asian development fund viii and ix operations

8/2/2019 Asian Development Fund VIII and IX Operations

http://slidepdf.com/reader/full/asian-development-fund-viii-and-ix-operations 1/151

ASIAN DEVELOPMENT BANKOperations Evaluation Department

SPECIAL EVALUATION REPORT

ON

ASIAN DEVELOPMENT FUND VIII AND IX OPERATIONS

In this electronic file, the report is followed by Management’s response, and the Board ofDirectors’ Development Effectiveness Committee (DEC) Chair’s summary of a discussion of thereport by DEC.



Evaluation Study

Reference Number: SST: REG 2008-01Special Evaluation StudyDecember 2007

Asian Development Fund VIII and IX Operations

Operations Evaluation Department



ABBREVIATIONS

ADB – Asian Development Bank

ADF – Asian Development Fund

ADTA – advisory technical assistance

AIDS – acquired immune deficiency syndrome

CAPE – country assistance program evaluation

CPA – country performance assessment

CSP – country strategy and program

DEC – Development Effectiveness Committee

DFID – Department for International Development, United Kingdom

DMC – developing member country

DSA – debt sustainability analysis

EA – executing agency

EPRS – Enhanced Poverty Reduction Strategy

GDP – gross domestic product

HIV – human immunodeficiency virusIDA – International Development Association

IMF – International Monetary Fund

JFPR – Japan Fund for Poverty Reduction

JSF – Japan Special Fund

Lao PDR – Lao People's Democratic Republic

LTSF – Long-Term Strategic Framework

MDG – Millennium Development Goal

MfDR – Managing for Development Results

MOPAN – Multilateral Organizations Performance Assessment Network

MTS II – Medium-Term Strategy II

NGO – nongovernment organizationOCR – ordinary capital resources

ODA – official development assistance

OED – Operations Evaluation Department

PBA – performance-based allocation

PCR – project completion report

PIU – project implementation unit

PPER – project performance evaluation report

PRC – People’s Republic of China

PRS – Poverty Reduction Strategy

RRP – report and recommendation of the President

SDR – special drawing rights

SES – special evaluation study

TA – technical assistance

TASF – Technical Assistance Special Fund



ii

Key Words

adb, adf, aid harmonization, asian development bank, asian development fund, asiandevelopment fund evaluation, asian poverty reduction, concessional lending, countryperformance assessment, evaluation, governance indicators, performance-based allocation,poverty targeting

Officer-in-ChargeDirector R. K. Leonard, Operations Evaluation Division 1, Operations Evaluation

Department (OED)Team leader W. Kolkma, Senior Evaluation Specialist, Operations Evaluation

Division 1, OEDTeam members G. Rauniyar, Evaluation Specialist, Operations Evaluation Division 1,

OEDJ. Tubadeza, Senior Evaluation Officer, Office of the Director General,OED

A. Anabo, Senior Evaluation Officer, Operations Evaluation Division 1,OEDV. Melo, Administrative Assistant, Operations Evaluation Division 1, OED

Operations Evaluation Department, SS-88



CONTENTS

Page

EXECUTIVE SUMMARY v

I. INTRODUCTION 1 A. The Asian Development Fund 1 B. Previous Evaluations of the ADF 2 C. Purpose and Focus of the Evaluation of ADF VIII and IX 2 D. Approach to the Evaluation 4

II. OVERVIEW OF ADF FINANCING 4

A. Introduction 4 B. Lending Conditions of the ADF 7 C. Distribution of the ADF Across Countries and Populations 8 D. Importance of the ADF to Countries 10 E. Sector Distribution of the ADF 11

F. Use of the ADF by Financing Modality 12 G. Use of the ADF for Economic Growth, Social Development, and Governance 13 H. Use of the ADF for Poverty Interventions 14 I. Integration of the ADF and OCR in ADB 15 J. Allocation of the ADF to the TASF and Allocation of TA to ADF Countries 16 K. Net Resource Transfers of the ADF 17

III. DEVELOPMENT EFFECTIVENESS OF ADF OPERATIONS 18

A. Poverty Reduction and the Millennium Development Goals in the Region 18 B. Success Ratings of ADF-Funded Operations in the Past 18 C. ADF Country-Level Results 20 D. ADF Sector/Subsector Results 23

E. Results by Strategic Development Objectives (1992–2000) 25 F. Thematic Result Areas Emphasized in ADF Donor Reports 25 G. Performance of Technical Assistance 27 H. Client Satisfaction Surveys of Executing Agencies 27

IV. CASE STUDIES OF ONGOING ADF VIII OPERATIONS 29

A. Success of Ongoing ADF VIII Operations 30 B. Success of Special Components Targeting the Poor 30 C. Success of Special Components Targeting Governance 32

V. PERFORMANCE-BASED ALLOCATIONS AND GRANTS 33

A. Loans versus Grants 33 B. Country Performance Assessments and Performance-Based Allocations 35

VI. AID HARMONIZATION, COORDINATION, AND COFINANCING 40 A. The Approach to Aid Coordination and Harmonization 40 B. Cofinancing and Other Financial Support 41 C. Harmonization of ADB Procedures and Processes 42 D. Findings from Five Country Case Studies 43 E. Aid Harmonization of Country Programming during ADF VIII and IX 44



iv

VII. ASSESSMENT AND RECOMMENDATIONS 45

A. Relevance of the ADF to Poverty Reduction 45B. Likely Effectiveness of ADF Outcomes 46C. Efficiency of ADB’s Administration of the ADF 47D. Likely Sustainability of the ADF’s Approach 48E. Recommendations 49

APPENDIXES1. Asian Development Fund VIII and IX Commitments 522. Excerpts from the 1999 Poverty Reduction Strategy 553. ADF Allocation Data 574. HIV and AIDS-Related ADF Loans and Grants 725. ADF Sector Allocations and Changes over the Years 736. ADF Results Tables and Figures 757. Thematic Result Areas Emphasized in ADF VIII and ADF IX Donor Reports 838. Case Studies of Ongoing ADF Operations in Five Countries 899. Targeting the Poor in ADF VIII and IX 9610. Targeting Governance in ADF VIII and IX 102

11. Issues Regarding Grants Versus Loans in the Literature 10812. Observations on Debt Sustainability in ADF Countries and Some Recommendations 11113. Performance-Based Allocations 11614. Aid Coordination and Harmonization 12715. Findings from Interviews with Staff of ADB’s Development Partners in 129

Five Countries16. Hirschmann-Herfindahl Index 132

SUPPLEMENTARY APPENDIXES (ON OED WEBSITE AND AVAILABLE UPON REQUEST)A. Review of Project Completion Reports for ADF VIII ProjectsB. Findings of 11 Country Assistance Program Evaluations for ADF CountriesC. Results in Afghanistan, Kyrgyz Republic, and Viet Nam

D. Analysis of Eight OED Sector Policy StudiesE. Client Surveys with Relevance to ADFF. Summaries of 25 Case Studies of Ongoing ADF VIII Operations in Five CountriesG. Analysis of ADF Project and Program Design Changes Before and After 2001

The guidelines adopted by the Operations Evaluation Department (OED) for avoiding conflict of

interest in its independent evaluations were observed in the preparation of this report. MalcolmBale was the consultant on governance, performance-based allocation, grants, and debtsustainability. Mary Grace Alindogan, Mylene Buerano, Marga Domingo Morales, JindraSamson, and Cherry Ann Santos did background research. Summer intern Laura Ralstoncontributed to the analysis on performance-based allocation and grants. The team leader of thestudy and his director had no prior involvement in ADF operations. To the knowledge of themanagement of OED, there were no conflicts of interest among the persons preparing thisreport.

Attachment: Management ResponseDEC Chair Summary



EXECUTIVE SUMMARY

This study was requested by the Development Effectiveness Committee (DEC) of the Asian Development Bank’s (ADB) Board of Directors. It evaluates the Asian Development Fund(ADF) VIII and IX operations initiated over 2001–2008. Special assessments were made of ADFVIII’s particular efforts to target the poor, and ADF VIII’s and ADF IX’s focus on adding a

governance dimension to operations. Further attention was paid to ADF’s Performance-Based Allocation (PBA) Policy, introduced under ADF VIII; the introduction of a grant mechanism in ADF IX; and progress with aid coordination, cofinancing, and harmonization. ADF VIII (2001–2004) was to make available about $5.6 billion for 193 project and program loans in26 developing member countries (DMCs). ADF IX (2005–2008) is making available $7 billion inloans and grants to 27 countries, and technical assistance (TA) to all DMCs. This evaluationcovers 327 approved ADF loans and grants—437 when the pipeline is included. No more than7% of these have been closed. This means that much of the study covers operations that werenot yet completed or were at the preparation stage at the time of the evaluation.

Allocation Patterns. The study noted that (i) ADF resources are modest, given thehuge remaining challenges in reaching the Millennium Development Goals (MDGs), and have

not expanded significantly in real terms since the early 1990s; (ii) if disbursements do not growin the near future, rapidly increasing loan service payments by ADF countries to ADB mayreduce net ADF transfers; (iii) the ADF covers countries with only about 113 million of the620 million poor in Asia; (iv) the ADF, beyond being a source of finance, can provide policyleverage in at least 13 countries; (v) ADF VIII, and to a smaller extent ADF IX, funded a largenumber of poverty interventions over the period; (vi) ADF VIII and IX achieved the focus ongovernance operations desired by ADB and ADF donors; (vii) the total number of thematicpriorities addressed by the ADF increased; and (viii) the desired increased attention for ruraldevelopment and social (human) development was not entirely realized.

Development Effectiveness. ADF operations have become more successful over thedecades since its start in 1973. Of the operations approved in the 1990s, 67% were rated

successful. The success rates of individual ADF and ordinary capital resources operations areconverging. On the other hand, 11 country assistance program evaluations were sometimesless positive, as some of the larger clients of the ADF had programs that the OperationsEvaluation Department rated as only partly successful. Some main reasons for this were relatedto the positioning of ADB in the countries (did ADB do the right things?); and inefficiencies andlack of sustainability, especially of governance-oriented activities (such as increasing water tariffs). The upward trend of success rates may have stalled, hopefully temporarily, according to25 case studies of ongoing ADF VIII operations conducted for this study. This trend, if confirmed,could be caused in part by increased goal congestion in ADF operations. Management and theBoard put much pressure on staff to prepare inclusive project designs in the early years of thePoverty Reduction Strategy (PRS), given the drive for operations that benefit the poor disproportionately. Other reasons for the dip in success rates might have been frequent staff

transfers as a result of reorganizations and reforms. Detailed country strategies have askedincreasing attention from staff, as well as safeguards and other added agendas. About half of the special components targeting the poor and governance in the sampled operations wereunlikely to be successful. Nevertheless, some good results were observed, and these werepartly the result of satisfactory staff intensity and continuity. The efforts to target the poor through special components in regular operations were deemphasized in ADF IX and thereforedeclined, but not governance targeting.



vi

Other ADF Commitments. The following achievements were noted: (i) increased use of program loans to target macro- and sector governance issues; (ii) higher success rates of program loans than achieved in previous decades; (iii) more attention for capacity developmentin ADF projects and programs, although ADB has had mixed results in this area in the past;(iv) greater involvement of civil society organizations in ADF operations; and (v) progress withprivate sector development. The study also noted progress in terms of gender and development,

anticorruption activities, and the managing for development results agenda in ADB. ADB hasgained more experience with the enforcement of social safeguards over the period.

ADB’s coordination with other aid agencies has increased, and so have cofinancing and aidharmonization, although there might be limits to what these can achieve. The study is critical of

ADB’s PBA policy and raises questions regarding the grant mechanism.

Assessment of ADF VIII and ADF IX. ADF VIII and IX operations were relevant tomany of the ADF countries and their poor populations, but less so to the poor in Asia and thePacific overall, as an increasing proportion (currently 82%) of them live in countries that are noteligible for ADF support. The redesign of ADF VIII operations to include pro-poor componentsand governance ambitions in regular investment projects did not always work out well in thecontext of limited operational staff. They were not always appropriate, and even when they were,

more human resources than ADB has been able to muster would sometimes be needed torealize such aspirations. The study regards ADF VIII outcomes as likely to be less effective, dueto the influence of more complex project designs and other reasons mentioned earlier. ADF IXoutcomes are yet to materialize and are not rated in terms of their effectiveness, but there aresome positive signs. The Enhanced Poverty Reduction Strategy of December 2004 hasappropriately done away with ADB-wide targets for operations targeting the poor. Demands onthe inclusiveness of project designs should have reduced somewhat. Country assistanceprogramming seems to have become less burdensome over the period of ADF IX. This shouldfree up time for project processing and administration. The study regards the PBA policy asinefficient, although the effects of some recent changes will appropriately benefit weaklyperforming countries. Transparency of the complex PBA mechanism to DMC governmentsremains a concern, as well as the staff time needed to maintain it. A large number of internal

ADB reforms and business process changes approved in the years 2004–2006 are, however,viewed as likely to improve efficiency and thereby enhance the effectiveness and sustainabilityof the ADF as an instrument of development aid.

The study makes the 10 recommendations, summarized as follows:

No. Recommendation For whom(i) The ADF’s size should increase if it is to accelerate the achievement

of the MDGs. Despite its modest size relative to the massive challengeof development, the ADF can be an effective instrument. The size of the

ADF is important, not only for the acceleration of poverty reduction andattention for non-income MDG concerns, but also to ensure the leverage

needed to achieve policy change and governance objectives in weaklyperforming countries and other DMCs.

ADF donors

(ii) ADF donors should consider the role and credibility of ADF asADB's main special purpose vehicle for addressing poverty andachieving the MDGs in the Asia Pacific region. The ADF currentlyaddresses a subset of countries with only 18% of the poor. Withexpanding reflows from earlier ADF loans and new contributions from

ADF donors, ADF X may provide an opportunity to help a greater number

ADF donors



vii

No. Recommendation For whom

in more countries. Alternative options are a revisiting of the ADFgraduation policy, or the consideration of a third window to provideconcessional resources (or transfers of net income from ordinary capitalresources) with financing on terms harder than ADF but softer than

ordinary capital resources to countries currently not in the ADF.

(iii) ADF X should avoid goal congestion in operations and in ADB as awhole. The unintended effect of the PRS and the ADF donor meetingsmay have been a very broad agenda of priorities. New activities haveimplications for ADB staffing and human resources that are difficult toprovide when ADB shareholders have placed strict limits on the increasein ADB’s budget. The new Long-Term Strategic Framework for ADB,currently under preparation, should provide guidance on ADF focus.

ADF donors,Board,andManagement

(iv) The ADF needs to be more selective in its support for sectors(and within these, sub sectors) in many countries. ADB should

continue reviewing sector focus at the corporate level but especially atthe country level.

Management

(v) Poverty reduction is an appropriate goal for ADF operations, andrequires more than direct targeting of the poor in each country. ADBand ADF IX have already internalized this lesson of ADF VIII. It shouldnot be lost.

BoardandManagement

(vi) An ADF geared to poverty reduction and governance is staffintensive and needs specialized skills. ADB staff expansion is needed.

ADB should continue to expand its staff in resident missions. Morereliance on long-term ADB staff consultants, or on TA consultants posted

to resident missions, to assist directly with project administration could bean improvement over the present situation.

BoardandManagement

(vii) Aid harmonization and coordination remain necessary elements ofthe ADF approach. Coordination of country programs among major aidagencies to increase sector specializations should be the priority, andshould complement ADB’s move towards less goal congestion and moresector selectivity at the country level.

Management

(viii) Major governance issues should be primarily addressed throughprogram lending, with agreed reforms being supported by advisoryand capacity building TA. Governance components in some investment

projects can help build on earlier reforms or demonstrate good practice,but should be realistic with respect to prevailing institutional capacity andnot clutter the project agenda. ADB needs to be more willing to suspenddisbursements if progress on essential governance reforms and capacitybuilding is not being made.

Board andManagement

(ix) ADB should undertake a rigorous analysis to test the validity of thevarious CPA indicators. OED recommended such an analysis earlier.The study should preferably be done in partnership with the World Bank.

Management



viii

No. Recommendation For whom

(x) ADB needs to pursue a varied approach to debt distress of ADFcountries and not rely mainly on the institution of an ADF grantmechanism. For instance, ADB should help DMCs to create a legalframework regarding public debt and build capacity for them to be able to

monitor and manage their debt.

Management

R. Keith LeonardOfficer-in-ChargeOperations Evaluation Department



1

I. INTRODUCTION

A. The Asian Development Fund

1. Reconstituting an earlier Special Fund, the Asian Development Bank (ADB) establishedthe Asian Development Fund (ADF) on 28 April 1973, serving as the primary source of financefor ADB’s concessionary lending operations.

“The purpose of the Fund shall be to enable the Bank more effectively to carry out itspurpose and functions by providing resources on concessional terms for the economicand social development of the developing member countries (DMCs) of the Bank, havingdue regard to the economic situation of such countries and to the needs of the lessdeveloped members.”

2. The ADF has the following major features:1

(i) ADF resources are based principally on contributions from members of ADB,which are mobilized on an organized multilateral basis, pooled, and periodicallyreplenished under the authority of resolutions of the Board of Governors.

(ii) ADF resources are governed by the ADF Regulations, and can be used for financing procurement in all contributor countries and DMCs of ADB.

(iii) ADF can finance projects, programs, as well as technical assistance (TA),either through concessional loans or through grants. Grants have beentraditionally reserved for TA operations; starting with ADF IX (2005–2008), theywere also reserved for operations of certain kinds and/or for countries in certainconditions. The ADF’s main financial instrument is concessional loans for projects and programs (also called operations in this study).

(iv) Since ADF VI (1992–1996), ADF operations have been guided by an ADF donor report containing agreements, suggestions, and recommendations.

3. The ADF has tended to be replenished by donors every 3–5 years, and the currenteighth replenishment, called ADF IX, is financing projects, programs and TA approved in 2005–2008. ADF has historically funded around a fourth by amount of ADB’s overall lending, and half by number of all ADB’s loans. ADF loans are usually smaller than loans funded from ordinarycapital resources (OCR), but their preparation and administration generally take as much timeand resources as OCR loans. This means that relatively more staff time per dollar loaned isdevoted to ADF operations and, from another perspective, that some of the income derived fromother operations is channeled into the administration of the ADF. From ADF I thru ADF IX,donors authorized funds to a total value of $33.449 billion. ADF VIII (2001–2004) planned for investment up to $5.4 billion, ADF IX up to $7.0 billion.2 Since 1973, ADB’s member countriescontributing to ADF have channeled far more capital to ADB through the ADF replenishmentrounds than through general increases of OCR.

4. Thirty-one of ADB’s 44 DMCs currently have access to ADF for projects and programs.3 Twenty-three had availed of ADF VIII or IX loans by end-2006, and 13 of ADF VIII or IX grants.Four more are expected to receive funds under ADF IX.4 For almost 30 years, access of DMCs

1 Asian Development Fund Regulations.2 SDR2.284 billion from new contributions by donors, and SDR2.517 billion from reflows of earlier ADF loans.3 There are 34 eligible countries (groups A, B1, and B2), but the People’s Republic of China, India, and Myanmar

currently have no access to the ADF.4 Georgia, Nauru, Palau, and Vanuatu are currently not expected to receive funds for operations under ADF IX.



2

to ADF resources was determined by country assessments that differed in format and rigor, butsince 2001 access has been regulated largely by ADB’s Performance-Based Allocation (PBA)policy.5

B. Previous Evaluations of the ADF

5. In December 2001, the Operations Evaluation Department (OED) completed a review of ADF I–V operations6 based on a desk review of OED studies, coupled with analysis of statisticaldata. The review analyzed poverty reduction trends and assessed the success of the 488 ADFprojects and programs approved between 1973 and 1991. It found that 47% of funds had beendevoted to agricultural development, particularly irrigation and rural development. Based on 290evaluation reports issued, the overall success rate of ADF operations was estimated to be 45%.In line with ADB’s overall direction at the time, the review recommended defining poor beneficiaries better in ADF operations, and concentrating poverty reduction operations on well-selected beneficiaries. In March 2003, OED issued a special evaluation study (SES) of ADF VI–VII operations (1992–2000).7 These had funded loans for 318 operations. While 102 of thesehad project completion reports (PCRs) at the time of the SES, only 21 had been postevaluated.The SES on ADF VI–VII operations relied on those PCRs and postevaluation reports, as well asother studies. The SES team visited five countries, and consultants conducted 12 project casestudies there. The SES found evidence of good progress in meeting the ADF VI–VII sector andthematic commitments, but some areas moved much faster than others. Progress with gender activities was found to be below expectations. Progress with environmental management wasassessed as uneven. The two OED reports served a function in the preparation of subsequent

ADF replenishment agendas.

6. The inclusion of an SES on ADF VIII and ADF IX in OED’s work plan for 2007–2009 wasa response to requests made by members of the DEC of ADB’s Board of Directors. The findingswere to feed into the preparation of the ADF X replenishment.

C. Purpose and Focus of the Evaluation of ADF VIII and IX

7. This study provides a synthesis of evidence collected by the evaluation team and other parties in ADB. It assesses the relevance, effectiveness, efficiency, and likely sustainability of the ADF as an instrument of development aid in Asia and the Pacific. The intended outcomes of the study are (i) more clarity regarding the use of the ADF, (ii) better goals and allocation of the

ADF, and (iii) better operationalization of ADF goals in the preparation and implementation of individual operations.

8. The study was conducted with reference to the donor reports for ADF VIII and IX, whichset out the main issues and recommendations for ADB to take into account when administeringthe fund. The key policy recommendations made in the reports for ADF VIII 8 and ADF IX9 aresummarized in Appendix 1. Much of the donors’ interest at the time of ADF VIII focused onimplementing ADB’s Poverty Reduction Strategy (PRS)10 of 1999, while at the time of ADF IX it

focused on the Enhanced Poverty Reduction Strategy (EPRS) 11 of 2004. Important during the

5 ADB. 2001. Policy on Performance-Based Allocation for Asian Development Fund Resources. Manila.6 ADB. 2001. A Review of the Asian Development Fund I–V Operations. Manila.7 ADB. 2003. Special Evaluation Study of the Asian Development Fund VI–VII Operations. Manila.8 ADB. 2000. ADF VIII’s Donors’ Report: Fighting Poverty in Asia. Manila.9 ADB. 2004. ADF IX Donors’ Report: Development Effectiveness for Poverty Reduction. Manila.10 ADB. 1999. Fighting Poverty in Asia: The Poverty Reduction Strategy . Manila.11 ADB. 2004. Enhancing the Fight against Poverty in Asia and the Pacific: The Poverty Reduction Strategy . Manila.



3

preparation for both ADF VIII and IX was operationalizing governance dimensions in ADBoperations (governance being one of the three pillars of both the PRS and the EPRS).Crosscutting subjects of consistent donor interest over the period were ADB’s internalorganization, internal processes, and Managing for Development Results (MfDR). This study willhave less focus on the large ADB policy reforms that were supported by the ADF donors, andon the desired changes in business processes and organizational structure.12

9. The study pays special attention to some new elements in ADF: (i) the PBA Policy,which was introduced at the start of ADF VIII; (ii) the grant mechanism presented at the start of

ADF IX; and (iii) increased attention to aid coordination and harmonization.

10. Targeting the Poor. Targeting the poor more directly than had been achieved beforewas the essence of ADB’s 1999 PRS, which was subsequently also made one of the centralaims of ADF VIII and of ADB’s Long-Term Strategic Framework 2001–2015 (LTSF).13 The driveto target the poor dominated ADF operations in 2001–2004. It was significantly altered under

ADF IX but poverty reduction remained the main goal. The PRS outlined a fundamental shiftthat was intended to affect every aspect of ADB’s operations. ADB would rededicate itself to theeradication of poverty in the region. All ADB’s strategic development objectives at the time

(i.e., economic growth, human development, sound environmental management, and improvingthe status of women) would be pursued in ways that contributed most effectively to povertyreduction. There would be more emphasis on rural development and social development.Infrastructure investments would be located in poor areas or would include special componentsto increase access to the poor. Poverty interventions would have to disproportionately benefitthe poor; the number of poverty interventions would have to rise to 50% of all ADF and OCRlending operations, and the lending volume for poverty interventions would have to be minimally40% by 2001. Appendix 2 quotes relevant guidance of the PRS that provides a basis for evaluation of the achievements of ADF VIII.

11. Incorporating Governance. ADF VIII was a watershed event in the attention directedtoward good governance in both ADB, as an organization, and in its programs in the DMCs.

ADB’s PRS had already elevated good governance to the level of one of its three pillars, alongwith pro-poor sustainable economic growth and social development. The PRS proclaimed thatdenial of basic services to the poor was not just a matter of lack of investment; it was often theresult of (i) institutional structures that lacked accountability, (ii) domination by local elites,(iii) widespread corruption, (iv) culturally determined inequality, and (v) lack of participation bythe poor. While no specific governance targets were set, specific operations would seek toimprove public expenditure management, increase government accountability, and developeffective regulation of financial markets and public utilities. Later, ADF IX called for a sharpenedfocus on good governance, but perhaps more concretely called for ADB to focus more onanticorruption measures in its operations.

12. Performance-Based Allocation and Grants. Among the major innovations of ADF VIIIin 2001 was the allocation of ADF resources according to each country’s performance, while

ADF IX for the first time made grants available for project financing in ADF countries that were

12 Up to 2000, ADB organized much of its project processing and administration along sector lines, and sector programs reflected corporate comparative strengths. Since 2002, partly in response to ADF donor interests,country strategies have become a more important organizing principle in ADB programming, and a reorganizationof operations departments along more regional lines was implemented to strengthen country orientation.This reorganization was to enable a more country led and country demand-driven approach.

13 ADB. 2001. Moving the Poverty Reduction Agenda Forward in Asia and the Pacific. The Long-Term Strategic Framework of the Asian Development Bank (2001–2015). Manila.



4

debt distressed.14 Clearly, PBA was seen as a tool not only to reduce wastage of resources incountries with weak performance, but also to incentivize DMC governments to improvegovernance. Grants were to help diminish the level of indebtedness of debt-distressed countries.

13. Aid Harmonization. Aid coordination and cooperation were stressed in the ADF VIIIdonor report, and aid harmonization in the ADF IX donor report. The 2005 Paris Declaration on

Aid Effectiveness, supported by ADB, gave additional weight to aid harmonization.

D. Approach to the Evaluation

14. Given that ADF VIII started in 2001, and the period to which ADF IX applies is not yetcompleted, only 22 of the 245 operations approved had been completed at the start of this study(early 2007). Eight had only PCRs; not one project performance evaluation report (PPER) hadbeen undertaken.15 Any impact assessment held at such a stage must be preliminary in nature,and much attention will of necessity go to assessing likely outcomes of ongoing operations andissues of ADF’s relevance and efficiency.

15. Data sources for the study included (i) ADB databases; (ii) interviews with relevant ADBstaff in ADB headquarters and resident missions; (iii) analysis of a sample of 80 reports andrecommendations of the President (RRPs); (iv) five country visits to gather information andconduct interviews with stakeholders regarding ADF themes and issues; and (v) case studies of 25 ADF-supported operations under implementation in three of the largest ADF recipients—Bangladesh, Pakistan, and Viet Nam—and two smaller ones—Lao People’s DemocraticRepublic (Lao PDR) and Nepal. 16 Secondary data were gathered from prior and currentOED evaluations, and from ADB reviews.

16. Chapter II discusses trends in the ADF and compares allocation patterns in ADF VIII andIX with those of ADF VI and VII, as well as OCR. Chapter III synthesizes available findings andassessments with respect to outputs and likely outcomes of earlier ADF operations than thoseof ADF VIII and IX. Chapter IV synthesizes preliminary findings regarding results of ADF VIII,mainly based on case studies of 25 ongoing operations. Chapter V reviews the PBA and makessome observations regarding grants. Chapter VI reviews progress with aid coordination,cofinancing, and harmonization, with special reference to the ADF. The final chapter assessesthe relevance, effectiveness, efficiency, and sustainability of the ADF, and presentsrecommendations to ADB and ADF donors.

II. OVERVIEW OF ADF FINANCING

A. Introduction

17. Since ADF began, donors have contributed some $22.935 billion to it—a further $10.514billion for ADF came from repayments of earlier loans and other sources. Up to 1991, ADF wasreplenished only through new donor contributions—the repayments of earlier ADF loans up to

that time were few, and the grace periods were longer. Since 1992, ADF has been replenished

14 The term “ADF countries” in this study refers to those DMCs that had access to loans on concessional terms and/or grants from the ADF in 2001–2008.

15 PPERs are usually undertaken about 2 years after issuance of the PCR, and OED is conducting only 10 per year since 2007, and in that year moved to a system of independent validation of all PCRs.

16 Projects were selected in the order of their approval from 2001 onwards, taken into account that the projectsneeded to be in different sectors in each country, and have different executing agencies so that a variety of sector experiences and views from agencies was ensured.



5

from (i) new donor contributions, (iii) reflows,17 and (iii) other contributions (such as income fromOCR operations). Reflows are certain to become the most important source of financing for thenext ADF replenishment.

18. Donor contributions were highest in the period of the 1980s to early 1990s and havecontinued to rise in both nominal and real terms (Figure 1). In real terms, the ADF resources

have not grown by very much from the early 1990s onwards, and can be argued not to havekept pace with the growth of the population in the Asia and Pacific region—50% between 1980and 2005. Figure 1, which includes updated data from ADB’s Treasury Department, shows thatreflows and other resources have grown in particular in ADF VIII, rendering it the largest ADFreplenishment in real terms so far ($7,525 million in 2005 prices).

19. When comparing with allocations of the International Development Association (IDA),especially after 2004, and total official development assistance (ODA) over a longer period, the

ADF has been declining in importance in ADF countries. This is borne out by Figure 2. ODAfigures for 2006 and 2007 were, however, not yet available at the time of drafting this report.

17 Reflows consist of loan repayments, service charges net of administrative expenses, and investment income.

Figure 1: ADF Replenishments in Nominal and Real Terms

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

ADF I

1973-75

ADF II

1976-78

ADF III

1979-82

ADF IV

1983-86

ADF V

1987-91

ADF VI

1992-96

ADF VII

1997-00

ADF VIII

2001-04

ADF IX

2005-08

Replenishment Period

$ m i l l i o n ( N o m

i n a l T e r m s )

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

$ m i l l i o n ( R e a l T e r m s )

Resources in Real Terms, 2005 Prices

Reflow -based

Commitment Authority

(Nominal Terms)

Donor Contributions

(Nominal Terms)

Other Resources

(Nominal Terms)

ADF = Asian Development Fund.Note: In $ equivalent at exchange rates specified in Board of Governors' resolutions. A

constant discount factor of 2.09% is applied per year in $ terms using 2005 as the

base year. Other resources comprise loan repayments, net income, ordinarycapital resources net income transfers, loan savings and cancellations, and set-aside resources. ADF V, VI, and IX exclude donor contributions transferred to theTechnical Assistance Special Fund.

Source: Asian Development Bank Treasury Department.



6

20. In the interest of harmonization with IDA 13, donors approved that some of the ADF IXresources could be provided as grants to DMCs that were under debt distress. The maximumamount that could be on-granted under ADF IX was $1.28 billion, or 21% of the totalreplenishment. This comprised 18% for projects and programs, and 3% assigned to theTechnical Assistance Special Fund (TASF). Two percent of the funds were to be granted tooperations combating human immunodeficiency virus (HIV) risks and acquired immunedeficiency syndrome (AIDS). Furthermore, ADF IX set aside funds for regional cooperationoperations (up to 5% of total funds) and for Pacific DMCs (4.5% of the PBA). ”Set asides” werealso made available to Afghanistan and Timor-Leste, 18 while a set-aside for Indonesia($100 million a year in recent years) was intended to cap the allocation to that country.

21. An evaluation of ADF VIII and IX requires consideration of resource flows fromJanuary 2001 until December 2008. By August 2007, $9.4 billion had been committed to loansand grants, and operations with an estimated value of $4.5 billion were still in the pipeline.Given that ADB is planning to commit all funds by end-2008, this equates to ADB needing toprocess 64% of ADF IX’s value in less than 1.5 years. While many operations have been under preparation for some time, a bunching of loan and grant approvals at the end of 2008 can beanticipated, which will put pressure on the decision-making processes.

18 Set-asides are fixed sums or percentages of ADF, outside the pool of funds to which the PBA formula is applied.

Figure 2: Comparison of ADF Approvals with IDA Approvals and TotalODA Disbursed to a Selection of ADF Countries, 2000–2005

-

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

14,000.0

16,000.0

2000 2001 2002 2003 2004 2005

$ m i l l i o n

Total ODA IDA ADF

ADF = Asian Development Fund, IDA = International Development Association,ODA = official development assistance.Note: Countries included: Afghanistan, Azerbaijan, Bangladesh, Bhutan,

Cambodia, Indonesia, Kyrgyz Republic, Lao PDR, Maldives, Mongolia,Nepal, Pakistan, Samoa, Sri Lanka, Tajikistan, Timor-Leste, Tonga,Uzbekistan, Viet Nam.

Sources: (i) ADB Loan, TA, and Private Sector Approvals database; (ii) WorldBank annual reports and IDA Statement of Development Grantsavailable at http://www.worldbank.org: (iii) data extracted 2007/12/01from Organisation for Economic Cooperation and Developmentstatistics:Available: http://stats.oecd.org/WBOS/Default.aspx?DatasetCode=CRSNEW



7

22. The rest of this chapter assesses how ADF VIII and IX allocations have been distributedacross countries of different types and poverty levels, how they are distributed among sectors,how ADF VIII and IX approvals compare with OCR approvals in the same ADF recipientcountries, and how ADF has been utilized through various financing modalities. The themesaddressed by ADF, and the amount of ADF used for general versus poverty interventions, arealso discussed. This sets the context for the development results that are analyzed in chapters

III and IV. Attention is paid first to lending conditions of ADF in order to answer the question:how much benefit does a country derive from access to low-interest ADF loans?

B. Lending Conditions of the ADF

23. ADF loans are usually provided for operations implemented over a 5-year period, andare assigned an 8-year grace period and a repayment period of 32 years for projects and24 years for programs. Service charges are 1% for loans per year during the grace period and1.5% thereafter. In June 2004, ADB's Board of Directors approved the loan terms for ADF-financed emergency assistance loans: 40-year maturity, including a 10-year grace period,1% interest per year, with repayment of principal at 2% a year for the first 10 years after thegrace period and 4% a year thereafter.

24. A key feature of the ADF is that it is supplied to country governments that generally donot have access to commercial lending sources, cannot issue bonds easily, and so havedifficulties in accessing international credit markets. Even when governments have someaccess, this invariably comes at much higher cost than ADB’s (or the World Bank’s) lendingconditions.

25. The ADF is highly attractive to DMCs from a financial perspective. With a discount rateof 10%, the grant element of ADF loans with 8 years grace period and 32 years maturity isbetween 60% and 75%, depending on the speed of disbursement of the loan. 19 However, theuse of ADF loans invariably comes with a set of conditions that need to be met. ADF lendingoften comes with additional benefits, such as pro-bono project preparatory technical assistance.During implementation, the operations that the loans support may be further supplemented bypro-bono advisory technical assistance (ADTA) or other grant funds given by donors to ADB toadminister. ADF operations can be complemented by projects granted by the Japan Fund for Poverty Reduction (JFPR) since 2000. ADF-funded operations may generate further cofinancingsupplied by other donors, which is usually also on highly concessional or grant terms. Tables

A3.1 and A3.2 in Appendix 3 provide details on ADB support as well as cofinancing by other aidagencies in the context of ADF operations. A recently approved advantage is that, since 2006,

ADF-recipient countries can choose the currency in which to receive the loan, and have morechoice regarding the currency in which to repay (euro, Japanese yen, pound sterling, or UnitedStates dollar).

26. ADF loans have historically been somewhat less attractive than the concessional loansof the IDA, as the latter usually come with a 10-year grace period, a 40-year repayment period,and 0.75% service charge. Nevertheless, most countries, unless they are in severe debtdistress, are eager to receive ADF loans due to the scarcity of IDA and other concessionalfunds, and to their large investment needs. Many ADF countries are also interested in ADB’sOCR loans, which have a smaller but yet significant concessional element, and share the

19 If average project disbursement in ADB is assumed, then the grant element would be around 61%; OCR lendingwith 25 years maturity and an assumed 5% interest rate (in reality the rate is variable) after a grace period of 5 years, and with an identical disbursement pattern and discount rate, would have a grant element of 44%.



8

advantage of ADB support in project preparation and implementation, as well as support in theform of project preparatory technical assistance, ADTA, and cofinancing by other sources.

C. Distribution of the ADF Across Countries and Populations

27. The present 27 DMCs with access to the ADF 20 had an aggregate population of

741 million in 2005, a total gross domestic product (GDP) of $475 billion (i.e., less than that of the Netherlands) and an average GDP per capita of $637. However, GDP per capita ranged insize from over $2,000 in the Maldives and the Marshall Islands down to $234 in Nepal. DMCswith per capita gross national product above $925 in 1997 prices must meet with some specialcriteria to remain eligible for the ADF.21 ADF countries are divided into three groups: (i) Group A,with access to ADF only (not OCR); (ii) Group B1, with access mainly to ADF and limitedamounts of OCR; and (iii) Group B2, with access mainly to OCR but with access to limitedamounts of ADF. During ADF VIII and IX, Group A included 15 countries; Group B1, 9; andGroup B2, 3 (Table A3.3, Appendix 3).

28. The distribution of ADF loans to individual countries is determined by a PBA formula thattakes into account investment needs as approximated by population and per capita income, andthat furthermore contains factors derived from ratings arrived at through annual countryperformance assessments (CPAs) undertaken for most ADF DMCs. Under ADF VIII (2001–2004), these CPAs were relatively simple and gave weight mainly to portfolio performance.

Annual variations in ceilings were cushioned by caps and ”collars.” ADF IX abandoned thecollars, and a new type of assessment, more harmonized with that of IDA, gives much weight toissues of governance, economic and social performance, as well as ADB project portfolioperformance—good performance and governance is rewarded by relatively higher allocations.

29. Not surprising, given their large populations, Pakistan and Bangladesh were among thelargest recipients of ADF resources in both ADF VI and VII, and in ADF VIII and IX (Figure 3and Tables A3.4 and A3.5 in Appendix 3). Viet Nam and Afghanistan are two other largebeneficiaries of the ADF: Viet Nam, due to a high country performance rating, and Afghanistanas a conflict-affected country due to a large set-aside. Indonesia receives a relatively smaller allocation from the ADF due to its status as a B2 country. The large allocations to the countriesmentioned should come as no surprise since all have large or medium size populations. In fact,the PBA formula, although taking into account population and GDP, includes a factor by whichthe effect of size of the population on allocation is somewhat diminished. The latter is done inorder to avoid populous countries crowding out less populous countries. In both 2001–2008 andthe preceding period of 1992–2000, Bangladesh, Pakistan, and Viet Nam absorbed around 46%of the funds, leaving 54% to be shared among the other 23 countries. Indonesia, Nepal, SriLanka, and Afghanistan and Cambodia as new entrants in ADF VIII, absorbed a further 35% of the funds. On a per capita basis, the picture is considerably more nuanced—countries withsmall populations are generally receiving a relatively much larger share, often even when their GDP is relatively higher. The small Pacific island countries are the largest recipients of ADF ona per capita basis, although the lending programs often cover only one or two loans over anygiven ADF replenishment period.

20 Twenty-six DMCs were eligible for ADF VIII and 27 for ADF IX – this was due to the addition of Uzbekistan in 2005.The number may rise further to 29 when Georgia and Armenia gain access to ADF.

21 These are described in Operations Manual Section A1/OP (issued on 30 May 2007), paragraphs 3–5. The criteriaadopted to classify DMCs are per capita gross national product, and debt repayment capacity.



9

30. There are large variations in theallocations to countries with a largeproportion of the poor of ADF countries(Figure 4). The poor are in this studythose with a per capita income of $1 per

day in purchasing power parity.Bangladesh has almost half of the poor inthe ADF countries but receives only 15%of ADF resources. Even when taking intoaccount the OCR allocations to some of these countries, from the point of view of targeting the poor in Asia, the allocationpattern looks disparate. (See Tables A3.6and A3.7 of Appendix 3 for details.)

31. Due to their economic growth over the years, ADB’s graduation policy has

rendered some other populous ADFcountries ineligible for ADF, although their poor populations remain sizeable.The Philippines became ineligible for ADFin 1999, and Indonesia will most likelyreach this stage by 2008. The Philippineshad 11.3 million poor in 2005; Indonesia,14.3 million. Only 113 million (i.e., 18%) of the currently estimated 620 million poor people in the Asia and Pacific Region arein ADF countries (Figure 5), excludingthose for which no poverty data areavailable, such as Afghanistan, Myanmar,Uzbekistan, and some Pacific islandcountries.

32. When Indonesia graduates, thenumber will fall below 100 million.However, the number of people livingbelow $2 purchasing power parity per capita per day (at around 500 million) isstill significant (i.e., 60%).

22 Pacific countries include Cook Islands, Federated States of Micronesia, Kiribati, Papua New Guinea, Republic of Marshall Islands, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu, and Vanuatu; Central Asia countriesinclude Armenia, Azerbaijan, Kyrgyz Republic, Tajikistan, and Uzbekistan. Regional = regional ADF operations.

Figure 3: Percentage of Total ADF VIII and ADFIX Resources Allocated to ADF Countries22

Regional

6%

Indonesia

5%

Pakistan

17%

Afghanistan

14%

Viet Nam

13%

Sri Lanka

6%

Nepal

5%

Cambodia

4%

Central Asia

6%Lao PDR

2%

Bhutan &

Maldives

1%

Mongolia

2%

Pacific2%

Bangladesh

15%

Note: Includes pipeline 2007 – 2008 as of 10 August 2007.Source: ADB’s Loan, TA, Grant and Equity Approvals

database and Project Processing and InformationSystem.

Figure 4: Share of ADF and Share of Poor inADF Countries in 2005, Selected ADF

Countries

13

4

15

48

13

5

6

15

5

17

7 6

16

-

10

20

30

40

50

P a k i s

t a n

B a n g l a d e s h

V i e t N a m

S r i L

a n k a

I n d o n e s i a

N e p a l

C a m b o

d i a

P e r c e n t

ADF Share (%) % Poor to Total Poor

Note: Poverty data on Afghanistan and Uzbekistan are notavailable. The ADF share includes the 2007–2008 pipeline asof 10 August 2007.Source: ADB. 2006. Key Indicators 2006 . Manila.



10

D. Importance of the ADF to Countries

33. The ADF is, in most of the DMCs, a very small source of funds when compared on a per capita basis with GDP and some other indicators (Tables A3.8 and A3.9, Appendix 3). The

biggest beneficiaries of approved ADF amounts per capita per year have been the Pacific islandeconomies ($36), Maldives ($22), Bhutan ($15), and Mongolia ($11). For all others, the annual ADF-approved amount per capita has been at $6 or less.24 The situation is, however, somewhatdifferent if ADF approvals are compared with overall government expenditure. Although average

ADF approvals per year comprise only 3% or less of overall annual government expenditures, insmaller countries such as Bhutan, Cambodia, Lao PDR, Nepal and Tajikistan it has been 5%–8% in 2001–2008. In such countries, ADB’s policy advice can be held to exert some realinfluence in government decision making. In Afghanistan, the proportion of ADF approvals togovernment expenditure in 2005 was exceptionally high (35%). 25 When compared with totalODA, the ADF is a significant source of development aid in several cases and even in the larger

ADF countries such as Bangladesh, Pakistan, and Viet Nam. The ADF is a sizeable source of external concessional funding in at least 13 of the 17 Asian ADF countries, aside from the

Pacific island economies. In Azerbaijan, Indonesia, Papua New Guinea, and Sri Lanka, the ADFcan be held to be much less significant, but access to OCR may increase ADB’s influence. Only

23 Selected countries; excludes Afghanistan, for which no data are available, and Myanmar.24 Annual actual disbursements per capita are usually smaller than annually approved amounts.25 Data on government expenditure may be unreliable. It should also be warned that loan and grant approvals

annualized over 2001–2008 approximate, but may not equate to, actual disbursements, especially if the program isnew, such as in Afghanistan.

Figure 5: Number of Poor Living at or below $1/dayper Capita, Developing Asia (in millions)23

Pakistan, 30.3

Bangladesh,

41.5

India, 339.8

People's

Republic of

China, 175.2

Uzbekistan,

1.9

Cambodia, 4.7

Philippines, 12.0

Indonesia, 14.3

Nepal, 6.4

Viet Nam, 8.1

Others, 4.6

Note: Afghanistan and Myanmar are excluded due to lack of data.Source: ADB Key Indicators 2006.



11

in Solomon Islands and Timor-Leste, may ADF have little leverage, while these countries alsodo not get access to OCR to compensate for this.

E. Sector Distribution of the ADF

34. The sector share distribution of the resources of the four ADF replenishments and OCR

loans for the same period and countries is shown in Table 1 (see Table A3.10, Appendix 3, for amounts).

Table 1: ADF and OCR Distribution by Sector, ADF Countries 1992–2008(%)

ADF OCR ADF and OCR

Sector 1992–2000 2001–2008 1992–2000 2001–2008 1992–2000 2001–2008Multisector 16.0 19.4 9.3 7.3 12.3 11.2

Transport and Communications 21.6 18.9 14.8 33.1 17.8 28.5

Agriculture and Natural Resources 18.9 15.7 10.1 3.3 14.0 7.3

Education 9.5 10.8 8.7 0.6 9.0 3.9

Water Supply, Sanitation, and

Waste Management

7.4 10.3 2.5 11.4 4.7 11.1

Energy 11.7 9.1 24.3 21.6 18.7 17.6

Law, Economic Management, andPublic Policy

2.6 6.0 2.9 13.8 2.8 11.2

Finance 6.7 3.9 16.8 7.4 12.3 6.3

Health, Nutrition, and SocialProtection

4.7 3.5 5.5 0.4 5.1 1.4

Industry and Trade 0.9 2.4 5.2 1.2 3.3 1.6

Total 100.0 100.0 100.0 100.0 100.0 100.0 ADF = Asian Development Fund, OCR = ordinary capital resource.Sources of Basic Data: Lotus Notes database on Loan, Technical Assistance, Grant, and Equity Approvals; Project Processing

and Information System as of 10 August 2007.

35. The most conspicuous trends are the following:

(i) The single largest sector supported by the ADF covers multisector operations in ADF countries (from 16% to 19%), although the sector is smaller in terms of OCR.This may be due in part to increased reliance on holistic, area-based projects,but a more important reason is that a larger portion of the ADF has needed to bedevoted to emergency assistance, notably post-conflict operations in Afghanistanand the earthquake response in Pakistan (Table A3.11). When ADF and OCRresources are taken together, multisector operations consume 11% of the total

ADB resources, and they have not grown in 2001–2008 as compared with theperiod 1992–2000.

(ii) Transport and energy operations in ADF countries are increasingly funded byOCR. These are sectors that either generate their own resources for repayment(energy) or enjoy high economic priority (highways) and are not deemed risky.

(iii) Law, economic management, and public policy operations were small before ADF VIII, but they more than doubled in importance over the period of ADF VIII–IX, indicative of more attention for governance issues. OCR lending for thissector grew even faster in the same ADF countries.

(iv) Although ADF social sector operations grew, health operations declined.This was in spite of ADF IX setting aside a proportion for combating HIV/AIDS



12

and other communicable diseases, which increased ADB’s allocations for thispurpose significantly (Appendix 4). Health and education operations funded byOCR declined strongly. The growth in number of water supply, sanitation, andwaste management operations could not prevent a decline in relative importanceof social sector operations, from 19% in 1992–2000 to 16% in 2001–2008.This was counter to the human development ambitions of the PRS and the ADF

VIII donors’ report.

36. Sector allocations for Pacific countries are given in Table A3.12, and regionalcooperation loans in Table A3.13. More detailed analysis of sector allocations is found in

Appendix 3.

F. Use of the ADF by Financing Modality

37. The ADF donor reports for ADF VIII and IX did not make specific recommendations for achange to more program-based approaches. There was, however, a general endorsement of more alignment with country systems and priorities. The Paris Declaration, signed by most ADFdonors and by ADB in March 2005, reinforced this notion. When disaggregating ADF lendingallocations by the various financing modalities of ADB, project funding has diminished in

importance from 89% of all funds in ADF VI–VII to 77% in ADF VIII–IX.

38. Project Lending. There have been positive changes in the types of projects supported:

(i) Sector projects decreased in importance from 18% to 9% of overall lending.Sector projects are often complex due to the widely dispersed locations whereworks are implemented.

(ii) The proportion of TA loans in the portfolio increased from 0.4% to 1.7%.These deal mostly with either capacity development or the preparation of detaileddesign. Breaking up the project preparation process in various stages is inprinciple positive.

(iii) The introduction of the Multitranche Financing Facility in 2005 may have led to a

decrease in the time taken for project preparation (2% of ADF IX), although themodality was not intended primarily for ADF operations.26 It is however too earlyto assess the results of the approach.

