR Satisfactory Para. 39. ADB = Asian Development Bank, IED = Independent Evaluation Department, PCR = program completion report. Source: ADB (IED). B. Lessons

32. The PCR identified five lessons, three of which this validation concurs with: (i) complex programs are more likely to succeed if significant attention is given to building the stakeholders’ capabilities and ownership of reforms; (ii) implementing reforms requires upgrading technical and change management competency; and (iii) the number of policy measures should be limited so that ADB can monitor compliance effectively throughout the program. 33. This validation offers the following three additional program-level lessons.

34. First, policy reforms require a process. The policy actions of subprogram 2 were designed based on the experience of implementing subprogram 1, resulting in a more robust set of policy reforms for subprogram 2. The extensive updating of the reform agenda under subprogram 2 demonstrates the appropriateness of using two subprograms in program design and underscores that process is a requisite to policy reform.

35. Second, pursuing a reform agenda from a position of relative strength has advantages. The government of Uzbekistan engaged in the Economic Management Improvement Program at a time when its economy was still relatively strong rather than in response to a crisis, despite falling commodity prices, and declining remittances from Russia. Growth, while falling, was still satisfactory and public finances were reasonably stable. This enabled the government to focus attention on the change management requirements of the program and adequately finance, together with the support from development partners, the adjustment costs of the program.

36. Third, incorporating TA in the design of policy-based lending can significantly improve the chances of success and the sustainability of program outcomes. The PCR noted that the TA was instrumental in ensuring successful program implementation. The inclusion of the attached TA delivered key technical and policy support to a significant number of the reform areas and strongly contributed to the successful program implementation. A number of the reforms were technically

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complex and required significant staff training to ensure successful adoption. ADB actively managed this TA and used it as a primary mechanism to help implement the reform agenda and carry ADB’s support forward to the next phase of the reform effort. C. Recommendations for Follow-Up 37. This validation makes three recommendations for follow-up. First, ADB should continue to support power sector reform to build on the initial unbundling of power sector assets under the program. Second, ADB should continue to support capacity building in the MOF and line ministries to ensure that the MTBF reform achieves its full potential in improving budget planning, execution, and expenditure efficiencies. In particular, the program assisted Uzbekistan in developing a gender-responsive MTBF manual and the MOF’s capacity to implement gender-responsive budgeting and gender-sensitivity assessment of public expenditures. It is likely that this initiative will require more capacity building support if it is to achieve its full potential benefits. Third, ADB should encourage the government to further develop its vision for the future structure of the economy. Clarity on the planned future role of SOEs in the economy will be an important guide to further reform efforts. These efforts will need to be supported by more reforms to strengthen the environment for PSD.

V. OTHER CONSIDERATIONS AND FOLLOW-UP A. Monitoring and Reporting

38. The PCR adequately discusses monitoring and reporting activities that took place during program implementation. The borrower complied with all covenants in the agreements. Overall, this validation assesses that the monitoring and reporting framework was adequate and enabled ADB to monitor developments on a timely basis.

B. Comments on Program Completion Report Quality 39. The PCR generally met the requirements for PCR preparations. It adequately discussed the context in which the operation took place and the design and implementation of the program. It included a good description of the program’s outputs and outcome and presented a picture of the post-program reform efforts and their importance to the likely program sustainability. It included a useful analysis of the gender dimensions of the program. The PCR also formulated several relevant lessons, focusing on key factors that led to successful program implementation. However, the PCR could have been more focused and provided some more details about the reform program, especially narrating its progress with some data-based evidence. In addition, the PCR was circulated 6 months past its due date, which was 12 months after the financial closing date of the project as required by ADB Project Administration Instructions (PAI 6.07A) for projects with an ongoing attached TA. On balance, the quality of the PCR is satisfactory. C. Data Sources for Validation

40. The data sources used to prepare this validation were the PCR, the two RRPs, and back to office reports of ADB processing and monitoring missions.

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D. Recommendation for Independent Evaluation Department Follow-Up

41. It is recommended that a program performance evaluation report be prepared after sufficient time has elapsed to determine the medium-term impact of the reforms undertaken by the program.

20211104 PVR Loans 3675 and 3866 UZB Economic Management ...

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