As part of a cluster evaluation of CDB’s country strategies and programs in the Organisation of Eastern Caribbean States (OECS), the Office of Independent Evaluation (OIE) undertook a review of PBL experience in these six countries, and three overseas territories of the United Kingdom.  The review drew heavily on the 2017 OIE evaluation of all CDB PBL (presented below) and distinguished between first- and second-generation loans.  First-generation loans were characterized by more numerous and diverse prior actions, while second generation loans were more focused on their reform expectations.

The OECS borrowers are among the smallest and most vulnerable of CDB’s members, with some in debt distress and others at moderate to high risk of becoming so. Over the review period, five OECS members received 10 PBL operations totalling $319 million.  The loans supported reforms in PFM; public debt restructuring and management; macroeconomic planning; public sector reform; social sector reform; sector reform (banking and finance, tourism, food safety, energy regulation); and trade facilitation.

As with other studies, this review confirmed the demand for the instrument in facilitating debt restructuring and averting banking crises in the Eastern Caribbean Currency Union, as well as in supporting “home-grown” reforms.The review probed some important design issues.Apart from noting the incidence of wide and unfocused reform plans in some early PBOs, it assessed the “quality” of prior actions across all 10 PBOs.

To do this, it applied the IDB classification of low-, medium-, and high-depth prior actions, according to the likelihood a given prior action would trigger lasting policy or institutional change. On this basis it found 25% were low-depth, 48% medium-depth, and 27% high-depth.In programmatic series, high-depth prior actions were observed in the later loans, evidence of good sequencing.  As CDB had not at that time undertaken  such an explicit analysis of prior action depth, the OES review suggested that it begin doing so.

The review found evidence that PBOs had facilitated bank resolutions in three members following the 2008 financial crisis, heading off potential contagion in the Eastern Caribbean Currency Area.Orderly debt restructuring and avoidance of default had also been accomplished in one of the smaller members.

The outcome of targeted reforms in PFM, public debt management, tourism, trade facilitation, disaster management (legislation, building standards and codes), and social safety nets was documented. However, there were numerous implementation delays across the portfolio, often as a result of insufficiently anticipated gaps in national capacity.

The review made a number of suggestions for improved PBL planning. CDB should:

(i)adopt and apply a conceptual framework for explicit definition of the quality of prior actions;

(ii)improve documentation, for the sake of transparency, of how prior actions were arrived at and the extent to which they are attributable to policy discussion between CDB and the borrower;

(iii)document the needs for TA associated with PBL reforms, and what plans exist for its provision; and

(iv)consider making greater use of PBL to build ex ante resilience, including, for example, fiscal buffers and better physical planning and building codes.