39. Program Lending. Set against reduced traditional project lending, the ADF lending for programs increased from 11% during ADF VI and VII to 23% during ADF VIII and IX, includingthe pipeline for 2007 and 2008 (Table A3.14, Appendix 3). The number of combined sector programs and project loans (sector development programs) also increased, from 2% in 1992–2000 to 6% in 2001–2008. Even higher proportions of program lending have been achieved withOCR—perhaps indicative of greater capacity in ADF-OCR blend countries. The move toprogram lending is in part a result of the greater attention for governance in the 2000s, as alsostimulated by the ADF donor reports. Program loans total $3.193 billion for ADF VIII–IX.

They have been mostly for law and economic management (20%), multisector operations (17%),water supply (15%), finance (12%), and agriculture (12%). A breakdown of ADF program loansby sector is in Table A3.15, Appendix 3.

26 The use of the Multitranche Financing Facility in ADF operations may be limited, as release by tranches mayinvolve longer periods than the ADF replenishment cycle. The modality was originally conceived to deal withreservations held by clients of OCR against commitment charges, charges that are not attached to ADF lendingoperations.



13

40. ADF Grants. By end-August 2007, this major new modality had been utilized for 41 operations in 13 countries. The number of operations assigned ADF grants is planned to riseto 63 by the end of the ADF IX period. Almost half of the grant operations were in Afghanistan.Other countries that benefited from ADF grants were Cambodia, Kyrgyz Republic, Lao PDR andNepal. ADF grant approvals in 2005–2006 totaled $522 million—somewhat lower than the$315 million annual grant program envisaged at the time of the replenishment. The identification

of investments suitable for grants has not been smooth: Some of the operations did notmaterialize, and thus available grant ceilings were often not utilized, especially in Nepal and inthe Pacific. There were delays in programming and processing grant-financed operations.Some grant-eligible countries had lower PBAs, so received fewer grant funds than anticipated.Initially, most operations with grants were dealing with communicable diseases and water supply, but later a larger variety of sectors such as agriculture and roads were assigned

ADF grants. The breakdown of grant distribution by sector is given in Table A3.16, Appendix 3.

G. Use of the ADF for Economic Growth, Social Development, and Governance27

41. In ADF VI–VII, 57% of the funds available went to loans whose main purpose wasstimulating economic growth. This was followed by human development at 24%; povertyreduction, 10%; women in development, 6%; and environment and natural resources, 2%.In ADF VIII and IX, 89% and 68% of the respective loan portfolios were classified as addressingsustainable economic growth either as the first, second, or third theme. This was followed byinclusive social development (50% in ADF VIII and 40% in ADF IX) and governance (22% and29%). These results are in line with the pillars of the PRS: all operations should address at leastone of the three. Figure 6 (based on Table A3.17 in Appendix 3) shows ADF VIII–IX loans bythematic classification.28 The trend cannot be compared over a longer period of time due toclassification differences. Governance has increased in importance as a theme between

ADF VIII and IX, and ADB has classified more ADF IX operations as addressing environmentand gender.29 Regional cooperation and integration, a new theme in 2001, doubled from 5% of operations under ADF VIII to 11% under ADF IX. Private sector development operations did notexpand under ADF IX, even though nonsovereign private sector lending in ADF countriesincreased significantly.30 No targets were set for the new capacity development thematic priorityof 2005, but staff classified almost a quarter of ADF operations so far as having a capacity-development theme.

27 ADB has used a variety of classifications for its operations. At the time of ADF VI and VII, ADB classified all loanoperations under five so-called strategic development objectives (SDOs): (i) economic growth, (ii) humandevelopment, (iii) poverty reduction, (iv) women and development, and (v) environmental protection and naturalresource management. Operations could be assigned a primary and, if applicable, a secondary SDO.The classification helped reorient operations toward social sector development, environment, and poverty reduction.In 2001, this classification was replaced by another in line with the 1999 PRS. It dropped poverty reduction as aspecial theme for operations, as poverty reduction had already been elevated to ADB’s overarching goal. This goalwould be aided by eight themes: (i) economic growth, (ii) human development, (iii) gender and development,(iv) good governance; (v) private sector development, (vi) environmental protection, (vii) regional cooperation, and(viii) multitheme. In June 2004, this classification was aligned with the three pillars of the EPRS (footnote 11) andthe 2001 LTSF (footnote 13): (i) sustainable economic growth, (ii) social development and (iii) governance.The category of multitheme was removed, and a maximum of three themes were allowed for the classification of each operation. A new theme was added: capacity development. ADB subsequently reclassified ADF VIIIoperations approved from 2001 onwards to fit the new classification.

28 When studying this, it should be kept in mind that ADB has not set quantitative targets for thematic priorities. ADFdonor reports and ADB policies have seldom been more than indicative.

29 Only 2.5% of ADF operations had classified environmental sustainability as first priority. Overall, the number of projects classified with this theme remained almost the same between ADF VIII and IX at 10% and 9%,respectively, and the amounts committed increased from 12% under ADF VIII to 20% under ADF IX.

30 Nonsovereign lending to the private sector in ADF countries increased from $18 million in 2001 to $130 million in2006.



14

42. This study concludes that economic growth and social development became lesspredominant measures under ADF IX. 31 A wider variety of purposes has gradually beenaddressed, pointing both to the likelihood of more appropriate responses to the varied needs of countries and country strategies, and to a less selective corporate ADB program.

H. Use of the ADF for Poverty Interventions

43. The PRS led to the introduction of a separate poverty classification for all operations,and an ADB-wide target of 40% of project approvals by amount needing to be poverty

interventions. ADB achieved the targets in 2002 and exceeded them in 2003,32 but the systemwas nevertheless modified in mid–2004 to reflect the recommendations of a review of thePRS.33 This argued that the target setting was inappropriate—the approach diverted attentionfrom removing the binding constraints to poverty reduction in favor of providing short-termbenefits to the poor. The lending target overemphasized the importance of inputs rather thanresults. The PRS had defined poverty interventions narrowly by including only individual- andhousehold-based interventions, but had not included other possible types of targeting, such asthose based on geographic and sector / subsector attributes. Operationally, the review arguedthat the 40% lending target gave the message that household-targeted operations were superior to nontargeted interventions in reducing poverty. Staff feedback confirmed that it had created anincentive to pursue household-targeted operations at the expense of operations with an indirectbut potentially larger impact on poverty reduction. The ADB-wide target provided incentives to

include targeted components, at times at the expense of efficiency.

31 The lower number of projects categorized as addressing sustainable economic growth in ADF IX could be in partthe result of operations departments choosing to acknowledge a larger set of themes in ADB’s operations.The average number of themes per loan rose from 1.8 under ADF VIII to 2.1 in ADF IX. However, if there werereally more cases of projects addressing multiple themes, one of which is economic growth, then this would haveled to an even higher average of economic growth projects under ADF IX than ADF VIII.

32 Fifty-one percent of all project approvals by amount were poverty interventions in 2003, including 5% core povertyinterventions.

33 ADB. 2004. The Review of the Poverty Reduction Strategy . Manila.

Figure 6: ADF VIII–IX Loans by Thematic Classification

89

50

22

13 12 135

70

40

31

20 21

10 11

24

0

10

20

30

40

50

60

70

80

90

100

Sustainable

Economic

Growth

Inclusive Social

Development

Governance Gender and

Development

Environmental

Sustainability

Private Sector

Development

Regional

Cooperation

Capacity

Development

P e r c e n t

ADF VIII ADF IX

ADF = Asian Development Fund.Note: Includes ADF loans and grants in the pipeline until end 2008 as of 7 September 2007.Source: Project Processing and Information System as of 7 September 2007.



15

44. Household-targeted interventions were deemed more complex to design and implement,and thereby raised the cost of preparation and implementation. The EPRS (footnote 11) favoreda classification of operations as either general interventions or targeted interventions, but did notprescribe a new quantitative target for ADB. This allowed monitoring of operations thataddressed either poor individuals or households directly (as before); certain poor regions within

countries; or certain sectors and subsectors deemed to directly address poverty and non-income Millenium Development Goals (MDGs) 2 to 7 concerning health, primary education, andrural water supply.

45. The abandonment of the ADB-wide poverty reduction target probably led to a lessgenerous interpretation of operations being pro-poor than before, as well as a real decrease inthe number of operations having special pro-poor components in ADF IX, particularly ininfrastructure projects. The percentage of ADF resources classified as targeted interventions in2005–2007 (essentially poverty interventions but following a wider set of criteria) was still 51%—higher than the PRS target regarding poverty interventions. OCR’s focus on poverty-targetedlending disappeared (Figure 7 and Table A3.18, Appendix 3).

I. Integration of the ADF and OCR in ADB

46. Due to lack of ADF resources and of continued availability of good investmentopportunities, many ADF–OCR blend countries are increasingly resorting to blending ADF- and

OCR-funded components in operations. The share of blended loans increased from 5% during ADF VI and VII to 13% in ADF VIII and IX. The trend is most conspicuous for operations in thecategory of law, economic management, and public policy (a rise from 12% of loans beingblended in 1992–2000 to 23% in 2001–2008). See Tables A3.19 and A3.20 in Appendix 3.It can be argued that the ADF allowed the integration of a wider agenda in the country strategyand programs (CSPs) of B1 and B2 countries. It allowed for more attention to socialdevelopment and capacity development, goals for which such countries do not always wish toborrow OCR. Increased reliance on blending could help rationalize project preparation and

Figure 7: ADF and OCR Trends in Poverty Interventions andTargeted Interventions, 2001–2006

(% of all Interventions—Loans and Grants)

40

12

51

7068

15

34

62

0

10

20

30

40

50

60

70

80

ADF poverty

intervention

2001-2003

ADF targeted

intervention

2004-2006

OCR poverty

intervention

2001-2003

OCR targeted

intervention

2004-2006

P e r c e n t

% of loan amount % of loans

Source: ADB databases.

OCRADF



16

address poverty reduction, capacity development, and non-income MDGs in some countrieswith large poor populations.

J. Allocation of the ADF to the TASF and Allocation of TA to ADF Countries

47. All ADB DMCs are eligible for the TASF, and, consequently, for some of the $210 million

ADF IX replenishment of TASF funds for TA for non-ADF countries. In 2001–2004, 79% of theTASF (not funded by ADF) was assigned to ADF countries, and 76% in 2005–2008 (includingpipeline TAs). The difference is not large and thus it can be concluded that ADF interests haveplayed no role in the allocation of TA to countries. Of the overall TA program over the period2001–2008, 80% was allocated to ADF countries between 2001 and 2004, and 81% between2005 and 2008 (including pipeline TA).34 The TA program also includes TA funded by the JapanSpecial Fund (JSF) and other special donor trust funds.

48. The sustainable economic growth theme received the highest emphasis in the overall TAprogram. This was not different from the pattern for ADF projects and programs. This showsthat a basic level of alignment between TA and loan operations was achieved. Forty percent of TA in 2001–2004 and 67% in 2005–2008 promoted sustainable economic growth (Figure 8).This was followed by governance (33% and 28%) and inclusive social development (26% and25%). Gender and development received the lowest amounts of TA funds (2% and 6%).

Figure 8: ADF VIII–IX Technical Assistance by Thematic Classification

40 34

26

16 15 14

2

24

6

26

1321

2528

67

0

10

20

30

40

50

60

70

80

Sustainable

Economic

Grow th

Governance Inclusive

Social

Development

Environmental

Sustainabiliy

Private Sector

Development

Regional

Cooperation

Gender and

Development

Capacity

Development

P e r c e n t

ADF VIII ADF IX

ADF = Asian Development Fund.Note: Includes technical assistance to ADF countries in the pipeline until end 2008 as of 21 August 2007Source: ADB Project Processing and Information System as of 21 August 2007.

49. More TA was assigned to economic growth themes in the ADF IX period, in line with the

2004 PRS review (footnote 33) and new instructions of ADB’s Medium Term Strategy II (2006–2008) (MTSII) in 2006. 35 This was the opposite for loan- and grant-funded operations in thatperiod. The increase of TA with sustainable economic growth themes in ADF IX could also beattributed to increased theme categorization under ADF IX (2.02 average themes per TA) as

34 Since 2005, ADB ensures that the TASF resource utilized in non-ADF countries does not exceed the TASF amountthat is made available through non-ADF sources of funds (i.e., OCR net income transfer, savings/cancellations,voluntary contributions).

35 ADB. 2006. The Medium-Term Strategy II (2006–2008). Manila.



17

compared with ADF VIII (1.43). Governance was the second most frequent theme addressed.Conspicuous were the increase in TA dealing with environmental sustainability and the rise inprominence of the regional cooperation theme. Much like loan and grant operations, almost afourth of all TA operations during 2005-2008 were categorized as primarily addressing capacitydevelopment, the new priority identified in the EPRS and endorsed by the ADF IX donors.The shifts in TA allocation thus reflected the shifts in ADB’s strategic priorities.

K. Net Resource Transfers of the ADF

50. Figure 9 presents the trend in net ADF resource transfers from 1980 until 2006, with aprojection of rapidly increasing ADF loan service payments until 2015. Unless ADF allocationsand especially disbursements increase significantly, the net resource flows to the ADF DMCsmay be low in the near future. This would not be conducive to the needed acceleratedachievement of the MDGs in the region.

Figure 9: Disbursements in 1981–2006 and Actual and Forecast LoanService Payments in 1981–2015, Present ADF Countries Only

0

200

400

600

800

1,000

1,200

1,400

1,600

1 9 8 1

1 9 8 3

1 9 8 5

1 9 8 7

1 9 8 9

1 9 9 1

1 9 9 3

1 9 9 5

1 9 9 7

1 9 9 9

2 0 0 1

2 0 0 3

2 0 0 5

2 0 0 7

2 0 0 9

2 0 1 1

2 0 1 3

2 0 1 5

$ m i l l i o n

Loan Repayment Loan Disbursement

Net resource transfer

ADF = Asian Development Fund.Note: Countries included are Afghanistan, Azerbaijan, Bangladesh, Bhutan, Cambodia, Cook Islands,

Indonesia, Kiribati, Kyrgyz Republic, Lao PDR, Maldives, Marshall Islands, Micronesia, Mongolia,Nepal, Pakistan, Papua New Guinea, Samoa, Solomon Islands, Sri Lanka, Tajikistan, Tonga, Tuvalu,Uzbekistan, Vanuatu, and Viet Nam. The transfers are the actual disbursements minus therepayments of principal and service charges ($704.88 million in 2006).

Source: Data from ADB Controllers Department.

51. The following countries have had negative resource flows in the period of ADF VIII andIX: Nepal and Solomon Islands in 2002, 2003, and 2004; Bangladesh in 2004 and 2005; andPakistan in 2003 (Table A3.21, Appendix 3). In most cases this was due to very lowdisbursement ratios in these years. In the case of Nepal, the deteriorating political situation mayhave been a factor. Several Pacific island countries were also in this category for 1 year or more: Cook Islands, Marshall Islands, and Tuvalu; in 2005 and 2006, the overall resource flowsto these islands were negative. If the present PBAs continue and actual disbursements remainlagging behind the schedules, then new project approvals are likely to be lower than

ADF repayments in 2008 for the Marshall Islands, Lao PDR, and Sri Lanka, and they will beapproaching the annual repayments in Bangladesh and Pakistan. In the ADF VIII period, netresource flows to ADF countries were $2,486 million: $4,343 million was disbursed, and$1,856 million flowed back as loan service payments. This means an average annual net



18

transfer of a little over $600 million, even when the annual approvals on ADF stand at over double this amount.

III. DEVELOPMENT EFFECTIVENESS OF ADF OPERATIONS

A. Poverty Reduction and the Millennium Development Goals in the Region

52. Asia’s big strides in economic growth are visible first of all in the graduation of various ADF countries over the years. Since the start of the ADF in 1973, eight ADF countries movedfrom Group A to B1, six from B1 to B2, and three from B2 to C, while the Republic of Koreamoved from Group B in the 1970s to graduated status in the mid 1990s (Table A6.1,

Appendix 6).36 Growth rates have been high in recent years in most of the large DMCs, notablythe People’s Republic of China (PRC), India, and Thailand—all three not eligible for ADF—butalso in large ADF–OCR blend recipients such as Bangladesh, Indonesia, Pakistan, andViet Nam. As the previous chapter illustrated, extreme poverty has fallen across Asia in bothrelative and absolute terms. Nevertheless, the differences within Asia and the Pacific remainlarge. Annual GDP per capita growth for ADF countries was only 3% during 1990–2005compared with 6% for ADB’s DMCs as a whole. The following countries had GDP per capitagrowth rates below 4% over 2002–2006: Kyrgyz Republic, Marshall Islands, Micronesia, Nepal,Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga, and Vanuatu.37 A recentreport prepared for the Sydney ADF meeting in September 2007 states that 17 countries maynot meet a quarter or more of the non-income MDG targets studied. 38 Nine of the ADFcountries may in fact miss the targets by 44%-63%. The report states that recent data suggestthat deficits may be even higher for non-income MDGs for ADF countries. In fact, the three mostpopulous ADF countries are those with among the greatest deficits: Bangladesh, Pakistan, andIndonesia. The report states that much of the population in the ADF countries still lacks accessto essential infrastructure such as all-weather roads, telephone, reliable and clean water supply,and especially sanitation. 39 A recent paper prepared by OED as part of the review of theLTSF,40 confirms that health indicators and water and sanitation targets appear at risk of notbeing met, while noting the wide country variation in these and other indicators. Perhaps500 million people in the current set of ADF countries live on less than $2 purchasing power parity per capita per day41 (i.e., 60% of the total population). Given that recent studies point toincreasing inequality in various ADF countries,42 there is a prima facie case for continuing andexpanding the ADF up to at least 2015 in order to achieve the MDGs.

B. Success Ratings of ADF-Funded Operations in the Past

53. The small size of the ADF resources available for each country makes it unlikely that astatistically significant relationship exists, or at least can be established, between economic

36 Hong Kong; Singapore; and Taipei, China were already category C countries in the early 1970s (i.e., not eligible for ADF) and moved to graduated status in the early 1990s.

37 ADB. 2007. Key Indicators 2007 . Volume 38. Manila.38 ADB. 2007. Effectiveness of Asian Development Fund Operations. Manila.39 See also: ADB, ESCAP, UNDP. 2007. The Millennium Development Goals: Progress in Asia and the Pacific 2006 .

Available: http://www.mdgasiapacific.org.40 ADB. 2007. Special Evaluation Study on the Long-Term Strategic Framework: Lessons from Implementation

(2001–2006). Manila.41 Derived from Chen, S, and M. Ravallion. 2007. Absolute Poverty Measures for the Developing World 1981–2004.

World Bank Policy Review Paper 4211.Washington D.C.42 Key Indicators 2007 (footnote 37) includes a theme chapter on inequality in Asia. Apart from the PRC, especially

ADF countries have been confronted with significantly higher levels of inequality in Asia, such as Bangladesh,Cambodia, Lao PDR, Nepal, and Sri Lanka. Almost nowhere did inequality decline significantly.



19

growth and poverty reduction. An alternative to assess the ADF’s effectiveness relies onsuccess rates of ADF operations as established by PCRs and PPERs. Unfortunately, too fewsuch operations have been completed to assess ADF VIII and IX, but long-term trends of ADFsuccess rates can be reviewed. Tables A6.2 and A6.3 in Appendix 6 provide the main averagesby decade of project and program approval (1970s, 1980s, and 1990s) by ADF country andsector/subsector. Overall, based on PCRs and PPERs for ADF operations approved in the

1970s, 47% were successful, 51% of those in the 1980s, and 67% of those in the 1990s.

54. Figure 10 shows the 30 year trend for the proportion of ADF- and OCR-fundedoperations that were rated every year as generally successful, successful, or highly successful,and by approval year batch, up to 1999—1 year before the start of ADF VIII. The last5–10batches of operations shown in the figure were at least in part implemented during theperiod of ADF VIII and IX; they were, however, all designed and approved in the period before.

Although the average project success ratings for annual batches are somewhat variable acrossthe years, upward trends are noticeable for both the ADF and OCR portfolios, with a major development in the last years, namely a converging of the OCR and ADF trends. The degree of convergence achieved is remarkable, given that it was generally believed that ADF–OCR blendcountries and OCR-only countries had more project management capacity than ADF-only

countries. Certainly, governments are more willing to borrow OCR for operations in sectors andagencies with more proven capacity. Various factors could be influencing the converging trendbut none of these has been statistically tested in a rigorous sense. One possibility is the effect of a capacity-development process in both ADB and the DMCs, which has lifted the ADF successratings since the mid–1970s. Especially as more agencies that are handling ADF operationshave gone into second or third phases with ADB, capacity may have been built up to deal with

ADB-specific systems and processes. Another factor may be gradual delegation of projectadministration to ADB resident missions. Another factor may be that ADF loan operations, whichare on average three times smaller than OCR operations, get relatively more attention from

ADB staff, and benefit from this. This would then compensate for the lower capacity on the DMCside. Between 50% and 80% of ADF operations evaluated of each approval year are rated assuccessful or highly successful, a figure that has been traditionally slightly lower than thatarrived at by the World Bank’s Independent Evaluation Group for its IDA operations.43 The other

ADF operations have mostly been rated as partly successful, which means that some but not allobjectives were achieved as planned.44 Whether financed by OCR or the ADF, the operationsthat were rated as unsuccessful have remained at around 1 in every 12 or so approved(between 8% and 9%).

55. ADB has recently set a performance standard of 80% of all operations ratedsuccessful, 45 which has not been achieved for most approval year batches of operationsreviewed.

43 By comparison, in 2001 the World Bank reported a 71% success rate for IDA 11 operations (1996-1999), with 46%rated as likely sustainable. (Available: http://www.worldbank.org/html/extpb/2001/develop.htm#three) A recentreport indicates satisfactory outcomes for 78% of IDA and non-IDA projects completed between 2001 and 2005—78% of projects in East Asia and the Pacific and for 80% of projects in South Asia. (Source: IndependentEvaluation Group. 2007. Annual Review of Development Results 2006. Getting Results. Washington, D.C. WorldBank.) The report has additional ratings for sustainability and for institutional development impact, which indicatesthat a different rating methodology was used from that of ADB’s OED.

44 Some operations assessed as partly successful might yet have some major impacts, even when not all of theintended outcomes were achieved (the success rate is based on the stated outcomes). Pakistan’s hugelyambitious Access to Justice Program, financed by ADB, achieved much with the judiciary, but little with the police.

45 ADB. 2006. 2005 Annual Poverty Reduction Report: Progress in Implementing the Poverty Reduction Strategy .Manila.



20

56. There are someimportant provisos to thepositive trends, whichhave been discussedmore fully in OED’s 2006 Annual Evaluation

Review :

46

(i) data arelacking for more recentlyapproved operations,since they are still under implementation—only 8%of operations processedafter 1997 have beenrated 47 (Supplementary

Appendix A reviews all10 PCRs so far completed for operationsapproved under ADF

VIII); (ii) there may be abias towards more positive interpretation of project success in later years, since the more recentratings rely more heavily on PCRs, which are essentially self-evaluations prepared by ADB’soperations departments; and (iii) operations approved in the 1990s that have experienced longdelays in implementation and have not been completed are likely to have a lower than averagesuccess rating. Thus, the actual improvement in success rates in the 1990s is uncertain.The next chapter assesses a sample of ongoing ADF VIII operations approved mostly in 2001and 2002.

C. ADF Country-Level Results

57. Complementing the success ratings of individual operations, OED ratings of ADB CSPsare an important proxy for overall development effectiveness.48 Even if individual projects andprograms are rated successful, the aggregate impact of ADB operations on a country’sdevelopment may be less satisfactory. ADF operations are only one component of success.Other components, such as OCR operations, equity operations, guarantees, TA operations, andpolicy dialogue outside the context of operations can support or detract from this impact. ADB’ spartnering, harmonization, and alignment efforts may have an impact. Ongoing operations, notyet assessed in PCRs and PPERs, may be different in nature from those closed and assessed.

Also, country program objectives may differ from the aggregate of the objectives of individualoperations, and strategies may not be focused or properly operationalized.

58. The ADF itself is clearly only part of a larger package of services that ADB offers to itsDMCs. It is part and parcel of ADB’s CSP and reinforces, and is reinforced by, the other services. There is therefore a good case for viewing ADF results in combination with the resultsof these other components. Since 2002, OED has conducted 11 country assistance programevaluations (CAPEs) for countries that have access to the ADF (Table 2). The methodology of

46 ADB. 2006. 2006 Annual Evaluation Review . Manila.47 Of the 10 PCRs, 7 were rated successful, 1 highly successful, and 2 partly successful. But the sample is biased in

that a large portion of the operations concern program loans that were closed on schedule.48 Despite OED recommendations since 2002, ADB does not have a robust results measurement system of key

project outputs such as kilometers of roads constructed or megawatts of electricity supplied, or outcomes such astraffic densities achieved or megawatts of electricity consumed by businesses and households.

Figure 10: Proportion of Successful Operations,by Source of Funding, 1970–1999

ADF Trendline:

y = 0.13t2

- 2.5t + 56.5

R2

= 0.56

OCR Trendline

y = 0.13t2

- 3.8t + 91.7

R2

= 0.49

0

10

20

30

40

50

60

70

80

90

100

1 9 7

0

1 9 7 1

1 9 7 2

1 9 7 3

1 9 7 4

1 9 7 5

1 9 7 6

1 9 7 7

1 9 7

8

1 9 7 9

1 9 8 0

1 9 8 1

1 9 8 2

1 9 8 3

1 9 8 4

1 9 8 5

1 9 8 6

1 9 8 7

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

Year of Project Approval

S u c c e s s f u l P r o j e c t s ( % )

ADF OCR ADF Trendline OCR Trendline

Source: OED database.



21

such evaluations has been evolving. Some earlier CAPEs rated some but not all the criteriapresently in use: relevance and positioning, effectiveness, efficiency, sustainability, andinstitutional impacts. Other CAPEs made assessments without assigning a success rating.In such cases, this study assigned a rating based on the evidence in the CAPE, and added thisto the table. Large ADF countries for which no evaluation has taken place since the start of ADFVIII are Viet Nam and Afghanistan—but the latter country saw ADB operations resumed in

2002; smaller countries without country evaluation were Kyrgyz Republic, Maldives, Tajikistan,and most Pacific island countries including Solomon Islands and Timor-Leste. Nevertheless, the11 countries reflected in the table jointly represent over 75% of all lending under ADF VIII and IXuntil 2006.

Table 2: Success Rates of Country Programs and ADB Performance; and Proportion ofOperations Approved in the 1990s Rated Successful

Criterion BAN2003

BHU2005

CAM2004

INO2005

LAO2006

MON2002

NEP2004

PAK2007

PNG2003

SRI2007

UZB2006

Positioning – – – – – S [PS] S S–PS S–PS –Relevance S S S S S S S [PS] S S–PS SEffectiveness [PS] PS–S S PS S – [S] PS [PS] PS–S SEfficiency [PS] PS S PS PS–S [PS] [PS] [PS] [PS] PS–S –

LikelySustainability PS–US PS PS PS S–PSPS–US

[PS] [PS] [PS] [S] –

InstitutionalImpacts

[PS] PS–S S PS – – [PS] – – [S] –

ADBPerformance

[PS] S S [PS] S [S] [PS] PS [PS] S [S]

End Rating [PS] [S] S PS S [S] [PS] PS [PS–US] PS [S] ADF projects

approved in1990s ratedsuccessful

39(74%)

5(100%)

10(90%)

14(64%)

21(71%)

15(73%)

22(55%)

24(54%)

9(11%)

26(62%)

1(100%)

– = no discussion, BAN = Bangladesh, BHU = Bhutan, CAM = Cambodia, HS = highly successful, INO = Indonesia, LAO= Lao People’s Democratic Republic, MON = Mongolia, NEP = Nepal, PAK = Pakistan, PNG = Papua New Guinea, PS =partly successful, SRI = Sri Lanka, S = successful, US = unsuccessful, UZB = Uzbekistan.Note: Ratings in brackets were derived based on discussion in CAPE reports; ratings were provided only when there

were no specific ratings given. In Uzbekistan, where the program was new, not all criteria were rated.Sources: ADB Country Assistance and Program Evaluation Reports; OED database of project/program completion

reports and project/program performance evaluation reports.

59. Relevance and Positioning. ADB’s operations were invariably assessed as relevant tothe governments’ development plans and ADB’s own wider corporate priorities. However, whenOED assessed ADB’s positioning in the country explicitly (“Is ADB doing the right things?”),the country programs were often seen as covering too many sectors or addressing a suboptimalset of sectors and subsectors, and overlapping with those of other aid agencies. Sector selectivity was missing. ADB operations were sometimes seen as slow in response to changingcircumstances, and in responding to windows of opportunities.

60. Effectiveness. The effectiveness of ADB’s operations offered a more varied picture in ADF countries, and there seemed to be a very important ”country factor” at play, relating to war and civil strife, political economy, and/or disaster-proneness. In some countries, the project andprogram outcomes were generally achieved, in others only partly so. The ADF group includesseveral postconflict countries with recurring violence such as Afghanistan, Nepal, Sri Lanka, andTimor-Leste; a number of transition economies in Central Asia; and some other countries withcomplex political economy factors, such as Bangladesh and Pakistan. Bangladesh suffered agreat deal of political instability and also had devastating floods, as in 2004 and more recently in

August 2007. Pakistan has gone through various political systems and crises over the decades.



22

Most aid was stopped in 1998 after nuclear tests, but high amounts became available after September 2001. Pakistan was affected by a devastating earthquake in 2005, which needed areallocation of ADB funds. The current political situation (end-2007) is unstable.

61. Although the evaluations have indicated that high aspirations in the CSP were often notfully met, the majority of individual ADB operations initiated in many countries in the 1990s were

rated successful, with the exception of Nepal, Pakistan, and Papua New Guinea.

49

Ratings for all ADF countries in Table A6.2, Appendix 6 confirm that, for countries not included in Table 2,ratings were similarly varied, with low ratings particularly for operations approved in the 1990sfor small countries like Kiribati, Marshall Islands, Samoa, Solomon Islands, Tonga, and Vanuatu.

62. Efficiency. The CAPEs universally assessed ADB’s operations as only partly efficient—indicating higher than anticipated transaction costs, and inefficiencies on the side of bothgovernment and ADB, leading to delays, lost opportunities, and lower than estimated rates of return. However, the CAPEs usually noted that some sectors did better than others.

63. Sustainability. The evaluations usually expressed similar concerns over the likelysustainability of the outcomes, given governments and country contexts not favorable to cost

recovery of investments, and operation and maintenance systems remaining deficient. This alsoaffected some sectors more than others.

64. Overall, 5 of the 11 ADF country programs with CAPEs were broadly successful, and6 were partly successful. This compares with 4 of the World Bank’s 14 country assistanceevaluations conducted in ADF countries between 1999 and 2006 that were rated as satisfactory,4 moderately satisfactory, and 4 partially satisfactory or unsatisfactory.50

65. Assessment of ADF Themes in CAPEs. With reference to some special themes andissues that concerned ADF donor reports, it is of interest that CAPEs were relatively positiveabout strategies and programs dealing with (i) gender strategies, (ii) targeting the poor, and(iii) governance (Table A6.4 in Appendix 6). They were, however, almost universally morecritical about operations with the themes of (i) environment, (ii) private sector (lack of synergybetween sovereign and nonsovereign operations), and (iii) capacity development (scatteredapproach). More findings of the CAPEs are summarized in Supplementary Appendix B.

66. Countries Not Covered by Recent Country Evaluations. Of the countries not coveredby CAPEs over the period, Viet Nam and Afghanistan stand out due to the size of current ADFoperations. Viet Nam is scheduled for a CAPE in 2008; Afghanistan is further off due to theyouth of the portfolio. Both countries have recently been the subject of ADB developmenteffectiveness country briefs prepared by the operations departments in the framework of ADB’sManaging for Development Results agenda. Supplementary Appendix C summarizes the resultsreported by these briefs and also for the Kyrgyz Republic, as an ADF-only Central Asian countrynot yet evaluated. OED plans validations of CSP completion reports for Bhutan, Mongolia,Nepal, Papua New Guinea, and the Pacific countries. OED’s first validation report, for theMaldives, was issued in June 2007. Although the operations department’s overall ratingwas ”successful,” OED’s validation report’s was ”partly successful.”

49 If current OED benchmarks of 80% success rates would be used, then only the operations initiated in the 1990s inBhutan, Cambodia, Kyrgyz Republic, Maldives and Viet Nam could be viewed as successful.

50 Derived from country assistance evaluations posted on the World Bank website. Included are Armenia, Bangladesh,Bhutan, Cambodia, Indonesia, Kazakhstan, Kyrgyz Republic, Maldives, Mongolia, Nepal, Pakistan, Papua NewGuinea, Sri Lanka, and Viet Nam.



23

D. ADF Sector/Subsector Results

67. Success Rates by Sector. ADF operations in transport and energy have been ratedmost highly, and have improved over the decades (Table 3). Education and multisector operations have also done comparatively well, and more than 70% were rated as successful inthe 1990s. Water supply and sanitation operations reached ADB’s average level of success in

the 1990s. All other sectors—namely finance; health, nutrition, and social protection; industryand trade; and agriculture and natural resources—did not reach a 60% success rate in the1990s, and their historical success rates were mostly lower than 50%.

Table 3: Performance of ADF and OCR by Sector, Decade of Approval, and Source ofFinancing, All ADF and OCR Countries (% of Operations Rated Successful)

Asian Development Fund Ordinary Capital Resources

1970s 1980s 1990s Total 1970s 1980s 1990s TotalSector (sorted by highest ADFsuccess rate in 1990s) (%) (%) (%) (%) (%) (%) (%) (%)

Transport and Communications 79 74 91 83 86 76 88 85

Energy 68 83 87 79 89 77 84 83

Education 78 31 78 67 75 88 93 88

Multisector 50 62 70 66 55 82 62 65

Water Supply, Sanitation, andWaste Management

14 43 67 50 74 36 80 67

Finance 0 25 57 45 67 57 68 66


– 29 58 47 100 50 67 64

Industry and Trade 60 44 50 52 71 100 56 75

Agriculture and NaturalResources

35 43 45 41 37 36 44 39

Law, Economic Management,and Public Policya

– – 0a 0a – – 0a 0a

Total 47 51 67 57 72 63 74 70

– = no operations, ADF = Asian Development Fund, OCR = ordinary capital resources.a So far, only two projects were evaluated (one each for ADF and OCR). The ADF-funded project was rated partlysuccessful and the OCR-funded one unsuccessful.

Source: OED databases.

68. The variation in success rates across sectors may be due to many factors, the inherentdifficulty of operations in certain sectors compared with that of others being one. This isdemonstrated by the fact that there is a high correlation with sector success rates of OCRoperations. OCR operations approved in the 1990s in the agriculture and natural resourcessector and the industry and trade sector were relatively least successful, just like the ADFoperations in these sectors.

69. A moot point is whether difference in sector success rates should have implications for

ADB. Should ADB indeed focus more on the sectors in which it has traditionally achieved higher success? OED has hinted at this before as a reasonable strategy in a world in whichspecialization in tasks between an increasing number of organizations is the norm. Public andprivate aid organizations are still proliferating. However, success in the transport and energysectors has sometimes been less conspicuous in terms of institutional reform ambitions.Moreover, the World Bank rates transport and energy sector operations also as among the most



24

successful.51 Perhaps ADB’s strengths in these fields are a less significant factor than the lower complexity of infrastructure development in comparison with social sectors, finance sectors, andproductive sectors. Positive outcomes in the latter macro-sectors may well depend on a larger series of necessary conditions, and a higher level of supervision. The picture is more diverse ata subsector level, and corporate decisions to specialize will probably need to be based on thislevel. Even in the traditionally more difficult sectors such as agriculture and natural resources,

some subsectors have had more success than others, such as irrigation and drainage andwater resource management; and in the finance sector, the microfinance subsector.52

70. Sector Success as Per CAPE Analysis. Notwithstanding the influence of the sector onsuccess ratings of operations (para. 59), portfolio success has a country bias (Table A6.5,

Appendix 6). Only the sectors of transport and communications, energy, and education havebeen able to do better almost irrespective of country contexts. Successes of transportoperations were noted, especially for Indonesia and Lao PDR; and for energy operations inBhutan, Cambodia, Indonesia, Lao PDR, Mongolia, Nepal, and Pakistan. Transport and energyoperations supported by the ADF were often observed to have indirect poverty reduction effectsdue to expansion of networks in poorer areas. CAPEs have documented the success of education operations in terms of increasing students’ access to basic education but also to

technical and vocational education. The latter has directly benefited poorer students. CAPEs for Cambodia, Sri Lanka, and Uzbekistan reported that success in the education sector was drivenby long-term commitment as well as good coordination with other development partners.The Indonesia CAPE noted a 90% success rating based on PCRs and PPERs for 10 educationoperations. In other sectors, performance was more variable across countries.

71. Aggregate sector patterns were discussed in OED’s 2005 Annual Evaluation Review 53 for a wider range of countries including OCR countries and regions such as the Central Asiaregion and the Pacific. The infrastructure program was most uniformly successful. The socialinfrastructure program showed a reasonably positive picture as well. The agriculture programoffered the most diverse ratings. The financial sector program proved most unsatisfactory,although there were satisfactory ratings for some countries.

72. Sector Policy Performance. OED has conducted eight SESs on sector policies andapproaches since 2000,54 notably for the large energy, urban, private sector, and health sectors,but also for some subsectors like fisheries, nutrition, agriculture and natural resources research,and small-scale freshwater aquaculture. Four rated the policies using OED’s standard criteria(Table A6.6, Appendix 6). OED rated ADB’s work as broadly satisfactory in the energy sector,private sector, urban sector, and health sector, although it argued that the higher ambitions of the urban policy were not met due to lack of resources being reassigned to the urban sector and

51 Available: http://web.worldbank.org/WBSITE/EXTERNAL/EXTOED/EXTOEDARDE/EXT2006ANNREVDEVEFF/0,,contentMDK:21103318~pagePK:64168445~piPK:64168309~theSitePK:3079226,00.html

52 OED has concluded that ADB should refrain from financing lines of credit in ADF countries. The risk of notachieving satisfactory development results in this area is deemed unacceptably high. Beginning in the 1990s, therewas a shift in ADB’s operations in the financial sector. Fewer lines of credit were provided to government owneddevelopment finance institutions (DFIs). A broader range of products was offered, including program loans for financial sector reform, lines of credit to commercial banks, equity investments in financial institutions, and capitalmarket funds. Based on the available results, the performance of financial sector program loans has been better than that of DFI lines of credit, so this would be the way forward in ADF countries.

53 ADB. 2005. Annual Evaluation Review . Manila.54 2000. Policy Implementation and Impact of Agriculture and Natural Resources Research; 2004. Selected ADB

Interventions on Nutrition and Food Fortification; 2004. Small-Scale Freshwater Rural Aquaculture Development for Poverty Reduction; 2005. ADB’s Policy for the Health Sector ; 2006. Urban Sector Strategy and Operations; 2006.The Fisheries Policy ; 2007. Private Sector Development and Operations: Harnessing Synergies with the Public Sector ; 2007. Energy Policy 2000 Review: Energy Efficiency for a Better Future.



25

loss of focus on the sector due to ADB’s move from sector primacy to region and countryprimacy. The policy for the (small) fisheries subsector in ADB was rated as unsuccessful. 55 The evaluations for nutrition, small-scale freshwater aquaculture, and agricultural research didnot concern ADF loans as much as TA, part of which may have been funded through ADFcontributions to the TASF. These evaluations were very positive, and saw usually high returnsto TA operations in these areas. Supplementary Appendix D analyzes the eight sector policy

studies in more detail.

E. Results by Strategic Development Objectives (1992–2000)

73. For the present study, the success rates of ADF VI and VII poverty reduction operationsare of interest, since they are similar in nature to the core poverty interventions introduced under

ADF VIII and some of the targeted interventions under ADF IX. Moreover, many povertyreduction operations under ADF VI–VII were implemented in the 2000s, when new policies andbusiness processes were implemented as part of the agenda of ADF VIII and IX. Contrary to thetime of the previous OED study of ADF VI and VII operations (footnote 7), a significant number of PCRs and some PPERs are now available for these operations.

74. While only 7% of all ADF VI–VII loans had poverty reduction as their primaryclassification, 34% had this either as the first or second theme, and 29% of the total loanamount included such a theme (over 70% during ADF VIII were marked as poverty interventions,and 51% of ADF IX) (Tables A6.7 and A6.8, Appendix 6). Poverty reduction operations in

ADF VI–VII proved to do comparatively well, 77% being rated successful so far. Gender andhuman development programs turned out to be somewhat less successful than poverty-targetedloans. These outcomes demonstrate that poverty reduction operations can be successful whenthey are not under pressure from ADB-wide targets, and not overly inclusive and hence complex.The difficulty experienced early in the implementation phase of the poverty interventions under

ADF VIII (see next chapter) might reflect the incentives for staff to include additional pro-poor objectives and components in the project design.

F. Thematic Result Areas Emphasized in ADF Donor Reports

75. Among the special result areas highlighted in ADF donor reports, OED has conductedthematic SES’s on (i) capacity development, (ii) the role of civil society organizations,(iii) the role of participation of beneficiaries in projects, (iv) private sector development,(v) managing for development results, and (vi) environmental and social safeguards. OEDcarried out an initial assessment of regional cooperation and integration as part of an evaluationof the LTSF, and paid more attention to addressing corruption issues in its evaluations after 2004 than before—another area of specific ADF donor interest. An area of older ADF interest—gender and development—was not evaluated over the period, but an evaluation in this area isplanned in 2008. Appendix 7 gives references to the evaluations conducted, and summarizestheir main findings. The key finding is that in most areas, results improved over the period of

ADF VIII and IX, except perhaps the field of capacity development.

76. OED findings point to generally mixed results of ADB’s efforts in capacity developmentthrough loan components and TA. This study concludes that many factors influence the highlyvariable results noted, but long-term planning, continuity of interventions, and staff-intensiveadministration, not always available in ADB, are key factors in improving performance in thisarea. ADB put in place an action plan in January 2007 to improve TA management, which

55 The 2006 SES found that ADB’s fisheries policy had not made a significant difference in guiding ADB operations.



26

incorporates some of these ideas. 56 OED also conducted an SES on the consequences of ADB’s regular investment projects for clients’ capacity in project preparation and implementation.This was done in light of observations made in the 2005 Paris Declaration that many projectimplementation units (PIUs) might run parallel to regular government structures and therebyerode capacity. Some evidence of capacity erosion of executing agencies (EAs) by externallystaffed and temporary PIUs was indeed found but, more frequently, the PIUs that ADB had

helped set up were either entirely staffed by the EA or contained a mix of internally andexternally selected staff. The concerns of the Paris Declaration regarding the likelihood of substantial capacity substitution were not confirmed, and it was contended that PIUs with mixedstaff can be an appropriate implementation tool for the type of large physical infrastructureprojects that ADB supports. The study suggested to mitigate adverse effects by adding acapacity development plan with a PIU exit strategy to the project’s design.

77. OED’s studies show increased attention to participatory mechanisms in project designand implementation, and the higher success rates of projects also demonstrate that increasedparticipation of beneficiaries in ADB projects contributes to greater success. At least one SES,however, points to the limitations of the approach—participation in design but not decisionmaking regarding allocation of funds may limit the interest in the approach and its results.

OED’s SES of civil society organizations is positive as well, pointing to higher involvement of such organizations in the preparation and implementation of ADB operations and better results.OED’s SES of private sector operations and private sector development points to better resultswith the former than the latter, and the need for more integration of work of the Private Sector Operations Department in ADB with that of the regional departments.

78. OED’s evaluation of the LTSF (footnote 40) includes a supplementary paper on ADB’swork in the field of regional cooperation and integration, which concludes that ADB’s effortshave been broadly positive, and should be continued and expanded. More comprehensivestudies on regional cooperation and integration and on gender and development will beconducted in 2009 and 2010. OED’s evaluation of parts of the MfDR agenda points to someprogress in this field, although so far with mixed results. Although many processes needed for improved MfDR are in place now, staff attitudes need more work. Continued support andleadership by senior management are required, along with changes in ADB’s human resourcemanagement practices. In 2006, the Regional and Sustainable Development Departmentreviewed the implementation progress of the 1998 gender and development policy.Much progress was reported, but the areas needing more attention were also outlined, as thereremains a considerable unfinished agenda regarding gender equality and development in theregion. ADB has stepped up its work on anticorruption since the creation of the AnticorruptionUnit in 1999 and its upgrading to the Integrity Division in 2004. More investigations are beingheld, and more TA is being devoted to capacity development in this area. But results remaindifficult to assess.

79. Not addressed specifically in the ADF donor reports, other than as part of thegovernance and environmental themes, are environmental, resettlement, and indigenouspeoples safeguards. OED studies note progress with implementation of projects started in2001–2007 in all three areas, and major disasters were not observed. Nevertheless, the studiesraise concerns about the sometimes mechanical application of the policies. A “one-size-fits-all”approach has led to much attention for projects with marginal impacts, whereas projects withbigger risks might have needed more. This increased transaction costs, which runs the risk of

56 ADB. 2007. Integrating Capacity Development into Country Programs and Operations. Medium-Term Framework and Action Plan. Manila.



27

leaving less attention of ADB staff to other aspects of project design, and also of clients shyingaway from ADB in the case of more challenging projects.

G. Performance of Technical Assistance

80. ADB set a benchmark in 2006 that overall TA performance should be viewed as

satisfactory if OED rates a minimum of 70% of TA operations as successful.

57

OED producedan SES of the performance of TA in 2007. 58 It found that the success rate for the 551 TAoperations that it had assessed from 1978 to 2006 was below the ADB benchmark, at 63%.The SES, however, implies that success of TA operations may have improved over the period of

ADF VIII and IX. It assessed 110 completed or substantially completed TA operations approvedmainly in 2000–2004, in Fiji Islands, India, Kyrgyz Republic, Philippines, and Viet Nam. It rates72% of these as successful, although it acknowledges that there may have been a positive biasfrom the weight of India and Viet Nam in the sample, which are better performers (and India andPhilippines are not currently ADF countries). The SES urges ADB to improve the clarity of strategic directions at the country level, improve its formulation processes, and deal better withimplementation issues. Corporate level weaknesses were observed to impact TA performance.For instance, Medium-Term Strategy II (MTS II) had identified priorities for stronger countryfocus, greater coherence of all ADB activities at the country level, long–term engagement inselected areas in each DMC, and better coordination with other funding agencies. Nevertheless,TA had not been sufficiently leveraged in support of these. This needed improvement.The report observes that changes in ADB’s organization of TA operations were already ongoing.The structure of TA financing is changing. Trust funds are now a major source of TA funding(38% of TA funding in 2006), and procedural changes have been improved to speed upconsultant selection and procurement, close TA operations, cancel unspent funds, and recyclethe savings through ADB’s pool of TA funds to finance subsequent TA. The increased use of more flexible TA facilities is under consideration.

H. Client Satisfaction Surveys of Executing Agencies

81. Some client satisfaction surveys held recently have provided a useful perspective on ADB’s performance. ADB commissioned an ADB Perceptions Survey in 2005, the report of which was issued in October 2006.59 The survey of over 700 opinion leaders (500 of whomwere from DMCs) in 30 ADB member countries was conducted between April and June 2006.The findings were by and large positive. ADB was generally felt to have a positive impact on thecountries it serves. ADB clients—opinion leaders with some involvement in an ADB program,project, or research study in the past 3 years—were particularly positive about ADB’s impactand helpfulness. ADB even earned slightly higher marks for being effective than other leadingmultilateral development assistance organizations. Opinion leaders were particularly positiveabout ADB’s performance in two operational areas: infrastructure development, and promotingregional cooperation and economic integration. At the same time, they made it clear that ADBperformance has room for improvement. ADB’s procedures and practices were viewed ascumbersome; others noted that ADB does not have enough capacity, or is spread too thin.

57 ADB. 2006. 2005 Annual Poverty Reduction Report: Progress in Implementing the Poverty Reduction Strategy .Manila.

58 ADB. 2007. Special Evaluation Study on the Performance of Technical Assistance. Manila.59 Princeton Survey Research Survey Associates International. 2006. ADB Perceptions Survey. Multinational Survey

of Opinion Leaders 2006 . Available: http://www.adb.org/Documents/Reports/ADB-Perceptions-Survey/2006/default.asp



28

82. OED has conducted various questionnaire surveys in the context of its many studies andCAPEs. Two questionnaire surveys of senior managers of executing and implementingagencies of both ADF and OCR countries are discussed below. One was conducted for theSES on PIUs in 2004,60 the other for the SES on the urban sector in 2005.61 Both had goodresponse rates. Both included ADF and OCR operations, and their results allow this study to bespecific about client satisfaction with ADF, while also enabling a comparison with responses for

OCR operations. The relevant response tables are in Supplementary Appendix E along withnotes on the methodology. The following are some highlights.

83. Purpose of ADF versus OCR Operations. The survey of PIUs confirmed a concern of this SES that most ADF operations are viewed as addressing several major outcomessimultaneously—(i) infrastructure (re)construction/provision, (ii) policy/institutional/capacitydevelopment, (iii) service delivery-oriented activities, (iv) operation and maintenance of infrastructure, and even (v) emergency response. ADF operations are regarded as addressingmore outcomes than OCR operations, since more of them also address service delivery andemergency assistance. The notion of complex ADF operations was confirmed by the urbansurvey, where ADF operations registered more categories of outcomes than OCR operations.

