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Getting stakeholders’ feedback is vital to ensuring commitment to reforms.

During the design of the program, the government and the Asian Development Bank (ADB) conducted broad consultations with key stakeholders to promote understanding of the proposed reforms. Consultations with community service organizations focused on internal audit reforms and other key issues related to promoting transparency and accountability. While generating feedback, these consultations also served as platforms for stakeholder participation which developed in them a sense of ownership and commitment to the reforms embodied by the program.
 

Continued consultations within ADB relevant units enriches the formulation of a policy reform agenda.

Program preparation benefited from several consultations within ADB’s infrastructure divisions in the Central and West Asia Department. These consultations provided the linchpin to the discussion of lessons from previous similar ADB projects, incorporation of which enhanced program design and processing. Knowledge−sharing continued to be fostered throughout implementation to ensure that the reforms pursued by the program were responsive to the country’s needs and implementable within existing fiscal and institutional conditions.

Policy−based loans (PBLs) have a comparative advantage of providing ADB and partner governments a platform for high−level policy dialogue, which otherwise would be difficult to achieve.

Successful implementation of transformational policy actions is largely dependent on government commitment to bring about essential reforms. To deepen this commitment and share knowledge about the what’s and how’s of implementing reforms, ADB and other development partners engage member governments in high-level policy dialogue. Under this program, policy dialogue comprised the key instrument for hammering out the substance and direction of policy reforms and ensuring their successful operation. To sustain momentum and maximize benefits, ADB approved phase 2 of this PBL in November 2016, under which phase, the reforms achieved by this program would be strengthened and extended to the energy sector. Despite the deteriorating macro and fiscal situation, the government proceeded with the phase 2 PBL, signaling its commitment to continually enhance public management reforms.

Fiscal and economic downturns may provide opportunities to improve public financial management.

As they impose budgetary constraints, fiscal and economic downturns can provide governments the opportunities to improve their financial management systems. They also provide the basis for the provision of PBLs, which generally aim to provide budgetary support for policy changes that improve the growth prospects of developing member countries. Where strong government support for reforms exists, it will be most beneficial to link the reforms with sector assistance, ensuring that these reforms are politically and technically feasible. ADB should also continue to seek synergies with other development partners in designing and implementing PBLs as well as other responses to financial and economic downturns.

Background

Armenia is a landlocked country in the mountainous region of Caucasus between Asia and Europe. Following the recession triggered by the 2009 global financial crisis, its gross domestic product (GDP) contracted by 14.1%, the economy grew at an average 4.7% from 2010 to 2012 before declining to an average of 3.3% from 2013 to 2015. Public debt to GDP increased substantially from 36% in 2009 to 48.8% in 2015 and further to 57.0% in 2016. Infrastructure public spending declined sharply, giving no break to the deterioration of the country’s road and water infrastructure assets.

To help address the situation, the Asian Development Bank (ADB) approved in August 2014 a loan for $49 million-equivalent from the Asian Development Fund and a technical assistance grant of $0.9 million for Armenia’s Infrastructure Sustainability Support Program. The loan was disbursed in two tranches after specific policy actions were completed.

The program was designed to help improve service delivery in the road transport and water supply sectors through public expenditure management and financing reforms. The expected outcome was the implementation of results-based management in these sectors. The program focused on prioritizing critical expenditures, improving their sustainability, and life-cycle costing to enhance the maintenance of infrastructure and increase users’ benefit. The outputs included (i) improved management systems, (ii) more efficient strategies and processes in allocating investments, (iii) enhanced regulatory frameworks, and (iv) strengthened monitoring systems.

Under output 1: integrated sector management was developed; the responsibilities of specific agencies were more clearly delineated; a multi-agency road council was established to coordinate multiple sector agencies, and road maintenance policies were harmonized; the Water Code of 2002 was amended, and a new water sector strategy and financing plan were approved.

Under output 2: a road maintenance financing strategy was adopted; key performance indicators were introduced to measure expenditure effectiveness; water sector financial planning, transparency, and accountability was improved, with all the country’s 5 water operators now required to publish financial reports including water subsidies.

Under output 3: a regulatory department, covering Armenia’s entire road network, was established and user feedback and grievance redress systems for both transport and water services were instituted.

Under output 4: a geo-referenced video inventory of Armenia’s road network was completed and now used to prioritize expenditure decisions; the international roughness index was adopted as a standardized benchmark of road quality; a new disclosure policy and comparison of tariffs among various operators were adopted; and work was begun on an asset management system in preparation for the move to a single water operator.

While some policy actions were not fully implemented, the completed program outputs successfully imbedded results-based management and effective and predictable use of public resources in the road transport and water sectors. Overall, the intended outcome and impact were achieved and strengthened further by phase 2 of the program, which extended the reforms to the power sector of Armenia.

ADB’s Central and West Asia Department rated the program successful. Armenia’s Ministry of Finance, the executing agency, supervised program implementation across several government agencies.

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