Joint support provides an incentive because of its potential significance in overall GDP. Nevertheless, it is still important that reform is country-owned. In Kiribati, the government could see the cost of maintaining its existing fiscal policy because of its negative impact on the RERF, so the external shock also provided an incentive to reform.
While Kiribati had an incentive to reform, the country also has limited reform capacity. It needs to focus on a few critical actions and to be clear on the development outcome of each prior action, including identifying an indicator that can be monitored. The requirement where the five largest SOEs were to submit audited accounts may have underestimated the institutional capacity that was required to achieve it.
A clear line between the prior actions and the overall development outcome is important so that the program achievements can be judged consistently.
If a TA grant is not directly provided to support reform implementation, it is important to link reforms to existing areas of technical assistance. ADB helped support SOE reforms before and after grant release, so there was existing support in the area, which would continue after the PBL. The program also benefited from the government and development partners creating a joint policy matrix, which listed a series of policy actions that preceded grant release and supported a post-partnership framework.
The development of Kiribati, as with other Pacific islands, suffers from extremely limited individual, organizational, and institutional capacity and from incomplete understanding of development. The country therefore continues to rely on TA to supplement capacity both in the public and the private sectors. This assistance can be long-term, intermittent, short-term and/or on call, to suit specific needs. While much TA is being provided, there is still a need for specific, respected, and impartial advice that the government can call on at short notice. It is therefore important that professional advisors work closely with the government to try and ensure reform momentum.
As with other development partners, ADB has been unable to sustain a commitment from the government to a reform program for more than a few years under the prevailing domestic political economy. While individual staff and government entities revealed a high degree of commitment to the program, limited capacities, high staff turnover, and changing government priorities weakened this commitment. The leadership, and therefore the sustained coordination of ownership and commitment, may not yet exist in Kiribati to secure policy reform for more than a few years.
Kiribati’s Revenue Equalization Reserve Fund (RERF) serves as a fiscal buffer, helping government to smooth revenue volatility and meet fiscal deficits. Drawdown from the fund in 2014 was $8.37 million but would have been larger than $18 million without the program grant and other development partner funding. A budget surplus of $76.0 million was realized in 2014, allowing the government to reduce debt and strengthen its balance sheet. In 2016, the government also achieved a healthy surplus even after replenishing the RERF by $50 million. These budget surpluses came to a large extent from fishing license revenues. Nevertheless, the program grant and other development partner support also helped improve fiscal performance, highlighting the importance of donor cooperation in helping fragile economies tide over financial difficulties. Underpinned by a common commitment to assist government in implementing the Kiribati Economic Reform Plan, donor cooperation remains tight and continues under a post-program partnership framework that can provide the platform ensuring that ongoing reforms result in long−term fiscal stabilization.
The grant preconditions were an incentive for the government to reform the governance and operation of state−owned enterprises (SOEs) and improve the management of government revenues, expenditure, assets, and liabilities. An ongoing technical assistance has provided timely and valuable support for SOE reforms that preceded and continued after grant release.
Government capacity was overstretched in Kiribati in 2014 as the number of development partner−financed projects had doubled since 2012. Under this scenario, development partners should consider incorporating into the project design the provision of additional project management services. It would be best if they could coordinate and harmonize their programming. They should also be ready to revisit priorities and reschedule proposed development projects if necessary.
The placement of a technical advisor within the implementing agency greatly helped reduce government difficulties in managing the design and supervision consultant team. The actual presence of the cofinanciers in the project site─through the in-country joint ADB–World Bank Liaison Office and the Australian High Commission─further ensured that cofinanciers were able to provide implementation support when needed. While not entirely new, this project highlighted some of the key ways cofinanciers can effectively provide timely and sustained support to projects in remote locations.
Two upward price adjustments were made on this project’s single works contract, which ended with the project allocation still about 16% below the $48.2 million final contract price. Bid evaluation showed that the prices were high mainly because of the high cost and perceived higher risk of mobilizing in such a remote location. For instance, aggregates cost higher as they must be transported from Fiji, some 2,000 kilometers away. For future similar projects, it would be advisable to incorporate into the cost calculations during project preparation the higher costs and risks associated with undertaking large infrastructure projects in remote, isolated locations. This would minimize the need for contract price variations and lessen the snags in the procurement process which, in this project, had to be shifted to regular post-qualification nine months after prequalification had failed to attract qualified contractors.
The absence of detailed engineering designs precluded a thorough examination of the actual site conditions prior to project start-up, because of which certain weaknesses during project preparation were carried over to the implementation stage. Key of these weaknesses were an underestimation of the cost of mobilizing in a remote area and a failure to detect undocumented underground installations that posed serious health and safety risks in the worksite. The remedial measures that were undertaken accounted for the biggest chunk in project cost overruns and delays which, including the additional works and delays due to disastrous weather events and other factors, more than doubled the total project cost estimate and implementation timeframe set at appraisal. To avoid a repeat of this experience, the Asian Development Bank (ADB) should not allow project start-up without detailed designs and ensure that consultants comply with their contractual obligations in a timely manner.