84. Views on Achievements. When asked what the project would achieve, senior projectmanagers in EAs stated each of the following achievements only between 50% and 60% of thetime: outputs completed within budget, outputs on time, more sustainable infrastructure or services created, and improved project management capacity. The high number that did notconfirm one or more of these achievements in the questionnaire corresponds to some extent tothe 30–40% of completed operations rated as only partly successful in OED postevaluations.Counterintuitively, however, more ADF operations were anticipated to be completed on timethan OCR operations. The reason for this might be that ADF operations invariably have a larger part of their finance arranged through the loan than OCR operations, which often rely to agreater degree on other funds than ADB’s OCR. Among the main problems of PIUs was thelack of timely release of funds from their governments; the larger the reliance on such funds, aswith many OCR operations, the larger the problems.62

85. Reported Problems. Other problems for ADF operations mentioned were,in descending order (i) dependence on progress or decision making outside the PIU and EA(major problem for 41% of PIUs, minor for 32%); (ii) lack of staff inside the PIU (major for 16%and minor for 33%); (iii) defective design of the project (13% and 37%); (iv) onerous reportingrequirements (6% and 48%); (v) complicated ADB procedures, slow ADB response, or disputeswith ADB (14% and 31%); (vi) issues with the division of responsibilities between the PIU andthe EA (15% and 24%); and (vii) inappropriate division of responsibilities between the PIU andother agencies (8% and 35%). Of note was the view on the design of the project, regarded as amajor problem by 1 in 8 operations, and a minor problem in a further 1 in 3. As with OCRoperations, half of the ADF operations were regarded as having a problem with their design.

86. Problems Caused by ADB versus Government. The survey of urban sector projectmanagers asked more detailed questions regarding problems with the role of either ADB or thegovernment. As an indication of ADB’s efficiency, the surveys pointed to relatively moreproblems with government involvement and procedures than with ADB involvement and

60 ADB. 2005. Special Evaluation Study on the Role of Project Implementation Units. Manila.61 ADB. 2006. Special Evaluation Study on Urban Sector Strategy and Operations. Manila.62 Indeed, on another question, 44% the project offices of OCR projects reported budget coming through late as a

main problem of the project, against 20% of the project offices of ADF projects.



29

procedures. Three problems concerning ADB were mentioned by more than half of therespondents: (i) difficult ADB forms and procedures and excessive paperwork; (ii) improper staffing by consultants recruited for the project; and (iii) delays in ADB responses, decisions,and/or approvals. On the other hand, five problems were mentioned by more than half of therespondents concerning government or EA involvement: (i) delays in government responses,decisions, and/or approvals; (ii) lack of effective coordination, or opposition from other agencies;

(iii) insufficient government budget made available to the project (or late release); (iv) lack of (qualified and capable) staff to implement the project; and (v) government policies or decisionsobstructing and/or delaying project activities.

87. Advantages of Working with ADB. ADF PIUs for urban operations reported thefollowing main advantages of working with ADB (in descending order): (i) more certain/steadysupply of funds, (ii) better design of the project, (iii) technical leadership, (iv) good andtransparent procurement processes; (v) access to technical advice or operational support,(vi) external quality control/ monitoring by ADB, and (vii) ADB’s powers of persuasion vis-a-visgovernment decision makers. The first factor was quoted surprisingly often (86%), as apredictable and steady supply of funds is a scarce commodity in many ADF recipient countries,and highly valued. Overall, the factors quoted most should not surprise: ADB’s experience in

handling project design is well appreciated, given that such capacity has remained a scarcegood in many countries, and given that ADB’s design comes with free preparatory TA.Other assets of ADB, such as technical leadership, the special access to the centralgovernment, and the reputation of enforcing transparent procurement, are similarly useful tomany senior managers in DMCs, who often have to defend their projects against oppositionfrom other corners, and must make sure that government funds keep flowing to them in time.Lastly, concrete help from ADB during implementation was also frequently seen as useful. All of this was mentioned in spite of frequently registered disappointment in ADB’s cumbersomeprocedures and processes.

88. Recommendations. Main recommendations made by respondents in the two surveys,and in various others63 were the need for (i) strengthening of resident mission capacity andauthority, (ii) closer coordination with other stakeholders, (iii) more support for private sector development, (iv) more vigilance in detecting fraud and malpractice, (v) better delivery of TA,and (vi) ensuring more government ownership of policy reforms and TA.

IV. CASE STUDIES OF ONGOING ADF VIII OPERATIONS

89. This chapter presents preliminary assessments of the loan and grant operations fundedby ADF VIII and IX, as derived from general country data and from visits to five ADF recipientcountries that took place from June to September 2007: Bangladesh, Lao PDR, Nepal, Pakistan,and Viet Nam. Together, the five country programs are utilizing around 60% of all ADF flowsover the period 2001–2008. The findings are subdivided into three areas: (i) overall success of 25 ADF VIII operations studied, (ii) success of poverty-targeting efforts in these 25 operations,and (iii) success of governance-targeting efforts in the 25 operations. Appendix 8 providesgeneral background and country summaries of portfolio performance; Supplementary

Appendix F gives summaries of each of the 25 operations studied.

63 ADB. 2007. Country Assistance Program Evaluation for Sri Lanka: Inclusive Development and Conflict Resolution:Major Challenges for the Future. Manila; ADB. 2007. Special Evaluation Study on Resident Mission Policy and Related Operations. Delivering Services to Clients. Manila.



30

A. Success of Ongoing ADF VIII Operations

90. Likely Success of the 25 Operations Studied. This study provisionally rated 14 (56%)of the 25 operations studied as likely successful or better—44% were likely successful and12% highly successful. Forty percent were rated as likely partly successful; one operation(4% of the sample) was rated as likely unsuccessful if implementation did not improve.

The number of highly successful operations is more or less in line with the usual number sorated (10%), whereas the presence of possibly only one unsuccessful operation in the sample,regrettable as it is, is lower than the average (8%) in the ADB portfolio of completed operations.It can nevertheless be concluded that the likely success rate of the sampled operations, mostlyapproved in 2001–2002, is at 56% somewhat lower than the ADB average reflected inChapter III (63% overall, and 67% in the 1990s). 64 The lower provisional rate is reflected in thehigh proportion of operations with design problems, delays, and scope changes (Table A8.2,

Appendix 8). Seventy-two percent of the operations were judged to have had minor or major design flaws, although some could still be corrected through scope changes.

91. When analyzing the operations in detail, ADB factors such as frequent staff changes,country factors, poverty design factors, and governance components in the years of ADF VIIIhave all occasionally had an adverse effect on the likely success rates. Ironically, the Lao PDR,the country with lowest rating in the CPA, performed best in the small sample of operationsreviewed. This shows at the very least that projects can be designed in such a way as to avoidpolitical and economic constraints, either by ring fencing; by providing special TA, consultingservices, or extra supervision; or by more simple and feasible project design. At best it bears outthe finding of OED’s 2006 Annual Evaluation Review (footnote 46) that of all governance factors,political stability was the only one that had a statistically significant correlation with projectsuccess (controlling for sectors).65 The relatively lower success rate obscures the fact that thestudy rated at least three projects as highly successful: one introducing geo-bags in Bangladeshas a major new method replacing concrete blocks to mitigate river bank erosion; another, anupper secondary education project in Viet Nam; and thirdly, an innovative tourism developmentproject in the Lao PDR. Two of the three demonstrate that ADB can have significant successesin sectors not normally associated with high success rates.

B. Success of Special Components Targeting the Poor

92. The case studies confirmed the study’s observation that the period 2001–2004 was oneof transition and experimentation, not only in terms of including special poverty components inregular projects, but also the enforcement of social safeguards. 66 Twenty-three of the25 operations studied were classified as poverty interventions, and 2 of these were classified ascore poverty interventions.67 Special components targeting the poor were identified in 17 (68%)of the 25 cases. Staff responded to signals in ADB’s poverty reduction strategy; the ADFreplenishment exercises; and comments made by executive directors, Management, and senior

64 As the sample was small, a 95% confidence level of the findings provides a wide band around the average—the actual success rate of the portfolio could be up to 17% higher or lower than that measured by the sample. Evenif perhaps 73% of all operations will be successful, this rate is only marginally higher than the ADF success rate of 67% for the completed operations approved in the 1990s, and still below ADB’s new corporate target of an 80%success rate for projects and programs in 2008–2010.

65 The following had no statistical relationship: voice and accountability, government effectiveness, regulatory quality,rule of law, and control of corruption.

66 Twelve of 25 (48%) were classified as potentially having effects under the involuntary resettlement policy, close tothe average of 50% for ADB in 2001–2006.

67 The Lao PDR’s Vientiane Urban Infrastructure and Services Project and the Central Regions LivelihoodImprovement Project in Viet Nam.



31

staff. Six components (35%) were assessed as likely successful, but of an additional five thesuccess was as yet unclear, so the success rate could conceivably go up to 65%. More likely,however, is a somewhat more modest percentage. Another six special components for the poor were deemed likely to be only partly successful. Some of the poverty components wererelatively less difficult to organize, such as rural roads in highway projects, fellowships for poor students, and pro-poor or community-based ecotourism. Others proved more difficult, such as

community infrastructure in the hinterlands of highways, outreach extension activities for poor farmers in a water management project, livelihood training courses in a nonformal educationproject, village development revolving funds in agriculture projects, and microcredit for productive investments in urban infrastructure projects. Some had to rely on consultants for design and implementation. Examples included requiring local government departments toorganize health and education campaigns in slums, and asking road departments to managethe construction of water supply systems in villages along highways, or to set up a revolvingfund and training for income-generating activities. Such special components have higher risks of failure, as they are not the central focus of the project and are outside the EA’s mandate andcore competency. Thus, the EA feels little ownership of such components. Such ownership isgenerally a prerequisite for success. Many of the special components constituted projects withinprojects, and could be successful only when treated as such. However, the concerned ADB

division did not always have a suitably qualified staff member available to prepare or supervisethese labor-intensive components well. TA or loan consultants are not necessarily adequatesubstitutes for ADB supervision. The components often needed to involve nongovernmentorganizations (NGOs) and community-based organizations, but this was not always recognizedor planned. In several cases, implementation modes for the special components needed to bedeveloped after the loan became effective—a design flaw.

93. ADB has recognized the inappropriate incentives given to staff in the 1999 PRS, and hasadopted a different model of implementing poverty-targeted components in country programs.

ADF and OCR operations are now far less likely to include special poverty components if suchissues are addressed by government programs or other externally funded projects. ADB morefrequently complements loan funded operations with smaller ADB-administered and externally

funded projects targeting the poor. ADB may fund such small projects through the JFPR or other ADB trust funds. The separate funding streams and different fund classification of suchprojects allows them to follow their own time table without pressure from the main project.The projects could be managed by different EAs and administered by relevant staff in ADB.They would also require significant involvement of community-based organizations and NGOs.Overall, this is a welcome development that should reduce the risk of unsatisfactory outcomes.However, ADB continues to face the challenge of making sufficient staff available to adequatelysupervise design and implementation of more labor-intensive poverty reduction components or operations. Greater use of staff consultants as funded by TA facilities and based in ADBresident missions for the purpose of project administration may be an option, if ADB cannotincrease in its regular staffing. Another challenge for ADB is to work out new approaches to aidpartnerships.

94. In spite of the difficulties encountered, the sample made clear that, when the operationswere well designed, and when political economy factors worked out well, some targetedcomponents could lead to significant benefits for the poor, including their goodwill for the project.

A long-standing lesson of OED’s studies is that more complex operations have a lower likelihood of success, so caution is in order when making the project design more complicated inorder to become more inclusive of the poor. The observed reduction in numbers of operationsclassified as targeted intervention since 2005 may point to the likelihood that these lessonshave been applied—for the present at least. The sample registered some significant successes



32

with components targeting the poor—and these were often achieved with modest budgets. A small ecotourism component laying out trails in the forest in the Lao PDR helped raiseincomes of indigenous peoples significantly in a culturally sensitive way. A special componentfor small village area improvements around Vientiane was able to mobilize villages veryeffectively when they were trained in organization and procurement by the Lao Women’s Unionand dedicated local consultants. Among the five countries studied, Nepal, as a conflict-affected

country, had the best results from the poverty targeting approach; conversely, it did not havegood results with governance targeting through the program loan assessed in the case studies.This finding may hold a lesson. Very recently, ADB seems to be on a path to make operationsoriented primarily to economic growth more inclusive. If staffing requirements are not addressed,the cautions learned during 2001–2004 need to be reiterated.

95. Appendix 9 provides more discussion of ADB’s approach to poverty targeting andanalyzes project design changes, based on a sample of 40 RRPs approved before 2000 and40 RRPs after, concluding that design has become more complex since 2000 (detailed analysisin Supplementary Appendix G). Appendix 9 also reviews some recent studies of the effects of the approach, including a multicountry 2002 SES of perceptions of beneficiaries on poverty andpoverty reduction,68 a 2006 SES of the poverty impact effects of rural roads69 a 2006 SES of

rural poverty targeting strategies in,

70

a rural microfinance impact study in 2007,

71

and a 2007SES of the JFPR.72 The 2006 SES on rural poverty targeting concluded that a household or geographical approach might sometimes be appropriate, but reminded ADB and its donors thatmany of the poor live marginalized lives in less-poor regions, that generating “solutions”predominantly in remote poor regions might not guarantee the most significant impact onnational poverty reduction, and that solutions to persistent rural poverty might require somelocated outside rural areas.

96. Lessons of the other SESs echoed these conclusions in slightly different formulations:(i) productive projects such as in microfinance are better at helping the entrepreneurial poor andgroups with incomes a bit above the $1 a day line; (ii) ADB needs to be careful whenearmarking sectors as inherently more poverty targeted than others (e.g., rural microfinance or rural roads, and rural infrastructure sectors); and (iii) targeting of the poor as a strategy for ADBis hampered by human resource constraints as well as lack of solid economic theory.

C. Success of Special Components Targeting Governance

97. Twenty (80%) of the 25 operations reviewed had special governance covenants or components, or were program loans supporting reforms and improving governance.The components ranged from funds and other support for the preparation of a comprehensivesector strategy or policy, to support for civil service reforms, corporatization, privatization of government equipment workshops, PBA of funds to municipalities, performance-basedcontracts for operation and maintenance of government infrastructure, reduction of arrears intariff collection, the creation of a municipality, and to cross-border agreements. Nine out of the

68 ADB. 2002. Special Evaluation Study on the Impact of Poverty Reduction of Selected Projects: Perceptions of theBeneficiaries. Manila.

69 ADB. 2006. Special Evaluation Study on When Do Rural Roads Benefit the Poor and How? An In-depth AnalysisBased on Case Studies. Manila.

70 ADB. 2006. Special Evaluation Study on Pathways out of Rural Poverty and the Effectiveness of Poverty Targeting.Manila.

71 ADB. 2007. Special Evaluation Study on Effect of Microfinance Operations on Poor Rural Households and theStatus of Women. Manila.

72 ADB. 2007. Special Evaluation Study on Japan Fund for Poverty Reduction. Manila.



34

finance—$1 million of aid in the form of a loan actually means a transfer of more than $1 millionin capital, perhaps $2 million, with the grant element being just $1 million.74 So more or larger operations can be financed from a $1 million grant equivalent concessional loan than from thetransfer of $1 million of grants. The reflows emanating are recycled into the next best project,and so the process of concessional lending continues. Grants do not provide reflows.

101. In the real world, defaults will occur on some loans, and so the argument on thesuperiority of loans over grants is weakened—considerably weakened if defaults or rollovers arecommon. But it is approximately true and provides the rationale for concessional lending suchas the ADF, namely: (i) there are good projects in poor countries, where capital is unavailable;(ii) poor countries often cannot borrow from commercial capital markets; and (iii) developmentbanks can identify many good projects and therefore require some repayment in order tomaintain flows (reflows).

102. The advocates of grants argue along the following lines:75 (i) many projects fail, andeven good projects generate low rates of return, so loan repayments are chronicallyproblematic; (ii) loans from development banks do not correct a market failure, as mostcountries are capital constrained for good reason; and (iii) reflows of aid money are small and

insignificant in the constellation of ODA.

76

Proponents of grants furthermore point to the effecton the development of the debt burden, the advantage for multilateral banks of no longer havingto collect debt repayments, and the improved transparency of the net flow of resources tocountries. 77 Some argue that grants encourage countries to manage their financial resourcesmore effectively because, by cross-financing grants with commercial loans, countries canchoose the level of finance subsidization they receive.78 Grants are said to encourage greater integration of the country into international financial markets, while concessional loans cansometimes crowd out private market lending. Critics of concessional lending by specializedinstitutions believe that this easily leads to defensive lending, i.e., the pushing of new loans inorder to finance repayment of older loans.

103. Opponents of grants point out that some research shows that grants have been used assubstitutes for tax revenues (at least in African countries). Loans, on the other hand, mightinduce a drive to increase such revenues.79 Loans to sectors with revenue-generation capacitymight provide an extra incentive for cost recovery. Loans provide more opportunities for multilateral banks such as ADB to be a major development partner, as the policy dialogue cancontinue over a longer period. Furthermore, loans allow a higher level of engagement withcentral agencies such as ministries of finance and state banks. Some have argued thatconverting from loans to grants in debt-distressed countries might provide incentives for poor debt management.

74 A $3 million concessional loan may be thought of as, say, a $2 million loan at OCR rates and a $1 million grant.This is the concept of the “grant equivalence” of a concessional loan.

75 See, for example, K. Rogoff “The Sisters at 60,” The Economist , July 22, 2004; and the Meltzer Report on MDBs tothe US Congress, 2000. Available: www.house.gov/jec/imf/meltzer.htm

76 However, while reflows may be insignificant in the global aid context, reflows into ADF are now significant.77 Bulow, J., and K. Rogoff. 2005. Grants versus Loans for Development Banks. American Economic Association

Meetings. Philadelphia. Available: http://www.aeaweb.org/annual_mtg_papers/2005/0107_1015_0703.pdf 78 For example, given a grant of $100 and access to unlimited credit at an annual interest rate of 5%, a country could

borrow say $900 (to be repaid in equal amortizations over 25 years) to obtain a total volume of $1000 with anoverall grant equivalent of 42%. By borrowing more or less, the level of financial subsidization would adjust.However, this argument is valid only when countries have access to such market loans.

79 Cohen, Daniel, Pierre Jacquet, and Helmut Reisen. 2005. Beyond “Grants versus Loans”: How to Use ODA and Debt for Development . Available: http://www.eudnet.net/download/Jacquet.pdf



35

104. An intermediate view is also held by many development specialists—that grants aresometimes appropriate, because some countries are unable to take on debt, even concessionaldebt, and because past projects have failed to yield the promised returns, leaving them heavilyindebted.80 This view acknowledges that (i) there is a probability that countries will default onloans; (ii) this probability varies across countries according to their past history of projectimplementation and debt management (their performance category in the PBA/CPA framework);

and (iii) because of this, one size—loans or grants—does not fit all. Many bilateral donorssupporting ADF themselves administer only grant aid, in part on the understanding that themultilateral banks that they support, such as ADB, will focus on countries, sectors, andoperations more appropriate for concessional lending.

105. ADF IX includes a grant mechanism in large part to harmonize with IDA, whose12th replenishment (2003–2005) included a grant mechanism for the first time. The presentstudy realizes that ADB’s commitment to harmonization constrains the scope for change in thenature of the ADF instrument. Nevertheless, donors may wish to consider broader issues suchas whether (i) the share of grants to loans in the ADF (and IDA) should be changed, (ii) grantsshould be extended in purpose beyond debt sustainability, and (iii) an alternative model shouldbe trialed.

106. OED has not embarked on evaluations of grant operations under ADF IX, and is not yetin a position to provide evidence-based guidance on the ideal mix of loans and grants. Only afew ADF-approved grants since 2005 have reached the implementation stage, and ADB onlyrecently approved the policy of providing grants exclusively to eight highly debt-distressedcountries.81 This study noted that some government officials interviewed questioned the 20%volume discount applicable to the PBA when their debt-distressed country receives its allocationfully as grants. Some were concerned about the effect of the status of being a “grant-onlycountry”. Some officers disagreed informally with the debt sustainability analysis (DSA)conducted by the International Monetary Fund (IMF) and the World Bank. If senior governmentstaff voice doubts about the official DSA, they are unlikely to be very committed to reducingexternal debt because of the prospect of grants rather than loans from ADB. Grants then will beineffective as an instrument of debt sustainability. Further considerations regarding grants arepresented in Appendix 11. On this basis, the study concludes that the ADF should use cautionin turning to grants as a major instrument for debt sustainability. Other instruments may beexplored to achieve reduction of debt distress, such as assistance to national debt managementsystems, higher levels of concessionality of ADF loans, and selective debt forgiveness.

Appendix 12 summarizes levels of debt distress of ADF countries, reviews ADB experience ondebt sustainability, and provides some recommendations.

B. Country Performance Assessments and Performance-Based Allocations

107. The underlying premise of the PBA policy as introduced in ADB, 82 like in other multilateral banks, is that aid is most effective in accelerating poverty reduction in countrieswhere policy and institutional performance are strong. During the negotiations that culminated inthe ADF IX replenishment, the system was revised to place greater weight on performance—especially in relation to governance—in allocating ADF resources.83

80 See, for example, Center for Global Development. 2004. Grants or Loans? The Full Debate. Available:http://www.cgdev.org/content/calendar/detail/3016/

81 ADB. 2007. Revising the Framework for Asian Development Fund Grants. Manila.82 ADB. 2001. Policy on Performance-Based Allocation for Asian Development Fund Resources. Manila.83 ADB. 2004. Review of the Asian Development Bank’s Policy on the Performance-Based Allocation of Asian

Development Fund Resource. Manila.



36

108. The heart of the PBA policy has been the introduction of a standardized CPA so that theperformance borrowers eligible for the ADF can be compared. The CPA was harmonized withthe Country Performance and Institutional Assessment of the IDA, which increased the weightof governance indicators in the PBA formula resulting in a large difference in the spread of thePBA across ADF countries. Since 2005, ADB has undertaken an annual CPA exercise for most

ADF-eligible countries (for others it is biannual)—based on the World Bank’s IDA template.Since that year, ADB has also used DSAs made by the IMF and the World Bank as part of theCPA.

109. The CPA consists of 11 policy and institutional indicators, which get 35% of the weight inthe total country performance rating; 5 governance indicators, with 50% of the weight; and1 portfolio performance indicator, with 15% of the weight. The 11 policy and institutionalindicators are (i) macroeconomic management, (ii) fiscal policy, (iii) debt policy, (iv) trade,(v) financial sector, (vi) business regulatory environment, (vii) gender equality, (viii) equity of public resource use, (ix) building human resources, (x) social protection and labor, and(xi) policies and institutions for environmental sustainability. The five governance indicators are(i) property rights and rule-based governance; (ii) quality of budgetary and financial

management; (iii) efficiency of revenue mobilization; (iv) quality of public administration; and(v) transparency, accountability, and corruption in the public sector. It is clear that although onlythe second category is labeled as "governance,” it is also embedded in the first.

110. By examining the allocations of the ADF before 2001, those between 2002 and 2004,and then those between 2004 and 2006, it is possible to gauge the influence of the CPA onactual allocations. Figures 11 and 12 (based on Tables A13.1 and A13.2, Appendix 13) showdata on ADF approvals graphed for Group A and Group B1 countries, which have a history withthe ADF.

Figure 11: Average Annual Approvals for ADF Operations in Group A

0

50

100

150

200

Nepal Lao PDR Cambodia Kyrgyz

Republic

Mongolia Tajikistan Bhutan Afghanistan Average*

$ m i l l i o n

1992-2001 2002-2004 2005-2006

* Averages exclude Afghanistan, which received no ADF resources before 2002.Source: Asian Development Bank.



37

111. In general, Group A countries appear to have been adversely affected by the PBA policyin terms of the volume of resources they received, especially after 2004, when the latest CPAwas introduced. Apart from Afghanistan, which has a set-aside, and Bhutan, all of thesecountries experienced a reduction in their volume of loan approvals after the first PBA policywas introduced in 2001 compared with the 10-year period beforehand. In some countries thesereductions were quite substantial: for example, the Kyrgyz Republic received $39 million less onaverage per year (from $55 million to $16 million); Lao PDR, $23 million less (from $73 million to$50 million); and Mongolia, $19 million less (from $53 million to $34 million). When the revisedpolicy was implemented in 2005 and 2006, there were further reductions. Most notably,

Cambodia received $32 million less per year; Lao PDR, $19 million less; and Tajikistan,$13 million less. These countries had relatively low CPA ratings and so there is evidence thatthe policy has indeed penalized countries with lower policy and institutional performance asrecorded in the CPA ratings. However, the allocation process does not appear completelytransparent, because Mongolia had a high CPA rating in both 2005 and 2006, yet received onaverage $5 million yearly less in these years than in 2002–2004.

112. Most of the ADF/OCR blend countries experienced a small reduction in their averageannual volume of approvals for ADF operations after the first PBA policy was introduced in 2001(Figure 12). However, some larger countries experienced substantial reductions in amountsapproved: Bangladesh received $47 million less per year; Pakistan, $68 million less; andViet Nam, $36 million less. Once the revised policy was implemented in 2005 and 2006 these

same countries did much better: Bangladesh received $19 million more per year in amountsapproved; Pakistan, $23 million more; and Viet Nam, $85 million more.84 Unfortunately, the CPAratings before 2005 cannot be compared with those afterwards due to a difference inmethodology.

84 The proportion of the overall ADF amounts received by the three went up from 48.7% in 2001–2004 to 57.8% in2005–2006.

Figure 12: Average Annual Approvals for ADF Operations in Group B1

0

50

100

150

200

250

300

350

Pakistan Bangladesh Viet Nam Sri Lanka Indonesia Maldives Uzbekistan Azerbaijan Average*

$ m

i l l i o n

1992-2001 2002-2004 2005-2006

* Average excludes Indonesia, which had a cap in 2005-2006.Source: Asian Development Bank.



38

113. The trends presented are crude, as they are based on the actual loan and grantapprovals over the years, and not on the PBA country ceilings, which ADB does not disclose.However, they are confirmed by the analysis presented in the recent ADB paper on refining thePBA.85 That paper aggregated data on country ceilings between 2002 and 2008, and came tothe conclusion that Group A (ADF-only) countries had suffered a decline in allocation since2002, and especially the poorest among Group A.

114. The two weakly performing countries visited for this study, Lao PDR and Nepal,questioned the decline in their PBA. The Government of Nepal said it needed increasedresources as soon as the country would stabilize. The decline in PBA in recent years wasregarded as jeopardizing ADB’s leverage as a main funding agency. Some aid agencyrepresentatives argued the same for Lao PDR, where ADB’s work is valued highly and theGovernment lamented the decline in the role of ADB in the country. ADB has taken note of theproblem, and has proposed softening the effects of the PBA on weakly performing countries byadding a system of allocation caps for larger blend countries (footnote 85). But such caps maydilute the supposed incentive of rewarding better performance. ADB has also proposedreviewing the portfolio performance indicator, which has proved to be the most volatile of thevarious indicators.86

115. OED earlier voiced concerns about the PBA process (footnote 46) and particularly thehigh reliance on governance and portfolio performance indicators in it. Although the CPAmethodology provides a systematic and formulaic way to measure governance and thusallocate the ADF, judgments are made in the CPAs, which are then converted into numbers,which in turn are used in the ADF-allocation formula. There are two issues here: The first is thesubjective nature of some of the numbers generated in the CPA, for instance those on gender equality. To ensure cross–country comparability and minimize “grade inflation,” ADB empanelsan internal group to conduct a vetting process with all country economists who have undertakena CPA in that year. This reduces, but does not eliminate, both the subjective nature of theinformation and grade inflation. Second, it may not be correct to use the numbers in the ADFallocation formula. Assuming sound judgments are made, it is legitimate to use the numbers for the purpose of ranking countries (ordinal numbers), but it is debatable to use them in a cardinalmanner, as is done when they are placed in the allocation formula.87

116. OED has argued that the rationale for the weight given to governance indicators in thePBA can be questioned. Although good governance must improve development effectiveness,little statistical evidence seems to be available that the effectiveness of aid or economic growthis related causally with many of the governance indicators used. The debate over the use of governance indicators is growing, and some question the ability of agencies such as ADB andthe World Bank to define and measure these adequately. A recent report by the DevelopmentCenter of Organization for Economic Cooperation and Development88 concludes that even themost carefully constructed governance indicators (i) lack transparency and comparability over time, (ii) suffer from selection bias, (iii) should not be used to compare governance acrosscountries, and (iv) do not identify how to improve governance. The present study sees the policy

85 ADB. 2007. Refining Performance-Based Allocation. Manila (August).86 OED has reported its concerns about this indicator, which is based solely on the at-risk status of the projects in its

2004 and 2005 annual reports on portfolio performance, and proposed in its 2006 report a much broader index of implementation progress as a proxy for progress towards impacts and outcomes.

87 For more on ordinal and cardinal numbers in economics, see http://www.unc.edu/depts/econ/byrns_web/Economicae/Essays/CardOrdinal.htm

88 Arndt, Christiane and Charles Oman. 2006. Uses and Abuses of Governance Indicators. Paris: DevelopmentCenter of Organization for Economic Cooperation and Development.



39

leverage role of the ADF as important and therefore regards the adjustments that ADB ismaking regarding weakly performing countries as positive. But these still have the disadvantageof rendering the actual working of the PBA more complicated and thereby obscure togovernments.

117. This study notes the differences in the rating and weighting of indicators in the ADB and

IDA formulas, leading to different shares in ADF and IDA (Tables A13.3 and A13.4, Appendix 13). For instance, whereas Bangladesh and Viet Nam receive a similar share of thetotal in IDA for Asia and in the ADF (around 21% and 25%), Pakistan receives a much greater share of IDA than of the ADF (34% versus 22%). For smaller countries, the differences inshares can also be significant. Differences in portfolio performance between the ADF and IDAare not the only reason for this. Around half of all scores of the various indicators in 2005 and2006 are different—mostly on the order of 0.5 point between 1 and 6, but there are somesignificant exceptions (Table A13.5, Appendix 13). Because the individual differences oftenaverage out, the differences in country performance ratings are nevertheless small between thetwo. 89 But small differences can still be significant due to the PBA formula. ADB ratesgovernance in Viet Nam higher than IDA does. If IDA’s rating would be applied to ADB’s formula,then Viet Nam would have obtained 19.9% of the total PBA in 2006; with the ADF rating it

received 23.8%—more than Pakistan at 21.9% (Pakistan has almost double the population of Viet Nam [Table A13.6, Appendix 13]). Poverty is more highly weighted in the IDA calculation,but the ADF has a larger allowance for small countries. IDA has more leverage than the ADF,as its resources for Asia are about double those of the ADF (Table A13.7, Appendix 13).Both the ADF and IDA have "set-asides” and can respond to special circumstances.The consequence is that, with IDA and ADF policies that have the same intentions, and theportfolio indicator being the same or only marginally different, some countries receive relativelymore from IDA than from the ADF, and vice versa.

118. This study notes that the CPA is labor intensive and duplicates in large part the IDAassessment in the same countries. During the country visits, some government officersexpressed their desire for ADB to commit resources for an action plan to follow up weak areasas identified by the CPA. However, few resources for this were usually available at that stage.

119. This raises the question of whether it is worth the effort and expense to undertakeCPA analyses for each country each year. The question is especially relevant when several

ADB staff interviewed questioned whether differences in PBA accurately reflected the realdifferences in governance and performance between countries, rather than the number of reforms and new policies implemented. Smaller countries would have smaller governments andlower capacity to address the needed governance reforms. Some country economistsacknowledged that they did not use the CPA in policy dialogue, and observed that there was alack of transparency between their writing of the CPA and the allocation of the ADF. 90 Country economists questioned the various exceptions and set-asides sanctioned within thePBA (as with the PBA of the World Bank), which reduce the transparency of the system—moreare being considered by ADB in the next replenishment. Country economists observed thatsector specialists, especially in environment and health, were unable to contribute to thosesections, leaving country economists to provide their best guess. Moreover, the uncertain natureof future allocations as a result of the PBA and particularly the role of governance indicators

89 The two ratings are expressed in different scales, so are not readily comparable.90 This may be due to differences in the views of validating authorities in ADB headquarters and lack of knowledge of

developments in other countries, which may lead to higher ratings that are still lower than those of other countries,and thereby the award of a lower PBA.



40

made it difficult for countries to implement longer term macroeconomic programs andinvestment projects.91 For instance, a small country with a gross national product per capita of $500 and a population of 6 million would receive a 3.8% allocation of the total ADF with acomposite performance rating of 16, and only 1.6% with a composite performance rating of 10;but the difference in composite ratings could simply derive from a 1.5 point difference in thegovernance rating. Lastly, countries seem locked into decisions made in 2005 as to rating

country economic, financial, and governance performance, and it has proved difficult to justifycorrections and reward major changes. On the other hand, if the next ADF replenishment ismuch smaller or larger, all countries will receive less or more, irrespective of last year’sperformance, which seems against the logic of reward for long-term improvements inperformance. This leads to mixed signals. For instance, a country with a lower rating than in theyear before may yet receive more in the next replenishment period due to a larger ADF pool.

120. This study considers that there are alternatives to the current PBA policy, all less costlyand less intensive of staff time.92 One option is to return to the old method of allocation. Another is to introduce a simplified CPA, less reliant, or even not reliant, on contentious governanceindicators. This option would preserve the PBA’s principle to not waste funds in weaklyperforming countries, but would remove the incentive rationale. More weight could be given to

the proportion of the poor in the country, weighted by per capita GDP, rather than using the totalpopulation and the per capita GDP separately. The portfolio performance indicator would needto be revised (as ADB already plans to do). A third option would be to determine the subset of binding constraints to a country’s development or the effectiveness of aid, and tie allocations toDMC commitments regarding changes in these constraints. A fourth option that ADB couldconsider is using the World Bank’s Country Performance and Institutional Assessment toallocate ADF,93 especially in countries which have much more IDA than ADF resources (most of the countries). ADB would use its own weights in the various CPA categories, and could chooseto undertake a “CPA-light” in years or in countries where the World Bank does not perform anassessment. This would save the institution much staff time and financial resources that couldbe better deployed elsewhere.94 It would also be a step forward in the donor harmonizationprocess.

VI. AID HARMONIZATION, COORDINATION, AND COFINANCING

A. The Approach to Aid Coordination and Harmonization

121. The donor reports for both ADF VIII and IX paid attention to the need for increased aidcoordination and harmonization in the interest of development effectiveness. The report for

ADF VIII urged ADB to use the ADF to promote development partnerships using the principlesof the World Bank’s Comprehensive Development Framework, and much closer aidcoordination. The ADF IX report put more emphasis on harmonization, urging ADB toharmonize its policies, planning, procedures and operations with those of other funding

91 As the system is based on a total division of net resources, there is much uncertainty about how a country will fare,as it depends not only on their own performance but also on the performance of all other recipient countries. Theseoutcomes, and also the fluctuations caused by potential annual revisions to CPAs and hence allocations, do notappear conducive to planning long-term poverty reduction operations or to improving governance.

92 The DEC disagreed with a similar conclusion arrived at in the Annual Evaluation Review 2006 (footnote 46).93 The IDA assessment suffers from the same shortcomings as the CPA, but at least ADB would not be paying for the

cost of producing it.94 It is difficult to argue, as has been done, that ADB fiduciary duties require an “independent” CPA. It is also difficult

to argue that ADB would be neglecting its fiduciary duties by using the ratings of a sister agency also concernedabout fiduciary risk. While ADB sometimes relies on one country economist to undertake the CPA, the World Bankusually sends a team of up to 15 specialists.



41

agencies. The harmonization of the allocation of ADF with that of IDA, already discussed, wasone important such element, others being the increased use of cofinancing and sector-wideapproaches, the adoption of government-led poverty reduction strategies as the basis for country programs; and the harmonization of procurement systems, financial systems,environmental and social safeguards, and evaluation systems. The increased use of debt relief and program-based approaches can also be viewed as forms of harmonization. In a wider

sense, the size of multilateral aid funds, such as IDA and the ADF, relative to other aid sourcescan be seen as an important gauge of the level of coordination and harmonization that bilateralaid donors are prepared to pursue. Increases in such aid can be a significant way for donor countries to increase the level of coordination and harmonization of aid.

122. This study reviewed some discussion papers on the utility of aid harmonization andcoordination (Appendix 14). It found that, although most saw the need, some also sawlimitations. The study cautiously supports the view that the pursuit of harmonization andcoordination has merit, but expectations should be realistic. As Michael Clemens of the Center for Global Development argues,95 the lack of harmonization and coordination may not be themost serious binding constraint to aid effectiveness. The primary determinants of aideffectiveness may lie elsewhere. Beyond a certain point, the transaction costs of aid

harmonization might be high and the gains modest. This view was confirmed through a surveyof ADB resident mission staff for a 2007 OED study.96 The staff reported inefficiencies and feltthat some of the harmonization work was an added burden with limited benefits.

B. Cofinancing and Other Financial Support

123. The proportion of ADF loans that were cofinanced by other aid agencies went up from17% under ADF VIII to 29% under ADF IX (2005–2007). Donors contributed a further $889 million (or 16%) to the financing of ADF supported operations under ADF VIII, and$694 million (or 22%) under ADF IX operations in 2005 and 2006. 97 Cofinancing was increasingin spite of the fact that the ADF’s own resources were larger under ADF IX than ADF VIII, whichwould normally indicate less scarcity of funds and hence less need for cofinancing.

124. Apart from direct cofinancing of operations by other donors, there were more indirectforms of financial support by donors, such as TA funds from donor trust funds administered by

ADB used in the context of ADF VIII and IX operations, or donor grants attached to ADF loanson ad hoc basis. While the TASF in the period 2005–2007 was to a significant extent funded by

ADF donors, the main examples were the JSF (TA), the JFPR (hybrids of TA and smallinvestment projects), and a range of other funds supplied by bilateral donors other than Japan.The amount of TASF, JSF, JFPR, and other attached grants was $322 million in ADF VIII, andis so far $268 million under ADF IX (2005 to mid-2007). This added a further 6% to the donor funds mobilized, specifically to support ADF VIII operations, and 9% to support ADF IX. Lendingfrom commercial banks and state banks supplementing ADF loans was also on the increaseover the period.

95 Clemens, Michael. 2005. Comment on: Arne Bigsten, “Donor Coordination and the Uses of Aid .” Available:http://www.afd.fr/jahia/webdav/site/myjahiasite/users/administrateur/public/eudn2005/Bigsten_Clemens.pdf

96 ADB. 2007. Special Evaluation Study on the Asian Development Bank’s Approaches to Partnering and Harmonization in the Context of the Paris Declaration on Aid Effectiveness. Manila.

97 The main reason for the lack of increase under ADF IX may be the absence of one significantly cofinancedprogram that was approved under ADF VIII – the Bangladesh Primary Education Development Program.



42

C. Harmonization of ADB Procedures and Processes

125. An OED study (footnote 96), completed in late 2007, found that ADB has made progressin partnering and harmonization, and with commitments made to the Paris Declaration. There isvery extensive practical coordination and partnering between ADB and other funding agencies,more than is officially recorded in ADB’s management information systems. That study found an

average of seven or eight such activities per country, not including the many cofinanced projectsand TA. Most were related to harmonization policy (e.g., harmonization action plans), jointanalytical work for country strategies, program reviews, common arrangements, 98 and program-based approaches. Eighty-five percent of the activities included the World Bank;39% concerned Japanese aid; 34%, the Department for International Development (DFID); and54% concerned bilateral agencies other than the latter two. By March 2007, ADB had signed34 memorandums of understanding and letters of intent with various aid agencies. ADB-wide,17 program-based approaches were approved in 2001–2007, and 19 more were planned for 2007–2009. Joint country portfolio review missions had gradually increased in number and nowcovered 10 DMCs, thereby reducing transaction costs for the governments. Joint countrystrategy and programming exercises were slowly on the increase as well, cases in point beingBangladesh, Cambodia, and six Pacific island states. ADB staff particularly appreciated the jointanalytical work, and this was thought to have benefited country and/or ADB sector policy androad maps. Limited TA supervision and to a lesser extent loan supervision, much still fromheadquarters, remains a significant constraint on the efforts to synchronize with other development partner missions or respond to government timetables. The study concludes that

ADB’s involvement in national poverty reduction strategies and harmonization action plans hashelped ADB to define its comparative advantage and clarify the rationale for its strategicpartnerships.

126. Numerous CAPEs have reported that ADB actively participates in local aid coordinationmechanisms through the resident missions. OED is currently contributing to the Organization for Economic Cooperation and Development-DEC’s joint evaluation of the Paris Declaration. Lastly,

ADB has carried out joint country procurement assessments with the World Bank in manyDMCs, including the ADF countries Cambodia, Indonesia, Lao PDR, Sri Lanka, Tajikistan, andUzbekistan. In April 2006, ADB harmonized its consulting services and procurement guidelineswith those of the World Bank.

127. ADB was the subject of review in the 2006 Multilateral Organizations’ Performance Assessment Network (MOPAN) 99 survey, together with two other multilateral developmentpartners. Twenty questionnaires on ADB’s performance were collected from nine bilateralagency partners in ADF countries Indonesia, Nepal, Pakistan, and Sri Lanka. Most indicatedthat they had increased their cooperation with the ADB over the last 3 years by cofinancing ADBoperations, by cooperating within the same local coordination mechanisms, and by other means.

ADB was seen as a major development partner and interlocutor for both national stakeholdersand other development agencies, thanks to its very considerable financial and human resources,as well as its long-standing experience in development cooperation. The MOPAN country teamsperceived the quality of ADB partnership behavior towards national stakeholders as follows:

98 These include (i) common operational procedures for project preparation, procurement, and project reporting;(ii) common project implementation units; and (iii) joint support for specific programs with other funding agencies.

99 MOPAN. Austria, Canada, Denmark, Finland, the Netherlands, Norway, Sweden, Switzerland and the UnitedKingdom. 2006. The Annual MOPAN Survey 2006. Donor Perceptions of Multilateral Partnerships at Country Level. This Survey covers the United Nations Children’s Fund, the International Labor Organization, and the AsianDevelopment Bank.



43

(i) ADB plays a central role in policy dialogue with the government; but there isroom for further improvement.

(ii) ADB’s performance in terms of capacity development and the promotion of government ownership varies significantly.

(iii) ADB’s technical advice is generally of good quality.(iv) There are different perceptions of the ADB role in advocacy.

(v) ADB contributes actively to private sector participation in the policy dialogue; lessso with regard to the promotion of NGO participation.(vi) ADB is active in consulting civil society on its own work.(vii) ADB is a strong supporter of PRS processes and is generally well aligned with

government strategies but little progress is seen towards alignment with nationalprocedures.

128. MOPAN country teams’ perceived the quality of ADB partnership behavior towards other development agencies as follows:

(i) ADB does quite well with regard to information sharing but there is room for further improvement, in particular with regard to the sharing of information on

upcoming ADB missions.(ii) ADB plays an active role in local aid coordination activities but could take thelead more often and should do more to avoid overlaps with others.

(iii) ADB takes harmonization seriously at the level of dialogue with other donors;however, little progress is seen at the operational level.

(iv) ADB resident missions cannot take any significant decision without referring backto headquarters; however, they are receptive to other agencies’ views.

D. Findings from Five Country Case Studies

129. The study sought views from a range of development partners in the five countriesvisited regarding aid coordination and harmonization with ADB in the context of the ADF(Appendix 15). The levels of harmonization and coordination achieved varied. In two of ADB'slarger clients, coordination and harmonization were more advanced. In Bangladesh, ADB wasviewed as coordinating well, particularly with the other major aid agencies active in the country:the World Bank, DFID, and Japanese aid. The four had made some headway towards thepreparation of a joint country strategy outcome matrix upon which each could base its owncountry strategy. This had led to a higher level of coordination of country programs, althoughthese were not formally harmonized. They had assigned lead agencies for a range of sectors,and coordinated on regular basis, although some development partners felt that the joint workon the country programs was yet to make a real strategic impact. In Viet Nam, the coordinationhad focused on joint preparation, over the last 5 years, of joint portfolio performance reports of the five banks working in the country: ADB, the World Bank, the Japan Bank for InternationalCooperation, Agence Française de Développement, and Kreditanstalt für Wiederaufbau.The work had branched out into a large number of thematic and sector working groups, and hadled to strategic involvement of the government. However, the cooperation had also led to riftswith other partners, who felt that the five were hijacking the development agenda in Viet Nam.

130. Pakistan, the third major ADF country, did not have a joint strategy or portfolio reviewprocess. A recent study100 noted that there was broad donor support for the 2004 Poverty

100Agulhas. 2006. 2006 Asian Regional Forum on Aid Effectiveness: Implementation, Monitoring and Evaluation.Synthesis Report . Available: http://www.adb.org/Documents/Events/2006/Aid-Effectiveness/Synthesis-Report.pdf



44

Reduction Strategy Paper and evidence of alignment with its core objectives, particularly aroundeconomic growth, governance reform, and devolution. However, Pakistan had less of a recordon harmonization, with aid agencies tending to operate independently with little coordination ateither the strategic or program levels. The political turbulence of the 1990s and the fallout of thewar on terror in the early 2000s were considered to have inhibited harmonization and alignment.This was to some extent reversed in October 2005, when the large international response to the

earthquake boosted the aid effectiveness agenda, with the government leading efforts tointegrate principles of the Paris Declaration into the reconstruction effort. During the country visitin September 2007, government officials reported that a recent initiative in creating an aidcoordination and harmonization cell had met with little support from the aid community.

131. The two smaller clients, Nepal and Lao PDR, had not yet reached the levels of cooperation and harmonization in Bangladesh and Viet Nam. In Nepal, ADB had mixedexperiences with coordination and harmonization with development partners. There wasevidence of competition for projects and lead positions in sectors. It was hoped that recentinitiatives in adopting sector-wide approaches in the education and health sectors would lead tobroader coordination. This required more support from other agencies. In the Lao PDR,aid coordination had made some progress, but views on this remained mixed. Some of the

sector committees created were more effective than others. Most partners interviewed lamentedthat ADB was losing its lead role among aid agencies in the country, due to the recentdownsizing of ADF allocation to the country.

132. One conclusion was that coordination and harmonization had progressed over the yearsand had led to a variety of cooperation arrangements (cofinanced operations, joint strategies,

joint reviews) but had not extended to noticeably increased division of sector operations, exceptperhaps in Bangladesh. Even in that case, however, as one officer noted, only ADB had shedsome subsectors, not the World Bank, which retained double the number of subsector operations that ADB had (and had double the concessional resources). Many advantages wereacknowledged, and many smaller development partners appreciated ADB’s role, which hadenhanced their own role in the country as cofinanciers of important projects. But some felt thataid coordination in general came with too many administrative costs and only limited synergy.

E. Aid Harmonization of Country Programming during ADF VIII and IX

133. Recognizing that ADB has limited human resources and that aid fragmentation iscontinuing, ADB’s MTS II for the first time established a system for prioritizing sectors within

ADB. Three groups of sectors were defined: one with sectors in which ADB involvement wasexpected to grow, a second with sectors in which ADB support was expected to remain staticbut with more reliance on partnerships with other agencies, and a third with sectors where ADBsupport was expected to be phased out over the longer term. As with country selectivity, sector selectivity can be seen as a method to improve the division of labor and harmonization of programs among major international agencies. This study addressed the question of whether

the ADF has harmonized its approach with that of other agencies by increasing the country andsector selectivity of its portfolio of operations.

134. Increasing Country Selectivity. As discussed earlier, the ADF covers most of theDMCs, but certain large countries have so far been excluded from it, whereas others like thePhilippines have graduated, and Indonesia is about to do so. On the other hand, some countrieshave gained renewed access, like Afghanistan. A higher degree of country selectivity increasesresources per country and focuses experience, but by and large, the ADF resources availableper country have not expanded much since the early 1990s. Therefore, the ADF’s policy



45

leverage has also not expanded. This study has, however, argued that the ADF does not cover countries with more than 18% of the poor in Asia and the Pacific. A balance between widecountry coverage and increased sector focus within these countries needs to be pursued.

135. Increasing Sector Selectivity. OED’s 2005 report on ADB’s portfolio performance101 assessed the degree of homogeneity in a DMC’s loan portfolio. The DMCs with the most clearly

focused assistance programs as measured by the Hirschmann-Herfindahl index were,in decreasing order, the PRC with 35 loans in five sectors, India with 32 loans in six sectors,Indonesia with 39 loans in nine sectors, and the Philippines with 27 loans in seven sectors. It istelling that all of these countries are not, or are no longer in the ADF; or are about to graduatefrom it. OCR-dominated loan portfolios are more homogeneous than ADF-dominated loanportfolios—an obvious reason being that many countries do not wish to borrow OCR for socialsector or poverty-targeted operations. Viet Nam, with 33 loans in 10 sectors, was seen as aclear example of an assistance program with no real focus—no sector had less than two or more than six loans. This affects ADB’s leverage and possibly also ADB’s internal efficiency.Other DMCs whose assistance programs received relatively low index values are Cambodia,Lao PDR, Mongolia, Pakistan, and Tajikistan.

