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Financial Regulation and Governance Program

sector: Finance | country: Mongolia

The evaluation offers some lessons regarding the need to (i) properly adapt the scope and time frame of comprehensive and sensitive policy reforms to institutional capacity, (ii) carefully sequence reforms, and (iii) take a long-term approach to development. Developing capital markets is a long-term process, for which 10-20 years may be considered a realistic time frame. Capital market reform should focus on a limited set of highly selective and sequenced reforms that are within reach of government implementation capacity. Rather than focusing capital market reforms on very ambitious final outcomes.

In general, it is proposed that program loans should either not include highly complex and far-reaching policy reforms or build on enhanced policy dialogue, comprehensive technical assistance, and intensive monitoring and review by ADB. Lack of technical understanding on the part of political decision makers requires support for comprehensive and consistent advisory technical assistance throughout the drafting and approval process of new legislation. Corrective action regarding the scope and implementation arrangements of a program should be considered at an early stage if implementation falls behind schedule and/or government capacity, ownership, and commitment shows signs of receding.

The provision of technical assistance (TA) should match the scope of targeted policy reforms and the capacity of implementing agencies. In addition, it appears from the evaluation of the program that ADB’s great reliance on TA consultants to develop much of its policy and advisory input affects its ability to develop sustainable internal capacity on policy issues. It has thereby reduced ADB’s ability to quickly respond to government requests for policy advice and to engage in long-term dialogue. To improve ADB’s processing and supervision of complex program loans – particularly those that entail policy reforms, development of new laws and/or amendment of existing laws, and human resource and institutional development elements – sufficient supervision budgets, staff skills, and staff incentives should be ensured. Ideally, staff should be given incentives and enabled to maintain their program supervision roles for longer periods, thereby improving program implementation.

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