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Implementation Completion Report (ICR) Review - Agriculture Sector Adjustment Credit

1. Project Data:   
Project ID:
Project Name:
Agriculture Sector Adjustment Credit
Agriculture Adjustment, Agriculture
L/C Number:
Partners Involved:
Netherlands, OECF (Japan)
Prepared By:
Christopher D. Gerrard, OEDST
Reviewed By:
Ron Parker
Group Manager:
Gregory Ingram
Date Posted:

2. Project Objectives, Financing, Costs, and Components:

Project costs ($US million)     Appraisal     Actual

IDA                              20.0          19.6
Netherlands                       2.0           5.4
OECF (Japan)                     20.0          20.0
Government of Albania             0.0           0.0
Total                            42.0          45.0

The project provided balance of payments support ($11.0 million), a line of credit ($5.0 million), and technical assistance ($4.0 million) to address a number of policy, institutional, and structural constraints in Albania's agricultural sector that were limiting the development of a market economy in rural areas. The project had five major components, the first three of which were supported by the balance of payments support, the fourth by the line of credit, and the fifth by technical assistance.
(1) Strengthening and extending ongoing reforms in agricultural price and trade policy.
(2) Privatizing and selling assets of state farms, distributing former state farm and cooperative land, land titling and registration, developing the lease market for agricultural land, and facilitating land consolidation.
(3) Privatizing state-owned marketing and processing enterprises.
(4) Restructuring the rural credit system by creating a new Rural Commercial Bank to provide rural credit at market rates.
(5) Redefining the role of the government and improving the administrative capacity of the government in the agricultural sector.

A number of other donors, such as EU-Phare and USAID, are active in the sector and provided complementary support to the project. IDA is also supporting a number of complementary investment projects in relation to rural poverty alleviation, rural roads, agro-processing, and irrigation.

3. Achievement of Relevant Objectives:

The government achieved significant and sustainable policy reforms that are deeper than in many other ECA countries. The agricultural sector has changed fundamentally, and agricultural production and exports have grown substantially. However, all these reforms have taken longer than expected, partly because of the civil unrest that followed the collapse of the pyramid schemes in late 1996 and early 1997. The second tranche of $5.6 million of balance of payments support was disbursed about 2 1/2 years behind schedule. Also, the effort to build a new rural bank, operating on commercial banking principles, did not succeed.

4. Significant Outcomes/Impacts:

(1) Excellent progress was made in liberalizing the agricultural price and trade framework. The GOA decontrolled wheat, flour, and bread prices in July 1996. The value of agricultural output grew 40% between 1992 and 1998. Albania now has the highest agricultural output, relative to 1989-91, of any country in the ECA region.
(2) Excellent progress was made in finalizing the distribution of former state farm and cooperative land, and in privatizing state farms. All state farms have now been liquidated. All agricultural production is now in the private sector.
(3) Very good progress was made in privatizing state-owned processing and marketing enterprises. Most companies are now private, but remain in poor operating condition due to weak corporate governance and a weak financial sector.

5. Significant Shortcomings (include non-compliance with safeguard features):

(1) The effort to create a new, government-owned Rural Commercial Bank failed and should not have been attempted in the first place. Reasons include the former public sector legacy, government interference, low loan repayments, and, reportedly, corruption.
(2) Progress in developing the land market has been slow. Only 30% of the agricultural land has been titled and registered.
(3) From the ICR, it is difficult to assess what progress was made in redefining the role of the government and improving its administrative capacity in the agricultural sector. While the GOA divested the General Directorate for State Reserves -- its major instrument for intervening in the grain market -- this represents dismantling more than rebuilding.

6. Ratings:ICROED ReviewReason for Disagreement/Comments
Institutional Dev.:
    These ratings are largely equivalent.
Bank Performance:
Borrower Perf.:
Quality of ICR:

7. Lessons of Broad Applicablity:

(1) The process of reform is just as important, if not more important, than the actual substance of the reforms. Five aspects of the reform process favorably influenced the outcome. First, a reform-minded government that was elected in March 1992 was strongly committed to reform. Second, there was a broad consensus for reform among the government, other political groups, the Bank, and other donors. Third, sound economic and sector work, in the form of the Agricultural Strategy for Albania, provided a coherent conceptual framework for the government, the Bank, and other donors to prepare a relevant and effective project. Fourth, the government established an Agricultural Program Office in the Ministry of Agriculture with the explicit responsibility of managing the reform process on a day-to-day basis, and apparently with sufficient authority to do so. Fifth, the beneficiaries realized some immediate benefits very quickly, such as land ownership, which sustained support for the reform process.
(2) For an institutional reform project, the objectives were too ambitious and unrealistic. In particular, the institutional demands of managing a country-wide land registration program were very high, even with significant technical assistance from USAID and EU-Phare.
(3) It is undesirable to utilize a government-owned bank to provide rural credit. The greatest challenges facing the government in supporting the development of rural financial institutions are not to establish lines of credit, but to strengthen the country's overall financial sector and to foster organizationally sound rural financial intermediaries.
(4) A hybrid operation, comprising both balance of payments support and technical assistance, may provide technical assistance to facilitate policy reform more easily than a conventional project. Technical assistance was crucial to the success of the reforms, which are now providing a favorable environment for parallel investment operations.

8. Audit Recommended?  Yes

          Why?  IDA is also supporting a number of complementary investment projects in relation to rural poverty alleviation, rural roads, agro-processing, and irrigation. Once the political and economic situation in Kosovo settles down, a cluster audit that looks at these complementary efforts could yield broadly applicable lessons.

9. Comments on Quality of ICR:

The ICR was satisfactory, but with the following shortcomings:

(1) Table 7 (project costs and financing) was incomplete. The EU was expected to provide technical assistance at appraisal. Both the EU and USAID did apparently provide technical assistance, and unspecified donors provided an additional $10 million line of credit to the Rural Commercial Bank.
(2) A strict interpretation of the legal agreement would imply that redefining the role of the government in the agricultural sector was one of the five major components of the project. The ICR did not provide enough information to assess the achievement of this objective.
(3) The aide-memoire in relation to the completion mission was weak -- only 1 1/2 pages long.

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