136. When the study compared the index for 2006 with that of 2002, the conclusion was thatthat there has been no discernible trend to more homogeneity in country portfolios since ADF VIII (Appendix 16). Given the primacy of country demand in the selection of sector operations in CSPs over the period, this should come as no surprise. Perhaps the surprisingobservation is rather that there was no significant increase in the heterogeneity of countryportfolios. The increasing goal congestion at the country level played out within sectors, byaddition of new themes and priorities (although the number of operations in the sector labeled ”multisector” increased). Nevertheless, this study repeats frequent recommendationsmade earlier by CAPEs that many country programs would be more efficient and effective if they were more selective in their support of sectors than they have been in the past decade(s).

137. According to the draft of ADB’s work program and budget framework 2007–2009, thecurrent program shows an increasing weight afforded to the sector priorities defined in MTS II102 for both OCR- and ADF-financed operations. From 2003 to 2005, an average of 66% of allocations went to first priority sectors; from 2007 to 2009, this is expected to increase to 75%.

VII. ASSESSMENT AND RECOMMENDATIONS

138. This report has laid out the available evidence for assessments of the relevance, likelyeffectiveness, efficiency, and likely sustainability103 of ADF VIII and IX as instruments of aid.These assessments are presented below. The study ends with recommendations.

A. Relevance of the ADF to Poverty Reduction

139. This study regards ADF as highly relevant to many ADF countries and their poor

populations, as witnessed by continued strong demand from governments for the highlyconcessionary funds provided, and the good levels of satisfaction with ADB as expressed in

101ADB. 2005. Annual Report on Loan and Technical Assistance Portfolio Performance for the Year Ending 31 December 2004. Manila.

102Road transport, energy, education, urban infrastructure (water supply and sanitation, waste management, andurban transport), rural infrastructure (roads, power, irrigation and water management), and finance sector.

103For more explanation regarding these standard evaluation criteria, see the discussion on page 7 of ADB. 2006.Guidelines for the Preparation of Country Assistance Program Evaluation Reports. Manila.



46

surveys of Asian opinion leaders, EAs, and other funding agencies. Given the ADF’s generallyagreed upon goal of poverty reduction in the Asia and Pacific region, however, the Fund seemsto be becoming gradually less relevant to the absolute poor, an increasing proportion (currently82%) of whom live in countries that are not or are no longer eligible for ADF support.Many MDGs will not be reached in these countries by 2015, and the ADF will not be able tosupport their achievement.

140. The redesign of operations in terms of greater focus on pro-poor elements in regular operations in ADF VIII has led to more goal congestion and more complex operations. This wasnot necessarily problematic in all cases, as poverty is a complex issue and may require complexsolutions. However, although the redesign worked out well in some cases, it created new risksin most cases, especially in the context of ADB’s limited operational staff to superviseoperations and in the face of (sometimes) a lack of EA skills and ownership. ADB cannot alwaysmuster the level of supervision that inclusive operations need. ADF IX has appropriatelysupported the EPRS, which is pursuing more realistic approach to poverty reduction, addressingit more at the level of country programs rather than at the level of individual operations.

141. A similar conclusion of goal congestion was reached for the addition of governance

components in regular investment projects, and this conclusion applies to operations under both ADF VIII and ADF IX. However, this study judges ADB as on the right path in terms of growth inprogram lending and sector development lending. The improving success rates of suchoperations approved in the 1990s and 2000s vindicate this change in direction.

142. The study notes a risk of unfocused approach to both sectors and themes, but notes thatthis is a consequence of ADB’s response to ADF country demand and ADF donor demand. Inthe process, less of the ADF could be allocated to some sectors typically associated withpoverty reduction and especially the MDGs, such as health and agriculture, and to microfinance.On the other hand, the theoretical underpinnings for positing that these sectors as such addressconcerns of the poor more than some others are weak. Overall, the approach taken under

ADF VIII is assessed as less relevant, and that under ADF IX as highly relevant.

B. Likely Effectiveness of ADF Outcomes

143. While success rates of ADF operations approved in the 1990s have seen an upwardtrend, they may have experienced a decline in effectiveness in the period of ADF VIII. This isassessed as likely due to goal congestion in ADB at the time, leading to higher ambitions, morecomplex project designs, and more attention to tasks other than project preparation andadministration. The transition from sector to country dominance in organization and changes inbusiness processes required much adjustment up to 2006 and may have temporarily affectedthe administration of the more complex loans and grants. Certainly many of the operationsstudied during the country missions for this study had design problems and had sometimesencountered years of delay at the start-up stage. The finding was to some extent corroborated

by the ratings given by 11 CAPEs to the overall level of success of past and ongoing ADB operations in ADF countries. Several major ADF countries were assessed to perform inthe ”partly successful” range. CSPs have varied in quality, as have typical project designsadopted in various countries as well as the quality of policy dialogue and TA programs.The study, however, also notes the importance of country factors. A significant number of

ADF countries either are postconflict zones or have experienced political instability. The countryfactor has played an important role in almost all sectors, except perhaps transport, energy, andeducation, which have still achieved satisfactory results in most countries. This finding seems toimpose some limits on the degree to which improved ADB policy, country assistance



47

programming, and project design can mitigate risks to ADB operations. It may have to beaccepted that there is a greater degree of risk associated with the ADF countries as they arenow constituted; a 100% success rate of ADF operations should be aimed for but may not beexpected. Fortunately, the success achieved in terms of special themes promoted by ADB andthe ADF over the past period has been higher—the assessments are positive, especially for outcomes of safeguard enforcement, involvement of civil society organizations in operations,

aid coordination and harmonization, and private sector operations. ADB has by and largeachieved the ADF ambitions for more focus on governance in DMCs, and the outcomes of program loans are improving. 104 For themes such as capacity development, private sector development, participation of beneficiaries in ADB operations, and MfDR, some progress hasbeen made as well, but large challenges remain. Lastly, client satisfaction surveys still pointedto some significant satisfaction with ADB’s supply of funds, project design capacity, andsupervision in spite of many surveys for CAPEs registering dissatisfaction with ADB processesand procedures.

144. There are signs that the demands on project design and country assistanceprogramming have lessened after 2004 and 2006, but governance components and covenantsstill add to project agendas, and attached TA and grant operations require attention from other

ADB staff. The impact of the 2004 EPRS and the effect of policy and procedural reformsundertaken in 2004–2006 may be positive, but this study regards it as too early to assess theeffectiveness of ADF IX outcomes. The ongoing ADF VIII operations studied are assessedprovisionally as less effective in terms of achieving optimal outcomes.

C. Efficiency of ADB’s Administration of the ADF

145. This study considers that ADB went through a period of transition and concomitantuncertain and inefficient organization of project design and country planning in 2001–2004.

ADB has not always been able to provide sufficient numbers of technically qualified staff for project processing and administration. Several of the ADF VIII operations studied for this reportwere delayed for years due to insufficient follow-up, change of project officers, late transfer of administration to resident missions, insufficient project officers at these resident missions, andinsufficient authority of resident missions. ADB’s portfolio performance in 2004 was the worst ina decade. The study also observes that the situation has improved from 2005 onwards; reasonsfor this are elaborated in the next section. But there are still some major efficiency concerns.

ADB’s agenda is still broad, and so is the range of themes it supports overall and in mostcountries. The range is not very likely to shrink in the near future, but ADB and the ADF wouldmost likely benefit if the range were kept at a manageable level. The range of sectors andsubsectors supported in various countries still seems too high. The human resources needed toaddress the range of themes and sectors can grow only marginally due to ADB’s maintenanceof a tight budget policy. The PBA policy, although under revision, is still inefficient. The ongoingreview of the LTSF may address these issues. Parallel to this ADF study, OED is preparingvarious evaluative inputs into this review.105

146. This study rates ADB’s administration of ADF VIII as less efficient. Since around 2005,the efficiency has been improving, as a number of important reforms and business processchanges are being institutionalized. These are described in more detail below, as they improve

104ADB. 2007. Special Evaluation Study on Policy-Based Lending: Emerging Practices in Supporting Reforms inDeveloping Member Countries. Manila.

105ADB. 2007. Special Evaluation Study on the Long-Term Strategic Framework: Lessons from Implementation(2001–2006). Manila.



48

the sustainability of ADF IX. The study assesses the administration of ADF IX provisionally asefficient.

D. Likely Sustainability of the ADFs Approach

147. By 2003, consistent internal and external criticisms of ADB’s efficiency, and ADB’s own

realization that improvements were needed, had inspired at least 17 reform proposals andvarious other changes. This study highlights the following 10 introduced as potentially improvingthe sustainability of ADF administration: (i) EPRS has shed the targeted approach, and MTS IIgave some direction in 2006 to corporate sector priorities—enabling greater focus in buildingexperience and expertise; (ii) the CSP planning and update process was simplified in 2006, andthe human resources needed for the preparation of new results-based country partnershipstrategies and country operations business plans should be less; 106 (iii) procurement andconsultant recruitment procedures were updated after 2005, including simplified selection for smaller NGOs; (iv) due to ADB’s 2000 Resident Mission Policy, an increasing number of operations are being delegated to resident missions (38% at end-2006); (iv) some aspects of human resource management have improved107 after a report was issued in November 2004;108 (v) many operational policy updates have directly simplified operations, such as the policy on

supplementary financing of 2005, and a more liberal approach toward cost sharing, local costfinancing, and eligibility of expenditures for financing (2005); (vi) some new financinginstruments and modalities have been piloted since 2005, such as the multitranche financefacility and local currency loan products; 109 (vii) poverty and social analysis guidelines weresimplified in 2005; (viii) new substantive policies were approved, such as the Disaster andEmergency Policy (2004) and the Public Communications Policy (2005); (ix) significantenhancements were made to ADB’s loan and debt management products in 2007; and (x) moreflexibility is being created in the use of TA, accompanied by an increase in average size and areduction in number.

148. The approach to poverty reduction under ADF VIII is assessed as less likely to besustainable, and it was appropriately discontinued after 2004. ADF IX’s approach should in

principle be more sustainable. Provided that ADB can continue to address issues of internalorganization, human resource management, needed staff expansion, and business processreforms, this study regards the approach under ADF IX as likely sustainable in terms of effectivepoverty reduction.

106February 2007, ADB issued guidelines for Country Partnership Strategies.107A relatively large portion of the staff increase during 2006–2008 was assigned to operations departments. More

than 20% of professional staff and national officers are now assigned to resident missions. ADB has reducedaverage hiring time.

108ADB. 2004. Independent Assessment of the Effectiveness of the Reorganization of the Asian Development Bank. Diagnostic Report . Manila.

109Others are (i) the subsovereign and nonsovereign public sector financing facility, (ii) the refinancing andrestructuring modality, and (iii) financing syndications and risk-sharing arrangements.



49

E. Recommendations

149. The study makes the following 10 recommendations:

No. Recommendation For whom(i) The ADF’s size should increase if it is to accelerate the achievement

of the MDGs. Despite its modest size relative to the massive challengeof development, the ADF can be an effective instrument in achieving theMDGs in a range of countries—if the congested agenda and projectadministration issues are addressed. The size of the ADF is important,not only for the acceleration of poverty reduction and attention to non-income MDG concerns, but also to ensure the leverage needed toachieve policy change and governance objectives in weakly performingcountries and other DMCs. Increased blending of OCR loans with ADFcomponents to target capacity development may add significant value tothe projects in many blend countries.

ADF donors

(ii) ADF donors should consider the role and credibility of ADF as

ADB's main special purpose vehicle for addressing poverty andachieving the MDGs in the Asia Pacific region. The ADF currentlyaddresses a subset of countries with only 18% of the poor. Given ADB'sgraduation policy, this proportion will decrease at the start of ADF X.Some DMCs with large poor populations (notably India, Philippines, PRCand soon Indonesia) are not allocated ADF resources for projects andprograms, whereas the ODA per capita they receive is low bycomparison. With expanding reflows from earlier ADF loans and newcontributions from ADF donors, ADF X may provide an opportunity toaddress this issue, perhaps through set asides to cap otherwise largePBAs to populous countries. Alternative options are a revisiting of the

ADF graduation policy, or the consideration of a third window to provide

concessional resources (or transfers of net income from OCR) withfinancing on terms harder than ADF but softer than OCR to more creditworthy countries that are below the GDP per capita cutoff. An increase inthe number of eligible countries should not lead to a reduced allocation tothe existing ADF recipients. Critical mass in poor countries is needed for policy leverage.

ADF donors

(iii) ADF X should avoid goal congestion in operations and in ADB as awhole. The 1999 PRS and the ADF VIII and ADF IX donor reports havebroadened ADB’s policy aspirations. The unintended effect of the ADFdonor meetings may be a very broad agenda of priorities when DMCs arenot involved to the same extent. New activities have implications for ADB

staffing and human resources, and these are difficult to provide when ADB shareholders have placed strict limits on increasing ADB’s budget.The report for the ADF X replenishment should include a small number of feasible priorities and targets that are achievable within availableresources, are measurable, and have clear baseline values. The newLTSF should provide further guidance. ADF should support focusedoperations. A new inclusive growth objective should not lead to overlyinclusive project designs; inclusive growth, like poverty reduction, shouldbe addressed at the country strategy level.

ADF donors,Board,andManagement



50

No. Recommendation For whom(iv) The ADF needs to be more selective in its support for sectors (and

within these, sub sectors) in many countries. ADB should continuereviewing sector focus at the corporate level but especially at the countrylevel. Some country programs spread resources thinly, and theoperations in some sectors have little critical mass. While past success

needs to be studied carefully, low historical success rates should notautomatically lead ADF to turn away from sectors with greater challengesin some countries. Creative staffing solutions need to be found if complexoperations that are responsive to binding constraints and appropriate tosome sectors require more staff input than hitherto assigned.

Management

(v) Poverty reduction is an appropriate goal for ADF operations, andrequires more than direct targeting of the poor in each country. ADBand ADF IX have already internalized this lesson of ADF VIII. It shouldnot be lost. Poverty reduction is generally driven by an appropriate mix of operations addressing inclusive growth and social development. In someweakly performing countries or conflict-affected countries, attention for

targeting the poor may be more appropriate, while governance reformsmay be less feasible. More effort is needed in addressing the non-incomedimensions of poverty embodied in the MDGs, as well as in reducinginequality. In most transition economies it remains important tostrengthen the institutional framework to develop a market economy.

BoardandManagement

(vi) An ADF geared to poverty reduction and governance is staffintensive and needs specialized skills. Poverty reduction and goodgovernance are challenging goals. Increased demands from stakeholderson development effectiveness, due diligence and safeguards,transparency, governance, gender, knowledge management andtargeting of the poor require a staff-intensive approach to project

processing and administration. An ADB staff expansion is needed. ADBshould continue to expand its staff contingent in resident missions, rather than relying on loan or TA consultants posted to PIUs, as the latter oftenlack authority (and possibly credibility) vis-à-vis EAs. If this is impossible,more reliance on long-term ADB staff consultants, or on TA consultantsposted to resident missions, to assist directly with project administrationcould be an improvement over the present situation, although it would besuboptimal in the long run, particularly for effective knowledgemanagement.

BoardandManagement

(vii) Aid harmonization and coordination remain necessary elements ofthe ADF approach. ADB should continue to pursue the harmonization of aid processes and procedures, taking into account marginal costs andbenefits. Coordination of country programs among major donors toincrease sector specializations should be the priority, and shouldcomplement ADB’s move towards less goal congestion. Attempts toadvance the harmonization agenda through increased sector selectivityshould be accompanied by country-led agreements regarding the divisionof labor among major aid agencies. ADB should investigate how toreduce the administrative costs involved in forging partnerships and,more generally, the implementation of the Paris Declaration. ADB needs

Management



51

No. Recommendation For whomto help governments to reduce their own transaction costs in dealing withmultiple aid agencies. ADF donors can improve overall aid harmonizationby increasing their contribution, as the ADF and IDA modalities are set upin part to ensure this among otherwise more fragmented aid systems.

ADF donors

(viii) Major governance issues should be primarily addressed throughprogram lending, with agreed reforms being supported by advisoryand capacity building TA. Specialized TA and capacity development-oriented loans can be utilized to improve organizational and humanresource aspects of governance reforms, and in cases where use of program lending is not suitable or agreed to. Governance components insome investment projects can help build on earlier reforms or demonstrate good practice. Such components should, however, berealistic with respect to prevailing institutional capacity and not clutter theproject agenda. ADB needs to be more willing to suspend disbursementsif progress on essential governance reforms and capacity building is notbeing made. This also applies to sector development programs where

reforms supported by program components need to take place before thestart of the project investment components.

Board andManagement

(ix) ADB should undertake a rigorous analysis to test the validity of thevarious CPA indicators. This exercise should analyze which are bindingconstraints for development, as well as causal factors for good economicperformance, poverty reduction, achievement of other developmentresults, good portfolio performance, and project success. Low averagescores for certain countries may need to lead to different aid strategiesfrom those to be applied to countries with high scores, rather than theautomatic application of a low PBA. This needs to be investigated better.OED recommended such an analysis earlier (footnote 46), and the DEC

later endorsed it.

110

The study should preferably be done in partnershipwith the World Bank.

Management

(x) ADB needs to pursue a varied approach to debt distress of ADFcountries and not rely mainly on the institution of an ADF grantmechanism. As a first step, ADB should work with IMF and the WorldBank to require that all DMCs, within 5 years, have a legal frameworkregarding public debt and are able to monitor and manage their debt.Some further recommendations elaborating the more varied approachare in Appendix 16. An evaluation should be conducted of theadvantages and disadvantages of grants versus loans. This evaluationshould be carried out in about 3 years, after ADB has gained moreexperience with large ADF grants for investment projects and the resultsare more evident.

Management

110 ADB. 2007. Annual Report of the Development Effectiveness Committee. Manila.



Appendix 152

ASIAN DEVELOPMENT FUND VIII AND IX COMMITMENTS

ADF VIII Commitments ADF IX Commitments/StatementsCarry out ADF operations under the generalADB-wide framework of the PovertyReduction Strategy:

Reducing poverty remains theoverarching goal of ADF. Goals, strategies,and policies of ADF IX should support the

priorities of the global development agendaapplied to the needs and conditions of theregion. Harmonization with other aidprograms should be pursued. There shouldbe a new focus on capacity development.Key recommendations of the Review of thePoverty Reduction Strategy should beimplemented. Country ownership is a basicprinciple: CSPs should be aligned withNPRSs.

ADF VIII: resources will focus on pro-poor

sustainable economic growth—creating jobs,policies reduce inequalities and facilitate incomegeneration for the poor. Pro-poor growth will befacilitated by assisting (i) the removal of market-distorting policies; (ii) development of aconducive environment for the private sector;(iii) programs (e.g., microfinance) aimed atincreasing income generating opportunities for women and other groups that may be outsidethe formal labor force; (iv) infrastructuredevelopment which can make a considerablecontribution to growth through job creation; and

(v) promotion of opportunities for self-employment by the poor.

ADF IX operations and assistance will

require, among other things, a continuedand sharpened focus on sustainableeconomic growth. The means areinfrastructure development, nurturing of private sector and competitive markets,increasing access to technology andmarkets, support to trade and developmentprograms, and regional cooperation.

ADF VIII resources will focus on socialdevelopment. Each country needs to have acomprehensive national poverty reductionstrategy. Beyond developing human capital, theaim must be to strengthen social capital,especially for people subject to social exclusion.

ADF IX operations and assistance willrequire, among other things, a continuedand sharpened focus on inclusive socialdevelopment. ADF IX will be managed withthe assumption that each person shouldhave the right to access basic education,primary health care, and other essentialservices. A proactive approach will helpreverse social and economic discrimination

and promote initiatives (e.g., health,education, natural resource management)that meet the needs of previously excludedgroups.



Appendix 1 53

ADF VIII Commitments ADF IX Commitments/StatementsADF VIII resources will focus on improvinggood governance. Governance was viewed asa broad based concept intended to encompassall factors that impact on a country’s ability toassure sustained economic and social

development and reduce poverty, and donorsnoted that these factors should be addressed ina manner compatible with ADB’s Charter.

ADF IX operations and assistance willrequire, among other things, a continuedand sharpened focus on goodgovernance. ADB seeks to mainstreamgood governance into all operations.

ADF VIII is an instrument for pursuing privatesector development outcomes. The mainstrategic thrusts of the Private Sector Development Strategy were endorsed. Donorsalso agreed with the aim to strengthen the ruleof law and associated legal frameworks and theapplication for corporate governance.

In the context of CSPs, ADB’s private sector development programs seek to create theenabling environment for high levels of private sector investment in DMCs, includingthrough supportive private sector operations.

ADB will increase its support of small andmedium enterprises, including whereappropriate through microfinance and

microenterprise initiatives.

ADF VIII should enable allocation of scarcedomestic and international resources tocombat infectious diseases and HIV/AIDS.

Communicable and infectious diseases,including SARS and HIV/AIDS, humantrafficking, and ecological concerns spanningnational borders, require sustained regionaland subregional cooperation.

During ADF VIII, gender, environment, andcore labor standards should bemainstreamed. On core labor standards, ADBwill, in selected DMCs, assist in the preparation

of national compendia.

ADB is implementing Core Labor Standardsthrough its Social Protection Strategy, whichcommits ADB to developing interventions inthe areas of labor markets, social insurance,

social assistance, schemes to protectcommunities, and child protection.

GAD concerns must continue to beaggressively addressed in all operations.

The PRS’s thematic issues such asenvironmental sustainability are viable andshould be strengthened during ADF IX.

ADF VIII should support regional cooperationto achieve prosperity and stability.

The PRS’s thematic issues such as regionalcooperation are viable and should be

strengthened during ADF IX.

ADF VIII should be an instrument forcombating money laundering and drugtrafficking.



Appendix 154

ADF VIII Commitments ADF IX Commitments/StatementsADF VIII will promote developmentpartnerships using the principles of theComprehensive Development Framework, andmuch closer aid coordination.

ADB should strengthen alignment withnational poverty reduction strategies andcollaborate more effectively with itsdevelopment partners. Processes andprocedures of development partners should

be aligned more closely at the country levels.

ADF VIII resources should be allocatedaccording to each country’s policyperformance.

The performance-based allocation policyshould be strengthened; provision of ADFgrants (up to 21%) should also be based onit; the scoring system should increase theeffective weight of governance to over 50%.Weakly performing countries should be adevelopment priority. The acute need for basic human assistance in countriesrecovering from conflict suggests that grantaid could have a beneficial effect in many

cases. A separate pool of resources should bemaintained for the Pacific DMCs.

ADF VIII should reinforce good governanceprinciples (transparency, accountability,participation, and predictability) in ADB’scorporate management.

ADB should nurture a strong ”results culture”across the organization. ADB will reorientstaff incentives to reward achievement of outcomes rather than lending targets. Better internal governance and managementsystems are needed. ADB needs to addresshuman resource issues, a new accountabilitymechanism, and empowering RMs.

Better evaluation systems should bedeveloped, linked to the planning of ADFoperations (in particular methodologies,databases, and indicators).

ADB will continue to establish a moreresults-oriented monitoring and evaluationsystem

ADB should redesign and strengthenoperational processes to support ADF VIII—notably to improve quality at entry for keyproducts such as country operational strategies,country assistance plans, TA, and loans. Thecore of the redesign is to significantly change

the processes for country planning,programming, and TA and loan processing.

ADB will develop results-based countrystrategies that are aligned with nationallyowned poverty reduction strategies.Donors supported ADB’s reform agenda.Two key issues of results management andinternal efficiency lie at the core of the ADF

IX replenishment

ADB = Asian Development Bank, ADF = Asian Development Fund, CSP = country strategy and program,DMC = developing member country, GAD = gender and development, HIV/AIDS = human immunodeficiencyvirus/acquired immunodeficiency syndrome, NPRS = national poverty reduction strategy, PRS = Poverty ReductionStrategy, RM = resident mission, SARS = severe acute respiratory syndrome, TA = technical assistance.Source: ADF Donor Reports, as prepared by ADB.



Appendix 2 55

EXCERPTS FROM THE 1999 POVERTY REDUCTION STRATEGY1

The 1999 Poverty Reduction Strategy contributed the following statements:

(i) “All Asian Development Bank (ADB) loans and technical assistance will beexpected to contribute to the reduction of poverty. Accordingly, all proposals willcontain a specific assessment of their poverty impact, and the logical frameworkthat accompanies each proposal will commence with poverty reduction as itsultimate objective. Projects or programs may (a) be designed to accelerate pro-poor growth, or (b) focus on poverty directly.

In the case of infrastructure investments, ADB will give priority to projects thathave greater impact on poverty. This may include locating projects in poor areasor incorporating specific components to ensure increased access for the poor toproject facilities or services.

Poverty interventions will be designed to disproportionately benefit the poor.Many will be in the social sectors but some may also involve agriculture andinfrastructure projects in rural areas, as well as environmental protection. Theseprojects will address underlying weaknesses in policy and institutions whilesupporting the poor through (a) education, health, or other essential services;(b) creation of income and employment opportunities in locations or amongcommunities where poverty is disproportionately high; and/or (c) mitigating risksfor the poor or vulnerable. The defining characteristic of such projects is their concern for beneficiaries: the proportion of poor people among projectbeneficiaries will be significantly larger than their proportion in the overallpopulation of the country, and in no case less than 20 percent.”

(ii) “Core poverty interventions will be a subcategory of poverty interventionsspecifically designed to tackle extreme poverty. Such projects will frequently besmaller, slower, more expensive in preparation and supervision, and involvegreater risks than other projects, program and lending targets. ADB's desiredlending mix will include not less than 40 percent of all public sector lending for poverty interventions.”

(iii) “Most of the region's poor live in rural areas and their quality of life lags far behind that in urban areas. […] This […] provides a compelling reason for ADB toreverse its recent drift away from the rural sector. In particular, ADB will givegreater emphasis to development of agroclimatic areas that have been bypassedby green revolution technology.”

(iv) “ADB will increase its support for human capital development since suchinvestments are frequently the most effective way of breaking the cycle of

intergenerational poverty. By supporting efforts to improve policy and institutionalarrangements, ADB will help ensure that the poor, especially women, haveaccess to essential social services. Through access to quality basic educationand primary health care, the poor will progressively increase their chances of successfully employing their main asset—labor. Improving social protection will

1 Taken from: ADB. 1999. The Poverty Reduction Strategy . Manila.



Appendix 256

reduce risks and indebtedness that otherwise entrap the poor in a vicious circleof poverty.”

(v) .. “economic growth can effectively reduce poverty only when accompanied by acomprehensive program for social development. Every country needs to have acomprehensive national poverty reduction strategy providing for (a) adequate

budgetary allocations for human capital, (b) targeting of basic social services tothe poor, (c) removal of gender discrimination, (d) an effective population policy,and (e) social protection.”



58 Appendix 3

T a b

l e A 3 . 2 : A D F I X L o a n s w i t h C

o f i n a n c i n g , A t t a c h e d T e c h n i c

a l A s s i s t a n c e , a n d G r a n t s

A D F I X

( 2 0 0 5 – 2 0 0 7 )

C o u n t r y

A D F

L o a n s

C o -

f i n a n c i n g

A m o u n t

( $ m )

C o -

f i n a n c i n g

A

m o u n t

( $ m )

A D F +

C o -

f i n a n c e d

A m o u n t

( $ m )

A D F

L o a n

S h a r e

( % )

C o -

f i n a n c i n g

L o a n

S h a r e ( % )

N o .

o f

A D F

L o a n s

w i t h

C o -

f i n a n c i n g

N o .

o f

A t t a c h e d

P P T A s

A t t a c h e d

P P T A

( $ m )

N o .

o f

A t t a c

h e d

A D T

A s

A D T A

f u n d e d

b y

T A S F

( $ m )

A D T A

f u n d e d

b y J S F

( $ m )

A D T A

f u n d e d

b y

O t h e r s

( $ m )

A t t a c h e d

A D

T A

( $ m )

A t t a c h e d

J F P R

( $ m )

A t t a c h e d

G r a n t s f r o m

O t h e r

S o u r c e s

( $ m )

A f g h a n

i s t a n

4 7

1 3

6 1

7 8

2 2

1

2

2 . 7

0

0 . 0

0 . 0

0 . 0

0 . 0

2 0

. 0 0

1 3

. 2

A z e r b a

i j a n

0

0

0

0

0

0

1

0 . 2

0

0 . 0

0 . 0

0 . 0

0 . 0

0 . 0

0 . 0

B a n g

l a d e s h

3 4 4

1 4 1

4 8 5

7 1

2 9

6

9

4 . 9

2

0 . 2

0 . 0

0 . 3

0 . 4

0 . 0

7 4

. 3

B h u

t a n

0

0

0

0

0

0

3

1 . 6

2

0 . 5

0 . 0

0 . 0

0 . 5

0 . 0

0 . 0

C a m

b o

d i a

6 2

3 5

9 7

6 4

3 6

2

0

0 . 0

0

0 . 0

0 . 0

0 . 0

0 . 0

0 . 0

0 . 0

C o o

k I s l a n

d s

0

0

0

0

0

0

0

0 . 0

1

0 . 6

0 . 0

0 . 0

0 . 6

0 . 0

0 . 0

I n d o n e s i a

7 1

5 2

1 2 3

5 8

4 2

3

3

3 . 0

3

3 . 0

0 . 6

0 . 0

3 . 6

0 . 0

2 4

. 1

K y r g y z

R e p u

b l i c

4 8

7

5 4

8 8

1 2

1

0

0 . 0

2

0 . 6

0 . 6

0 . 0

1 . 2

0 . 0

0 . 0

L a o

P D R

9

7

1 6

5 9

4 1

1

5

2 . 5

1

0 . 4

0 . 0

0 . 3

0 . 7

2 . 0

4 . 0

M a

l d i v e s

0

0

0

0

0

0

1

0 . 4

0

0 . 0

0 . 0

0 . 0

0 . 0

0 . 0

2 0

. 0

M o n g o

l i a

5

1

6

9 1

9

1

3

1 . 6

1

0 . 0

0 . 9

0 . 0

0 . 9

1 . 5

0 . 5

N e p a

l

0

0

0

0

0

0

1

0 . 6

1

0 . 0

0 . 5

0 . 0

0 . 5

0 . 0

0 . 0

P a p u a

N e w

G u

i n e a

0

0

0

0

0

0

0

0 . 0

0

0 . 0

0 . 0

0 . 0

0 . 0

0 . 0

0 . 0

P a

k i s t a n

2 2 0

1 1 5

3 3 5

6 6

3 4

1

1 0

4 . 7

4

3 . 3

2 . 0

0 . 0

5 . 3

0 . 0

0 . 0

S a m o a

8

1 7

2 5

3 2

6 8

2

1

0 . 4

1

0 . 4

0 . 0

0 . 0

0 . 4

0 . 0

1 7

. 2

S o

l o m o n

I s l a n

d s

1 0

9

1 9

5 4

4 6

1

0

0 . 0

0

0 . 0

0 . 0

0 . 0

0 . 0

0 . 0

0 . 0

S r i L a n

k a

8 3

2 3 1

3 1 4

2 6

7 4

3

2

1 . 1

2

0 . 2

0 . 0

0 . 0

0 . 2

0 . 0

3 0

. 6

T a

j i k i s t a n

9

4

1 2

7 2

2 8

1

0

0 . 0

0

0 . 0

0 . 0

0 . 0

0 . 0

3 . 6

0 . 0

U z b e

k i s t a n

0

0

0

0

0

0

3

1 . 7

1

0 . 2

0 . 0

0 . 6

0 . 8

0 . 0

3 . 0

V i e t N a m

1 2 5

5 6

1 8 1

6 9

3 1

3

1 1

7 . 9

1

0 . 3

0 . 0

7 . 6

7 . 9

0 . 6

8 . 0

R e g i o n a l

5 7

9

6 5

8 7

1 3

1

2

1 . 4

0

0 . 0

0 . 0

0 . 0

0 . 0

0 . 0

0 . 0

T o t a l

1 , 0 9 8

6 9 4

1 , 7 9 2

6 1

3 9

2 7

5 7

3 4 . 6

2 2

9 . 5

4 . 6

8 . 8

2 2 . 8

2 7 . 7

1 9 4 . 8

T o

t a l A D F I X L o a n s

3 , 2

0 2

2 1

. 6 %

9 3

4 1 %

2 0 %

3 8 %

1 0 0 %

A D B =

A s i a n

D e v e

l o p m e n

t B a n

k , A D

F =

A s i a n

D e v e

l o p m e n

t F u n

d ,

A D T A

= a

d v i s o r y

t e c h n

i c a l a s s i s t a n c e ,

J F P R

= J a p a n

F u n

d f o r

P o v e r t y

R e

d u c t i o n ,

J S F =

J a p a n

S p e c i a

l F u n

d ,

L a o

P D R =

L a o

P e o p

l e ’ s D e m o c r a t i c

R e p u

b l i c , m = m

i l l i o n ,

P P T A = p r o

j e c t

p r e p a r a

t o r y

t e c h n

i c a l a s s i s t a n c e ,

T A S F =

T e c h n

i c a l A s s i s t a n c e

S p e c i a

l F u n d

.

S o u r c e s :

C e n

t r a l O p e r a

t i o n s

S e r v i c

e s

O f f i c e ;

A D B ’ s L o a n ,

T e c h n

i c a l A s s i s t a n c e ,

G r a n

t a n

d E q u

i t y A p p r o v a

l s d a t a b a s e ; a n

d A D B p r o

j e c t s

d a

t a b a s e w e

b s i t e .



Appendix 3 59

Table A3.3: Size of ADF and OCR as Compared with Government Expenditure,External Debt, and Official Development Assistance

Countrya

2005Population

(million)

Poorbelow$1 PPPa day

(million)

ADF VIII &IX Loans

andGrants

b

($m)

OCRLoans,2001-

2008* ($m)

ADF+OCRAnnual

Average,2001-2008

($m)

GovernmentExpenditure,

2005 ($m)

ExternalDebt,

2005 ($m)

ODA,2005

($m)Group A 85.9 13.7 4,464 149 577 5,971 15,798 5,419

Nepal 25.3 6.4 741 45 98 1,202 3,285 428

Afghanistan 23.6 — 1,897 — 237 677 — 2,775

Cambodia 13.8 4.7 532 — 67 801 3,515 538

Tajikistan 6.9 0.4 224 — 28 438 1,022 241

Lao PDR 5.6 1.6 329 104 54 495 2,690 296

Kyrgyz 5.1 0.0 245 — 31 498 2,032 268

Mongolia 2.6 0.5 239 — 30 565 1,327 212

Timor-Leste 0.9 — 16 — 2 59 — 185

Bhutan 0.8 — 96 — 12 284 649 90

Solomon Islands 0.5 — 5 — 1 106 170 198

Maldives 0.3 0.0 52 — 7 451 368 67

Vanuatu 0.2 0.1 — — — 71 82 39

Samoa 0.2 0.0 73 — 9 181 656 44

Kiribati 0.1 0.0 10 — 1 125 — 28

Tuvalu 0.0 0.0 4 — 0 16 — 9

Group B1 402.5 80.3 7,443 20,538 3,498 50,597 85,467 6,507

Pakistan 154.0 30.3 2,418 11,258 1,709 19,569 33,675 1,666

Bangladesh 137.0 41.5 2,152 2,263 552 7,778 18,935 1,321

Viet Nam 83.1 8.1 1,872 5,030 863 14,916 19,287 1,905

Sri Lanka 19.7 0.2 875 1,164 255 5,714 11,444 1,189

Azerbaijan 8.4 0.2 55 799 107 2,330 1,881 223

Micronesia 0.1 0.0 27 5 4 148 61 106

Tonga 0.1 0.0 21 — 3 55 84 32

Marshall Islands 0.1 0.0 15 4 2 87 101 57

Cook Islands 0.0 — 8 15 3 — — 8

Group B2 252.1 19.3 1,129 6,991 1,015 56,481 145,156 2,962

Indonesia 219.9 14.3 761 5,974 842 51,845 138,300 2,524

Uzbekistan 26.3 3.5 238 873 139 2,936 5,007 172

Papua New Guinea 5.9 1.5 131 144 34 1,701 1,849 266

Others 7.5 — 66 — 8 2,505 3,771 —

Armenia 4.3 — 66 — 8 898 1,861 —

Georgia 3.2 — — — — 1,606 1,911 —

Regional — — 844 1,324 271 — — —

Total 748.1 113.2 13,946 29,002 5,368 115,553 250,192 14,888— = data not available, ADB = Asian Development Bank, ADF = Asian Development Fund, Lao PDR = Lao People’sDemocratic Republic, m = million, OCR = ordinary capital resources, ODA = official development assistance, PPP =purchasing power parity.a Countries arrangement based on the 2005 population per group.

b Including pipeline as of 10 August 2007.Sources: ADB Key Indicators 2006, World Bank World Development Indicators Online 2006, and Organisation for Economic

Co-operation and Development Statistics report.



Appendix 3 60

Table A3.4: Comparison of ADF VIII and IX Operations including Pipeline until End-2008,Sorted by Amount under ADF IX

ADF VIII ADF IX Total ADF VIII & IX

CountryAmount

($m)Share

(%)Amount

($m)Share

(%)Amount

($m)Share

(%)

Afghanistan 487 8.6 1,410 17.0 1,897 13.6Pakistan 1,046 18.6 1,372 16.5 2,418 17.3

Bangladesh 874 15.5 1,278 15.4 2,152 15.4

Viet Nam 823 14.6 1,049 12.6 1,872 13.4

Indonesia 330 5.9 430 5.2 761 5.5

Nepal 359 6.4 381 4.6 741 5.3

Sri Lanka 507 9.0 369 4.4 875 6.3

Others Total (see below) 1,206 21.4 2,025 24.4 3,231 23.2

Others

Regional 98 1.7 746 9.0 844 6.1

Uzbekistan 0 0.0 238 2.9 238 1.7

Cambodia0 339 6.0 193 2.3 532 3.8

Kyrgyz Republic 123 2.2 122 1.5 245 1.8Tajikistan 105 1.9 119 1.4 224 1.6

Lao PDR 215 3.8 115 1.4 329 2.4

Mongolia 136 2.4 102 1.2 239 1.7

Papua New Guinea 31 0.5 100 1.2 131 0.9

Bhutan 16 0.3 80 1.0 96 0.7

Armenia 0 0.0 66 0.8 66 0.5

Samoa 14 0.2 59 0.7 73 0.5

Maldives 29 0.5 24 0.3 52 0.4

Timor-Leste 0 0.0 16 0.2 16 0.1

Azerbaijan 42 0.7 13 0.2 55 0.4

Tonga 10 0.2 11 0.1 21 0.2

Kiribati 0 0.0 10 0.1 10 0.1Cook Islands 2 0.0 6 0.1 8 0.1

Solomon Islands 0 0.0 5 0.1 5 0.0

Micronesia 27 0.5 0 0.0 27 0.2

Kazakhstan 0 0.0 0 0.0 0 0.0

Philippines 0 0.0 0 0.0 0 0.0

Marshall Islands 15 0.3 0 0.0 15 0.1

Tuvalu 4 0.1 0 0.0 4 0.0

Vanuatu 0 0.0 0 0.0 0 0.0

Total 5,633 100.0 8,313 100.0 13,946 100.0 ADF = Asian Development Fund, Lao PDR = Lao People’s Democratic Republic, m = million.Note: The ADF IX pipeline amount will gradually be adjusted to fit the actual resources available.

Sources: Asian Development Bank’s Loan, Technical Assistance, Grant and Equity Approvals database; ProjectProcessing Information System as of 10 August 2007.



Appendix 3 61

Table A3.5: Comparison of ADF VI-VII Amounts by Country, with ADF VIII–IX Amountsincluding Pipeline, Sorted by Highest Amount over ADF VIII–IX

ADF VI & VIIApprovals

(1992–2000)

ADF VIII & IXApprovals

(2005-2007)

ADF IXPipeline

(mid 2007–2008)

TotalADF VIII & IX(2005–2008)

Country

Amount

($m)

Share

(%)

Amount

($m)

Share

(%)

Amount

($m)

Share

(%)

Amount

($m)

Share

(%)Pakistan 2,294 19.1 1,983 21.1 435 9.6 2,418 17.3

Bangladesh 2,407 20.1 1,484 15.8 668 14.7 2,152 15.4

Afghanistan 0 0.0 887 9.4 1,010 22.3 1,897 13.6

Viet Nam 1,825 15.2 1,380 14.7 492 10.8 1,872 13.4

Sri Lanka 1,207 10.1 670 7.1 205 4.5 875 6.3

Indonesia 480 4.0 551 5.9 210 4.6 761 5.5

Nepal 741 6.2 529 5.6 211 4.7 741 5.3

Cambodia 444 3.7 452 4.8 80 1.8 532 3.8

Others total (below) 2,596 21.6 1,472 15.6 1,227 27.0 2,699 19.3

Others

Regional 202 1.7 219 2.3 625 13.8 844 6.1

Lao PDR 594 5.0 289 3.1 40 0.9 329 2.4Kyrgyz Republic 422 3.5 194 2.1 51 1.1 245 1.8

Mongolia 439 3.7 193 2.0 46 1.0 239 1.7

Uzbekistan 20 0.2 83 0.9 155 3.4 238 1.7

Tajikistan 99 0.8 164 1.7 60 1.3 224 1.6

Papua New Guinea 117 1.0 64 0.7 67 1.5 131 0.9

Bhutan 56 0.5 81 0.9 15 0.3 96 0.7

Samoa 29 0.2 22 0.2 51 1.1 73 0.5

Armenia 0 0.0 0 0.0 66 1.5 66 0.5

Azerbaijan 0 0.0 45 0.5 10 0.2 55 0.4

Maldives 30 0.3 42 0.4 11 0.2 52 0.4

Micronesia 43 0.4 27 0.3 0 0.0 27 0.2

Tonga 19 0.2 10 0.1 11 0.3 21 0.2Timor-Leste 0 0.0 10 0.1 6 0.1 16 0.1

Marshall Islands 52 0.4 15 0.2 0 0.0 15 0.1

Kiribati 10 0.1 0 0.0 10 0.2 10 0.1

Cook Islands 14 0.1 5 0.1 3 0.1 8 0.1

Solomon Islands 37 0.3 5 0.1 0 0.0 5 0.0

Tuvalu 4 0.0 4 0.0 0 0.0 4 0.0

Kazakhstan 60 0.5 0 0.0 0 0.0 0 0.0

Philippines 316 2.6 0 0.0 0 0.0 0 0.0

Vanuatu 32 0.3 0 0.0 0 0.0 0 0.0

Total 11,993 100.0 9,407 100.0 4,539 100.0 13,946 100.0 ADF = Asian Development Fund, Lao PDR = Lao People’s Democratic Republic, m = million.

Note: The ADF IX pipeline amount will gradually be adjusted to fit the actual resources available.Sources: Asian Development Bank’s Loan, Technical Assistance, Grant and Equity Approvals database; Project ProcessingInformation System as of 10 August 2007.



Appendix 3 62

Table A3.6: Aggregate Amount of OCR Lending (Approved and Pipeline up to End-2008) byCountry (ADF countries only), 1992–2008

1992–2000 2001–2008

CountryAmount

($m)Share

(%)Amount

($m)Share

(%)

Azerbaijan — — 799 3

Bangladesh 104 1 2,263 8Cook Islands — — 15 0

Micronesia, Federated States of — — 5 0

Indonesia 9,487 63 5,974 21

Kazakhstan 355 2 — —

Lao People’s Democratic Republic — — 104 0

Nepal — — 45 0

Pakistan 1,552 10 11,258 39Philippines 2,960 20 — —

Papua New Guinea 218 1 144 0

Marshall Islands, Republic of — — 4 0

Sri Lanka 15 0 1,164 4

Uzbekistan 367 2 873 3

Viet Nam 40 0 5,030 17

Regional 52 0 1,324 5Total 15,150 100 29,000 100

— = data not available, ADF = Asian Development Fund, m = million, OCR = ordinary capital resources.Note: Figures exclude OCR-only countries People’s Republic of China, India, and Philippines. Includes pipeline to

2008 from Project Processing Information System of 10 August 2007.Sources of basic data: Asian Development Bank’s Loan, Technical Assistance, Grant and Equity Approvals database;

Project Processing Information System as of 10 August 2007.

Table A3.7: Number of OCR Projects by Country (ADF countries only), 1992 to 2008

1992–2000 2001–2008Country Number Share (%) Number Share (%)

Azerbaijan — — 3 2

Bangladesh — — 10 8

Cook Islands — — 1 1

Micronesia, Federated States of — — — —

Indonesia 62 51 28 21

Kazakhstan 5 4 — —

Lao People’s Democratic Republic — — 3 2

Nepal — — 1 1

Pakistan 8 7 33 25

Philippines 31 25 — —

Papua New Guinea 8 7 3 2

Marshall Islands, Republic of — — 1 1

Sri Lanka — — 11 8

Uzbekistan 7 6 18 14

Viet Nam — — 15 11

Regional 1 1 4 3Total 122 100 131 100

— = data not available, ADF = Asian Development Fund, m = million, OCR = ordinary capital resources.Note: Figures exclude OCR-only countries People’s Republic of China, Philippines and India. Includes pipeline to

2008 from Project Processing Information System of 10 August 2007.Sources of basic data: Asian Development Bank’s Loan, Technical Assistance, Grant and Equity Approvals

database; Project Processing Information System as of 10 August 2007.



Appendix 3 63

Table A3.8: ADF and OCR Compared with Government Expenditure, External Debt, andOfficial Development Assistance on Per Capita Basis

Country

ADFVIII–IX Per

CapitaShare

($)a

Per Year

OCR2001–2008Per Capita

Share($)

Per Year

GDP PerCapita2005($)

GovernmentExpenditurePer Capita

2005($)

ExternalDebt PerCapita2005($)

ODA PerCapita

($)Group A 6 0 244 69 184 63Nepal 4 0 234 48 130 17

Afghanistan 10 — — 29 — 118Cambodia 5 — 402 58 255 39Tajikistan 4 — 237 64 148 35Lao PDR 7 2 396 88 480 53Kyrgyz Republic 6 — 319 98 398 53Mongolia 11 — 483 217 510 81Timor-Leste 2 — 345 63 — 195Bhutan 15 — 1,003 355 811 113Solomon Islands 1 — 677 221 353 411Maldives 22 — 2,355 1,504 1,227 223Vanuatu — — 1,172 306 377 181

Samoa 50 — 1,547 988 3,581 240Kiribati 14 — 488 1,357 — 303Tuvalu 459 — — 15,760 — 8,635Group B1 2 6 561 126 212 16Pakistan 2 9 596 127 219 11Bangladesh 2 2 433 57 138 10Viet Nam 3 8 538 179 232 23Sri Lanka 6 7 1,002 290 581 60

Azerbaijan 1 12 1,182 277 224 27Micronesia, Federated

States of 32 6 2,008 1,368 563 985Tonga 26 — 1,629 535 825 312Marshall Islands,

Republic of 29 8 2,037 1,366 1,585a 889Cook Islands 497 928 — — 3,837

Group B2 1 3 892 217 568 12Indonesia — 27 942 236 629 11Uzbekistan 1 33 532 112 190 7Papua New Guinea 3 24 643 287 312 45

Armenia 2 13Georgia — 40Others 1 23 —Regional —

Total 2 40 631 149 327 20— = none, ADB = Asian Development Bank, ADF = Asian Development Fund, Lao PDR = Lao People’sDemocratic Republic, OCR = ordinary capital resources, ODA = official development assistance.a Including pipeline as of 10 August 2007.

Note: External debt refers to total debt both outstanding and disbursed, while ODA is total net received from alldonors.

Sources: ADB Key Indicators 2006, World Bank World Development Indicators Online 2006, and Organisation for

Economic Co-operation and Development Statistics website.



Appendix 3 64

Table A3.9: Average ADF VIII and IX Approvals Per Capita Per Year (Loans and Grants),Compared with GDP, Government Expenditure,

and Official Development Assistance Per Capita in 2005

Per Capita ($) ADF as % of

Country

Annualized

ADF VIII& IX Loansand Grants GDP

GovernmentExpenditure

ExternalDebt ODA GDP

GovernmentExpenditure

External Debt OD

Pacific 36 1,428 886 1,279 419 3 4 3 9

Maldives 22 2,585 1,504 1,227 223 1 1 2 10

Bhutan 15 798 355 811 113 2 4 2 13

Mongolia 11 475 217 510 81 2 5 2 14

Afghanistan 10 290 29 118 3 35 - 9

Lao PDR 7 419 88 480 53 2 8 2 14

Kyrgyz Republic 6 322 98 398 53 2 6 2 11

Sri Lanka 6 998 290 581 60 1 2 1 9

Cambodia 5 410 58 255 39 1 8 2 12

Tajikistan 4 224 64 148 35 2 6 3 12

Nepal 4 251 48 130 17 1 8 3 22

Viet Nam 3 538 179 232 23 1 2 1 12Papua New

Guinea3 638 287 312 45 0 1 1 6

Timor-Leste 2 356 63 195 1 3 - 1

Bangladesh 2 448 57 138 10 0 3 1 20

Pakistan 2 602 127 219 11 0 2 1 18

Armenia 2 788 208 431 - 0 1 0 -

Solomon Islands 1 670 221 353 411 0 0 0 0

Uzbekistan 1 681 112 190 7 0 1 1 17

Azerbaijan 1 1,180 277 224 27 0 0 0 3

Indonesia 0 945 236 629 11 0 0 0 4 ADB = Asian Development Bank, ADF = Asian Development Fund, GDP = gross domestic product, Lao PDR = Lao PeoplDemocratic Republic, ODA = official development assistance.Notes: ADF VIII and IX loans and grants approvals include pipeline as of 10 August 2007, annualized for the period 2001 to 200

per capita GDP computed based on 2005 GDP at constant 2000 US$ and 2005 population. Pacific Islands include VanuaSamoa, Kiribati, Tuvalu, Federated States of Micronesia, Tonga, Republic of Marshall Islands, and Cook Islands.

Sources: ADB Key Indicators 2006, World Bank World Development Indicators Online 2006, and Organisation for Economic Coperation and Development Statistics report.



Appendix 3 65

T a b l e A 3 . 1 0 : S e c t o r D i s t r i b u t i o n o f A D F

a n d O C R L e n d i n g 1 9 9 2 – 2 0 0 8 , $ m i l l i o n i n A D F C o u n t r i e s O

n l y ,

S o r t e d b y L a

r g e s t A m o u n t o f A D F i n 2 0 0 1 – 2 0 0 8

A D F

O C R

A D F a n

d O C R

S e c t o r

1 9 9 2 – 2 0 0 0

2 0 0 1 – 2 0 0 8

1 9 9 2 – 2 0 0 0

2 0 0 1 – 2 0 0 8

1 9 9 2 – 2 0 0 0

2 0 0 1 – 2 0 0 8

M u

l t i s e c t o r

1 , 9

2 2

2 , 7

0 2

1 , 4

0 5

2 , 1

4 0

3 , 3

2 7

4 , 8

4 1

T r a n s p o r t a n

d C o m m u n

i c a t i o n s

2 , 5

9 3

2 , 6

4 0

2 , 2

3 9

9 , 6

9 4

4 , 8

3 2

1 2

, 3 3 4

A g r i c u

l t u r e a n

d N a t u r

a l R e s o u r c e s

2 , 2

6 2

2 , 1

8 8

1 , 5

2 8

9 6 1

3 , 7

9 1

3 , 1

4 9

E d u c a

t i o n

1 , 1

3 9

1 , 5

0 3

1 , 3

1 1

1 6 4

2 , 4

5 0

1 , 6

6 6

W a

t e r

S u p p

l y , S a n i t a

t i o n ,

a n

d W a s t e

M a n a g e m e n

t

8 8 8

1 , 4

4 1

3 7 7

3 , 3

4 3

1 , 2

6 5

4 , 7

8 4

E n e r g y

1 , 4

0 5

1 , 2

7 4

3 , 6

7 7

6 , 3

3 0

5 , 0

8 2

7 , 6

0 4

L a w ,

E c o n o m

i c M a n a

g e m e n

t , a n

d

P u

b l i c P o

l i c y

3 1 2

8 3 2

4 4 6

4 , 0

2 8

7 5 8

4 , 8

6 0

F i n a n c e

8 0 5

5 4 6

2 , 5

4 7

2 , 1

7 5

3 , 3

5 2

2 , 7

2 1

H e a

l t h ,

N u

t r i t i o n ,

a n d

S o c i a

l P r o

t e c t i o n

5 6 2

4 8 8

8 3 3

1 0 5

1 , 3

9 5

5 9 3

I n d u s t r y a n

d T r a

d e

1 0 6

3 3 2

7 8 7

3 4 7

8 9 3

6 7 9

T o t a l

1 1 , 9 9 3

1 3 , 9 4 6

1 5 , 1 5 0

2 9 , 2 8 5

2 7 , 1 4 4

4 3 , 2 3 1

A D F =

A s i a n

D e v e

l o p m e n

t F u n

d ,

O C R = o r d

i n a r y c a p

i t a l r e s o u r c e s .

N o

t e s :

F i g u r e s e x c l u d e

t h o s e

f o r

O C R - o n

l y c o u n

t r i e s

P e o p

l e ’ s R e p u

b l i c o

f C h i n a ,

I n d i a

, a n d

P h i l i p p

i n e s .

I n c l u

d e s p

i p e

l i n e

t o 2 0 0 8 f r o m

P r o

j e c t

P r o c e s s i n g

I n f o r m a

t i o n

S y s t e m o

f 1 0 A u g u s t

2 0 0 7

.

S o u r c e s o

f b a s i c

d a

t a : A

s i a n

D e v e

l o p m e n

t B a n

k ’ s L o a n ,

T e c h n

i c a l A s s i s t a n c e ,

G r a n

t a n

d E q u

i t y A p p

r o v a

l s d a

t a b a s e ;

P r o

j e c t

P r o c e s s i n

g

I n f o r m a

t i o n

S

y s t e m a s o

f 1 0 A u g u s t

2 0 0 7

.



66 Appendix 3

Table A3.11: Types of Loans Categorized as Multisector, 1992–2008

ADF VI & VII ADF VIII & IX ADF VI & VII ADF VIII & IXType $million Share (%) $million Share (%) Number Share (%) Number Share (%

Emergency 523 27 1,360 50 19 35 16 28

Social Safety Net 327 17 392 15 5 9 12 21

Rural Development 708 37 347 13 19 35 8 14

Urban Development 364 19 262 10 11 20 11 19

Others 0 0 342 13 0 0 11 19

Infrastructure 0 0 194.5 7 0 0 4 7

Public Administration 0 0 60 2 0 0 1 2

Regional - Tourism 0 0 60 2 0 0 4 7

Poverty Reduction 0 0 27 1 0 0 2 3

Total 1,922 100 2,702 100 54 100 58 100 ADF = Asian Development Fund.Sources of basic data: Asian Development Bank’s Loan, Technical Assistance, Grant and Equity Approvals database


Table A3.12: ADF VI–IX Sector Distribution in Pacific Countries

SectorAmount

($million)Share

(%) Agriculture and Natural Resources 12 4Education 16 5Energy 53 17Finance 15 5Health, Nutrition, and Social Protection 15 5Law, Economic Management, and Public Policy 31 10Multisector 40 13Transport and Communications 106 34Water Supply, Sanitation, and Waste Management 23 7

Total 311 100 ADF = Asian Development Fund.Sources: Basic data from Asian Development Bank’s Loan, Technical Assistance, Grant and Equity Approvals


Table A3.13: ADF VI–IX Sector Distribution of Regional Cooperation Loans

SectorAmount

($million)Share

(%)

Agriculture and Natural Resources — — Education — —

Energy 277 33

Finance — — Health, Nutrition, and Social Protection 63 7

Industry and Trade 88 10Law, Economic Management, and Public Policy — — Multisector 30 4

Transport and Communications 387 46

Water Supply, Sanitation, and Waste Management — — Total 844 100

ADF = Asian Development Fund.Notes: Regional cooperation loans started in ADF VII. Includes 2007–2008 pipeline as of 10 August 2007.Sources of basic data: Asian Development Bank’s Loan, Technical Assistance, Grant and Equity Approvals




Appendix 3 67

Table A3.14: Distribution of ADF VI–IX by Financing Modality

ADF = Asian Development Fund, SDP = Social Development Program, TA = technical assistance.Note: Includes loans in the 2007 and 2008 pipeline (as of 10 August 2007). Sources of basic data: Asian Development Bank’s Loan, Technical Assistance, Grant and Equity Approvals

database; Project Processing Information System.

Table A3.15: ADF VIII–IX Distribution of Program Loans by Sector, 2001–2008

SectorAmount

($million)Share

(%)

Law, Economic Management, and Public Policy 641 20.1

Multisector 544 17.0

Water Supply, Sanitation, and Waste Management 485 15.2

Agriculture and Natural Resources 368 11.5

Finance 366 11.5

Education 272 8.5

Industry and Trade 239 7.5

Energy 161 5.1

Transport and Communications 105 3.3

Health, Nutrition, and Social Protection 12 0.4

Total 3,193 100.0 ADF = Asian Development Fund.Sources of basic data: Asian Development Bank’s Loan, Technical Assistance,

Grant and Equity Approvals database; Project ProcessingInformation System as of 10 August 2007.

Table A3.16: ADF IX Distribution of Grants by Sector

SectorAmount

($million)Share

(%)

Agriculture and Natural Resources 176 21.7

Health, Nutrition, and Social Protection 165 20.3

Transport and Communications 162 19.9

Education 79 9.7

Finance 69 8.5

Water Supply, Sanitation, and Waste Management 59 7.3

Energy 55 6.7

Law, Economic Management, and Public Policy 25 3.1

Multisector 24 3.0

Total 813 100.0 ADF = Asian Development Fund.Sources of basic data: Asian Development Bank’s Loan, Technical Assistance,

Grant and Equity Approvals database; ProjectProcessing Information System as of 10 August 2007.

ADF VI and VII ADF VIII and IX ADF VI–IXFinancingModality $million Share (%) $million Share (%) $million Share (%)

Project 10,683 89.1 9,940 71.3 20,623 79.5

Credit Line 455 3.8 79 0.6 534 2.1

Sector 2,105 17.5 1,225 8.8 3,330 12.8TA Loan 46 0.4 232 1.7 278 1.1

Program 1,312 10.9 3,193 22.9 4,505 17.4

SDP 255 2.1 860 6.2 1,115 4.3

Grants 813 5.8 813 3.1

Total 11,995 100.0 13,946 100.0 25,941 100.0



68 Appendix 3

Table A3.17: ADF VIII – IX Loans and Grants by Thematic ClassificationADF VIIIThematic Classification (1st, 2nd, and 3rd cumulative)

Amount($million)

Share(%)

Number ofLoans

Share(%)

Sustainable Economic Growth 5,029 89 113 59

Inclusive Social Development 2,806 50 56 29

Governance 1,250 22 56 29

Private Sector Development 713 13 62 32

Gender and Development 729 13 22 11

Environmental Sustainability 684 12 20 10

Regional Cooperation 268 5 19 10

Total approved loans 5,633 100 193 100ADF IX up to 2008 (with Pipeline)Thematic Classification (1st, 2nd, and 3rd cumulative)

Amount($million)

Share(%)

Number ofLoans

Share(%)

Sustainable Economic Growth 5,650 68 72 47

Inclusive Social Development 3,340 40 33 22

Gender and Development 1,656 20 18 12

Governance 2,431 29 29 19

Environmental Sustainability 1,675 20 14 9

Private Sector Development 709 9 13 8

Regional Cooperation 878 11 7 5

Capacity Development 2,044 25 30 20

Total approved loans 8,324 100 153 100 ADF = Asian Development Fund.Source of basic data: Project Processing Information System as of September 2007.

Table A3.18: Approved Loans and ADF Grants by Poverty Classification

2001–2003 ($million) ADF OCR Total

Poverty Classification Amount Share (%) Amount Share (%) Amount Share (%)

Core Poverty Intervention 835 19 171 3 1,006 10Poverty Intervention 2,230 51 3,774 65 6,003 59

Others 1,326 30 1,887 32 3,213 31

Total 4,391 100 5,832 100 10,223 100

2001–2003 (Number) ADF OCR Total

Poverty Classification Number Share (%) Number Share (%) Number Share (%)

Core Poverty Intervention 23 16 4 9 27 14

Poverty Intervention 68 47 23 51 91 48

Others 54 37 18 40 72 38

Total 145 100 45 100 190 100

2004 ($million) ADF OCR Total

Poverty Classification Amount Share (%) Amount Share (%) Amount Share (%)General Intervention 548 44 911 84 1,459 63

Targeted Intervention 695 56 180 16 874 37

Total 1,242 100 1,091 100 2,333 100



Appendix 3 69

2004 (Number) ADF OCR Total


General Intervention 23 49 11 69 34 54


Total 47 100 16 100 63 100

2004 ($million) ADF OCR Total

Poverty Classification Amount Share (%) Amount Share (%) Amount Share (%)

General Intervention 2,157 57 5,286 89 7,443 77

Targeted Intervention 1,618 43 649 11 2,266 23

Total 3,775 100 5,935 100 9,710 100

2005–2007 (Number) ADF OCR Total


General Intervention 99 73 31 84 130 75


Total 136 100 37 100 173 100 ADF = Asian Development Fund, OCR = ordinary capital resources.Note: Includes blended loans: 6 for 2001, 4 for 2002 and 6 for 2003.Source of basic data: Project Processing Information System as of 10 August 2007.

Table A3.19: Number of Loans Funded by ADF and OCR Mix, 1992–2008 1992–2000 2001–2008

Sector

TotalNumber

ofLoans

Number ofLoans with

MixedFunding

MixedFundsShare

(%)

TotalNumber

ofLoans

Number ofLoans with

MixedFunding

MixedFundsShare

(%)

Agriculture and Natural Resources 95 8 8 72 8 11

Education 55 3 5 43 1 2

Energy 45 3 7 53 9 17

Finance 34 1 3 43 4 9

Health, Nutrition, and Social Protection 28 2 7 16 1 6

Industry and Trade 11 0 — 25 2 8Law, Economic Management, and

Public Policy 17 2 12 53 12 23

Multisector 68 2 3 65 10 15

Transport and Communications 69 3 4 93 11 12Water Supply, Sanitation, and Waste

Management 35 1 3 56 9 16

Total 457 25 5 519 67 13— = none, ADF = Asian Development Fund, OCR = ordinary capital resources.Note: Includes 2007–2008 pipeline as of 10 August 2007. Sources of basic data: Asian Development Bank’s Loan, Grant, Technical Assistance and Equity Approval database;




70 Appendix 3

Table A3.20: Amount of Loans Funded by ADF and OCR Mix, 1992–20081992–2000 2001–2008

SectorADF($m)

Share(%)

OCR($m)

Share(%)

ADF($m)

Share(%)

OCR($m)

Share(%)

Agriculture and Natural Resources 182 22 218 14 433 14 851 5

Education 45 5 215 14 50 2 30 0

Energy 230 28 482 32 369 12 3,784 22Finance 5 1 250 16 41 1 780 4


24 3 61 4 35 1 65 0

Industry and Trade — — — — 44 1 212 1

Law, Economic Management, andPublic Policy

145 18 55 4 477 15 2,782 16

Multisector 70 8 105 7 602 19 1,332 8

Transport and Communications 107 13 113 7 567 18 5,265 30

Water Supply, Sanitation, andWaste Management

19 2 19 1 582 18 2,309 13

Total 827 100 1,518 100 3,199 100 17,408 100

— = none, ADF = Asian Development Fund, m = million, OCR = ordinary capital resources.Note: Includes 2007–2008 pipeline as of 10 August 2007.Sources of basic data: Asian Development Bank’s Loan, Grant, Technical Assistance and Equity Approvals database; Project

Processing Information System as of 10 August 2007.



Appendix 4 72

HIV AND AIDS-RELATED ADF LOANS AND GRANTS

1. Attention for prevention of human immunodeficiency virus/acquired immunodeficiencysyndrome (HIV/AIDS) was one of the priorities of ADF VIII. The Asian Development Bank (ADB)articulated its priorities in a strategic directions paper,1 which the Board endorsed in April 2005.The paper recognized that HIV/AIDS is not simply a health issue and cannot be addressed

through the health sector alone, as it is fueled by both economic development and poverty andperpetuated by social and cultural sensitivities. At the ADF IX meeting, donors agreed todedicate its new grant program in part to combating HIV/AIDS and other communicablediseases.

2. As a result, the availability of Asian Development Fund (ADF) grant financing for HIV/AIDS-related operations increased significantly. From $83.5 million in ADF VIII, loans andgrants (including pipeline operations) are expected to reach a total of $198 million during ADFIX, with approvals amounting to $164 million as of 31 July 2007. 2 Total grant approvals, whichamounted to $140 million, were instrumental in the 96% jump in HIV/AIDS financing from the

ADF during ADF IX. The bulk of the operations are in Viet Nam, accounting for 33% of the total,followed by Bangladesh and Pakistan, with 14.2% and 12.8% shares, respectively. During ADF

VIII, Pakistan had been allocated the biggest share or 43% of ADF-financed HIV/AIDSoperations during ADF VIII, with Cambodia and Viet Nam at 24% each. In addition, over $12.5million was allocated to this theme in the technical assistance (TA) program in ADF countries,for 13 TA operations. ADB is enforcing the rule that contractors mobilizing large numbers of workers are to address HIV risks. Projects in areas with indigenous peoples generally need toaddress HIV prevention, although questions have been raised regarding the effectiveness of themeasures in practice.3

1 ADB. 2005. Development, Poverty and HIV/AIDS: ADB’s Strategic Response to a Growing Epidemic. Manila.2 This is based on a review of HIV/AIDS projects/programs and health projects/programs with such components.3 ADB. 2007. Special Evaluation Study on Indigenous Peoples Safeguards. Manila.



Appendix 5 73

ADF SECTOR ALLOCATIONS AND CHANGES OVER THE YEARS1

1. Transport and Communications. Asian Development Fund (ADF) operations wentdown from 22% in ADF VI and VII to 19% under ADF VIII and IX (taking into account pipelineoperations until end-2008). The gradual drop may be due to more ordinary capital resources(OCR) funded investment being channeled through toll roads to countries that can afford to

borrow OCR for their national and even rural roads. Overall, the sector has not shrunk in the Asian Development Bank’s (ADB) operations.

2. Agriculture and Natural Resources. The large share may indicate the continuedperceived relevance in directly tackling poverty, as most of the poor live in rural areas, andproductive agriculture investments are generally intended to have a direct effect on employmentand incomes. Nevertheless, agriculture’s share decreased from 19% in 1992–2000 to 16% in2001–2008.

3. Multisector. The share has gone up significantly, from 16% in 1992–2000, to 19% of all ADF project resources in 2001–2008. A breakdown is found in Table A3.11, Appendix 3.Emergency assistance loan operations have the largest share at 50% in value and 28% in

number of loans and grants. The other half of the fund is shared among the subsectors of (i) social safety nets at 15%, (ii) rural development (13%), (iii) urban development (10%) and(iv) others (13%).

4. Social Sectors. Under the Poverty Reduction Strategy of 1999, the social sectors wereplanned to grow in importance within the overall portfolio. The share of ADF loans in theeducation sector grew indeed, from 9% in the ADF VI–VII period to 11% in ADF VIII–IX.However, the share of OCR funded education loans went down sharply over the same periodand in the same ADF-eligible countries, from 9% in 1992–2000 to less than 1% in 2001–2008.In the health and population sector, ADF operations declined from 5% in 1992–2000 to 4% in2001–2008 due to lower comparative advantage of ADB and ‘competition’ from many other development partners, notably the World Bank, which traditionally has a larger program in the

sector in Asia. There were virtually no OCR operations in health over the period. The water supply and sanitation sector’s share in ADF, however, increased from 7% in 1992–2000 to10% in 2001–2008 in line with the 2006 Medium-Term Strategy II, which placed greater emphasis on water supply and sanitation as a core business, and the start of theimplementation of the Water Financing Program 2006–2010 to more than double water investment over past levels. In the same period, OCR lending also increased allocation for water from 2% to 11% ($377 million to $3,343 million). The overall result has not been inaccordance with the ADB-wide Poverty Reduction Agenda—the social sector’s share of ADFwent up from 22% to 25%, but the OCR share went down from 17% to 12%; overall there was adecline in social sector operations from 19% to 16% of the ADB resource allocation. It could beargued that ADF has supported the Poverty Reduction Strategy in spite of less interest from

ADF countries. Governments were increasingly reluctant to borrow OCR for the education and

health sectors.

5. Law, Economic Management, and Public Policy. In line with the ADF agenda,the allocation doubled during a 3% share in ADF VI–VII replenishments to 6% for the period2001–2008. The trend was much more pronounced for the OCR committed to ADF countries

1 Source: OED analysis. See also Table A3.10 in Appendix 3.



Appendix 5 74

over the same periods. Operations grew remarkably, from 3% in 1992–2000 to 14% in 2001–2008.

6. Finance. Less ADF was allocated to this sector and proportions dropped from 7% from1992–2000 to 4% during 2001–2008. Almost no microfinance operations were processed butmany operations included small microfinance components. Specialized projects in banking

systems or capital markets all but disappeared from the ADF VIII and IX portfolio. Expansion inthis sector under ADF VIII and IX was confined to finance sector development and somehousing finance. OCR for the sector was more than halved.

7. Industry and Trade-Related Operations. Very minor allocations were made, consistentwith a long-term trend in ADB to concentrate such lending in private sector operations.The proportion went up from 1% during ADF VI and VII to 2% in 2001–2008, mainly for smalland medium-scale enterprise projects.



Appendix 6 75

ADF RESULTS TABLES AND FIGURES

Table A6.1: Country Eligibility for ADF since 1973Eligibility Classification

a

EconomyADF

IADF

IIADF

IIIADFIV

ADFV

ADFVI

ADFVII

ADFVIII

ADF IX

Afghanistan A A A A A A A A A

Armenia B1

Azerbaijanb

B1 B1

Bangladesh A A A A A A B1 B1 B1

Bhutan A A A A A A

Cambodia A A A A A A A A A

China, People's Republic of A A B2 B2 B2

Cook Islands A A A A A B1 B1 B1

Fiji Islands C C C C C C C C C

Georgia B1

Hongkong, China C C C C C C Grad.Grad. Grad.

India A A A B2 B2 B2

Indonesia B B B B B B B2 B2 B2

Kazakhstan B C C C

Kiribati A A A A A A A A

Kyrgyz Republic A A A A

Republic of Korea B C C C C C Grad. Grad. Grad.

Lao People's DemocraticRepublic A A A A A A A A A

Malaysia C C C C C C C C C

Maldives A A A A A A A

Marshall Islands, Republic of A B1 B1 B1

Micronesia, Federated States of A B1 B1 B1

Mongolia A A A A

Myanmar A A A A A A A A A

Nauru B B2 B2 B2

Nepal A A A A A A A A A

Pakistan A A A A A A B1 B1 B1

Palau B2

Papua New Guineac B B B B B B C B2 B2

Philippines B B B B B B C C C

Samoa A A A A A A A A A

Singapore C C C C C C Grad. Grad. Grad.Solomon Islands A A A A A A A A A

Sri Lanka A A A A A A B1 B1 B1

Taipei,China C C C C C C Grad. Grad. Grad.

Tajikistan A A A A

Timor-Leste A

Thailand B B B B B B C C C

Tonga A A A A A A B1 B1 B1



Appendix 6 76

Economy Eligibility Classificationa

ADFI

ADFII

ADFIII

ADFIV

ADFV

ADFVI

ADFVII

ADFVIII

ADF IX

Turkmenistan C

Tuvalu A A A A

Uzbekistan B C C B2

Vanuatu A A A A A A

Viet Nam A A A A A A B1 B1 B1 ADF = Asian Development Fund, DMC = developing member countries, Grad. = graduated, OCR = ordinary capitalresources.a The joint application of two criteria (i.e., per capita gross national product and debt repayment capacity) yields the

following system of DMC eligibility for ADF and OCR: Group A = ADF only; Group B1 = ADF with limited amounts of OCR; Group B2 = OCR with limited amounts of ADF; and Group C = OCR only.

b Officially recognized as an ADB DMC in December 1999.c Papua New Guinea was reclassified from C to B2 on 17 November 2000.Sources: ADB. 2003. Special Evaluation Study of the Asian Development Fund VI-VII Operations. Manila; ADB. 2007.

Operations Manual, Classification and Graduation of Developing Member Countries. Manila; and ADB. 2007.Country Classification of Georgia. Manila.



Appendix 6 77

T a b l e A 6 . 2 : A v e r a g e S u c c

e s s R a t e s o f A D F - F u n d e d P r o

j e c t s a n d P r o g r a m s

b y C o u n t r y a n d A p p r o

v a l P e r i o d , C o m b i n e d P C R a n

d P P E R R a t i n g s

1 9 7 0 s

1 9 8 0 s

1 9 9 0 s

T o t a l

G r o u p / E c o n o m y

P r o j e c t s /

P r o g r a m s

S u c c e s s

R a t e ( % )

P r o j e c t s /

P r o g r a m s

S u c c e s s

R a t e ( % )

P r o j e c t s /

P r o g r a m s

S u c c e s s

R a t e ( % )

P r o j e c t s /

P r o g r a m s

S u c c e s s

R a t e ( % )

G r o u p A

B h u

t a n

4

5 0

. 0

5

1 0 0

. 0

9

7 7

. 8

C a m

b o

d i a

1 0

9 0

. 0

1 0

9 0

. 0

K i r i b a

t i

2

5 0

. 0

1

0 . 0

3

3 3

. 3

K y r g y z

R e p u

b l i c

1 0

9 0

. 0

1 0

9 0

. 0

L a o

P e o p

l e ’ s

D e m o c r a

t i c R e p u

b l i c

3

3 3

. 3

1 0

7 0

. 0

2 1

7 1

. 4

3 4

6 7

. 6

M a

l d i v e s

4

7 5

. 0

3

1 0 0

. 0

7

8 5

. 7

M o n g o

l i a

1 5

7 3

. 3

1 5

7 3

. 3

M y a n m a r

6

6 6

. 7

5

6 0

. 0

1 1

6 3

. 6

N e p a

l

1 6

8 1

. 3

3 1

4 5

. 2

2 2

5 4

. 5

6 9

5 6

. 5

S a m o a

8

3 7

. 5

6

3 3

. 3

2

5 0

. 0

1 6

3 7

. 5

S o

l o m o n

I s l a n

d s

4

2 5

. 0

3

0 . 0

3

6 6

. 7

1 0

3 0

. 0

T a

j i k i s t a n

3

6 6

. 7

3

6 6

. 7

T u v a

l u

1

1 0 0

. 0

1

1 0 0

. 0

V a n u a

t u

4

2 5

. 0

4

5 0

. 0

8

3 7

. 5

S u b t o t a l

3 7

5 9 . 5

6 9

4 7 . 8

1 0 0

7 2 . 0

2 0 6

6 1 . 7

G r o u p B 1

B a n g

l a d e s h

2 3

2 6

. 1

3 5

5 7

. 1

3 9

7 4

. 4

9 7

5 6

. 7

C o o

k I s l a n

d s

2

0 . 0

7

7 1

. 4

9

5 5

. 6

M a r s h a

l l I s l a n

d s ,

R e p u

b l i c o

f

6

3 3

. 3

6

3 3

. 3

M i c r o n e s i a ,

F e

d e r a

t e d

S t a t e s o

f

3

6 6

. 7

3

6 6

. 7

P a

k i s t a n

1 8

6 1

. 1

4 0

5 2

. 5

2 4

5 4

. 2

8 2

5 4

. 9

S r i L a n

k a

1 1

3 6

. 4

2 4

5 0

. 0

2 6

6 1

. 5

6 1

5 2

. 5

T o n g a

4

7 5

. 0

6

8 3

. 3

4

5 0

. 0

1 4

7 1

. 4

V i e t N a m

5

0 . 0

1 6

9 3

. 8

2 1

7 1

. 4

S u b t o t a l

6 1

3 9 . 3

1 0 7

5 4 . 2

1 2 5

6 7 . 2

2 9 3

5 6 . 7

G r o u p B 2

C h i n a ,

P e o p

l e ' s

R e p u

b l i c o

f

I n d i a



78 Appendix 6

1 9 7 0 s

1 9 8 0 s

1 9 9 0 s

T o t a l

G r o u p / E c o n o m y

P r o j e c t s /

P r o g r a m s

S u c c e s s

R a t e ( % )

P r o j e c t s /

P r o g r a m s

S u c c e s s

R a t e ( % )

P r o j e c t s /

P r o g r a m s

S u c c e s s

R a t e ( % )

P r o j e c t s /

P r o g r a m s

S u c c e s s

R a t e ( % )

I n d o n e s i a

1 8

3 8

. 9

6

8 3

. 3

1 4

6 4

. 3

3 8

5 5

. 3

N a u r u

P a p u a

N e w

G u

i n e a

7

2 8

. 6

9

9

1 1

. 1

2 5

2 4

. 0

U z b e

k i s t a n

1

1 0 0

. 0

1

1 0 0

. 0

S u b t o t a l

2 5

3 6 . 0

1 5

5 3 . 3

2 4

4 5 . 8

6 4

4 3 . 8

G r o u p C

F i j i I s l a n

d s

K a z a

k h s t a n

3

6 6

. 7

3

6 6

. 7

M a

l a y s i a

1

0 . 0

1

0 . 0

P h i l i p p

i n e s

3

6 6

. 7

1 1

3 6

. 4

1 7

5 8

. 8

3 1

5 1

. 6

T h a

i l a n

d

4

7 5

. 0

2

5 0

. 0

6

6 6

. 7

S u b t o t a l

8

6 2 . 5

1 3

3 8 . 5

2 0

6 0 . 0

4 1

5 3 . 7

G r a d u a t e E c o n o m i e s

H o n g

K o n g ,

C h i n a

K o r e a ,

R e p u

b l i c o

f

1

1 0 0

. 0

1

1 0 0

. 0

S i n g a p o r e

1

1 0 0

. 0

1

1 0 0

. 0

S u b t o t a l

2

1 0 0 . 0

2

1 0 0 . 0

T o t a l

1 3 3

4 6 . 6

2 0 4

5 1 . 0

2 6 9

6 6 . 5

6 0 6

5 6 . 9

A D F =

A s i a n

D e v e

l o p m e n t

F u n

d ,

O C R = o r d

i n a r y c a p

i t a l r e s o u r c e s ,

O E D =

O p e r a

t i o n s

E v a

l u a

t i o n

D e p a

r t m e n

t , P C R = p r o

j e c t / p r o g r a m c o m p l e

t i o n r e p o r t ,

P P E R

= p r o

j e c t / p r o g r a m p e r f o r m a

n c e e v a

l u a

t i o n r e p o r t .

N o

t e :

T h e s u c c e s s r a

t e ( % ) r e

f l e c t s

t h e p e r c e n

t a g e o

f o p e r a

t i o n s

r a t e d s u c c e s s f u

l , g e n e r a

l l y s u c c e s s f u l ,

o r

h i g h l y s u c c e s s f u

l .

S o u r c e s :

O E D ’ s d a

t a b a s e ;

P C R s a n

d P P E R s c o n

t a i n i n g a r a

t i n g c i r c u

l a t e d a s o

f 3 1 D e c e m

b e r

2 0 0 6

.



Appendix 6 79

T a b l e A 6 . 3 : A v e r a g e S u c c e s s

R a t e s o f A D F - F u n d e d P r o j e c t s a n d P r o g r a m s ,

B y S u b s e c t o r a n d A p p r o v a

l P e r i o d . C o m b i n e d P C R a n d

P P E R R a t i n g s

1 9 7 0 s

1 9 8 0 s

1 9 9 0 s

T o t a l

S e c t o r / S u b s e c t o r

P r o j e c t /

P r o g r a m

S u c c e s s

R a t e ( % )

P r o j e c t /

P r o g r a m

S u c c e s s

R a t e ( % )

P r o j e c t /

P r o g r a m

S u c c e s s

R a t e ( % )

P r o j e c t

/

P r o g r a m

S u c c e s s

R a t e ( % )

A g r i c u l t u r e a n d N a t u r a l R e s o u r c e s

A g r i c u

l t u r e

P r o

d u c t i o n ,

A g r o p r o c e s s i n g a n

d

A g r o

b u s i n e s s

1 3

1 5

. 4

2 6

3 0

. 8

9

3 3

. 3

4

8

2 7

. 1

A g r i c u

l t u r e

S e c t o r

D e v e

l o p m e n t

7

2 8

. 6

1 2

1 6

. 7

1 2

5 0

. 0

3

1

3 2

. 3

E n v i r o n m e n

t a n

d B i o d i v e r s i t y

2

5 0

. 0

2

0 . 0

4

2 5

. 0

F i s h e r y

9

2 2

. 2

8

3 7

. 5

6

0 . 0

2

3

2 1

. 7

F o r e s t

3

6 6

. 7

8

5 0

. 0

6

1 6

. 7

1

7

4 1

. 2

I r r i g a

t i o n a n

d D r a

i n a g e

1 1

7 2

. 7

1 9

7 3

. 7

1 2

6 6

. 7

4

2

7 1

. 4

L i v e s t o c k

6

1 6

. 7

6

3 3

. 3

3

6 6

. 7

1

5

3 3

. 3

W a

t e r

R e s o u r c e

M a n a g e m e n

t

1

1 0 0

. 0

5

1 0 0

. 0

6

1 0 0

. 0

S u b t o t a l

4 9

3 4 . 7

8 2

4 2 . 7

5 5

4 5 . 5

1 8

6

4 1 . 4

E d u c a t i o n

B a s i c

E d u c a

t i o n

4

0 . 0

1 6

8 1

. 3

2

0

6 5

. 0

E d u c a

t i o n

S y s t e m s

1

0 . 0

2

5 0

. 0

4

7 5

. 0

7

5 7

. 1

N o n

f o r m a

l E d u c a

t i o n

1

0 . 0

4

7 5

. 0

5

6 0

. 0

S e n

i o r

S e c o n

d a r y

E d u c a

t i o n

2

0 . 0

2

0 . 0

T e c h n

i c a l , V o c a

t i o n a

l , S k i l l a n

d T r a

i n i n g

6

8 3

. 3

5

4 0

. 0

3

1 0 0

. 0

1

4

7 1

. 4

T e r t i a r y

E d u c a

t i o n

2

1 0 0

. 0

1

1 0 0

. 0

3

1 0 0

. 0

6

1 0 0

. 0

S u b t o t a l

9

7 7 . 8

1 3

3 0 . 8

3 2

7 8 . 1

5

4

6 6 . 7

E n e r g y

C o n v e n

t i o n a

l E n e r g y

G e n e r a

t i o n (

o t h e r

t h a n

h y d r o p o w e r )

4

7 5

. 0

8

8 7

. 5

2

1 0 0

. 0

1

4

8 5

. 7

E n e r g y

S e c t o r

D e v e

l o p m e n

t a n d R

e f o r m s

1

0 . 0

4

7 5

. 0

5

6 0

. 0

H y d r o p o w e r

6

8 3

. 3

2

1 0 0

. 0

4

1 0 0

. 0

1

2

9 1

. 7

T r a n s m

i s s i o n a n

d D i s t r i b u

t i o n

1 5

6 0

. 0

1 3

8 4

. 6

1 3

8 4

. 6

4

1

7 5

. 6

S u b t o t a l

2 5

6 8 . 0

2 4

8 3 . 3

2 3

8 7 . 0

7

2

7 9 . 2

F i n a n c e

B a n

k i n g

S y s t e m s

1 3

0 . 0

1 1

1 8

. 2

9

6 6

. 7

3

3

2 4

. 2

C a p

i t a l M a r k e

t s a n

d F u n

d s

1

0 . 0

1

0 . 0

F i n a n c e

S e c t o r

D e v e

l o p m e n

t a n d

R e

f o r m s

6

5 0

. 0

6

5 0

. 0

H o u s i n g

F i n a n c e

1

0 . 0

1

0 . 0

M i c r o f i n a n c e

1

1 0 0

. 0

5

8 0

. 0

6

8 3

. 3

P e n s i o n s ,

I n s u r a n c e ,

e t c .

S u b t o t a l

1 3

0 . 0

1 2

2 5 . 0

2 2

5 9 . 1

4

7

3 4 . 0



80 Appendix 6

S e c t o r / S u b s e c t o r

1 9 7 0 s

1 9 8 0 s

1 9 9 0 s

T o t a l

P r o j e c t /

P r o g r a m

S u c c e s s

R a t e ( % )

P r o j e c t /

P r o g r a m

S u c c e s s

R a t e ( % )

P

r o j e c t /

P

r o g r a m

S u c c e s s

R a t e ( % )

P r o j e c t /

P r o g r a m

S u c c e s s

R a t e ( % )

H e a

l t h ,

N u

t r i t i o n ,

a n

d S o c i a

l P r o t e c t i o n

H e a

l t h P r o g r a m

1

0 . 0

4

7 5

. 0

5

6 0

. 0

H e a

l t h S y s t e m s

7

2 8

. 6

1 0

5 0

. 0

1 7

4 1

. 2

S o c i a

l P r o

t e c t i o n

S u b t o t a l

8

2 5 . 0

1 4

5 7 . 1

2 2

4 5 . 5

I n d u s t r y a n

d T r a

d e

H o u s i n g

C o n s t r u c t i o n

I n d u s t r y

8

6 2

. 5

5

4 0

. 0

7

2 8

. 6

2 0

4 5

. 0

S m a

l l a n

d M e

d i u m - S c a

l e E n

t e r p r i s e s

2

5 0

. 0

3

3 3

. 3

2

1 0 0

. 0

7

5 7

. 1

T r a

d e

1

1 0 0

. 0

1

1 0 0

. 0

2

1 0 0

. 0

S u b t o t a l

1 0

6 0 . 0

9

4 4 . 4

1 0

5 0 . 0

2 9

5 1 . 7

L a w ,

E c o n o m

i c M a n a g e m e n

t , a n d

P u

b l i c P o

l i c y

E c o n o m

i c M a n a g e m e n

t

3

6 6

. 7

3

6 6

. 7

N a

t i o n a

l G o v e r n m e n

t a n

d A d m

i n i s

t r a t i o n

3

1 0 0

. 0

3

1 0 0

. 0

P u

b l i c F i n a n c e a n

d E x p e n

d i t u r e M

a n a g e m e n

t

4

5 0

. 0

4

5 0

. 0

S u

b n a

t i o n a

l G o v e r n m e n

t a n

d A d m

i n i s t r a t i o n

1

1 0 0

. 0

1

1 0 0

. 0

S u b t o t a l

1 1

5 4 . 5

1 1

5 4 . 5

M u

l t i s e c t o r

6

5 0

. 0

2 6

6 1

. 5

4 7

7 0

. 2

7 9

6 5

. 8

T r a n s p o r t a n

d C o m m u n

i c a t i o n s

A v i a

t i o n

2

1 0 0

. 0

5

6 0

. 0

7

7 1

. 4

P o r t s ,

W a

t e r w a y s , a n

d S h i p p

i n g

5

8 0

. 0

5

6 0

. 0

2

1 0 0

. 0

1 2

7 5

. 0

R a

i l w a y s

1

0 . 0

1

0 . 0

2

5 0

. 0

4

2 5

. 0

R o a

d s a n

d H i g h w a y s

3

6 6

. 7

1 6

8 1

. 3

2 5

9 2

. 0

4 4

8 6

. 4

T e

l e c o m m u n

i c a t i o n s a n

d C o m m u n

i c a t i o n

3

1 0 0

. 0

1

1 0 0

. 0

3

1 0 0

. 0

7

1 0 0

. 0

S u b t o t a l

1 4

7 8 . 6

2 3

7 3 . 9

3 7

8 6 . 5

7 4

8 1 . 1

W a

t e r

S u p p

l y , S a n

i t a t i o n ,

a n

d W a s t e

M a n a g e m e n

t

I n t e g r a

t e d

2

1 0 0

. 0

2

1 0 0

. 0

W a s t e

M a n a g e m e n

t

1

0 . 0

1

0 . 0

W a

t e r

S u p p

l y a n

d S a n

i t a t i o n

7

1 4

. 3

6

5 0

. 0

1 6

6 2

. 5

2 9

4 8

. 3

S u b t o t a l

7

1 4 . 3

7

4 2 . 9

1 8

6 6 . 7

3 2

5 0 . 0

T o t a l

1 3 3

4 6 . 6

2 0 4

5 1 . 0

2 6 9

6 6 . 5

6 0 6

5 6 . 9

A D F =

A s i a n

D e v e

l o p m e n

t F u n d ,

O C R = o r d

i n a r y c a p

i t a l r e s o u r c e s ,

O E D

= O p e r a

t i o n s

E v a

l u a

t i o n

D e p a r t m e n t ,

P C R = p r o

j e c t / p r o g r a m c o m p

l e t i o n r e

p o r t ,

P P E R =

p r o

j e c t / p r o g r a m p e r f o r m a n c e e v a l u a

t i o n r e p o r t .

N o

t e s :

T h e s u c c e s s r a

t e ( % ) r e f l e

c t s t h e p e r c e n

t a g e o

f o p e r a

t i o n s r a t e

d s u c c e s s f u

l , g e n e r a

l l y s u c c e s s f u

l , o r

h i g h l y s u c c e s s f u

l . C a

t e g o r i e s n o

t c o u n

t e d a r e

t h o s e o

f

p a r t l y s u c c e s s f u

l a n

d u n s u

c c e s s f u

l .

S o u r c e s :

O E D ’ s d a

t a b a s e ;

P C R s a n

d P P E R s c o n

t a i n i n g a r a

t i n g c i r c u l a t e

d a s o

f 3 1 D e c e m

b e r

2 0 0 6

.



Appendix 6 81

Table A6.4: Quality of Adherence to Some ADB and ADF Themes as per CAPEs, 2002 –2007

CAPEBAN2003

BHU2005

CAM2004

INO2005

LAO2006

MON2002

NEP2004

PAK2007

PNG2003

SRI2007

UZB2006

Targeting thePoor

[PS] [S] [S] [PS] – [PS] [S] [PS] [PS] [S] [PS]

Governance [PS] S PS–S S PS –

[PS] –

[PS] PS [PS]Gender Equality PS–S [S] [S] [S] S – [S*] [S] – [S] [PS]

RegionalCooperation

– [S] S – S –

– [S] –

[S] [S]

CapacityDevelopment

– [S] PS PS PS [PS] [PS] [PS] [PS] [PS] –

Private Sector [PS] [PS] S [PS] – [PS] – [PS] [PS] – [PS]Environment [PS] [PS] – PS PS PS – [PS] [PS] – [PS]

– = no discussion, ADB = Asian Development Bank, ADF = Asian Development Fund, BAN = Bangladesh, BHU =Bhutan, CAM = Cambodia, CAPE = country assistance and program evaluation, HS = highly successful, INO =Indonesia, LAO = Lao People’s Democratic Republic, MON = Mongolia, NEP = Nepal, PAK = Pakistan, PNG =Papua New Guinea, PS = partly successful, SRI = Sri Lanka, S = successful, US = unsuccessful, UZB = Uzbekistan.Note: Ratings in brackets were derived based on discussion from CAPE reports; ratings were derived only when

there were no specific ratings given in the CAPE.

Sources: ADB CAPE Reports.

Table A6.5: Sector Assessment Ratings in CAPEs, 2002–2007

Macro Sectors andSectors

BAN(2003)

BHU(2005)

CAM(2004)

INO(2005)

LAO(2006)

MON(2002)

NEP(2004)

PAK(2007)

PNG(2003)

SRI(2007)

UZB(2006)

Agriculture andNatural Resources

[HS] [S] S PS PS [PS] [S] PS [PS] PS [S]

InfrastructureEnergy [S] [S] [S] S S [S] [S] S – PS USTransport and Comm. [S] [S] [S] HS HS [S] [S] S [S] S US

Urban Dev./Housing [PS] [S] – – S [PS] – – – – –

Social Infrastructure

Health, Nutrition, andSocial Protection [PS] [S] [S] S S – – US [PS] – –

Education [S] [S] HS S S [PS] [S] PS – S [S]Water Supply/

Sanitation[S] – [S] S PS – [S] US

–S [S]

FinanceFinance and Industry [PS] [S] [S] HS PS [S] – PS [PS] – [PS]LEMPP – – – S – – – PS – – –

– = no discussion; BAN = Bangladesh; BHU = Bhutan; CAM = Cambodia; CAPE = country assistance program evaluation;Comm. = communication; Dev. = development; HS = highly successful; INO = Indonesia; LAO = Lao People’s DemocraticRepublic; LEMPP = Law, Economic Management, and Public Policy; MON = Mongolia; NEP = Nepal; PAK = Pakistan; PNG= Papua New Guinea; PS = partly successful; S = successful; SRI = Sri Lanka; US = unsuccessful; UZB = Uzbekistan.Note: Ratings in brackets were derived based on discussion from CAPE reports, ratings were added only when there were

no specific ratings given. Bhutan ratings were taken from a CAPE summary table with numerical ratings. Except for those on Bhutan and Papua New Guinea, the CAPEs included a sector assessment but not all indicated a final rating

for the sector.Sources: OED CAPEs produced in 2002–2007.

Table A6.6: Ratings of Sector Policies Provided by the SESSector (year of study) Relevance Efficiency Effectiveness Sustainability Final Ratinga) Urban Sector strategyb) Urban sector operations

S –

PS –

–S

–PS

PSS

Health S – – – SFisheries U PS PS PS UEnergy S S S HS S

– = no rating, HS = highly satisfactory, PS = partly satisfactory, S = satisfactory, U = unsatisfactory.Sources: Special evaluation studies.



Appendix 6 82

Table A6.7: ADF VI and VII Operations in $ Million, Classified by Strategic Development Objectivea

Amount ($million) % ShareSDO HS/GS/S PS US NR Total HS/GS/S PS US NR TotalENV 529.0 115.1 11.2 0.0 655.3 80.7 17.6 1.7 0.0 100.0GRO 4,496.9 619.1 28.6 1.0 5,145.6 87.4 12.0 0.6 0.0 100.0HRD

b1,292.0 739.2 0.8 0.0 2,032.0 63.6 36.4 0.0 0.0 100.0

POV

c

1,914.2 337.9 3.6 0.0 2,255.7 84.9 15.0 0.2 0.0 100.0WID 487.5 305.9 0.0 0.0 793.4 61.4 38.6 0.0 0.0 100.0Total 8,719.5 2,117.2 44.3 1.0 10,882.0 80.1 19.5 0.4 0.0 100.0

ADF = Asian Development Fund, ENV = environment and natural resource management, GRO = economic growth, GS = generallysuccessful, HRD = human development, HS = highly successful, NR = not rated, POV = poverty reduction, PS = partly successful, S =successful, SDO = strategic development objective, US = unsuccessful, WID = women in development.a Includes both operations classified with a first SDO and/or a second SDO. b Includes operations classified under HRD and HRD/POV.c Includes projects classified under POV, POV/ENV, and POV/WID.Note: See Notes below, regarding classification.Sources: Asian Development Bank databases.

Table A6.8: Number of ADF VI and VII Operations Classified by Strategic Development Objectivesa Number % Share

SDO HS/GS/S PS US NR Total HS/GS/S PS US NR TotalENV 13 4 1 0 18 ENV 72.2 22.2 5.6 0.0 100.0GRO 92 23 2 2 119 GRO 77.3 19.3 1.7 1.7 100.0HRDb 45 16 1 0 62 HRD 72.6 25.8 1.6 0.0 100.0POV

c52 15 1 0 68 POV 76.5 22.1 1.5 0.0 100.0

WID 13 7 0 0 20 WID 65.0 35.0 0.0 0.0 100.0Total 215 65 5 2 287 Total 74.9 22.6 1.7 0.7 100.0

ADF = Asian Development Fund, ENV = environment and natural resource management, GRO = economic growth, GS = generallysuccessful, HRD = human development, HS = highly successful, NR = not rated, POV = poverty reduction, PS = partly successful,S = successful, SDO = strategic development objective, US = unsuccessful, WID = women in development. a Includes both operations classified with a first SDO and/or a second SDO.b Includes operations classified under HRD and HRD/POV.c Includes projects classified under POV, POV/ENV, and POV/WID.Note: See Notes below, regarding classification.

Sources: Asian Development Bank databases.

Notes on the classification of strategic development objectives:1. A project would be assigned women in development (WID) as primary theme if two thirds of the beneficiaries werewomen, or more than 50% of the expenditures were targeted specifically to benefit women. It would be assigned WID as secondarytheme if it one third of the beneficiaries were women, or less than 50% but more than 20% of expenditures were targetedspecifically to benefit women.

2. A project would be assigned a primary human resource development (HRD) theme if it had more than 50% of projectexpenditure targeted to education, health, population planning, water supply, sanitation, housing, and other basic human needs(but if did not fit the WID criteria above). It would get a secondary such theme if it had less than 50% but more than 20% of suchexpenditures for human resource development.

3. A project would have poverty reduction (POV) as main theme if its primary aim was to improve access for the poor toincome/employment opportunities or human resource development services and either have at least two thirds of the beneficiaries

being poor; or have one or more components benefiting the poor accounting for more than 50% of total project costs. A projectwould have poverty reduction as its secondary theme if its secondary objective addressed the issues discussed above and either had at least one third of project beneficiaries being poor, or one or more components benefiting the poor accounting for at least20% of total project costs. (This excluded the mitigation of incremental adverse effects on vulnerable groups, since this wasalready mandatory for all ADB-financed projects.)

4. A project would get the primary theme of environmental protection and natural resource management (ENV) if morethan 50% of project expenditures were targeted to protect, improve, or conserve natural and environmental resources. It would geta secondary such theme if it dedicated less than 50% but more than 20% for such purposes.

5. A project would be assigned the economic growth (GRO) theme if it did not meet any of the other theme criteria fully.



Appendix 7 83

THEMATIC RESULT AREAS EMPHASIZED IN ADF VIII AND ADF IX DONOR REPORTS

1. Capacity Development. After Asian Development Fund (ADF) donors endorsed thenew thematic priority capacity development in the Enhanced Poverty Reduction Strategy(EPRS) of December 2004, the Asian Development Bank (ADB) instituted a working group,developed a project classification system for the theme, and approved a medium-term strategyand action plan in January 2007.1 At least one operations department has conducted a major

study on capacity development.2 Results of ADB’s capacity development are difficult to measurein a straightforward way. Attempts made however usually lead to the finding that the results of projects and technical assistance (TA) focusing on capacity development have been mixed.This is the finding of both older and newer studies. The Operation Evaluations Department’s(OED) 2007 Annual Evaluation Review 3 included a theme chapter on capacity development,and reports no consistent pattern of success across sectors, countries, region, or time.The review reports on OED’s ongoing evaluation of capacity development in four sectors inCambodia, Nepal and Philippines, which provisionally rated capacity development operations as“effective” in Cambodia, and more “mixed” effectiveness in Nepal and Philippines. One lesson isthat continuity, of focused interventions and a long-term perspective are crucial. This, however,has not always been achieved. Another lesson is that doing less but doing it better is likely toproduce better results. However, even less ambitious capacity development initiatives need to

be supported by clear results frameworks, good diagnostics, use of the right mix of modalities,long-term engagement, and an inclusive participatory approach. The achievement of capacitydevelopment objectives will also be enhanced by improved staff skills and greater involvementof resident missions.

2. OED studied whether the effects of ADB’s project delivery system were helping or hindering capacity development, notably when ADB created stand-alone project offices andhired project management consultants. In 2005, OED completed a special evaluation study(SES) on the role of project implementation units (PIUs),4 in the context of a key target of the2005 Paris Declaration to reduce parallel PIUs in externally funded projects (i.e., a specialpurpose vehicle to manage the project, staffed by the agency’s staff and/or staff external to theagency). OED’s PIU SES found that only a minority of PIUs created as a result of ADB funded

projects had characteristics that could raise concerns regarding capacity erosion. While 90% of ADB's investment projects were managed by a PIU, 33% used mainly externally staffed PIUs,and around 40% were temporary, to be dissolved upon completion of the project. All otherswere either more permanent project units, and were staffed mainly by the agency, or had a mixof internal and externally recruited staff. 5 The SES found that most externally staffed andtemporary PIUs had sensible reasons for being set up in this way. In ADF projects, 41% of thePIUs reported that capacity gains of PIUs could be significant, given that the staff’s prior projectimplementation experience was small and not geared to new approaches. However, almost20% of the PIUs for ADF projects felt that their work overlapped with that of their parent agency(as against 31% of PIUs for ordinary capital resources [OCR] projects); and a similar proportionnoted that one or more of their staff included government officers that had resigned and joinedthe PIU as consultants or contractuals. On the positive side, most PIUs felt they served a

function in building up project management capacity in the government service, while many alsobuilt up capacity in service delivery, organization development, and operation and maintenanceof infrastructure. The SES recommended that clients increase the proportion of staff posted to

1 ADB. 2007. Integrating Capacity Development into Country Programs and Operations. Medium-Term Framework and Action Plan. Manila.

2 ADB. 2007. A Study of ADB’s Capacity Development Interventions in South Asia. Manila. South Asia OccasionalPapers Series No. 1.

3 ADB. 2007. 2007 Annual Evaluation Review . Manila.4 ADB. 2005. Special Evaluation Study on the Role of Project Implementation Units. Manila.5 Consultants, contractuals, and government officers deputed from other agencies.



Appendix 7 84

PIUs from within the parent agency, and that the number of temporary PIUs should be reducedby integrating them with the main agencies. The SES also recommended that ADB mitigate therisks of capacity erosion as a result of external and temporary PIUs by adding specific PIUcapacity development plans and exit strategies to the design.

3. Civil Society Organizations. OED completed an SES in 2006 on the involvement of civil society organizations (CSOs) in ADB operations. 6 The evaluation did not claim to be

representative of the complete range of CSO involvement in ADB operations, but identifiedlessons and successful examples of CSO involvement. The SES found that ADB spending onCSO capacity building had increased over the years, in line with ADF donor suggestions and

ADB strategy. The increased focus on organizational development of grassroots CSOs, such aswater users associations and farmers' groups, pointed to a direct relation with the PovertyReduction Strategy (PRS). Although CSO involvement in ADB operations was seen asincreasingly diverse, involvement in strategically important areas, such as policy advocacy, andmonitoring and evaluation, was still comparatively rare. The SES found that the concerns of grassroots organizations and beneficiaries might not always be reflected effectively in countrystrategy and program formulation, despite increased consultations. ADB was found to be weakin involving civil society as partners in implementing ADB governance and anticorruptionpolicies. However, more in line with ADF donor suggestions, the strategy for involving CSOs in

implementing gender and development policies was judged effective, particularly in its long-termapproach and early focus on institutional capacity building, by supporting appropriate legislationand regulations in developing member countries.

4. Participation of Beneficiaries. OED has conducted several SESs on this theme since2000, and came up with assessments of varied nature. Some studies stressed the importanceof participation of beneficiary and nonbeneficiary stakeholders in project preparation andimplementation, and how ADB could and should do more in this field. SESs conducted in 2000and 2003 noted insufficient participation by stakeholders. 7 More recent SESs noted higher integration of participatory approaches in project design and implementation, as alsocorroborated by the 2006 SES (para. 81). An SES in 2004 8 warned against mechanicallyincreasing the attention for participation of beneficiaries and nongovernment organizations

(NGOs), unless the basic conditions change under which projects are prepared and operate.The SES found that participatory approaches, such as group formation and NGO engagement,had not always improved project performance, because many project interventions were alreadypredetermined at the formulation stage, and principal-agent relations between policy makers,project providers, and beneficiaries could not be changed. In Nepal, for example, the SES notedthat a particular project distributed subsidized equipment to processing enterprises as theprimary instrument to promote milk marketing. The project provided free training and improvedforage seeds to induce group formation, but without understanding the farmers’ demand, theneed for new technology, or their willingness to pay for the training. Consequently,the sustainability of the outcomes depended on the continuity of the service deliverymechanisms created by the project. The SES observed that contracted NGOs left localcommunities after the expiration of their contracts without leaving significant impacts. In many

cases, training and extension services were not continued because of limited financialresources from the government. Overall, ADB’s progress in increasing NGO and beneficiaryparticipation has been substantial over the years, but there are signs, similar to those for the

6 ADB. 2006. Special Evaluation Study on the Involvement of Civil Society Organizations in Asian Development Bank Operations. Manila.

7 ADB. 2000. Special Evaluation Study on Participatory Development Processes in Selected Asian Development Bank Projects in Agriculture, Natural Resources, and Social Infrastructure Sectors. Manila; ADB. 2003. Special Evaluation Study on Participatory Approaches in Forest and Water Resource Operations in Selected Developing Member Countries. Manila.

8 ADB. 2004. Special Evaluation Study on the Effectiveness of Participatory Approaches. Manila.



Appendix 7 85

enforcement of social and environmental safeguards, of mechanistic rather than measuredapplication. This leads to inefficiencies.

5. Private Sector Development. An OED SES completed in 20079 reports satisfactoryresults for ADB’s private sector operations, if less so for private sector development overall.The 71% project success rate for nonsovereign lending in ADF countries exceeded the 64%success rate for ADB’s public sector projects.10 The rating of highly satisfactory was withheld,

mainly due to the lack of synergy between public and private sector operations departments.The highest degree of success was achieved in the power and energy sectors, althoughinstitutional reform successes were less prominent. ADB had supported the restructuring of thepower sector in many countries. Policy dialogue conducted by ADB was successful in mitigatingsome of the negative financial consequences for private energy sector clients. The SES foundthat private sector development operations were generally satisfactory in terms of overallfinancial performance. ADB was successful in stimulating investments through demonstration or transfer of technology. The success of private sector operations was reflected in an increasingportfolio of nonsovereign loans. However, the volume was still low in ADF countries (Table) andconcentrated in Indonesia, Pakistan, Viet Nam, Afghanistan, and Lao People’s DemocraticRepublic. Weaknesses in the enabling environment delayed private sector development insome sectors such as transport, water, and finance. The SES assessed the success of ADB

support for small and medium credit lines issued by government-owned development financeinstitutions as very low (38%). The SES concluded that generally ADB should not lend togovernment owned development finance institutions, and any exceptions would need to bestrongly justified.

Table A7.1: Private Sector Operations in ADF Countries, 2001–2007

Country Eligibility(ADF IX)

a CountryInvestments

(number)Amount

($ million)b

Group A

Afghanistan 5 83.10

Cambodia 1 8.00

Lao People’s Democratic Republic 1 50.00

Maldives 1 4.50Mongolia 2 16.10

Subtotal 10 161.70

Group B1

Azerbaijan 3 21.00

Bangladesh 2 20.53

Georgia 1 25.00

Pakistan 5 210.10

Sri Lanka 2 10.36

Viet Nam 6 132.50

Subtotal 19 419.39

Group B2

Indonesia 5 520.20

Grand total 34 1101.29 ADF = Asian Development Fund, OCR = ordinary capital resources.a Group A = ADF only; Group B1 = ADF with limits amounts of OCR; Group B2 = OCR with

limited amounts of ADF. Data as of October 2007.b Excludes other complementary loans and guarantees and regional projects.Source: Asian Development Bank records.

9 ADB. 2007. Special Evaluation Study on Private Sector Development and Operations: Harnessing Synergies withthe Private Sector . Manila.

10 In 1995–2006, 14 project performance evaluation reports had been prepared by OED, and 31 project completionreports by operations departments. They included 24 reports for projects in current ADF countries.



Appendix 7 86

6. Regional Cooperation and Integration. OED is in the process of assessing the resultsof ADB operations in this area as part of an SES on the Long-Term Strategic Framework. Itconcludes that results and results positioning after 2001 have been broadly positive. A SES of regional TA addressing regional cooperation is planned for 2008, as well as an SES ontransport and energy in the Greater Mekong Subregion. Further evaluations are planned for 2009 and 2010 regarding regional cooperation in the Pacific, South Asia, and Central Asia.

7. Gender and Development. OED issued its last evaluation in 200111 and recommendedthat ADB's country strategies and policy dialogue should aim at fostering national and sectoralgender and development policies and removing structural barriers affecting women. In line withthe 1998 Gender and Development Policy and the 1999 PRS, the evaluation recommended thatgender considerations should be mainstreamed in all operations, and project designs shouldroutinely address gender objectives. Consequently, reports and recommendations of thePresident (RRP) now include more gender action plans or otherwise effectively mainstreamgender considerations. The number of ADF operations with gender as a special theme hasgrown from 13% in ADF VIII to 20% in ADF IX; the number of TA operations with this themegrew from 2% to 6%. Eighty percent of loans with a gender theme or gender mainstreamingfeatures were funded from ADF resources. Results are difficult to assess due to the absence of

a recent evaluation.12

The Regional and Sustainable Development Department conducted areview in 2006. 13 It found that a number of advances for gender equality and women’sempowerment have been made across Asia and the Pacific since 1995. Girls’ school enrollment,female literacy, women’s life expectancy, and economic participation have generally improved.However, the regional trends masked wide differences between and within countries, andgender gaps persisted in access to education, quality health care, employment and businessopportunities, political participation and decision-making, personal security, and justice.Regional experience has also shown that economic growth in itself does not necessarily reducegender disparities, witness for instance the deteriorating sex ratios in the People’s Republic of China (PRC) and India. Much work remains to be done. The review assessed the impact of gender-responsive loan designs during implementation. Rapid gender assessments wereundertaken for 12 loans in four ADF countries. While operations were at various stages, the

assessments identified some intermediate results. The most impressive were found in projectsthat included a detailed project gender action plan linked to the project’s main components withclear targets. They were mainly agriculture and rural development projects in which ADB’sresident mission gender consultants had worked closely with the EA to develop and implementa detailed gender action plan. The results were deemed more positive than those reported bythe 2001 OED evaluation.

8. Managing for Development Results (MfDR). In 2004, ADB made a formal commitmentto introducing MfDR following strong expressions of support by ADF IX donors. The donor report stressed that ADB should nurture a strong results-oriented culture across theorganization. OED has undertaken a preliminary assessment of the implementation of ADB’sMfDR agenda.14 A more comprehensive evaluation of MfDR outcomes is planned for 2009.

The report finds that ADB’s progress on MfDR is comparable to that of other multilateraldevelopment banks. ADB has developed some policies, procedures, and tools to support staff and the organization as it works towards the full implementation of MfDR. The quality of ADB’sdesign and monitoring frameworks improved significantly in 2005, although quality droppedslightly in 2006. The results of the staff survey and focus group discussions conducted during

11 ADB. 2001. Special Evaluation Study on Gender and Development . Manila.12 OED plans to conduct an evaluation of the Gender and Development Policy in 2009.13 ADB. 2006. Implementation Review of the Policy on Gender and Development . Manila.14 ADB. 2007. Special Evaluation Study on Managing for Development Results in the Asian Development Bank:

A Preliminary Assessment. Manila.



Appendix 7 87

the MfDR SES suggest that ADB staff are neither fully engaged in, nor committed to MfDR.The report attributes this to ADB’s adoption of MfDR being in a transitional stage. 15 Nevertheless, the weak commitment from professional staff, particularly directors, is a concern.To make more progress in implementing MfDR requires continued support and leadership bysenior Management, along with changes in ADB’s human resource management practices toalign the incentives that govern ADB staff behavior with MfDR.

9. Evidence of More Effort to Address Corruption. The ADF IX donor reportemphasizes taking action to address the pernicious effects of corruption on development. Sincethe issuance of the 1998 Anticorruption Policy, ADB has become more aware of the need tocombat corruption. The Anticorruption Unit, created in September 1999, was upgraded to theIntegrity Division in December 2004. According to its annual reports, the division hasinvestigated an increasing number of cases.16 In 2005, ADB adopted a new and comprehensivepublic communications policy, which gives stakeholders greater and quicker access to ADBdocuments. Anticorruption approaches are now discussed more openly in country strategiesand programs. Anticorruption is one of the three focal areas in ADB’s 2006 second governanceand anticorruption action plan, which focuses anticorruption efforts at the sector level. Of the474 TA operations categorized as addressing governance in 2001–2007, 18 were launched withan anticorruption subtheme; five more are in the pipeline. CAPEs have reported progress in

ADB’s efforts to address corruption in ADF countries such as Cambodia, Indonesia, andSri Lanka. Fourteen ADF countries 17 have joined the ADB–Organisation for EconomicCo-operation and Development Anti-Corruption Initiative for Asia and the Pacific, and six more 18 have expressed interest in becoming members.

10. Experience with Environmental and Social Safeguards. Safeguard policies, althoughnot emphasized in ADF donor reports, were part and parcel of the wider social, environmentaland governance agenda’s pursued, on the principle that ADB needs to make sure thatoperations do not cause direct or indirect harm to the environment and people. This studyassesses the increasing attention for the application of ADB’s Environment Policy, InvoluntaryResettlement (IR) Policy, and Indigenous Peoples (IP) Policy as one of the major developmentsat the operational level in the 2000s.

11. ADB approved its IR policy in 1995 and its IP policy in 1998. Environmental guidelineshad existed for much longer than that, although the Environment Policy with major safeguardcompliance guidelines was issued only in 2002. As it became clear that not all operations couldbe expected to be able to directly target the poor, more emphasis was put on ensuring thatoperations would not impoverish sections of the population, either by reducing their access toland and sources of income, or by negatively affecting their environment, social position, or culture. Procedures triggered by the IR policy were gradually tightened from a focus onresettlement as a result of loss of land needed for a project, to deal with all potentially adverseeffects on people from either physical or economic displacement. Staff attention for resettlementissues during project preparation increased, resulting in the proportion of operations withresettlement plans increasing from 20% in the 1990s to 50% in the 2000s. This was in spite of

the fact that the nature of the operations supported, or the number of people actually displaced,did not change much. The number of operations with IP plans or specific actions for IP in projectplans, also rose significantly, even when the number of operations that carried very concrete

15 The stages identified by the Treasury Board of Canada Secretariat (The Managing for Results Self-Assessment Tool ) are (i) awareness, (ii) exploration, (iii), transition, (iv) full implementation, and (v) continuous learning.

Available: www.tbs-sct-.gc.ca/rma/account/transmod/tm02_e.asap16 Available: http://www.adb.org/Integrity/annual-reports.asp17 Bangladesh, Bhutan, Cambodia, Cook Islands, Indonesia, Kyrgyz Republic, Mongolia, Nepal, Pakistan, Papua

New Guinea, Samoa, Sri Lanka, Vanuatu, and Viet Nam.18 Afghanistan, Lao PDR, Tajikistan, Tonga, Solomon Islands, and Timor-Leste.



Appendix 7 88

risks for IP other than related to either resettlement or environmental change (which could behandled under resettlement plans or environmental management plans) were very few, and didnot rise either over the years. Procedures triggered by the environment policy were expanded,and the preparation of environmental management plans was made mandatory for all category

A and B operations, to deal with issues of environmental and social sustainability.

12. The approach to poverty reduction thus evolved over the period of ADF VIII and IX from

adding components or procedures to ensure that the poor shared in project outcomes, to addingcomponents to protect the environment and restore livelihoods affected by operations trying topromote economic growth, particularly for vulnerable groups such as the poor and/or IP.

13. ADB’s Regional and Sustainable Development Department started a process to updatethe three safeguard policies in 2004, and in late 2005, the DEC asked OED to provide anindependent evaluation of these policies.19 This presented an opportunity to take stock of theeffects of ADB operations on affected people and the environment, including the mitigationmeasures mandated under the policies. The environment policy was found to have beeneffective as a safeguard policy, but the question was raised whether ADB was keeping up withevolving best practice, and whether an increasingly mechanistic application of procedures wasyielding optimal results. The IR policy was deemed increasingly effective, evolving from one in

which resettlement had been frequently overlooked, especially the effects of loss of access toland on livelihoods. Of relevance to this study was that almost 80% of the resettlement impactswere the result of operations located in PRC, India, and Philippines, which are not or are nolonger ADF countries. The IP policy was judged relevant but less effective, as the policyseemed to have offered little added value beyond the IR and environment policies. As it proveddifficult to define adverse effects other than those related to resettlement and environmentalchange (mostly in projects starting in the early 1990s or before), the mitigation measuresmandated by the IP policy were regarded as less effective than those of the other two policies.Little evidence was found that operations had caused significant harm to IP in other areas.Rather to the contrary, many operations were found to target the development of the poor andareas with indigenous peoples, such as agricultural, health, or education operations.

14. However, the enforcement of all three policies was deemed less efficient and less likelyto be sustainable for both ADB and clients, due to the high transaction costs connected withapplying staff intensive and time-consuming “one-size-fits-all” procedures to the preparation of projects, even if many carried no or only minor, risks of adverse impacts. The studies warned of the likelihood of perverse effects: (i) borrowers no longer engaging with ADB for their morechallenging operations, especially since some had gained access to other financing sources;and (ii) ADB staff de facto avoiding financing operations or components of operations that mighttrigger onerous safeguard procedures. The studies endorsed ADB’s initiative to clarify andrevise its policies, and suggested that ADB concentrate attention for safeguards during projectpreparation on more serious cases, and increase its staff resources for resettlement andenvironment safeguard enforcement during project implementation.

19 ADB. 2006. Special Evaluation Study on Environmental Safeguards. Manila; ADB. 2006. Special Evaluation Study on Involuntary Resettlement Safeguards. Manila; ADB. 2007. Special Evaluation Study on Indigenous PeoplesSafeguards. Manila.



Appendix 8 89

CASE STUDIES OF ONGOING ADF OPERATIONS IN FIVE COUNTRIES

1. The performance of the projects and programs included in the sample for this study hasto be seen against the broader context of the Asian Development Bank’s (ADB) overall portfolioperformance, and in the five countries where they were located. Against an averagedisbursement ratio in 2006 of 19% for the entire Asian Development Fund (ADF) loan portfolio,

four out of five case study countries did not do very well: Bangladesh had 17%; Nepal, 20%;Pakistan, 17%; and Viet Nam, 18%. Only Lao People’s Democratic Republic (Lao PDR) didsignificantly better at 31%, but this may have been in part due to an older portfolio – older operations tend to be at a stage where they disburse more quickly. When excluding the usuallyfaster disbursing program loans, then the performance of the four larger case study countries isagain slightly below average—against the ADB average of 16% in 2006, Bangladesh had 15%;Nepal, 12%; Pakistan, 14%; and Viet Nam, 12%. The low disbursement percentages in 2006are no exception, as the countries have all had large average implementation delays andaverage delays in loan closing, as documented by the 2006 Annual Report on PortfolioPerformance.1 Of all larger ADF countries, Pakistan has had by far the longest average delaysin loan closing: 3.14 years in 1997–2001 and 3.24 years in 2002–2006.2

2. The methodology for choosing 25 ADF project and program case studies in fivecountries was based on the following considerations: (i) the five countries include the three withmost of the ADF operations approved up until early 2007, the time of the start of this study:Pakistan had 18%, Bangladesh 17%, and Viet Nam 15%; (ii) the need for at least 2 ADF-onlycountries regarded as weakly performing but with a mature portfolio—Nepal and Lao PDR;(iii) the need to cover a significant portion of overall operations (the five countries coveredaround 60% of all loans between 2001 and 2006 in the three ADB regions with most operationsoverall: Central and West Asia, South Asia, and South East Asia); and (iv) the need for low costof field work, quick results, and a sufficient spread of types of operations. The five ongoingoperations in each of the five countries were selected based on the following considerations:(i) older operations are preferable, since they guarantee a more advanced stage of implementation, (ii) the five cases in each country need to cover different sectors (mainly

agriculture and natural resources, social sectors, transport, and energy); and (iii) reachability—main executing agencies of the operations need to be in or near the capital or their representatives need to be able to come to the capital for interviewing. This led to selection of the oldest operations on the list of ongoing operations, with deletion of those operations thatwere implemented by an agency or in a sector that was the same as that of another project onthe list of five, or were not easily reachable (the latter was seldom the case).

3. Details of the case study operations chosen are in Tables A8.1 and A8.2. Table A8.1shows a wide variety of operations in the sample, most of which were approved in 2001 and2002. Table A6.2 groups some further data on the 25 case studies, as well as provides theratings given on the range of criteria. In the rest of this Appendix, the basic data for operationsquoted can be retrieved from the two tables.

1 ADB. 2007. Annual Report on Portfolio Performance 2006 . Manila.2 Solomon Islands exceeded it in 2002–2006 with an average delay of 4.44 years; the Federated States of

Micronesia accumulated delays of 3.32 years; Papua New Guinea came close with an average of 2.7 years delay.



Appendix 8 90

Table A8.1: Basic Data on 25 Ongoing ADF-Supported Operations in Five Countries

ProjectDate

of Approval

ADF

Loan $m

OCR

Loan $m

Cofinancing

Amount $m

Poverty

Class.

Thematic

Class.

Env.

Class.aIR

Class.bPresence

of IPP

ang a es

Post-Literacy and Continuing Education Project 13-Dec-2001 65.0 0.0 12.0 PI HD/GD C C NO

West Zone Power System Development Project 17-Dec-2001 198.9 138.7 40.0 PI ECO/GG B A NORoad Network Improvement and Maintenance Project 10-Oct-2002 65.0 0.0 10.0 PI ECO B A NO

Jamuna-Meghna River Erosion Mitigation Project 25-Nov-2002 42.2 0.0 0.0 PI ECO/ENV A B NO

Urban Governance and Infrastructure Improvement Project 28-Nov-2002 60.0 0.0 0.0 PI GD/GG B A NO

Lao People's Democratic Republic

Vientiane Urban Infrastructure and Services Project 23-Aug-2001 25.0 0.0 4.4 CPI HD/GG B A NO

Nam Ngum River Basin Development Sector Project 11-Nov-2002 15.0 0.0 3.8 PI ECO B C NO

GMS: Mekong Tourism Development Project 12-Dec-2002 10.9 0.0 0.0 PI ECO/RC B A NO

Northern Economic Corridor Project 20-Dec-2002 30.0 0.0 0.0 PI ECO A A YES

Northern Area Rural Power Distribution Project 18-Sep-2003 30.0 0.0 10.0 PI ECO B B NO

Nepal

Community Groundwater Irrigation Sector Project 26-Feb-1998 30.0 0.0 2.8 PI ECO/PR B C NO

Small Towns Water Supply and Sanitation Sector Project 12-Sep-2000 35.0 0.0 0.0 PI HD/PR B C NOTeacher Education Project 24-Sep-2001 19.6 0.0 0.0 PI HD C C NO

Governance Reform Program 27-Nov-2001 30.0 0.0 0.0 PI ECO C C NO

Road Network Development Project 13-Dec-2001 46.0 0.0 9.6 PI ECO A A YES

Pakistan

North-West Frontier Province Urban Dev. Sector Program 8-Nov-2001 20.8 0.0 0.0 PI PR/HD B C NO

Agriculture Sector Program II 13-Dec-2001 125.0 225.0 0.0 O ECO B C NO

Access to Justice Program 20-Dec-2001 106.8 243.2 0.0 PI GG/GD C C NO

Reproductive Health Project 20-Dec-2001 36.0 0.0 0.0 CPI GD C C NO

NWFP Road Dev. Sector Program and Subreg. Connectivit 18-Nov-2004 5.0 296.2 0.0 GI ECO A A NO

Viet Nam

Second Red River Basin Sector Project 13-Nov-2001 70.0 0.0 30.0 PI GD B A NO

Central Regions Livelihood Improvement Project 17-Dec-2001 43.1 0.0 16.5 CPI GG B C YESProvincial Roads Improvement Sector Project. 18-Dec-2001 70.0 0.0 0.0 PI ECO B A NO

Upper Secondary Education Development Project 17-Dec-2002 55.0 0.0 0.0 PI HD/GD C A/B YES

Housing Finance Project 20-Dec-2002 30.0 0.0 0.0 PI HD C A/B NO ADF = Asian Development Fund; Class. = classification; CPI = core poverty intervention; ECO = economic growth; ENV= environmental protection; GD = gender and development; GG = good governance; GI = general intervention; HD =human development; IPP = indigenous peoples development Plan; IR = involuntary resettlement; m = million; MS =multisector; NWFP = North-West Frontier Province; O = others; OCR = ordinary capital resources; PI = povertyintervention; PR = poverty reduction; RC = regional cooperation.a A = operations have significant adverse environmental impacts, B = operations have some adverse environmental

impacts, C = project has no significant environmental impact.b A = with full resettlement plan, B = with short resettlement plan, A/B = "to be determined" if with short or full

resettlement plan, C = no resettlement.Sources: Asian Development Bank’s Loan, Technical Assistance, Grant and Equity Approvals database; Operations

Evaluation Department's database used for Special Evaluation Study on Indigenous Peoples Safeguards, andInvoluntary Resettlement Safeguards; and project performance reports and reports and recommendation of thePresident.



Appendix 8 92

A. Bangladesh Case Studies

4. As of end-June 2007, ADB was administering 45 loans in Bangladesh, 9 from ordinarycapital resources (OCR), and 36 from ADF. Senior Bangladesh Resident Mission (BRM) staff held that most of these ADF operations were doing relatively well, with the disbursement ratio at16% up from previous years, although this was still slightly below the ADB average of 18%.

In the sample of five operations chosen for review by the Mission, two (the Post-Literacy andContinuing Education Project, and the Road Network Improvement and Maintenance Project)had met with inordinate delays after approval. This, BRM believed, biased the sample of fiveoperations towards more negative experiences. The below-average disbursement ratio in 2006was viewed as partly due to the circumstance that the Bangladesh’ portfolio included almost noprogram loans (there were only three at end-2006; 2% of portfolio value). The higher disbursement rate in 2006 had nevertheless allowed ADB and the country to move out of thesituation of negative resource flows of 2004 and 2005.

5. With respect to the five project case studies, this study concludes that ADB made aserious attempt in Bangladesh to increase the level of targeting of the poor in 2001–2003.Increased attention to governance in the five operations reviewed was most notable in thereform efforts in the energy, urban development, and education sectors, and various attempts tointroduce performance management through contracting out options in the road sector.It seemed, however, that some of the large delays encountered were due to apparent rushedand forced pro-poor oriented design connected partly with the more overriding concern to targetthe poor in each project, and partly with such factors as the reorganization in 2002, insufficientstaff and staff continuity over the period, and the transfer of operations from staff involved inprocessing to staff administering the implementation in BRM. The delays in projectimplementation regularly jeopardized cofinanced operations (there were many, due to lack of

ADF resources), but the adverse effects were mitigated either by the involvement of other aidagencies that were found ready to take over some of the cofinancing burden, or by changes indesign that became necessary when the original design proved unworkable.

B. Lao PDR Case Studies

6. The study found that the disbursement ratio for the 22 ongoing ADF loans and grantswas a healthy 23.5% in 2005, and 32% in 2006—this in spite of the fact that only a minor portionof the operations were programs. The upward trend was in part explained by the aging portfolioin the Lao PDR, caused by diminishing ADF ceilings, which have led to fewer project approvalssince 2005. Nevertheless, with the exception of two operations counted at risk,1 progress overallwas good.

7. The five operations studied all showed good progress, in spite of the low ranking of LaoPDR in the country performance assessment (CPA). All operations were classified as povertyintervention, and four carried components specifically addressing the poor “disproportionately,”as the Poverty Reduction Strategy (PRS) recommends. Two of these had been highly

successful: (i) the Village Area Improvements Community Infrastructure component of theVientiane Urban Infrastructure and Services Project, and (ii) the pro-poor Community-basedEcotourism Development Component of the Lao PDR loan in the Greater Mekong Subregion(GMS) Mekong Tourism Development Project. Two others had proved more problematic,although there were still chances of these components becoming successful: the villagedevelopment fund components of the Nam Ngum River Basin Development Sector Project, and

1 The Smallholder Development Project and the Banking Sector Reform Program.



Appendix 8 93

the social action plan of the Northern Economic Corridor Project. The former was notappropriately designed at the start of the project, and is only just starting implementation. Thelatter similarly had a design that was not fully worked out: proposed clinics were dropped andthe water supply program was also cut back. The social action plan and community water supply schemes started implementation late, and are not yet completed. The outcomes are notyet known, and there is some concern that some of the works will prove to be not fully

sustainable. The Northern Area Rural Power Distribution Project had no special component for the poor, but was located in a poor area, and was in line with the national policy to give accessto electricity to 90% of rural areas by 2020. This project also had made reasonably goodprogress to date. All five had included components and/or covenants that addressed policyreform/development or envisaged improving governance in other ways. The progress observedwas mixed; excellent in the GMS tourism project, good in the Nam Ngum project. The RuralPower Distribution project proved less successful in coaxing Electricité du Laos and thegovernment to reduce the accounts receivable and in addressing some other covenants.The Vientiane project had mixed experiences as well: the main objective of creating a VientianeMunicipality is unlikely to be achieved within the project’s life, although there are chances that itwill be created just afterwards, in the near future. The Northern Economic Corridor Project hadno specific governance ambitions, other perhaps than to produce requisite transit and cross-

border agreements by 2005. This target was achieved. However, the covenant that thegovernment would set up and staff three forest checkpoints (to prevent poaching and illegallogging) was not yet fully complied with. Two border check points had been set up, but a thirdone near the national park was disputed. At the time of the mission, near the end of the project,no solution has been reached.

C. Nepal Case Studies

8. ADB approved $529.2 million to fund four grants ($83.9 million) and 17 loans($445.3 million) from ADF resources between December 2003 and June 2007. The loanportfolio has one credit line, two sector loans, nine project loans, and five program loans. Of thefive operations selected for review, four had experienced delays of 1-2 years and the fifth one(the Teacher Education Project) was planning to request an extension.

9. The review concluded that the ADB operations investigated have indeed succeeded intargeting the poor well in Nepal. Attached livelihood components for the poor, women, anddisadvantaged groups have all had a distinct impact in Nepal. Factors external to the operations,however, exerted a negative effect on their effectiveness. Frequent demonstrations and strikesheld by different groups over the period delayed implementation, along with the insecureworking environment in the lowlands. This was putting the projects at risk of only partlyachieving their objectives. In one of the reviewed operations the implementation delays had ledto a reduction in cofinancing from another funding agency. 2 Despite the challengingenvironment, all executing agencies had made serious efforts to implement the operations.The more pro-poor and poverty-focused operations such as Road Network Development Project,and the Community Groundwater Irrigation Sector Project were found to perform in factrelatively better. Operations with greater involvement of nongovernment organizations (NGOs)had performed better than those without such involvement. Consultations with NGOs pointed tothe conclusion that pro-poor project initiatives built into the design of ADB-supported operationshad become accepted by all factions of society, including disgruntled groups in the Terai, whichhad facilitated project implementation. While a number of partner NGOs had the requiredinstitutional capacity to contribute to project implementation (e.g., the Small Towns Water

2 Department for International Development downsized its commitment in the Road Network Development Project.



Appendix 8 94

Supply and Sanitation Sector Project), their roles had been rightly limited to social mobilization,providing training, and production-oriented microcredit. Design- and construction-related projectactivities had been appropriately left to consulting firms. The five operations had booked fewer results in terms of promoting good governance. The Governance Reform Program was notperforming very well. There has been some resistance from the side of public institutions inactively engaging qualified private sector organizations in service delivery (e.g., from the

Teacher Education Project). This constrained achievement of results. Anecdotal evidencesuggests that monitoring and evaluation of governance-type operations (e.g., GovernanceReform Program) by civil society watchdogs could have improved transparency andaccountability.

D. Pakistan Case Studies

10. ADB approved $1.9 billion from ADF resources from 2001 to mid-2007 to fund sevenprogram loans, three sector loans, 20 project loans, and one grant of $5 million. Pakistanportfolio is dominated by multisector and/or multiprovince loans (i.e., with executing agencies ineach province) and has a very high amount dedicated to emergency assistance in the context of the 2005 earthquake in the northeast. This makes the portfolio generally difficult to handle.

Multisector loans (which included $600 million in emergency loans) accounted for 56.8% of allloan funds, almost three times the average for this sector in ADB overall. This was followed byagriculture and natural resources (13%); law, economic management, and public policy (8.5%);education (5.3%); water, sanitation, and waste management (4.7%); transport andcommunications (4.4%); health, nutrition, and social protection (1.9%); finance (1.4%); industryand trade (1.2%); and energy (1%). ADB’s program in Pakistan often blends ADF with OCRresources; this has been referred to as a process of “sweetening” by Pakistan’s foreign aidcoordination office. ADB approved $1.537 billion in OCR loans to Pakistan to fund six programsand five projects supported by ADF resources.

11. The review of project documents and discussions with ADB project staff and EA staff revealed that one of the five reviewed operations directly targeted the poor (the Reproductive

Health Project), while the other projects/programs targeted the poor indirectly through policyreforms or improved access to markets, services, or employment opportunities. Complex projectdesigns led to some implementation delays. There were also rigidities in consultant recruitmentand procurement, leading to substantial delays and the selection of consultants who were weak.The operations were also plagued by fuzzy implementation arrangements, with too manyexecuting and implementing agencies; weak capacity of these agencies; and, more importantly,excessive time taken to obtain the needed buy-ins from provinces in the national programs.In spite of project ratings that are mostly in the “partly successful” range, Pakistan has achievedconsiderable progress in instituting a number of reform measures through the Access to JusticeProgram and creating more market friendly agricultural policies through the Agriculture Sector Program II.

E. Viet Nam Case Studies

12. Viet Nam’s high rating in the CPA and excellent levels of economic growth and povertyreduction are not mirrored in similar excellent results in most of the case studies of operationsapproved in 2001–2003, when ADB was very much focused on direct targeting of the poor andon governance issues. In Viet Nam, the enrichment of operations with special componentstargeting the poor or governance seems to have had adverse impacts on disbursement ratesand project duration. Four of the five operations visited for this study had encountered problemsor delays, and perhaps three were not yielding all the significant development results that were



Appendix 8 95

expected at the time of approval (the Second Red River, Central Regions Livelihoods, and theProvincial Roads Improvement Sector Project). More traditionally structured projects, such asUpper Secondary Education Project, are faring much better, and this study expects that it will behighly successful. Weak design, with possibly too high demands made on immediate targetingof the poor, is a main reason for the problems encountered with the four other operations.It proved to be difficult to hire good consultants and nongovernment organizations for such

highly demanding ambitions as targeting the poor, capacity and policy development in thevarious operations investigated. An additional factor affecting the entire portfolio has been theespecially centralized decision making in Viet Nam, which hampered the project portfolio until2006. Since then, the new Decree 131 has allowed more discretion at the ministerial andprovincial levels, which is benefiting project management. ADB’s Viet Nam Resident Missionhas argued that (i) later operations, not part of the case studies, have often had moreappropriate designs; and (ii) many operations with problems during implementation may yet turnout broadly successful in the end. No project completed in recent years has had a rating belowthe level of “successful”; the same is the case with operations of the other aid agenciesreviewed in the Five Banks Joint Portfolio Performance Review of 2007.3

3 ADB. 2007. 2007 Five Banks Joint Portfolio Performance Review . Hanoi.



Appendix 9 96

TARGETING THE POOR IN ADF VIII AND IX

1. Chapter 2 provides an overview of Asian Development Fund (ADF) allocations, andChapters 3 and 4 an overview of emerging results. This Appendix elaborates how the PovertyReduction Strategy (PRS)1 has been applied, and how the debate regarding poverty targetingevolved in the Asian Development Bank (ADB). It then analyzes project design changes in

2001–2007 compared with 1992–2000, and discusses some findings of Operations EvaluationDepartment (OED) studies related to poverty targeting.

A. ADF and the Poverty Reduction Strategy

2. The PRS focused ADB activities for poverty reduction around three pillars—pro-poor sustainable economic growth, social development, and good governance. More attention thanbefore, however, was to go to pillars two and three. Four key changes were introduced in ADB’soperational strategy: (i) a requirement that country strategies and programs be formulated onthe basis of their contribution to poverty reduction; (ii) a commitment to lend 40% for povertyinterventions (interventions targeted to households and individuals); (iii) emphasis on four crosscutting priorities: environmental sustainability, gender equality, good governance, andprivate sector development; and (iv) lending to priority sectors that contribute to povertyreduction.

3. Almost immediately after the start of ADF VIII, ADB’s operations departments startedinvestigating how the objective of more direct targeting of the poor could be operationalizedfurther. The result has been in part discussed in the main text: it led to a search for directpoverty reduction projects and the enrichment of project designs not directly concerned with this,i.e., inclusion of special poverty components. It also led to the preparation of many povertypartnership agreements with countries, and later to assistance with national poverty reductionstrategies and the alignment of country strategies and programs with these. The Regional andSustainable Development Department and the Economic Research Department (ERD)investigated the theory of poverty targeting and viable approaches to it. However, the researchcould not point to a solid theory to guide what sector support or thematic support would give thebest results in developing member countries in general or even in particular countries, althougha consensus remained that selecting sectors and themes to support was best guided by countryanalysis and expressed government needs. The June 2004 review of the PRS 2 provided acriticism of the approach adopted, and did away with ADB-wide targets. Instead, it argued thatthere was a more complex relationship between different types of projects and poverty reductionthan assumed in the earlier PRS. The December 2004 Enhanced Poverty Reduction Strategydeemphasized the setting of ADB-wide targets for types of interventions and placed theresponsibility for addressing poverty at the country strategy and program level rather than theindividual project level. ADB’s 2006 Medium-Term Strategy II (2006–2008) 3 subsequentlydirected attention to ADB’s comparative strengths and core operational sectors, not all of whichare associated with direct targeting of the poor. A report published in March 2007 by a panel of eminent persons4 proposes that the new ADB for the new Asia should gradually change itsfocus from fighting extensive poverty to supporting faster and more inclusive growth, fromeconomic growth to environmentally sustainable growth, and from a primarily national focus to aregional and ultimately global focus. Poverty reduction would need to continue to be the focus in

1 ADB. 1999. Fighting Poverty in Asia and the Pacific. The Poverty Reduction Strategy . Manila.2 ADB. 2004. Review of the Poverty Reduction Strategy . Manila.3 ADB. 2006. Medium-Term Strategy II 2006-2008 . Manila.4 ADB. 2007. Toward a New Asian Development Bank in a New Asia. Report of the Eminent Persons Group to the

President of the Asian Development Bank. Manila.



Appendix 9 97

the low-income and fragile economies, but in countries projected to be become middle-income,basic new challenges should gradually be tackled. The report also says: “The concept of moreinclusive growth avoids targeting any specific income groups for special treatment and insteadfocuses on facilitating the participation of those less well off in the expanding marketopportunities.” Current research by the ERD focuses on the promotion by ADB, through projectsand programs, of inclusive growth in a way that reduces inequality.5

B. Analysis of Project Design Changes after 2000

4. This study analyzed project design in roads, electricity, water supply and sanitation, andagriculture sector development (Supplementary Appendix F). The following changes were notedbetween operations designed in the 1990s under ADF VI and ADF VII, and those in the 2000sunder ADF VIII and ADF IX: 6

(i) ADF operations in roads, energy, and agriculture sector development that wereapproved between 1992 and 2000 used the terminology of economic growth,state enterprise reform, corporatization, and privatization to describe goals, whileoperations designed in 2001–2007 used more the vocabulary of poverty

reduction.(ii) Operations in agriculture sector development, roads, and electricity becamemore complex in 2001–2007, as they had more components and addressedmore purposes. In agriculture sector development, there were more project loansin ADF VIII and IX compared with ADF VI and VII, which had more programloans. Most operations approved after 2000 had more components focusing onresearch and extension, rural infrastructure, sound environmental management,credit, and social development. In the electricity sector, other project componentsincluded resettlement, benefit monitoring, and environmental management. In thecase of the roads sector, additional components not present in earlier

ADF periods included private sector development, governance, human trafficking,HIV 7 awareness, and policy development. In roads and energy, socialcomponents also included relevant features of increasing beneficiaryparticipation.

(iii) Operations became more focused on vulnerable groups. In agriculture sector development, operations were more focused on vulnerable groups withoutaccess to basic services such as small and poor farmers, rural women, andethnic groups. Similarly, ADF VIII–IX water supply and sanitation projectssharpened the focus on vulnerable groups with no access to safe and reliablewater supply and sanitation facilities. In the roads and energy sectors, directtargeting of the poor was evidenced in the employment of social surveys and theselection of project sites that focused on populations under certain povertyconditions. Road and electricity projects explicitly targeted poor consumers,households, poor districts, rural villages, and households.

(iv) There were more attempts in ADF VIII–IX to conduct external monitoring of projects, especially in water supply and sanitation and in transport among thefour sectors studied.

5 All papers are available: http://www.adb.org/economics/publication.asp6 Forty reports and recommendations of the President (RRPs) selected were approved in the ADF VI and VII period,

and 40 in 2001–2007. They were drawn from four subsectors, all of which are related to economic growth: roads,electricity, water supply and sanitation, and agriculture sector development. For each of the four, an equal number of RRPs was studied that were approved during or before 2000, and after.

7 Human immunodeficiency virus.



Appendix 9 98

(v) Operations attempted to involve more nongovernment organizations (NGOs) andthe private sector, particularly in the water supply and sanitation, roads, andelectricity sectors, in line with the desire for more accountability in projectimplementation, compliance with environmental and social safeguards,independent monitoring of project activities, and poverty monitoring.

C. OED Contributions to the Debate on Targeting the Poor

5. Among the main OED contributions to the debate have been a multicountry study onbeneficiary perceptions of poverty and poverty reduction in 2002, a study of the poverty impacteffects of rural roads in 2003, a study on poverty exit strategies of the poor in 2006, a ruralmicrofinance impact study in 2007, and a study of the Japan Fund for Poverty Reduction (JFPR)in 2007. Some main findings are recapitulated here.

6. Perceptions of the Beneficiaries Regarding the Impact of Poverty Reduction. 8

This study assessed the impact of ADB's poverty reduction operations undertaken in the realmof agriculture and social infrastructure in the 1980s and 1990s. Relevant data were collected in2000 in Bangladesh, Indonesia, Nepal, Papua New Guinea, Philippines, and Samoa, all ADF

countries at the time. Notably, the study undertook household questionnaire surveys in40 project impact zones with a total of 10,340 respondents and 134 focus group discussions.Of interest to the present discussion was first of all how the beneficiaries of ADB(i.e., ADF)—supported projects described their poverty (Box), and secondly how much theythought was needed to lift them out of their perceived poverty.

7. The conclusions were that the projects investigated had helped substantially improve thehousehold economic situation of about 27% of the beneficiaries. Most were poor, at least bytheir own perception—the average being an income equivalent to $1.9 dollar a day per capita.Only 23% were, however, extremely poor based on the Purchasing Power Parity (PPP) $1-per-day measure—a fact that the study viewed as disappointing, underscoring the need for ADB totarget project beneficiaries more precisely. The percentage was probably similar to the overallpoverty rate at the time in the six countries combined—so no special targeting of the poor seemed evident. Nevertheless, the study assessed that ADB’s greater emphasis on povertyreduction in the 1990s had made a difference. Projects approved in the 1990s had asignificantly higher proportion of beneficiaries attributing improvement in household situation tothe projects than those approved in the 1980s, indicating greater poverty reduction impact.In the absence of an accepted benchmark, the study regarded it, however, as difficult to assesswhether 27% was a good enough achievement. Given the small benefits needed to change theperception of poverty, the study suggested that there seemed to be much room for ADB toimprove on this achievement.

Box: How the Poor Define Their Poverty

A survey conducted in six Asian countries in the project areas of 40 projects, all dealing with either

agriculture or social infrastructure, asked the question what being poor meant to the people. Thebeneficiaries gave largely similar descriptions: "live hand to mouth," "do not have three square meals aday," "have many debts," "do not own land," "clad in tattered/worn out/dirty clothes," "dependent uponphysical labor," "no regular income earner," "insecure," "live a life of humiliation," "exiled from family,""sense of separation and isolation," "unable to send children to school," "social dependents or beggars,"etc. While many descriptions were related to economic position, other dimensions of poverty were also

8 ADB. 2002. Special Evaluation Study on the Impact of Poverty Reduction of Selected Projects: Perceptions of theBeneficiaries. Manila.



Appendix 9 99

stressed. Beneficiaries’ descriptions of being "rich" did not require them to make a dramatic leap frombeing "poor": "have sufficient and good food," "can meet daily needs," "can send children to school,""have enough land," "have higher income," "have better jobs/means of livelihood," "good housing,""possession of car/tractor," "being credit worthy," "have connection to people in power," "have a securefuture," etc. The descriptions showed that it did not take a big jump in income for the poor to perceivethemselves as rich. The data on income measured by the surveys seemed to confirm this. The averagemonthly household income of the “nonpoor” was estimated to be PPP $572, while that of the poor was

PPP $316, or a ratio of only 1.8. This ratio appeared quite stable across project groupings. Thus, lessthan doubling the income of poor beneficiaries from a low base would change their perception of poverty(or at least for sometime as poverty is also a relative concept).

Source: ADB. 2002. Special Evaluation Study on the Impact of Poverty Reduction of Selected Projects.

8. Rural Roads Study.9 This 2006 OED impact study questioned the widely held notionthat rural roads in developing countries will inherently reduce income poverty. In all projectsstudied, the poor and very poor benefited substantially from rural roads through access to stateservices, as well as through access of services to the villages. However, economic benefitsachieved were clearly different for different socioeconomic groups. The extreme poor benefitedless in an economic sense than other groups. Improvements to the primary village network of paths, tracks, culverts, and access routes that reduced the burden of basic household andproductive tasks, as well as the increased availability of intermediate modes of transport withlarger carrying capacity to collect water and firewood, were deemed likely to have a moreimmediate impact on the well-being of the poor than improved availability of motorized transportservices, which they do not or cannot afford to use.

9. Pathways out of Rural Poverty and the Effectiveness of Poverty Targeting. 10 This 2006 study directly addressed the subject of this chapter, as it took issue with theconceptual problems in poverty targeting as operationalized in ADB’s projects. It took another line from the study referred to in the previous paragraph, noting that many conventional projectsupgraded isolated rural roads in remote, poor regions without connecting them to growthcenters or large road networks; the investment temporarily improved the living conditions for rural residents but did not lift them out of poverty. These regions remained unattractive toprivate investors even with good roads. Poor roads could therefore be seen as a result rather than a cause of poverty; their improvement was neither a necessary condition nor an effectivemeasure. The study observed that the great majority of the rural poor had risen out of povertyby migrating to areas with dynamic growth, such as in the People’s Republic of China (PRC)and Malaysia—case study countries; the poor roads in their regions did not restrict their migration. Even in Viet Nam, another case study country, projects targeting the poor had notlifted them out of poverty in the areas visited, although the government generally accuratelyidentified poor communes and registered poor households, and the leakages of benefits to thenonpoor were small.

10. Many ADB projects were thought to have invalid assumptions regarding povertytargeting. The targeting approach was believed to be based on a set of simple assumptions:

(i) poor people live in poor regions; (ii) public investment in poor regions leads to povertyreduction; (iii) the solution to poverty reduction in a poor region is within that region. Instead, thestudy found that (i) many of the poor live in less poor regions; (ii) the location of projects in poor regions does not guarantee their significant impacts on poverty reduction; and (iii) the solution to

9 ADB. 2006. When Do Rural Roads Benefit the Poor and How? An In-depth Analysis Based on Case Studies.Manila.

10 ADB. 2006. Special Evaluation Study on Pathways out of Rural Poverty and the Effectiveness of Poverty Targeting. Manila.



Appendix 9 100

persistent rural poverty in remote and poorly endowed regions lies largely outside those regions.The narrow focus of targeting projects on those who benefit directly from them was believed tomislead project designers and implementers. The exclusion of nonpoor participants may isolatethe poor from the more dynamic actors in the society and from the mainstream of economicgrowth, and forego the opportunity of employment generation that is often led by the nonpoor.One recommendation was to distinguish the productive poor from those without working

capacity; the latter should be taken care of by welfare programs, where targeting is an effectivemechanism to minimize leakage of public subsidies to the nonpoor. For the productive poor,project interventions need to be tailor-made to tackle squarely the most binding constraints inthe particular project areas. The study concluded that solutions for poverty reduction in poor regions may require public investment in nonpoor regions that are naturally attractive to privateinvestors to stimulate economic growth; poverty reduction projects might even require the activeparticipation of nonpoor individuals or private firms in job creation.

11. Instead of investing a standard package to upgrade rural infrastructure or supportagricultural production in all poor regions regardless of their particular causes of poverty, ADBwas recommended to require the design of tailor-made interventions based on a thoroughunderstanding of local realities in particular project areas, and to explore alternative

interventions that would more likely lead to an effective reduction in rural poverty.

12. Such alternatives might include (i) infrastructure projects in areas with a high potential of generating sizeable employment—even if they are not poor; (ii) projects facilitating migration or reducing its costs; (iii) projects enhancing rural households’ access to nonsubsidized loans tofacilitate self-employment or employment generation; (iv) provision of low-cost health services toall rural residents to reduce household vulnerability; (v) provision of nonsubsidized emergencyloans for rural households to handle shocks and recover from them; (vi) provision of low-costloans for parents to invest in children’s education, including postcompulsory education, that mayeffectively break the inherited poverty; and (vii) long-term loans for private investment in small-scale rural infrastructure.

13. Rural Microfinance Study. 11 OED undertook this large impact study to assess theextent to which ADB’s Microfinance Development Strategy, as approved in 2000 to helpoperationalize the PRS, had reduced the poverty of rural poor households and improved thesocioeconomic status of poor women. Five projects, all ADF funded—one in the Philippines,three in Bangladesh, and one in Uzbekistan—were selected for in-depth review. An extensivesurvey was conducted especially for the Rural Microenterprise Finance Project 12 in thePhilippines, with over 2,200 questionnaires. Results showed that the project had had asignificant impact on the number of microenterprises and the number of persons employed inthem, reflecting its design to cater to the entrepreneurial poor. Unfortunately, the project’sexperiences proved that the ultra poor were not reached with microcredit in spite of the project’sambitions to include them as well. Nevertheless, the focus group discussions held in the threecountries indicated that microfinance projects had had positive effects on the status of women,particularly in the household. The main lesson was that planning to reach large numbers of theultra poor with microfinance alone, channeled to commercial and semicommercial banks, is notrealistic. Special programs, probably best handled through NGOs and specialized institutions,are needed to provide the ultra poor with a range of services covering training, health provision,

11 ADB. 2007. Special Evaluation Study on the Effect of Microfinance Operations on Poor Rural Households and theStatus of Women. Manila.

12 ADB. 1996. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance Grant to the Republic of the Philippines for the Rural Microfinance Project . Manila(Loan 1435-PHI, for $20 million, approved in April 1996, closed December 2002).



Appendix 9 101

and more general social development for the disadvantaged, as well as grants of assets or credits. The study recommended ADB to reexamine targeting approaches and mechanisms andto adopt a more focused and deliberate approach in targeting.

14. Japan Fund for Poverty Reduction.13 This ADB-administered fund was instituted bythe Government of Japan in 2000 with the specific purpose to help implement ADB’s PRS

through more specific targeting of the poor and through social development activities.By December 2006, 90 grants in 20 countries had been approved for a total of $405 million.The findings are of interest because the administration of this fund offers an alternative andmore small-scale approach to the implementation of the ADF. The conclusions of the evaluationwere that the JFPR (i) had been successful, as witnessed by a far higher success rate (88%)than that of overall ADB operations (65%); (ii) strongly supports ADB’s PRS; and (iii) is valuableas it provides ADB’s partners and the public with a visible link and demonstration effect, and is auseful complement to the loan program. The relative success of the JFPR program was deemeddue mainly to the following reasons: (i) the small scale and manageability of projects,(ii) the relevance of projects to the real needs of poor communities, (iii) the close involvementand motivation of most project officers, (iv) implementation by NGOs that are highly motivatedand close to their communities, and (v) the consequent reduction in rent seeking and

bureaucratic inefficiency. High transaction costs in terms of the use of scarce ADB staff resources were also noted.

13 ADB. 2007. Special Evaluation Study on Japan Fund for Poverty Reduction. Manila.



Appendix 10 102

TARGETING GOVERNANCE IN ADF VIII AND IX

1. This Appendix assesses the Asian Development Bank’s (ADB) and the AsianDevelopment Fund’s (ADF) achievements in terms of promoting good governance in ADB’sdeveloping member countries (DMCs). ADB was the first multilateral development bank to adopta governance policy in 1995, followed by the Anticorruption Policy in 1998, and the Governance

and Anticorruption Action Plan (GACAP) in 2000. Improving governance and preventingcorruption constitute one of the five strategic priorities in the Medium Term Strategy II issued in2006, and in 2006, ADB also issued the Second Governance and Anticorruption Action Plan(GACAP II). The importance of good governance to ADB operations is illustrated by the formulafor allocating ADF resources among the ADF recipient countries, in which indicators of goodgovernance carry the highest weight (50%).1

A. Governance in Practice

2. The Operations Evaluation Department (OED) interviewed country officers and regionalcountry economists, and reviewed numerous ADB documents ranging from the strategic to theproject to the evaluation level.2

3. ADB’s GACAP 3 recommended that ADB should implement its governance policy by(i) supporting sectorwide approaches to programming, (ii) providing an approach to assistingDMCs with governance, (iii) guiding development of sound governance performance indicators,(iv) determining that country strategies and programs (CSPs) contain a focus on governance,and (v) identifying governance risks and devising mitigation measures. The plan, citing theimportance of combating corruption as a vital element of improving governance, alsoincorporated the four objectives of ADB’s 1998 anticorruption policy to (i) support competitivemarkets and efficient, effective, accountable, and transparent public administration as part of

ADB’s general work on governance and capacity building; (ii) support promising anticorruptionwork by DMCs on a case-by-case basis; (iii) improve ADB’s dialogue with DMCs on governanceissues, including corruption; and (iv) ensure that ADB staff adhere to the highest ethicalstandards.

4. The policy was reviewed in 2005, and the report being issued in February 2006. 4 The review found that integrating governance and institutional development with infrastructureinvestments using sector lending and sector development program approaches had becomeless effective over time. It supported a move to more policy-based lending rather than sector lending and sector development program lending. The review noted by ADB’s efforts tostrengthen its procurement procedures, and to close loopholes in procurement guidelines.It observed, “Inadequate fiduciary and corruption risk assessments at the country and sector levels have, however, reduced the effectiveness of ADB’s efforts to deal with corruption.”

1 The country performance assessments use perception variables to measure the quality of governance infive areas: (i) property rights and rules-based governance; (ii) quality of budgetary and financial management;(iii) efficiency of revenue mobilization; (iv) quality of public administration; and (v) transparency, accountability, andcorruption in the public sector.

2 One useful assessment, although it considers the entire ADB, not just ADF, is ADB. 2006. Improving Governanceand Fighting Corruption: Implementing the Governance and Anticorruption Policies of the ADB: Summary Report,February. Some information presented here is drawn from that report. This presupposes that findings on ADBpractices bank-wide are also true for the subset of ADF practices—not an unreasonable assumption, since there islittle distinction between ADF and OCR practices.

3 ADB. 2000. Promoting Good Governance–ADB’s Medium-Term Agenda and Action Plan. Manila.4 ADB. 2006. Review of the Implementation of ADB’s Governance and Anticorruption Policies; Findings and

Recommendations. Manila.



Appendix 10 103

The review criticized the governance policy as leading to a too extensive governance agendaresulting in minimal focus, too many small projects of short duration, and staff resources spreadtoo thinly. The review stressed the need for focus and prioritization of governance activities inareas where there is greatest demand from DMCs.

5. In July 2006, GACAP II committed ADB to reinforced procurement procedures and more

attention for public financial management, so that ADB could progress toward adopting countrysystems in its operations. It also committed ADB to zero tolerance of corruption in its ownactivities, more explicit consideration of corruption in Country Strategies and Programs(CSPs)—currently known as Country Partnership Strategies (CPS)—updating the code of conduct for ADB staff, independent internal reporting, improved loan supervision and oversight,and training for staff.

6. The present study concludes that ADB has raised the profile of governance in the regionthrough its policy dialogue, and the main text has documented an increase in assistance for governance and institutional development in its programs and projects. Yet, progress inapplying of governance dimensions in CSPs appears intermittent and hampered by lack of resources and by only a tentative buy-in by ADB staff.5

B. Targeting Governance in the Business Practice

7. Although attention to governance issues has moved into the mainstream of ADBactivities, some shortcomings still exist in the approach that require further effort. ADB hassucceeded in raising awareness of the issue in the region, and governance now has a higher place on many DMCs’ development agendas than would have been the case otherwise; butmore can be accomplished. Drawing on staff interviews, as well as a review of GACAP andGACAP II, an evaluation of governance in various business practices can be made.

8. CSPs and CSP updates were at the heart of ADB’s operations from 2002 to 2006, andwere designed to focus scarce resources on priorities agreed upon with DMCs. However,the 2006 review found that governance issues were treated briefly and rather superficially in the“Current Development and Trends” chapter of CSPs. The way in which governance was treatedin the sector assessments of CSPs varied considerably, and the analysis that should underpinsector work was often weak. Similarly, sector road maps were often viewed as inadequate,failing to provide clear priorities for institutional development and governance. ADB has paidconsiderable attention to the completion of some 24 country governance assessments (CGAs)during 2001–2005, covering (i) legal and regulatory frameworks, (ii) public administration,(iii) public financial management, (iv) judicial system, and (v) civil society. The CGAs oftenprovide good quality background information for ADB operations, but the review found that theyappeared to have made little difference in the development of long-term governance andinstitutional programs and strategies, and were too broad to inform governance andanticorruption questions in a CSP. A perusal of CSPs revealed that CGAs were veryinfrequently referenced in or appended to CSPs. Usually CSPs dealt with governance issues inthree or four paragraphs and did not mention the judicial system or civil society (items [iv] and[v] of a CGA).

9. ADB’s country performance assessments (CPAs), particularly those from 2005 onwards,have raised awareness within ADB country teams of the consequences of deficient governanceand of corruption for future allocations to ADF recipient countries. When deficiencies in

5 The reports are available on http://www.adb.org/Governance/Review/default.asp



Appendix 10 104

governance are identified, they lead to lower country allocations in the future, but not generallyto capacity building resources and action plans to address these deficiencies. The focus of theProject-Based Allocation (PBA) is not to indicate which areas governance needs to be improved,with a budget and action plan attached, but to reward or punish previous country performanceand governance. The PBA is set up to protect ADF from being “wasted”; it reduces future ADFallocations to countries with bad governance and performance, and expands allocations for

countries with already improved governance and performance. While the rationale of demonstrating results before receiving an ADF allocation is a good one, there are occasionswhen weak governments would like to strengthen governance but cannot budget the cost of doing so. In such cases, the ADF allocation mechanism does not provide for their needs.

10. While the PBA offers an opportunity for engaging DMC governments in dialogue, OEDinterviews with economists undertaking CPAs demonstrated a wide variety of use of thatdocument. All staff interviewed shared the CPA ratings with the country, but not all used theCPA as an opportunity to engage governments in a deeper discussion on governance.6 Whilethe subject can be a delicate one to discuss, DMC governments are now aware of theimportance placed on that issue by donors, and staff should be encouraged to use the CPA as abasis for more meaningful dialogue.

11. The governance review of 2005 observed that governance-oriented technical assistance(TA) operations are numerous, widely dispersed, small and of short duration. This studyincluded pipeline TA activities up to end-2008 (Tables A10.1 and A10.2). The number classifiedwith an anticorruption theme remained at 10–11 between ADF VIII and ADF IX, but the amountdoubled, ADB’s response to the increasing interest in this subject. The review found that mostgovernance TA operations were stand-alone with an average value of $500,000 and an averageduration of 16 months. It was argued that effectively addressing governance takes many yearsin most countries, and that the variety of short-term TA activities suggested that resources hadbeen diverted from a more strategic and focused approach to promoting good governance.The review was not clear whether the switch was a good use of TA, given its limited durationand the fact that most TA does not lead to a loan.

Table A10.1: ADF VIII–IX Number of Technical Assistance Operations in Governanceand Anticorruption and Percentage of Share of Total ADF VIII and ADF IX

(including pipeline)ADF VIII ADF IX

Item Number % Share Number % Share

Anticorruption 11 1 10 1

Governance 325 32 286 30

Total Number of ADF TA Operations 1029 957 ADF = Asian Development Fund, TA = technical assistance.Source: Asian Development Bank’s Loan, TA, Grant and Equity Approvals database.

6 ADB is now required to disclose PBA ratings and soon may publish the CPA questionnaire findings. When thisoccurs economists must be prepared to discuss ratings and narrative with country counterparts.



Appendix 10 105

Table A10.2: ADF VIII–IX Amount of Technical Assistance Operations in Governance and

Anticorruption and Percentage Share of Total ADF VIII and ADF IX (including pipeline)

ADF VIII ADF IX

Item $ million % Share $ million % Share

Anticorruption 5,7 1 11,4 2

Governance 184,8 34 210,0 28Total Amount of TA 551,0 763,4

ADF = Asian Development Fund, TA = technical assistance.Source: Asian Development Bank’s Loan, TA, Grant and Equity Approvals database.

C. Targeting Governance in Operations

12. As discussed in Chapter 4 of the main text, improvement of governance in countries hasgradually become the purpose of program loans after a period in which their main purpose wasbalance-of-payments support. In addition, many projects have specified safeguards against badgovernance including corruption, and have added covenants, and sometimes, budgetedcomponents to improve governance through either capacity development or policy/institutionaldevelopment. Of the loans with governance as a theme, around half have supported public

governance covering public financial management, administrative and civil service reform, anddecentralization; around one third have covered what was termed financial and economicgovernance; and 10% have dealth with civil participation.

13. As Chapter 2 of the main text has shown, program lending has been important for implementing the governance policy (Table A10.3). To be successful, sector and policy-basedprogram lending requires sector analysis and a sector development plan. Analysis of programlending policy actions suggests that there is little relationship in the design of plans among loansize, implementation period, and the number of policy actions. Only 35% of program loans weresupported by TA loans, and only 33% had grants to support institutional development. Given thecritical role of TA in successful institutional development loans, this aspect needs to beaddressed. Furthermore, few program loans were backed by sound sector assessments and

road maps.

Table A10.3: Governance Investments, 2001–2008Item 2001 2002 2003 2004 2005 2006 2007a 2008Governance Projects and ProgramsOCR loans in $million (rounded) 862 1619 1406 868 876 2198

ADF loans in $million (rounded) 271 453 353 279 660 466Number of ADF operationsb 8 17 15 13 16 18 23 5Percentage of total number 14.0 25.4 24.2 22.4 27.6 30.5 8.4 3.8Percentage of total value 21.4 37.3 29.7 23.2 29.3 39.0 6.4 2.6

Governance TANumber of operations 48 65 50 52 51 41 26 35

Percentage of total number of TA operations 19.0 20.1 16.0 16.4 17.1 15.8 8.6 13.7Percentage of total value of TA 16.9 24.5 13.7 13.9 15.2 10.9 26.1 23.1 ADF = Asian Development Fund, OCR = ordinary capital resources, TA = technical assistance.a Includes approvals as of 31 July 2007 and loans in the pipeline.b Includes projects and programs with governance as the primary or secondary theme (from 2001 to 2003). In 2004, the

thematic classification was revised. Starting with this period, a project or program may be classified under a maximum of three themes. Most of these projects and programs are not classified exclusively under governance. Excludes privatesector loans.

Sources of basic data: Database of Central Operations Services Office; Summary Report on the 2006 Loan, TA, Grantand Equity Approvals; and Project Processing Information System.



Appendix 10 106

14. Success rates of program loans have gone up over the years, and reached two thirds for those approved in 2001–2004 (Table A10.4), although the number of loans with programcompletion reports is still small. Analysis of the implementation of program lending revealsseveral continuing weaknesses:7 (i) many program loans are too ambitious and complex, anddo not allow enough time to achieve their objectives; (ii) DMC institutional development and

capacity building are inadequately addressed; (iii) analysis of policy changes often fails to fullydescribe the risks and mitigation measures; (iv) insufficient attention to policy dialogue results inprogram loans having a weak sector and country focus; (v) development impacts are ofteninsufficiently identified and monitored; (vi) program designs often fail to fully analyze politicalprocesses in DMCs, partly because of a lack of knowledge and/or experience.

Table A10.4: Program Performance by Source of Financing and Approval Period(Combined PCR and PPER Ratingsa)

ADF OCRApproval Rated Success Rated Success

Period Programsb

Rate (%) Programs Rate (%)1978–1986 14 42.9 1 100.01987–1995 27 18.5 7 57.1

1996–2000 27 70.4 15 66.72001–2004 6 66.7 4 75.0

Total 74 45.9 27 66.7 ADF = Asian Development Fund, OCR = ordinary capital resources, PCR = programcompletion report, PPER = program performance evaluation report.a Uses PPER ratings when both PCR and PPER ratings are available.b Includes blend program loans.Source: PCRs and PPERs with rating as of 31 December 2006.

15. In 2007, OED issued an update of its 2001 study on program lending.8 Endorsing themodality, one of the recommendations was to review and consider relaxing the 3-year 22.5%moving average ceiling for ADF program lending value to bring it more in line with DMC needsand demand for the program loan modality. Another was to reconcile the purpose and use of

program modalities.

D. Targeting Corruption

16. The CSPs (now CPSs) are the window through which DMC governments can tacklecorruption in ADB operations. The review noted that a growing number of CSPs had discussedcorruption, showing increased commitment to deal with the topic. But ADB had not yet found aconsistent presentation of the issues. The results framework for CSPs did not require reportingon anticorruption measures and the business process framework for preparing CSPs, and theCSP template did not specify how to treat corruption. The 2007 guidelines for the new CPSs 9 call for a chapter on “Improving Public Financial Management and Procurement, and Combating,Corruption for Development Management,” but ways to treat corruption are not elaborated.

However, progress has been made in ADB’s involvement with civil society. ADB has becomeincreasingly engaged with civil society stakeholders through consultation and participation indeveloping CSPs, designing projects, and refining ADB policies. ADB has set up anongovernment organization (NGO) unit, and its civil society network has been valuable.

7 ADB. 2006. 2006 Annual Evaluation Review . Manila.8 ADB. 2007. Special Evaluation Study Update on Policy-Based Lending: Emerging Practices in Supporting Reforms

in Developing Member Countries. Manila.9 ADB. 2007. Country Partnership Guidelines. Manila.



Appendix 10 107

ADB also helps DMC governments to involve civil society in project design and monitoring.More accurate corruption risk assessments can be a significant outcome of closer civil societyinvolvement. Corruption is also rated in the CPA and this feeds into the ADF allocation for acountry.

17. The review acknowledged that ADB had until 2005 allocated few resources to specific

anticorruption operations. Even when a country team identified actions in the CSP,the resources required for implementation were not spelled out. The difficulties wereexacerbated by the shortcomings in anticorruption assessments—they were deemed too broadand lacking in practical application. When undertaken, information on corruption is at thecountry level, which means that country teams cannot determine whether corruption is likely toaffect a specific ADB project during design or implementation. ADB’s new classification systemallows anticorruption work to be tagged as a theme, but only two loans and 10 TA operationswere tagged in this way during 2001–2004, and six TA operations during 2005–2007 (with four more in the pipeline over 2007–2008).

18. Much progress has been made over the years in related areas that are expected to havean effect on governance and corruption issues in ADB operations. ADB introduced an

accountability mechanism, and created an anticorruption unit in 2000; in December 2004,this was expanded into the Integrity Division. The procurement guidelines have changed, andelectronic procurement is often allowed. ADB is experimenting more with forms of performance-based contracting, and with involvement of the private sector in public service delivery. ADB hasalso given much more attention to independent, third-party monitoring of safeguard enforcementand to independent project audits. ADB approved the Public Communications Policy in 2005,which emphasizes transparency of ADB’s policies and operations to a wide variety of audiences.There are now strict disclosure rules on a large variety of documents. ADB’s project website iscontinually improving and makes project documents publicly available. More recent projectdocuments do seem to make an effort to elaborate a project-specific approach to anticorruption.These measures are expected to address governance and corruption issues in ADB projectsmore systematically. Fourteen ADF countries10 have joined the ADB Organisation for EconomicCo-operation and Development Anti-Corruption Initiative for Asia and the Pacific, and six more 11 have expressed interest in becoming a member.

10 Bangladesh, Bhutan, Cambodia, Cook Islands, Indonesia, Kyrgyz Republic, Mongolia, Nepal, Pakistan, PapuaNew Guinea, Samoa, Sri Lanka, Vanuatu, and Viet Nam.

11 Afghanistan, Lao People’s Democratic Republic, Solomon Islands, Tajikistan, Timor-Leste, and Tonga.



Appendix 11 108

ISSUES REGARDING GRANTS VERSUS LOANS IN THE LITERATURE

1. Some indicative statement can be made from the literature, and a policyrecommendation can be developed that might provide helpful insights. Some of the findings areinconclusive, though.

2. Do Grants Reduce Debt? Since Asian Development Fund (ADF) grants are providedonly to heavily indebted countries with the aim of reducing debt, it is useful to examine theliterature to check whether the presumption that grants reduce debt is correct. Research at theglobal level indicates that grants are often used as a substitute for domestic tax revenue,especially in countries where corruption is high—95% of grants were given away as taxgiveaways.1 (This was predominantly in African countries.) In the case of loans, the expectationof future debt repayments may induce policymakers to mobilize taxes or at least protect currentlevels of revenue collection. The work is not conclusive, and one could argue that poor design of the grant framework has been the cause of failure rather than the grant per se. Alternativedesigns of the disbursement mechanism would then need to be tried. Nonetheless, the researchprovides a warning that it is not axiomatic that grants will reduce indebtedness. Although grantsmay be needed more, they are also more likely to be squandered.

3. Do Grants Promote Growth? Current research is inconclusive as to whether foreignaid helps countries grow. The impact of aid on growth was shown initially to be positive withgood policies. Later, when a larger data set was used, the finding was refuted. 2 More recentlywhen aid was disaggregated into grants and loans, it was demonstrated that loans had a morepositive effect on growth than grants, in large part because recipients seem to take their fiduciary duties more seriously when assistance needs to be repaid. 3 Finally, attempting toprovide a conclusive result to a mixed literature, the most current work concludes that there isvery little robust evidence of a positive or negative relationship between aid inflows into acountry and growth, whether in the form of grants or loans.4 This does not mean that grants areineffective. They may support projects that promote long term growth, such as primaryeducation—projects whose benefits are difficult to measure—rather than projects that promote

measurable short- or medium-term growth. But the bottom line is that there is insufficientevidence at this time to draw a robust conclusion on whether grants promote growth.

4. Do Grants Reduce the Volume of Aid? If a larger share of aid is provided throughgrants via the “soft window” of multilateral development banks (MDBs), then grossdisbursements and income of the MDBs will be reduced if donors do not increase the level of funding. This could reduce investments in large-scale projects in particular. This concern isevident in Asian Development Bank (ADB) policy papers and is clearly reflected in the proposalto establish a “hard-term ADF lending facility.” 5 An additional concern for the MDBs is that

1 Clements, B. et al. 2004. Foreign Aid: Grants versus Loans. In: Finance and Development , September. Odedokum,

M. 2004. Multilateral and Bilateral Loans versus Grants” Issues and Evidence. In: World Economy 27 (2):239-63.2 Burnside, C. and D. Dollar. 2000. Aid, Policies, and Growth. In: American Economic Review 90 (4). Easterly, W. et al . 2004. New Data, New Doubts: A Comment on Burnside and Dollar. In: American Economic Review

Available: http://links.jstor.org/sici?sici=0002-8282%28200406%2994%3A3%3C774%3AAPAGC%3E2.0.CO%3B2-V

3 Sawada, Y., H. Kohama, and H. Kono. 2004. Aid, Policies, and Growth: A Further Comment . University of Tokyo,Faculty of Economics.

4 Rajan, R. and A. Subramanian. 2007. Aid and Growth: What Does the Cross-Country Evidence Really Show? International Monetary Fund Working Paper. Washington D.C.

5 See for example, ADB. 2007. Revising the Framework for Asian Development Fund Grants. Manila.



Appendix 11 109

grants place them at greater risk of the vagaries of the appropriation processes of donor governments.6

5. The evidence from examining official flows from 22 donor countries over 1970–1999indicates that the higher the share of grants, the lower the gross disbursements.7 The choiceseems to be between a larger level of loans and a smaller volume of grants. But the same study

finds no evidence that reflows from earlier loans are being used to fund grants or loans today.

6. Do Loans Provide an Incentive to “Push” Aid? Observers note that MDBs have astrong incentive to lend even when inappropriate. There are two possible reasons: First, there isa “culture of lending” where staff are rewarded for gross flows of funds; and second, there is“defensive lending,” where MDBs provide loans to enable borrowers to repay existing debt.Defensive lending has been identified as particularly evident in Africa.8

7. Agencies given grants and national aid agencies face pressure to spend money once ithas become available or appropriated. Often there are pressures to disburse quickly making itimpossible to select and design the best projects. The problem is not whether funds aredisbursed as loans or grants, but the incentive structure behind the loan or grant. Both can be

“pushed,” and this incentive needs to be further addressed. “Pushing” has come about becausethe gross volume of loans has been seen as a proxy for development and thus an attribute to berewarded. But it is now clear that the volume of loans is a poor proxy for development. Other measures that better capture the development impact, while more difficult to measure, need tobe attempted. The lower the level of concessionality and the higher the interest rate of the loan,the greater the need to push disbursement of the loan. While this incentive to spend leads torapid decision making, the rush to spend may lead to suboptimal decision making and results.

8. Do Grants Create “Free Riding” and “Moral Hazard”? “Free riding” refers tosituations where ADF grants could potentially cross-subsidize other lenders to recipientcountries, since the ADF grant, given to ease a country’s indebtedness, gives the countryheadroom to repay other loan obligations, or lenders to finance other investments. Other

lenders get a “free ride” on ADF. “Moral hazard” refers to the risk of further indebtedness thatloan forgiveness or debt-related grants have on borrower behavior. Observing that loans can becancelled or that grants are provided to heavily indebted countries, borrowing members havethe incentive to overborrow in order to obtain ADF grants. This would require ADF to providemore grants and would undermine the original purpose of ADF grants.

9. While at the conceptual level it is clear that both free riding and moral hazard risks mustexist in the ADF grant framework, at the practical level the problems may be manageable if alllenders undertake collective action. All agree not to lend additional amounts to countries wheregrants are being provided by ADF. Obtaining this agreement is more straightforward in member countries where ADB (ADF) is the only lender or where ADB and the World Bank are the onlylenders. It becomes more difficult where commercial banks and noncooperative governments

6 Replenishment of funds, whether grants or loans, are subject to this risk, so the argument really boils down to oneof the absence of reflows from grants. While global reflows are an almost insignificant portion of total aid flows,thus undercutting the concern about lost revenue or capital from reflows, at the institutional level this is not true.Reflows are an important part of ADF for ADB.

7 See footnote 1: Gross disbursements are disbursements gross of the aid component. So a $4 million concessionalloan would count as $4 million, not as its grant equivalent value of, say, $1 million.

8 Birdsall, N. et al . 2003. Policy Selectivity Forgone: Debt and Donor Behavior in Africa. World Bank Economic Review 17 (3): 409-35.



Appendix 11 110

are involved.9 In practice, ADF grant-eligible countries are in or near debt distress and are notattractive clients for commercial lenders. 10 Occasionally a private sector financier may beinvolved in, say, a one-off large project (an enclave project), often in conjunction with one of theMDBs. In these cases, forging an agreement among the limited number of partners in theproject regarding free riding is also possible. In practice, therefore, the concern regarding freeriding should be manageable in most developing member countries (DMCs). But some

countries that lend, especially through their export-import banks, are problematic in severalDMCs.

10. Moral hazard can be managed by imposing an offsetting incentive (a disincentive) toborrowing countries or by securing a commitment from grantees not to use their new-foundheadroom from a grant to secure additional borrowing. Offsetting incentives are proposed in the

ADF IX Alignment paper by reducing the volume of grants compared with the grant-equivalentloan allocation, and by hardening the terms of assistance. Country commitments not to take onadditional borrowing have not been proposed nor designed. There may be measurement andenforcement problems when monitoring: How do we know potential new borrowing is additionalto borrowing that was planned as part of a development program? And the agreement mayneed to have sanctions for noncompliance. But the concept may be worth further exploration.

11. There is a trade-off between providing a lower level of grants or hardening as anoffsetting incentive and achieving the Millennium Development Goals in grant-eligible countries.Fewer or higher priced financial flows will reduce resources available for the MDGs. In thisrespect, obtaining a firm commitment from a grant-recipient not to take on additional debt mayprovide a way to minimize the moral hazard and satisfy both objectives.

12. If grants fail to have the intended impact on strengthening debt sustainability, ADB andthe other MDBs will find themselves in a weak financial position in the future. The forgonereflows that grant programs entail are expected to run down the reserves of these banks unlessdonor contributions significantly increase. Therefore, there is a possibility that if grants do notwork, then there will still be the very poor in the heavily indebted countries, but the MDBs will be

in a weaker position to offer assistance.11

9 Noncooperative governments might be governments that lend primarily for geopolitical reasons rather than for development. Often these loans are in the nature of build-operate-transfer projects and do not show ongovernment accounts.

10 The World Bank is working with the International Monetary Fund to establish a common approach to the Debt

Sustainability Framework for which acceptance by the other MDBs and commercial financiers will be sought. Whenfully developed, this will lead to closer coordination on lending by all creditors and will minimize the free rider problem. See: World Bank. 2006. IDA Countries and Non-Concessional Debt . Washington. Resource MobilizationDepartment, June 19.

11 Assuming that grant shares continue at 25% of total ADF funding and donor contributions remain constant at$3.5 billion in nominal terms from ADF X onward then the total forgone reflows of interest and principal from grantsare projected to reach a cumulative loss of $13.3 billion in nominal terms by the end of 2044. The cumulative lossof interest and principal repayments in 2005 NPV terms is $3.8 billion. The results are sensitive to the sets of assumptions used. The expanded advance commitment authority calculation method is set out in ADB. 2007.

Asian Development Fund’s Long-Term Financial Capacity . Manila.



Appendix 12 111

OBSERVATIONS ON DEBT SUSTAINABILITY IN ADF COUNTRIES AND SOMERECOMMENDATIONS

A. Debt Relief and Debt Sustainability

1. The practice of conducting Debt Sustainability Assessments (DSAs) has been rapidly

incorporated into Asian Development Bank (ADB) business procedures in the last few years. ADB is giving technical assistance (TA) and financial support for country debt management. It isalso undertaking DSAs for selected countries (such as Bangladesh, Lao People’s DemocraticRepublic, and some Pacific island countries) so they have better information to understand andmanage their debt. The International Monetary Fund (IMF) and the World Bank have developeda standard method and template for undertaking DSAs and ADB has adopted this framework aspart of the country performance assessment (CPA) exercise. 1 DSAs are used to categorizecountry eligibility for grants or grant/loan blends in the Asian Development Fund (ADF).They are also used to identify debt distressed countries and are part of the weakly performingcountries strategy used by ADB.2

2. Ten countries in the ADF portfolio can be said to be debt distressed and at high risk of default. A further four countries at medium risk of debt distress, and four are judged to be at lowrisk of distress. ADB has $5.7 billion of its portfolio (all but $31 million is ADF) at high risk of nonperformance, and a further $1.3 billion (all ADF) at medium risk (Table). This amounts to21% of the value of the ADF portfolio and is approximately equivalent to disbursements beingmade under ADF IX. That is, in a worst case scenario, where countries are unable to grow outof debt and repudiate the debt owed to the multilateral development banks, ADF would stand tolose an amount equivalent to one entire cycle of ADF.

1 ADB uses the calculations undertaken by IMF/World Bank. Only in countries where IMF/World Bank do not makethe assessments will ADB undertake DSAs.

2 ADB. 2007. Achieving Development Effectiveness in Weakly Performing Countries. Manila.



Appendix 12 112

ADF Countries at High and Medium Debt Distress and Risk of Default($ million)

Country ADF OCR Total

High risk

Afghanistan 782.28 782.28

Bhutan 176.06 176.06

Kyrgyz Republic 576.00 576.00Lao People’s

Democratic Republic 1,105.44 20.00 1,125.44

Marshall Islands 74.13 4.00 78.13

Mongolia 662.04 662.04

Nauru 5.00 5.00

Nepal 2,249.43 2.00 2,251.43

Solomon Islands 79.31 79.31

Tuvalu 7.82 7.82

Subtotal 5,712.50 31.00 5,743.50

Moderate riskCambodia 856.64 856.64

Samoa 129.98 129.98

Tajikistan 247.44 247.44

Tonga 57.79 57.79

Subtotal 1,291.84 0.00 1,291.84

Total 7,035.34

Share of Total ADF Portfolio (%) 21.18 ADF = Asian Development Fund, Lao PDR = Lao People’s DemocraticRepublic, OCR = ordinary capital resources.Sources of basic data: Asian Development Bank Loan, Technical Assistance,

Grant, and Equity Approvals database; Controller's

Department.

3. In addition, because their level of indebtedness limits their ability to perform on deliveryof government services, these highly indebted countries receive a low rating in the CPA processand accordingly receive a smaller allocation of ADF than they otherwise might. This placesadditional strains on the country, and it is likely to become a political issue when poor, indebtedcountries receive negative net inflows from ADF. The next section contains a number of additional observations as based on a brief literature survey on debt sustainability, and reviews

ADB experience in this field.

4. A strategy paper, approved in April 2007, commits ADB to paying special attention toweakly performing countries.3 ADB’s work plan and budget framework 2008–2010 announces areview of the performance-based allocation (PBA) to take into account the needs of weaklyperforming countries. This study supports this but believes the review should be extended tocover the PBA in its entirety.

3 ADB. 2007. Achieving Development Effectiveness in Weakly Performing Countries (The Asian Development Bank’s Approach to Engaging with Weakly Performing Countries). Manila.



Appendix 12 113

B. Review of ADB Experience Concerning Debt Sustainability

5. In reviewing the experience of ADB with debt, several findings and conclusions can bedrawn:

(i) DSAs are useful for helping development member countries (DMCs) understand

the extent of their debt and manage it so it does not become a drag ondevelopment. In an ideal situation, by continuously monitoring debt levels,indebted countries could better manage debt. A general, best-practice statementon debt for a country would be that the amount of public debt should becomfortably supportable under normal economic situations and would not be aburden under reasonable scenarios of possible economic shocks. DynamicDSA’s capture these dimensions.

(ii) Many DMCs have inadequate or nonexistent systems in place to monitor andmanage public debt. Most have only a vague idea of the full extent of public debt,and some debt is not transparent in public accounts.4 As far as is known, noneexplicitly account for contingent liabilities that arise from loan guarantees to stateenterprises, private enterprises, or states/provinces. Some have no stated policyon debt, and others have vague and inadequate policy statements withoutunderlying legislation or regulations. Only a very few have a debt managementoffice with an officer responsible for monitoring and reporting on debt.

(iii) In an environment where public sector skills are limited, policymakers tend to bepreoccupied with short-term decision making and dealing with matters of urgency.They have little time to consider longer term problems that may emerge as aresult of short-term decisions or inaction. The immediate crowds out theimportant. Thus, debt issues and borrowing decisions resulting in repaymentschedules long into the future receive little attention.

(iv) Given the performance record of the heavily indebted countries listed here, it isevident that ADB (and other lenders) is (are) going to need to go beyond thepresent CPA/DSA grant framework to deal with the problems of severeindebtedness. The problem is not going to go away and has not been adequatelyaddressed by institutional lenders under existing initiatives. Some DMCssurveyed have already approached ADB to forgive “nonperforming” loans.5 Debtforgiveness and debt workouts will need to be undertaken on a much larger scaleto address ADF (and ADB) portfolio issues. This is a serious matter that requiresthe design of a method to fully address debt and minimize damage to thefinancial integrity of the institution.6 Should ADB agree to debt relief, it should doso in coordination with other international financial institutions, preferably withinexisting debt reduction frameworks. 7 Debt negotiation must not be viewed bycountries as an easy and regular source of financing. Not only is there a moral

4 There are exceptions. For example, Mongolia, Sri Lanka, and Vanuatu have explicit debt policies and debtmanagement offices. Debt management is enshrined in law in Mongolia and Sri Lanka, and such is being proposedin Vanuatu.

5 The loans are nonperforming from the borrowers’ point of view in that projects have failed to deliver results—a failure of design according to borrowers and in part a failure of design according to the Operations EvaluationDepartment.

6 The shortcomings of having ADF within the ADB financial umbrella rather than a separate legal entity may come tohaunt ADB. With defaults or forgiveness, ADB’s credit rating may be downgraded, whereas defaults or debtwritedowns of the International Development Association—a separate legal and accounting entity—will not affectthe credit rating of the International Bank for Reconstruction and Development.

7 Most of the public debt of the smaller DMCs and nearly all of that of the Pacific DMCs is held by the multilateraldevelopment banks. A little is held by a few industrial country governments, and even less by commercial lenders.



Appendix 12 114

hazard if countries seek debt restructuring or forgiveness as an easy option, butforgiving debt may also affect the financial solidity and credit rating of ADB.

(v) Staying below recommended debt ratios is neither a guarantee of a future free of debt crises nor a guarantee of future growth. Casual observation of experiencearound the world indicates that countries have repeatedly fallen into debt distressand suffered anaemic growth following debt restructuring. Other evidence from

heavily indebted poor countries (HIPCs) shows that, while debt ratios werereduced by half following debt relief, such countries have since taken on newdebt and once again exceed HIPC debt thresholds.8 Debt ratios are only oneindicator in a constellation of indicators of good public performance, and withoutchanges in the framework for borrowing and without stronger institutions,countries are liable to quickly dissipate the benefits of debt relief.

(vi) There is anecdotal evidence that not all borrowing is being reported to the teamscalculating DSAs. Sometimes, no financial transfers are made, as the lender delivers a build-operate-transfer type project; the loan agreement between thelender and the borrower may amount to a rather informal half page document;and the need to show the debt on the government’s balance sheet is not obviousto the borrower. Failure to fully account for loans results in a misleading

calculation of the DSA. In interviews with ADB economists, there seem to havebeen instances of ADB staff not being clear about reporting regional loans to theteams undertaking DSAs. Underreporting of any kind seriously undermines theintegrity of the DSA, compromises the ADF allocation process, and couldultimately drive a country into debt distress.

C. Recommendations on Debt Sustainability Issues in ADF Countries

6. Several recommendations arise from the findings on debt that could be incorporated into ADF business practices. While the overarching recommendation with respect to debt is for ADBto encourage DMCs to pursue prudent macroeconomic policies that control borrowing, reducethe effects of external volatility, and accumulate reserves in good times, more specific aspectscan be suggested:

(i) ADB should work with IMF and/or the World Bank to require that all DMCs, within5 years, have a legal framework regarding public debt and are able to monitor and manage their debt. ADB is well positioned to play a leading role in achievingthis modest goal. ADB could provide TA to train a debt officer, provide modellegislation and regulation on debt management, provide examples of bestpractices for the functions of a debt office, provide standard software for DSAanalysis, and assist in establishing a debt office. After 5 years, ADB shouldrequire a well-functioning debt office as a condition for further lending. Publicborrowing would be transparent, based on specific rules and underlyinglegislation, and subject to strict scrutiny on its use. Further, borrowing would beundertaken within the context of DSAs.

(ii) Part of ADB activities would be to provide TA so that governments develop aspecific plan to budget the cost of direct and contingent liabilities across theyears of liability until they are liquidated. A specific plan should allocate funds

8 World Bank. 2006. “Debt Relief for the Poorest: An Evaluation Update of the HIPC Initiative,” IndependentEvaluation Group. HIPC countries were relieved of $33 billion of debt in 1989–1997 but have taken on $41 billion innew debt since then.



Appendix 12 115

each year to provide the necessary cash reserves. Technical work on therepayment plan would be supported by the debt office.

(iii) Concessional loans originating from ADB and the World Bank need to bemonitored carefully by governments, and ADB has a role to play. The long graceperiods before repayments are required appears to have the effect of lullingcountries into a false sense of ease regarding repayment. Planning the payoff is

difficult, because it is so far in the future. If not managed and provisioned throughthe entire life of the loan, repayment requirements tend to “sneak up” andsurprise governments. This is especially difficult when a portfolio of loansaccumulates over a short span of years and payments become duesimultaneously. Some countries may soon be experiencing net capital outflowswith respect to concessional lending. This poses a dilemma for ADB. While ADBmay be having its loans serviced, such countries still need capital inflows tosustain growth.

(iv) Several DMCs are, de facto, in debt distress and will be looking to ADB for debtrelief. For those countries that fall outside of the IMF/World Bank HIPC umbrella,

ADB may be the major creditor and may be the lead—and sometimes the only—agency holding debt. ADB needs to plan and prepare for this day. Establishing

consistent rules to deal with existing and prospective defaults will be a necessaryfirst step.

13. Although situations of debt distress will continue to occur, ADB can be instrumental inreducing their probability over the long term. ADB can use grants, debt rescheduling/writedownsas tools to achieve greater long-term financial stability in the DMCs. By advising DMCs on theneed to provision for short-term crises, ADB can assist them to avoid the need for radical policyadjustments. Building foreign reserves or a loan reserve fund could be encouraged.



116 Appendix 13

P E R F O

R M A N C E - B A S E D A L L O C A T I O N S

A .

C o u n t r y P e

r f o r m a n c e R a t i n g s

T a b l e A 1 3 . 1 : E c o n o m i c G r o w t h , P o v e r t y H e a d c o u n t , A D F A p p r o v a l s , a n d C o u n t r y P e r f o r m a n c e R

a t i n g s ,

A D F O n

l y ( G r o u p A ) C o u n t r i e s , 1 9 9 2 – 2 0 0 6

C o u n

t r y

A v e r a g e

G D P p e r

c a p

i t a

g r o w

t h ,

1 9 9 2 - 2

0 0 1

( % p a

)

A v

e r a g e

G D P p e r

c

a p

i t a

g r o w

t h ,

2 0 0

2 - 2

0 0 5

( % p a

)

C h a n g e

i n

a v e r a g e

G D P

g r o w

t h p e r

c a p

i t a

b e

t w e e n

1 9 9 2 - 2

0 0 1

a n

d 2 0 0 2 -

2 0 0 5 ( p p

)

P o v e r t y

h e a

d c o u n

t

a t $ 1 a

d a y

( P P P )

[ % o

f

p o p u

l a t i o n

]

p r e - 2

0 0 2

P o v e r

t y

h e a

d c o u n

t

a t $ 1

a

d a y

( P P

P )

[ % o f

p o p u l a t

i o n

]

p o s t - 2 0

0 2

R e

d u c t i o n

i n p o v e r t y

h e a

d c o u n

t

a t $ 1 a

d a y ,

p r e - a n

d

p o s t - 2

0 0 2

( p p

)

A v e r a g e

y e a r l y

A D F

a p p r o v a

l s ,

1 9 9 2 - 2

0 0 1

( $ m

)

A v e r a g e

y e a r l y

A D F

a p p r o v a

l s ,

2 0 0 2 - 2

0 0 4

( $ m

)

C h a n g e

i n

A D F

a p p r o v a

l s ,

1 9 9 2 - 2

0 0 1

t o 2 0 0 2 -

2 0 0 4 ( $ m

)

A v e r a g e

y e a r l y

A D F

a p p r o v a

l s ,

2 0 0 5 - 2

0 0 6

( $ m

)

C h a n g e

i n

A D F

a p p r o v a

l s ,

2 0 0 2 - 2

0 0 4

t o 2 0 0 5 -

2 0 0 6 ( $ m

)

C o m p o s i t e

c o u n

t r y

p

e r f o r m a n c e

r a t i n g ,

2 0 0 5

C o m p o s i t e

c o u n

t r y

p e r f o r m a n c e

r a t i n g ,

2 0 0 6

A f g h a n

i s t a n

-

-

-

-

-

-

0

1 6 2

1 6 2

2 0 0

3 8

-

-

B h u

t a n

3 . 6

3 . 3

( 0 . 2

)

-

-

-

7

3

( 4 )

3 2

2 9

1 7 . 3

1 7 . 3

C a m

b o

d i a

4 . 2

3 . 1

( 1 . 0

)

3 4 . 1

3 3 . 8

0 . 3

5 8

8 8

3 0

5 6

( 3 2 )

1 0 . 5

1 1 . 2

K y r g y z

R e p u

b l i c

( 3 . 1

)

3 . 8

6 . 9

2 . 0

0 . 4

1 . 6

5 5

1 6

( 3 9 )

1 6

( 1 )

1 0 . 7

1 1 . 5

L a o

P D R

3 . 9

3 . 6

( 0 . 3

)

3 1 . 3

2 5 . 8

5 . 5

7 3

5 0

( 2 3 )

3 1

( 1 9 )

9 . 6

1 0 . 2

M a r s h a

l l I s l a n

d s

( 1 . 8

)

(

1 . 9

)

( 0 . 1

)

-

-

-

7

2

( 4 )

0

( 2 )

1 1 . 5

8 . 7

M o n g o

l i a

( 2 . 8

)

5 . 4

8 . 2

2 7 . 0

1 8 . 9

8 . 1

5 3

3 4

( 1 9 )

2 8

( 5 )

1 4 . 2

1 5 . 4

N e p a

l

2 . 5

(

0 . 1

)

( 2 . 6

)

3 9 . 1

2 3 . 8

1 5 . 3

9 3

8 8

( 5 )

8 5

( 3 )

1 0 . 5

1 1 . 1

S a m o a

2 . 6

0 . 2

( 2 . 4

)

-

-

-

4

3

( 1 )

4

1

1 8 . 4

1 8 . 4

S o

l o m o n

I s l a n

d s

( 2 . 3

)

(

0 . 6

)

1 . 8

-

5 . 6

-

4

0

( 4 )

0

0

6 . 1

9 . 4

T a

j i k i s t a n

( 7 . 8

)

8 . 2

1 6 . 0

1 3 . 9

5 . 9

8 . 0

2 6

3 4

8

2 1

( 1 3 )

9 . 6

1 1 . 6

T i m o r - L e s t e

0 . 0

(

8 . 6

)

( 8 . 6

)

-

-

-

0

0

0

5

5

-

-

T u v a

l u

-

-

-

1 7 . 2

-

-

0

1

1

0

( 1 )

1 1 . 6

1 1 . 6

A v e r a g e

( 0 . 1

)

1 . 5

1 . 6

1 3 . 3

1 0 . 7

3 . 1

2 9

3 7

8

3 7

( 0 )

1 0 . 0

1 0 . 5

- = n o

i n f o r m a

t i o n a v a

i l a b l e ( o r n o p e r f o r m a n c e r a

t i n g a v a

i l a b l e ) , % p a = p e r c e n

t p e r a n n u m ,

A D F =

A s i a n

D e v e

l o p m e n

t B a n

k , G D P = g r o s s

d o m e s t

i c p r o

d u c t ,

L a o

P D R =

L a o

P e o p

l e ’ s D e m o c r a

t i c R e p u b

l i c , m = m

i l l i o n ,

p p = p e r c e n

t a g e p o

i n t s

, P P P =

P u r c h a s i n g

P o w e r

P a r i t y .

N o

t e s :

F i g u r e s

i n b r a c k e

t s a r e n e g a

t i v e .

F i g u r e s

i n $ m

i l l i o n a r e r o u n

d e d

.

S o u r c e s :

W o r l d

B a n

k W o r l d

D e v e

l o p m e n

t I n d i c a t o r s ;

A D B K e y

I n d i c a t o

r s ( f o r p o s t - 2

0 0 2 p o v e r t y

i n d i c a t o r ) ; A D

B c o u n

t r y p e r f o r m a n c e a s s e s s m e n t a n n u a

l r e p o r t s .



Appendix 13 117

T a b l e A 1 3 . 2 : E c o

n o m i c G r o w t h , P o v e r t y H e a d c o u n t , A D F A p p r o v a l s , a n d C o u n t r y P e r f o r m a n c e R a t i n g s , A D F / O C R B l e n d

( G r o u p B 1 ) C o u n t r i e s , 1 9 9 2 – 2 0 0

6

C o u n t r y

A v e r a g e

G D P p e r

c a p i t a

g r o w t h ,

1 9 9 2 – 2 0 0 1

( % p a )

A v e

r a g e

G D P

p e r

c a p i t a

g r o

w t h ,

2 0 0 2 – 2 0 0 5

( %

p a )

C h a n g e i n

a v e r a g e G D P

g r o w t h p e r

c a p i t a b e t w e e n

1 9 9 2 – 2 0 0 1 a n d

2 0 0 2 – 2 0 0 5 ( p p )

P o v .

h e a d c o u n t

a t $ 1 a

d a y ( P P P )

[ % o f p o p . ]

p r e - 2 0 0 2

P o v .

h e a d c o u n t

a t $ 1 a d

a y

( P P P )

[ % o f p o

p . ]

p o s t - 2 0 0 2

R e d u c t i o n

i n p o v .

h e a d c o u n t

a t $ 1 a d a y ,

p r e - a n d

p o s t - 2 0 0 2

( p p )

A v e r a g e

y e a r l y

A D F

a p p r o v a l s ,

1 9 9 2 - 2 0 0 1

( $ m )

A v e r a g e

y e a r l y

A D F

a p p r o v a l s ,

2 0 0 2 – 2 0 0 4

( $ m )

C h a n g e i n

A D F

a p p r o v a l s ,

1 9 9 2 – 2 0 0 1

t o 2 0 0 2 –

2 0 0 4 ( $ m )

A v e r a g e

y e a r l y

A D F

a p p r o v a l s ,

2 0 0 5 – 2 0 0 6

( $ m )

C h a n g e i n

A D F

a p p r o v a l s ,

2 0 0 2 – 2 0 0 4

t o 2 0 0 5 –

2 0 0 6 ( $ m )

C o m p o s i t e

c o u n t r y

p

e r f o r m a n c e

r

a t i n g , 2 0 0 5

C o m p o s i t e

c o u n t r y

p e r f o r m a n c e

r a t i n g , 2 0 0 6

A r m e n i a

1

1

2

1 1

1 3

2

1 1

0

0

0

0

0

-

1 7 . 2

A z e r b a i j a n

( 4 )

1

0

1 4

1 1

4

7

0

1 4

1 4

2

( 1 3 )

1 2 . 6

7 . 2

B a n g l a d e s h

3

3

0

3 6

3 0

6

2 8 5

2 3 8

( 4 7 )

2 5 7

1 9

1 3 . 2

1 3 . 0

C o o k I s l a n d s

-

-

-

-

-

-

2

0

( 2 )

1

1

1 9 . 3

1 9 . 3

I n d o n e s i a

2

4

2

8

7

1

6 4

7 7

1 2

1 1 0

3 3

1 0 . 8

1 3 . 1

K i r i b a t i

2

0

( 2 )

-

-

-

1

0

( 1 )

0

0

1 1 . 5

1 0 . 7

M a l d i v e s

5

5

0

-

-

-

5

4

( 2 )

4

0

1 5 . 4

1 5 . 4


F e d .

S t a t e s

( 1 )

( 1 )

0

-

-

-

6

5

( 2 )

0

( 5 )

1 1 . 7

1 1 . 7

P a k i s t a n

1

3

2

1 7

2 0

( 3 )

2 9 5

2 2 7

( 6 8 )

2 5 1

2 3

1 3 . 4

1 3 . 6

P a p u a N e w G u i n e a

1

( 1 )

( 2 )

-

-

-

1 4

8

( 5 )

1 7

8

9 . 5

9 . 1

S r i L a n k a

3

4

1

8

1

7

1 4 4

1 4 0

( 3 )

8 2

( 5 8 )

1 4 . 0

1 2 . 9

T a j i k i s t a n

( 8 )

8

1 6

1 4

6

8

2 6

3 4

8

2 1

( 1 3 )

9 . 6

1 1 . 6

T o n g a

2

2

( 0 )

-

-

-

2

3

1

0

( 3 )

1 1 . 4

1 1 . 4

U z b e k i s t a n

( 1 )

3

5

1 7

1 3

4

2

0

( 2 )

4 1

4 1

9 . 2

7 . 5

V a n u a t u

( 0 )

( 2 )

( 2 )

. .

-

-

4

0

( 4 )

0

0

1 0 . 4

9 . 8

V i e t N a m

6

6

0

1 5

1 0

5

2 3 0

1 9 3

( 3 6 )

2 7 8

8 5

1 7 . 4

1 6 . 8

A v e r a g e

1

4

3

9

6

3

6 7

5 9

( 9 )

6 6

8

1 1 . 8

1 2 . 5

-

= n o

i n f o r m a

t i o n a v a

i l a b l e ( o r n o p e r f o

r m a n c e r a

t i n g a v a

i l a b l e ) , % p a = p e r c e

n t p e r a n n u m ,

A D B =

A s i a n

D e v e

l o p m

e n

t B a n

k , F e

d .

= f e d e r a

t e d

, G D P =

G r o s s

D o m e s t i c

P r o

d u c t ,

L

a o

P D R =

L a o

P e o p


t i c R e p u

b l i c , m = m

i l l i o n ,

p o p .

= p o p u

l a t i o n ,

p o v . = p o v e r t y , p p = p e r c e n

t a g e p o i n t s ,

P P P = p u r c h a s i n g p o w e r p a r i t y .

N

o t e s :

F i g u r e s

i n b r a c k e

t s a r e n e g a

t i v e

. F i g u r e s

i n $ m

i l l i o n a r e r o u n

d e

d .

S

o u r c e s :

W o r l d

B a n

k W o r l d

D e v e

l o p m e

n t I n d i c a t o r s ;

A D B K e y

I n d i c a t o r s

( f o r p o s t - 2

0 0 2 p o v e r t y

i n d i c a t o r ) ;

A D B c o u n

t r y p e r f o r m a n c e a s s e s s m e n

t a n n u a l r e p o r t s .



118 Appendix 13

B .

C o m p a r i s o n B e t w e e n I D A a n d A D F C o u n t r y

P e r f o r m a n c e R a t i n g s

T a b l e A 1 3 . 3 : C o m p a r i s o n o f P a c i f i c C o u n t r y P e r f o r m a n c e R a t i n g s , 2 0 0 6

C o u n t r y

2 0 0 6

I D A

C P R

2 0 0 6

A D B

C P R

P o p u l a t i o n

G N I p e r

c a p i t a ,

A t l a s m e t h o d

( c

u r r e n t U S $ )

I D A

A l l o c a t i o n a

A D B

A l l o c a t i o n

b

I D A

a l l o c a t i o n

s h a r e

A D B

a l

l o c a t i o n

s h a r e

C o o

k I s l a n

d s

0

1 9

. 3

1 8 0 2 7

5 9 4 6

0

1 5 1 7 4

. 4 3 2 8 1

0 . 0

%

3 . 7

%

K i r i b a

t i

2 . 6

8

1 0

. 7

1 0 0 5 5 1

1 2 3 4

2 9 6 6 5 2

. 6 7 3 4

1 9 3 8 1

. 4 3 9 8

1 . 6

%

4 . 7

%

M a r s h a

l l I s l a n

d s

0

8 . 7

6 5 3 8 3

3 0 0 2

0

7 9 2 4

. 4 9 9 2 3 2

0 . 0

%

1 . 9

%


F e

d e r a

t e d

S t a t e s o

f

0

1 1

. 7

1 1 0 9 8 5

2 3 7 9

0

2 0 8 6 6

. 3 4 8 8 4

0 . 0

%

5 . 1

%

P a p u a

N e w

G u

i n e a

2 . 3

7

9 . 1

5 9 9 5 2 6 5

7 7 3

1 4 6 6 3 8 6 3

. 9 3

1 8 3 0 8 5

. 7 3 7 7

8 1

. 1 %

4 4

. 5 %

S a m o a

4 . 7

4

1 8

. 4

1 8 5 5 8 3

2 2 6 6

1 5 8 7 3 7 5

. 4 7 6

7 1 1 0 9

. 4 2 1 9 1

8 . 8

%

1 7

. 3 %

S o

l o m o n

I s l a n

d s

1 . 8

8

9 . 4

4 8 9 2 2 8

6 7 6

7 6 5 6 8 0

. 8 7 6 5

4 4 9 1 6

. 3 2 7 4 8

4 . 2

%

1 0

. 9 %


1 . 8

2

4 . 4

1 0 2 9 1 9 5

8 4 0

1 4 6 9 1 7 6

. 0 7 4

1 4 5 6 3

. 6 7 2 2 2

n / a

n / a

T o n g a

2 . 1

1

1 1

. 4

1 0 2 4 4 8

2 1 7 3

1 7 4 5 5 3

. 1 8 5 7

1 9 3 1 2

. 0 3 3 6

1 . 0

%

4 . 7

%

T u v a

l u

0

1 1

. 6

1 0 4 1 0

1 3 4 3

0

5 7 1 9

. 6 2 3 1 2

0 . 0

%

1 . 4

%

V a n u a

t u

2 . 6

2

9 . 8

2 1 5 3 4 1

1 7 1 5

5 8 2 7 1 7

. 4 2 4

2 3 6 4 7

. 4 7 1 6 5

3 . 2

%

5 . 8

%

T o t a l

1 8 0 7 0 8 4 3 . 5 6

4 1 1 1 3 7 . 3 3 6 1

1 0 0 . 0 %

1 0 0 . 0 %

A D F =

A s i a n

D e v e

l o p m e n

t F u n

d ,

C P R = c o u n

t r y p e r f o r m a n c e r a

t i n g , G N I = g r o s s n a

t i o n a

l i n c o m e ,

I D A =

I n t e r n a

t i o n a

l D e v e

l o p m e n

t A s s o c i a

t i o n , P

C I = p e r

c a p

i t a i n c o m e ,

P o p = p o p u

l a t i o n .

a I D A A l l o c a

t i o n =

C P R 2

x P C I - 0

. 1 2 5

x P o p .

b A

D B A l l o c a

t i o n =

C P R 2

x P C I - 0 . 2

5 x

P o p .

N o

t e :

I D A p r o v i d e s a m

i n i m u m

o f S D R 3

. 3 m

i l l i o n

i n s h a r e p e r y e a r . T

i m o r - L e s t e g e

t s a s e

t a s i d e a s p o s t - c o n

f l i c t c o u n

t r y . F o r m o r e

i n f o r m a

t i o n ,

r e a

d t h e

n o

t e s p a g e

f u r t h e r

b e

l o w .

S o u r c e s :

A D B C o u n

t r y P r o c e s s

i n g

A s s e s s m e n

t A n n u a

l R e p o r t ; o n

l i n e

I D A C P R s ; a n

d W o r l d

D e v e

l o p m e n t I n

d i c a t o r s .



Appendix 13 119

T a b l e A 1 3 . 4

: S u m m a r y T a b l e o n t h e C o m

p a r i s o n o f N o n P a c i f i c C o u n t r y P e r f o r m a n c e R a t i n g s i n 2 0 0 6

O t h e r A D F

b o r r o w e r s

2 0

0 6

I D

A

C P R

2 0 0 6

A D B

C P R

P o p u l a t i o n

G N I p e r

c a p i t a ,

A t l a s m e t h o d

( c u r r e n t U S $ )

I D A

A l l o c a t i o n a

A D B

A l l o c a t i o n

b

I D A a l l o c a t i o n

s h a r e o f t o t a l

I D A

A D B

a l l o c a t i o n

s h a r e

A r m e n

i a

4 . 6

2

1 7

. 2

3 0 0 7 1 9 5

1 9 2 8

2 4 9 3 4 1 0 5

. 2 5

3 4 4 0 7 2

. 8 5 6 1

1 . 2 %

2 . 6

%

A z e r b a

i j a n

3 . 2

9

7 . 4

8 4 7 4 4 0 2

1 8 5 4

3 5 8 0 8 4 8 3

. 5 3

1 1 9 7 5 6

. 4 8 7 4

1 . 8 %

0 . 9

%

B a n g

l a d e s h

2 . 4

7

1 3

1 4 4 3 4 5 0 5 8

4 8 4

4 0 6 5 7 8 9 3 3

2 8 3 2 8 6 5

. 4 5 6

2 0

. 1 %

2 1

. 5 %

B h u

t a n

4 . 3

5

1 7

. 3

6 4 7 0 0 0

1 4 1 4

4 9 4 4 0 1 2

. 7 4 5

1 4 9 6 3 3

. 3 3 2 7

0 . 2 %

1 . 1

%

C a m

b o

d i a

2 . 1

2

1 1

. 2

1 4 3 5 0 8 5 7

4 8 1

2 9 8 0 2 8 6 2

. 6

5 2 7 2 0 5

. 1 0 3 3

1 . 5 %

4 . 0

%

K y r g y z

R e p u

b l i c

2 . 6

3

1 1

. 5

5 1 9 9 7 5 6

4 9 1

1 6 5 7 6 0 9 1

. 8 7

3 0 0 7 1 8

. 9 7 9 2

0 . 8 %

2 . 3

%

L a o

P D R

2 . 1

4

1 0

. 2

5 7 6 5 0 0 0

4 9 9

1 2 1 4 2 7 7 2

. 2 9

2 5 0 6 4 6

. 6 5 6 6

0 . 6 %

1 . 9

%

M a

l d i v e s

3 . 6

8

1 5

. 4

3 3 6 9 8 2

2 6 7 6

1 7 0 1 6 2 9

. 7 5 8

6 8 3 4 8

. 9 3 8 9 9

0 . 1 %

0 . 5

%

M o n g o

l i a

3 . 2

1 5

. 4

2 5 8 4 6 5 5

8 8 4

1 1 3 3 5 0 2 7

. 4 6

3 0 6 1 4 2

. 0 7 1 8

0 . 6 %

2 . 3

%

N e p a

l

2 . 9

1

1 1

. 1

2 7 6 5 8 1 4 8

2 9 1

1 1 5 2 4 0 5 2 9

. 3

8 7 0 4 2 6

. 6 0 1 3

5 . 7 %

6 . 6

%

P a

k i s t a n

3 . 1

4

1 3

. 6

1 5 9 0 0 2 0 3 9

7 6 9

6 8 3 1 4 2 4 1 9

. 8

2 9 2 6 9 6 7

. 9 0 1

3 3

. 8 %

2 2

. 2 %

S r i L a n

k a

3 . 5

4

1 2

. 9

1 9 7 7 1 3 2 0

1 3 0 1

1 0 1 0 9 7 0 7 0

. 4

6 6 0 9 8 8

. 0 0 1 5

5 . 0 %

5 . 0

%

T a

j i k i s t a n

2 . 2

2

1 1

. 6

6 6 5 2 0 0 0

3 8 7

1 5 5 6 8 2 2 8

. 9 6

3 7 6 5 7 3

. 1 6 1 3

0 . 8 %

2 . 9

%

U z b e

k i s t a n

1 . 6

5

7 . 5

2 6 5 4 0 3 1 2

6 1 0

3 2 4 1 4 8 1 5

. 7 1

3 2 2 2 5 9

. 2 7 6 9

1 . 6 %

2 . 4

%

V i e t N a m

3 . 7

8

1 6

. 8

8 4 1 0 8 1 0 0

6 9 1

5 3 0 7 1 8 3 4 2

. 6

3 1 3 0 4 4 8

. 8 2 5

2 6

. 2 %

2 3

. 7 %

T o t a l

2 0 2 2 0 0 5 3 2 5

1 3 1 8 7 0 5 3 . 6 5

1 0 0 . 0 %

1 0 0 . 0 %

A D B =

A s i a n

D e v e

l o p m e n

t B a n

k , A D F =

A s i a n

D e v e

l o p m e n

t F u

n d

, C P R = c o u n

t r y p e r f o r m a n c e r a t i n

g ,

G N I = g r o s s n a

t i o n a

l i n c o m e ,

I D A =

I n t e r n a

t i o n a

l

D e v e

l o p m e n

t A s s o c i a

t i o n , L a o

P D R =

L a o

P e o p


t i c R

e p u

b l i c , P C I = p e r c a p

i t a i n c o m e ,

P o p

= p o p u

l a t i o n .

a I D A A l l o c a

t i o n =

C P R 2

x P

C I - 0 . 1

2 5

x P o p .

b A

D B A l l o c a

t i o n =

C P R 2 x

P C I - 0 . 2

5 x

P o p .

N o

t e s :

I n d o n e s i a a n

d A f g h a n

i s t a n e x c l u

d e

d f r o m c a

l c u l a t i o n a s t h

e y r e c e

i v e s e

t - a s i d e

f r o m

A D F

.

C o m m e n

t s : P o v e r t y m o r e

h i g h l y w e

i g h t e d i n I D A c a

l c u l a t i o n

b u t l a r g e r a

l l o w a n c e

f o r s m a

l l c o u n

t r i e s

i n A

D F

. T h i s c a n

h e

l p e x p

l a i n s o m e

d i s p a

r i t i e s .

S o u r c e s :

A D B C o u n

t r y P r o

c e s s i n g

A s s e s s m e n

t A n n u a

l R e p o r t ; o n

l i n e

I D A C P R s ; a n

d W o r l d

D e v e

l o p m e n

t I n d i c a t o r s .



Appendix 13 121

P o l i c y a n d I n s t i t u t i o n a l R a t i n

g

G o v e r n a n c e R a t i n g

A . E c o n o m i c M a n a g e m e n t

B . S t r u c t u r a l P o l i c i e s

C . P o l i c i e s f o r S o c i a l I n c l u s i o n / E q u i t y

D . P u b l i c S e c t o r M a n a g e m e n t a n

d I n s t i t u t i o n s

1

2

3

4

5

6

7

8

9

1 0

1 1

1 2

1 3

1 4

1 5

1 6

C o u n t r y

M a c .

M g t .

F i s c a l

P o l .

D e b t

P o l .

A v e .

T r a d e

F i n .

S e c .

B u s .

R e g .

E n v .

A v e .

G e n d e r

E q t y .

E q

u i t y

o f P u b .

R

e s .

U

s e

B l d g .

H u m a n

R e s .

S o c .

P r o t e c t i o n

a n d

L a b o r

P o l . a n d

I n s t i t u t i o n

f o r E n v .

S u s t .

A v e .

P o l .

a n d

I n s t .

A v e

P r o p .

R i g h t s

a n d

R u l e -

b a s e d

G o v .

Q u a l i t y

o f B u d g .

a n d F i n .

M g t .

E f f . o f

R e v .

M o b i l .

Q

u a l i t y

o

f P u b .

A

d m n .

T r a n s . ,

A c c t . &

C o r r . i n

P u b .

S e c .

A v e .

T a j i k i s t a n

4 . 5

4 . 0

4 . 0

4 . 2

4 . 0

3 . 0

3 . 5

3 . 5

3 . 5

3

. 0

3 . 0

3 . 5

2 . 5

3 . 1

3 . 6

2 . 5

3 . 0

3 . 0

2 . 5

2 . 0

2 . 6

4 . 5

4 . 0

4 . 5

4 . 3

4 . 0

3 . 0

3 . 0

3 . 3

3 . 5

3 . 5

3 . 0

3 . 5

3 . 0

3 . 3

3 . 6

3 . 0

3 . 0

3 . 5

3 . 0

2 . 0

2 . 9

T o n g a

3 . 0

2 . 0

3 . 0

2 . 7

3 . 0

3 . 0

3 . 0

3 . 0

2 . 5

3

. 5

4 . 0

3 . 0

3 . 0

3 . 2

3 . 0

3 . 5

2 . 5

3 . 0

2 . 5

2 . 0

2 . 7

3 . 0

3 . 0

4 . 0

3 . 3

2 . 0

4 . 5

3 . 0

3 . 2

3 . 5

4 . 0

4 . 5

2 . 5

3 . 5

3 . 6

3 . 4

4 . 0

3 . 0

3 . 0

3 . 5

2 . 0

3 . 1

U z b e k i s t a n

3 . 0

3 . 5

4 . 0

3 . 5

2 . 5

2 . 5

2 . 5

2 . 5

3 . 5

3

. 5

4 . 0

3 . 5

3 . 5

3 . 6

3 . 2

2 . 0

3 . 0

3 . 0

2 . 5

1 . 5

2 . 4

3 . 5

3 . 5

4 . 0

3 . 7

2 . 5

2 . 5

2 . 5

2 . 5

3 . 5

3 . 5

4 . 0

3 . 0

3 . 5

3 . 5

3 . 2

2 . 5

3 . 0

3 . 0

2 . 5

1 . 5

2 . 5

V a n u a t u

3 . 5

3 . 0

4 . 0

3 . 5

3 . 5

3 . 0

3 . 0

3 . 2

3 . 0

3

. 5

2 . 5

2 . 0

3 . 0

2 . 8

3 . 2

3 . 0

3 . 5

3 . 5

2 . 5

3 . 0

3 . 1

4 . 0

3 . 5

3 . 5

3 . 7

3 . 0

3 . 0

3 . 0

3 . 0

2 . 5

3 . 0

2 . 5

2 . 5

3 . 0

2 . 7

3 . 1

2 . 5

3 . 0

3 . 0

3 . 0

2 . 5

2 . 8

V i e t N a m

5 . 5

4 . 5

4 . 0

4 . 7

3 . 5

3 . 0

3 . 5

3 . 3

4 . 5

4

. 5

4 . 0

3 . 0

3 . 5

3 . 9

4 . 0

3 . 5

4 . 0

3 . 5

3 . 5

3 . 0

3 . 5

5 . 0

4 . 0

4 . 5

4 . 5

3 . 5

4 . 0

4 . 0

3 . 8

5 . 0

4 . 5

4 . 5

4 . 0

4 . 0

4 . 4

4 . 2

4 . 0

4 . 0

4 . 0

4 . 0

3 . 5

3 . 9

A c c t . = a c c o u n t a b i l i t y , A D B = A s i a n D e

v e l o p m e n t B a n k , A d m n . = a d m i n i s t r a t i o n , A

v e . a v e r a g e ,

B l d g . = b u i l d i n g ,

B u d g . = b u d

g e t a r y , B u s . = b u s i n e s s , C o r r . = c o r r u p t i o n ,

E f f . = e f f i c i e n c y , E n v . =

e n v i r o n m e n t a l , E q t y . = e q u a l i t y , F i n . =

f i n a n c i a l , G o v . = g o v e r n m e n t , I n s t . = i n s t i t u t i o n a l , M a c . = m a c r o e c o n o m i c , M g t . = m a n a

g e m e n t , M o b . = m o b i l i z a t i o n ,

P o l . = p o l i c y ,

P r o p . = p r o p e r t y , P u b . =

p u b l i c , R e g . = r e g u l a t o r y , R e s . = r e s o u r c e s , R e v . = r e v e n u e ,

S e c . = s e c t o r , S o c . =

S o c i a l , S u s t . = s u s t a i n a b i l i t y , T r a n s . = t r a n s

p a r e n c y .

N o t e s : R o m a n = W o r l d B a n k , i t a l i c = A D B .

F o r c a l c u l a t i o n o f t h e c l u s t e r a v e r a g e s ,

a l l c r i t e r i a a r e e q u a l l y w e i g h t e d w i t h i n a c l u s t e r . S c a l e : 1 = L o w e s t , 6 = H i g h e s t .



122 Appendix 13

Table A13.6: Simulation of ADF Performance Based Allocation Shares(Based on the ADF Formula), 2006

IDA / ADF IDA / ADF IDA ADF IDA ADF ADF* WB* (%) DF (%)

1 Armenia 0.16 7,721.2 8.21 8.33 13.69 14.44 2.47 2.7 2.74

2 Azerbaijan 0.17 14,262.9 6.6 6.1 10.2 9.0 1.0 2.4 1.0

3 Georgia 0.18 9,781.8 7.6 13.7 3.5 0.0

4 Kyrgyz Rep. 0.22 10,650.9 6.6 6.3 7.8 8.4 2.5 2.7 2.3

5 Pakistan 0.20 82,317.8 6.4 6.5 10.2 11.6 2.5 23.4 21.9

6 Tajikistan 0.23 12,246.9 6.0 6.1 6.8 8.4 2.6 2.6 2.9

7 Uzbekistan 0.21 28,501.1 5.1 5.1 5.8 6.3 1.7 1.5 2.5

8 Mongolia 0.20 6,987.7 5.5 6.3 10.9 13.0 2.9 1.9 2.4

9 Bangladesh 0.21 77,812.0 6.1 6.3 7.8 10.2 2.6 17.7 21.1

10 Bhutan 0.18 3,781.9 6.6 6.7 14.4 15.2 2.9 1.5 1.511 Maldives 0.14 2,044.0 6.1 7.0 12.3 13.7 2.5 0.4 0.5

12 Nepal 0.25 28,846.6 5.7 5.8 10.2 10.9 1.9 8.1 6.5

13 Sri Lanka 0.17 23,720.1 5.9 5.8 12.3 10.9 2.6 6.2 5.0

14 Cambodia 0.23 19,453.4 5.4 5.8 7.3 7.8 2.8 3.6 4.1

15 Lao PDR 0.22 11,576.5 5.1 5.5 7.3 6.8 2.8 2.1 2.0

16 Viet Nam 0.20 56,407.9 6.9 7.6 12.3 15.2 2.5 19.9 23.8

Total 100.0 100.0

ADB = Asian Development Bank, ADF = Asian Development Fund, PCI = Per Capita Income, POP = Population, IDA= International Development Association, WB = World Bank.Note: PCI and pop for 2006 based on 2005 World Dev. Indicator figures (downloaded 13 October 2006).

Sources: 2006. OED calculations, World Development Indicators, Annual Report on the Country Performance Assessment.

.

Policy and

InstitutionalRating

(PIR)^1.4

GovernanceRating

(GOV)^2.0

Allocation Share

(Simulated) basedon ADB amounts

and ADB formula

Portfolio

(PRT)^0.6

Country

Per Capita

Income ^-

0.25

Population

(POP)^0.6



Appendix 13 123

C. Notes on the Comparison of International Development Association (IDA) andAsian Development Fund (ADF) Composite Country Performance Ratings andAllocation Formulas

1. Sources

a. World Bank website:

(i) How IDA Resources are Allocated: http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/IDA/0,,contentMDK:20052347~menuPK:2607525~pagePK:51236175~piPK:437394~theSitePK:73154,00.html

(ii) Summary of the Performance-Based Allocation System for IDA14:http://siteresources.worldbank.org/IDA/Resources/ANNEX1CPIA.pdf

(iii) World Development Indicators: http://devdata.worldbank.org/dataonline/

b. ADB website: Annual Report on the 2006 (2005) CPA Exercise:http://www.adb.org/ADF/PBA/annualreport.asp

2. Methodology

1. To make the IDA and ADF composite country performance ratings (CPRs) comparable,each set of ratings was standardized according to the mean and standard deviation across thecountries subject to the ADF Performance-Based Allocation (PBA) policy. Only the pool of IDAcountries that also receive ADF was taken into account. The cumulative standard normaldistribution function was calculated for the standardized ratings – this is what is displayed in thesummary sheet presented in Tables A13.3 and A13.4.

2. The CPR formulas for IDA and ADF also differ. The formulas are:

ADF CPRi = (policy and institutional rating)I0.7

× (governance rating)I1.0

× (portfolio performance rating)I0.3

Where(policy and institutional rating) = arithmetic mean of Q1-11 (covers economic

management, structural policies and social inclusion/equity)(governance rating) = arithmetic mean of Q12-16 (covers public sector management)(portfolio performance rating) = based on the % of projects at risk

IDA CPRi = (0.8 x CPIA i + 0.2 x ARPP i) x Govfact i

WhereCPIA = (policy and institutional rating) (as above) ARPP = Annual Report on Portfolio Performance based on the % of projects at risk Govfact = (average rating of 6 governance criteria / 3.5)^1.5

Governance criteria are derived from the five criteria in the public sector management Q12-16 – cluster D, plus the 3-year moving average of the procurement flag that isan element of the ARPP portfolio rating.



Appendix 13124

3. The country allocation formulas for IDA and ADF also differ. The formulas are:

ADF allocation i =CPRi2.00

× PCI i -0.25 × POP i 0.60

× (scaling factor)

Where

(scaling factor) = 1 ÷ i (CPR i 2.00 × PCI i -0.25 × POP i 0.60 )PCI – per capita incomePOP – populationCPR – country performance rating

IDA allocation i =CPRi2.00

× PCI i -0.125 × POP i × (scaling factor)

Where(scaling factor) = 1 ÷ i (CPR i 2.00

× PCI i -0.125 × POP i )

4. However, both ADF and IDA allow for various earmarks to certain recipients. There is an

allowance for postconflict countries in both IDA and ADF, an allowance for countries beginningto reengage with the World Bank, an allowance for Indonesia in ADF, and an allowance for thewhole Pacific Group in ADF. ADF also lends to some countries not covered by IDA (CookIslands, Marshall Islands, Micronesia, Timor-Leste, and Tuvalu). IDA compensates for smallcountries differently from ADF: ADF weights population by the exponential 0.6 in the allocationformula, while IDA places no additional weighting on population in the allocation formula butgrants all recipients SDR3.3 million over each 3-year replenishment cycle. IDA also places amuch higher weight on poverty in its allocation formula.

5. ADF divides resources among two pools—the Pacific region pool and the Asia regionpool (excluding Afghanistan and Indonesia). In practice, IDA does not share resources in thisway. IDA resources are shared among a much bigger pool of recipients, as it provides

resources to countries outside the Asia and Pacific region. This simplification does not accountfor the impact that the CPRs for countries outside the Asia and Pacific region have on theallocation to joint IDA-ADF recipients (through the scale factor). This impact is expected to beminimal, but an alternative method would be to calculate IDA shares for all IDA recipients, andrescale the shares among joint IDA-ADF recipients to total 100%.

3. Results

6. The normalized CPRs for IDA and ADF are in some countries very similar, but in other countries quite dissimilar. Looking at the disaggregated CPRs, there is no systematic cause for deviation between the ratings, but in some situations small differences among the ratings in thepublic sector management cluster (also referred to as the governance rating by ADB) can be

amplified due to differences in the CPR formulas between IDA and ADF. The policy andinstitutional rating (CPIA) is also manipulated differently between the two formulas, so smalldeviations between these scores can manifest in more significant changes to the overall CPR.

7. Another cause for deviation is that the portfolio performance rating between IDA projectsand ADF projects may differ. Portfolio performance is also incorporated into IDA’s governancefactor, as it includes the 3-year moving average of the procurement flag (an element of the ARPP portfolio rating). Information on the procurement flag is not published, so this study hasnot be able to trace how the governance factor is derived and therefore what influence it exerts



Appendix 13 125

on the overall CPR. Information on the governance factor is not well documented on the IDAwebsite.

8. Differences in allocation between countries in the Pacific Group are large. This is mainlybecause IDA lends to only 6 of the 11 Pacific countries. However differences in portfolioperformance and governance ratings are also causing divergence in allocation through the way

these ratings affect the overall CPRs (see above).

9. Among the other ADF borrowers, in addition to divergence in the CPRs causingdivergence in the allocation, there is also divergence in the allocations due to differences in theallocation formula. The weighting of population in the IDA formula allows countries such asPakistan and Bangladesh to do proportionately better in the IDA allocation over the ADFallocation. Despite weighting absolute poverty more strongly, countries such as Cambodia,Mongolia, Kyrgyz Republic, Lao People’s Democratic Republic, and Nepal that are considerablypoor do much worse under the IDA allocation formula than under the ADF allocation formula.The difference in population weighting contributes to this result too. However, it should beremembered that IDA does guarantee SDR3.3 million to all its recipients on top of the PBA.



126 Appendix 10

D .

C o m p a r i s o n o f A D F a n d I D A A m o u n t s A

p p r o v e d i n E l i g i b l e A s i a n a

n d P a c i f i c C o u n t r i e s

T a b l e A 1 3 . 7 : A

D F a n d I D A O p e r a t i o n s t o C o

u n t r i e s w h e r e b o t h A D B a n d

W o r l d B a n k A r e A c t i v e , 2 0 0 2 –

2 0 0 7

( $ m i l l i o n )

A D F L o a n a n d G r a n t A p p r o v a l s

I D A L o a n a n d G r a n t A p p r o v a l s

A

s o f

3 1 M a r c h

T o t a l

A s o f

3 1 M a r c h

T o t a l

C o u n t r y

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 2 –

2 0 0 7

2 0 0 2

2

0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0 7

2 0 0 2 –

2 0 0 7

A f g h a n

i s t a n

1 6 7

. 2

1 5 0 . 0

1 7 0

. 0

2 2 8

. 1

1 7 8

. 2

8 9 3 . 5

2 0 0

. 0

3 0 2

. 0

4 2 3

. 0

4 2 5

. 0

4 8 0

. 0

3 3

. 0

1 , 8 6 3 . 0

A z e r b a

i j a n

2 2 . 0

2 0

. 0

3 . 0

4 5 . 0

6 9

. 5

6 5

. 9

2 5

. 0

5 1

. 8

1 0 5

. 8

3 1 8 . 0

B a n g

l a d e s h

2 6 9

. 6

2 4 6 . 0

1 9 8

. 9

2 5 9

. 8

2 5 5

. 1

3 0

. 0

1 , 2 5 9 . 4

3 2 1

. 4

5 5 4

. 4

6 4 5

. 9

6 0 0

. 0

4 6 1

. 5

2 , 5 8 3 . 2

B h u

t a n

9 . 4

2 7

. 3

3 7

. 6

7 4 . 3

4 2

. 6

7 . 0

3 0

. 0

7 9 . 6

C a m

b o

d i a

1 0 0

. 9

9 8 . 3

6 5

. 0

4 3

. 0

2 7

. 8

3 3 5 . 0

4 8

. 2

8 1

. 7

6 0

. 0

6 8

. 0

2 8

. 0

2 8 5 . 9

I n d o n e s i a

1 3 1

. 2

7 4 . 2

2 5

. 0

1 1 0

. 6

1 0 9

. 8

4 5 0 . 8

7 0

. 5

1 4 5

. 0

5 5

. 8

2 3 6

. 4

2 0 5

. 0

6 0

. 0

7 7 2 . 7

K y r g y z

R e p .

1 5 . 5

3 2

. 8

3 1

. 0

3 0

. 0

1 0 9 . 3

1 5

. 0

2 7

. 8

5 3

. 0

7 1

. 1

6 1

. 0

2 2 7 . 9

L a o

P D R

7 6

. 0

4 6 . 0

2 7

. 7

1 0

. 0

5 1

. 6

2 1 1 . 3

4 4

. 8

2 4

. 7

4 3

. 4

1 0 5

. 5

7 4

. 0

2 9 2 . 4

M a

l d i v e s

5 . 0

6 . 0

7 . 8

1 8 . 8

3 5

. 2

7 . 0

4 2 . 2

M o n g o

l i a

3 4

. 1

2 9 . 5

3 7

. 1

1 0

. 0

4 6

. 2

1 5 6 . 9

2 8

. 7

7 . 5

1 8

. 0

1 8

. 3

5 2

. 0

1 2 4 . 5

N e p a

l

6 0

. 0

9 4 . 0

1 1 0

. 0

1 6 9

. 9

4 3 3 . 9

2 2

. 6

1 2 1

. 8

2 0 7

. 8

2 1 0

. 0

7 8

. 2

6 4 0 . 4

P a

k i s t a n

2 7 6

. 0

1 7 8 . 0

2 2 8

. 0

3 9 4

. 0

1 0 7

. 0

3 6

. 0

1 , 2 1 9 . 0

8 0 0

. 0

3 0 6

. 5

7 3 1

. 2

5 0 0

. 0

1 , 1

8 2

. 7

1 8 3

. 7

3 , 7 0 4 . 0

S a m o a

8 . 0

8 . 1

1 6 . 1

4 . 5

1 9

. 7

2 4 . 2

S r i L a n

k a

1 6 0

. 3

1 8 5 . 3

7 5

. 0

1 1 7

. 0

4 6

. 5

5 8 4 . 1

7 5

. 0

2 8 5

. 1

2 8 6

. 7

2 3 3

. 0

2 2 0

. 0

3 2

. 0

1 , 1 3 1 . 8

T a

j i k i s t a n

4 0

. 3

3 8 . 0

2 2

. 7

1 2

. 0

1 7

. 1

1 3 0 . 1

4 0

. 8

2 7

. 0

1 6

. 6

4 1

. 0

8 8

. 0

2 1 3 . 4


1 0

. 0

1 0 . 0

4 . 0

5 . 0

7 . 5

1 6 . 5

T o n g a

1 0

. 0

1 0 . 0

5 . 9

1 0

. 9

1 . 0

1 7 . 8

U z b e

k i s t a n

5 5

. 0

2 7

. 6

8 2 . 6

2 0

. 0

2 5

. 0

4 0

. 5

8 5 . 5

V i e t N a m

2 2 5

. 0

1 7 9 . 0

1 7 6

. 4

2 2 2

. 3

2 6 8

. 2

1 , 0 7 0 . 9

5 9 3

. 0

2 9 3

. 1

7 0 5

. 5

7 3 3

. 8

7 6 7

. 7

7 0

. 0

3 , 1 6 3 . 1

T o t a l

1 , 5 5 5 . 6

1 , 3 7 9 . 2

1 , 1 8 8 . 6

1 , 5 3 7 . 0

1 , 3 3 7 . 5

1 1 3 . 1

7 , 1 1 1 . 0

2 , 3 5 5 . 4

2 , 2 7 2 . 0

3 , 3 4 9 . 1

3 , 3 8 2 . 6

3 , 7 7 0 . 2

4 5 6 . 9

1 5 , 5 8 6 . 1

A D B =

A s i a n

D e v e

l o p m e n

t B a n k ,

A D F =

A s i a n

D e v e

l o p m e n

t F u n

d ,

I D A

= I n t e r n a

t i o n a

l D e v e

l o p m e n

t A s s o c i a t

i o n ,

R e p .

= R e p u

b l i c .

N o

t e :

A D F g r a n

t s c o m m e n c e

d i n

2 0 0 5 o n

l y .

S o u r c e s :

A D B L o a n ,

T e c h n

i c a l A s s i s t a n c e a n

d P r i v a

t e S e c t o r

A p p r o v a l s

d a

t a b a s e ;

W o r l d

B a n

k A n n u a

l R e p o r

t s a n

d I D A S t a t e m e n

t o

f D e v e

l o p m e n t

G r a n

t s

A v a

i l a b l e :

h t t p : / / w w w . w

o r l d

b a n

k . o r g .



Appendix 14 127

AID COORDINATION AND HARMONIZATION

1. The Rationale for Aid Coordination and Harmonization. The ADF IX Donor report of 2005 and the 2005 Paris Declaration on Aid Effectiveness are only two of the statementsfavoring further coordination and harmonization among aid agencies, and their benefits seemobvious enough: reduced duplication of effort by increasing numbers of aid agencies, reduced

fragmentation of effort visible in small projects that miss out on both economies of scale,reduced problems of free riders and fungibility of aid, lower transaction costs for aid agenciesand recipients, and synergies arising from improved coordination.

2. Bigsten’s recent paper 1 summarizes the advantages of aid coordination andharmonization. Aid coordination itself is in his view limited by the fact that all aid agencies seekto maximize their aid budgets, requiring them to satisfy their parliament and national lobbygroups. This then leads to a need for visible results that can be attributed to particular agencies,even if the development impact of all agencies’ activities in the aggregate is thereby reduced.Secondly, even if agencies had the same goals, coordination would remain a challenge, arisingfrom different decision-making systems and lack of complete information from all agencies atthe same time.

3. Bigsten regards it as disappointing that aid agencies seem not to have moved to formsof aid that make coordination easier. Whereas the proportion of multilateral aid had remainedsimilar over the decades at around a third of all aid, bilateral agencies seem to have moved their aid away from program aid to project aid mainly for social infrastructure, at least up to 2003.(However, there are indications that after 2003, program aid may have risen again—in the AsianDevelopment Bank it has slowly risen.) The number of aid agencies has increased rapidly over the last 30 years, faster than the amounts of aid disbursed. Transaction costs have beenaggravated by this, and have manifested themselves in a multitude of diverse procedures,different languages and fiscal calendars, duplication of various forms of analytical work, andpersistence of some tied aid. Aid coordination costs have been high in some cases, although itis difficult to assess time costs.2 Studies have also found that aid undermines the quality of the

government bureaucracy more severely in countries where aid has been fragmented among thefunding agencies. Poor coordination makes it easier for governments to play off aid agenciesagainst each other. Conversely, where historically aid was provided by one or a few agencies,Bigsten argues that the results were better. Examples mentioned are the Marshall Plan after World War II; Eastern European accession to the European Union; and the World TradeOrganization, which effected change in the People’s Republic of China. Bigsten, however, alsoacknowledges that aid agencies all coordinating and gathering behind a particular aid doctrinemay suppress innovation and even lead to disaster if the doctrine proves wrong.

4. Similarly, Easterly3 has recently criticized lack of aid coordination and harmonization asone of the factors reducing the effectiveness of aid. The few positive results of alignments of funding agency approaches are viewed more as support for the private sector and civil society

rather than for state intervention, increased sensitivity of aid allocation to poorer countries, adecline in the share of food aid in overall aid, and a decline in aid tying. Easterly regards most of

1 Bigsten, Arne. 2006. Donor Coordination and the Uses of Aid . February. Available: http://www.handels.gu.se/epc/archive/00004815/01/gunwpe0196.pdf

2 Where studies had been done, these had found that program-based approaches with common basket fundsreduced transaction costs as compared with those of projects. However, these same studies were unable todetermine whether the management of the funds had improved.

3 Easterly, William. 2006. Are Aid Agencies Improving? Paper prepared for the October 20–21, 2006 Panel Meetingof Economic Policy in Helsinki. September.



Appendix 14 128

the other evidence for alleged improvement in coordination and harmonization as weak, aswitnessed by increasing aid agency fragmentation and proliferation, unchanged emphasis ontechnical assistance, little or no sign of increased selectivity with respect to countries, sectors,policies, and institutions (such as democracy and corruption), and the vicious cycle of adjustment lending and debt relief. These suggest continued repetition of past mistakes of theaid agencies.

5. In a comment on Bigsten’s paper, Clemens4 of the Center for Global Development positsthat it would be unrealistic to expect too much from aid coordination and harmonization. Itshould be seen as a minor, not a major, factor in the approach to better developmenteffectiveness. First of all, Clemens sees much variation in aid agency and project congestion indifferent countries. Secondly, the relation may be different from expected. Clemens argues thatcountries with more agency congestion should do worse than those with fewer funding agencies.In fact, they have done better in terms of gross domestic product growth and well-knowngovernance ratings. Similarly, countries with more project fragmentation do better. Clemensnotes that there seems to be no real evidence of large-scale institutional degradation, asobserved by some. In other words, reverse causality has been at work: “a large number of donors have a large number of projects in Uganda and Mozambique because they perceive aid

to work well there.” Clemens concludes that a major lack of coordination at the international or country level has apparently not produced transaction costs that are large enough to changeoverall aid effectiveness in those countries. He also concludes that “the primary determinants of aid effectiveness lie elsewhere.…The assumption behind much of the donor coordinationliterature seems to be that we know exactly what to do to transform Africa from without, if wecould only find a way to get along with each other and work together. But we do not knowexactly what to do, and we also understand very poorly the causes and consequences of increased coordination. Bold experiments and rigorous evaluation are essential.”

6. Clemens describes the wider causes of project and aid fragmentation, and points outthat there may be certain incentives and even advantages to perpetuate a lack of real donor coordination. Bilateral donors may be able to raise much less for aid if all aid is channeled

internationally. Clemens also asks how the International Development Association (IDA) [or the Asian Development Fund] can coordinate better with bilateral aid, when that aid is givenprecisely to avoid the real coordination that only giving their aid through IDA can ensure.

7. The conclusions that Clemens reaches may be right at the macro level, but withincountries with large numbers of funding agencies, aid coordination and harmonization may wellhold some advantages worth pursuing. They may not be large enough to require more attentionthan they are already receiving, given their transaction costs. Other ways to improvedevelopment effectiveness continue to deserve attention, such as determining the rightapproach to tackle economic growth and poverty reduction, the right kinds of projects andprograms, their right design and implementation, or the right system of international tariffs andtrade.

4 Clemens, Michael. 2005. Comment on: Arne Bigsten, “Donor Coordination and the Uses of Aid.” Available:

http://www.afd.fr/jahia/webdav/site/myjahiasite/users/administrateur/public/eudn2005/Bigsten_Clemens.pdf



Appendix 15 129

FINDINGS FROM INTERVIEWS WITH STAFF OF ADB’S DEVELOPMENT PARTNERS INFIVE COUNTRIES

A. Bangladesh

1. In Bangladesh, the Asian Development Bank (ADB) was coordinating well with a number

of other aid agencies. ADB had prepared a country strategy outcome matrix jointly with theWorld Bank, the Department for International Development (DFID) of the United Kingdom, andJapanese Aid. This formed the basis for the four partners’ own country strategies, and theexperience had led to more coordination of the four partners’ programs than before. Workingrelations with ADB’s Bangladesh Resident Mission were very good for all partners. Somepartners felt, however, that the joint outcome matrix had yet to make a strategic impact. Thiswas in part due to the political situation in the country, with a caretaker government. DFID hadhad no new strategy for the last few years, but was particularly interested in an increaseddegree of sector selectivity of the various main agencies, with DFID concentrating ongovernance, services, private sector, and extreme poor/climate change. A higher degree of integration of the partners’ country operations was deemed possible only if all major aidagencies were fully represented in the country and could take decisions on a day to day basis,

without too frequent need for recourse to head offices.

2. The World Bank officers visited viewed progress with harmonization and sector selectivity as dependent upon the government taking on a lead role rather than upon individualaid agencies, and preferably upon the government preparing detailed 3-year medium-termexpenditure frameworks and long-term sector investment plans. World Bank InternationalDevelopment Association (IDA) resources, available up to $750 million (Bangladesh does notmeet the minimum criteria for International Bank for Reconstruction and Development [IBRD]lending), three times those of ADB, and at better conditions for the government, had not beenfully committed and utilized for years, due to governance concerns and bureaucratic hurdles inproject preparation and implementation. In 2006, only around $500 million had been committedto new projects.

B. Lao Peoples Democratic Republic (Lao PDR)

3. Aid partners Agence Française de Développement (AFD), the World Bank, the UnitedNations Development Programme (UNDP), and the Australian Agency for InternationalDevelopment (AusAID) were visited. They were generally very satisfied with the cooperationwith ADB, and with ADB’s role in the policy dialogue with the government. All hoped that ADBwould continue as a lead player, and were concerned with reduced Asian Development Fund(ADF) resources for Lao PDR. Among the projects studied by the Mission, AFD had financedparts of the Vientiane project (rather unsuccessfully), and the Nam Ngum Project (moresuccessfully). AusAID, involved with ADB in the education sector, hoped that the Lao ResidentMission would continue to expand its responsibilities so that quick decisions could be made.

Most of the agencies visited wanted a gradually increased role for program based approachesin Lao PDR and felt that ADB was lagging behind in this. Progress was also being made withaid harmonization, although slow and uneven.

C. Nepal

4. The World Bank had working relations with ADB, but viewed its own country office asmore decentralized and empowered. World Bank officers interviewed admitted to some



Appendix 15 130

competition with ADB due to their wide coverage of sectors, which overlapped those of ADB.The World Bank was moving increasingly towards sector-wide approaches. Officers of theDelegation of the European Commission reported having a good working relation with ADB.European Union (EU) involvement in the country was moving more towards sector support anduntied technical assistance. The EU staff did not consider the reduction in ADB funding of projects in Nepal as a good move, as the country needed more resources at the current political

crossroad. DFID cofinanced with ADB the Road Network Development Project. ADBadministered DFID’s resources for the project, but these had remained largely unused from thefirst tranche onwards. DFID’s resources were later downsized due the need to respond to the

Asian tsunami and due to shifts in the prioritization of aid within DFID. DFID is implementing aseparate rural access program with livelihood components targeting poorer performingcommunities. DFID reported to be cautiously moving to a program-based approach. UNDPofficers considered UNDP closer to the World Bank than to ADB. Officers viewed ADB’sinfrastructure projects as largely implemented on economic merits and were not convinced of the primacy of environmental concerns in such projects.

D. Pakistan

5. The joint strategy or portfolio review process observed in Bangladesh and Viet Namrespectively, was not in evidence in Pakistan. A paper issued in 2006 1 noted that there was nocrisis in aid relations between the government and its development partners. Aid agenciesgenerally expressed satisfaction with Pakistan as a partner country and with the outcomes of their own projects and programs. However, dissatisfaction was also expressed. The governmentwas critical of aspects of funding agency practices and of some of the agencies along linessimilar to complaints in other developing countries. There has been genuine progress inharmonization and alignment in recent years, but few thought adequate progress had beenmade. Few discernible changes were by either the aid agencies or the government were notedas a result of commitments entered into in Paris. Aid agencies were viewed as divided amongthemselves by scale of program, in their levels of local enthusiasm for the Paris Declarationagenda, and by the extent to which authority had been decentralized to local representatives.

6. Another recent study 2 noted broad aid agency support for the Poverty ReductionStrategy and Program in Pakistan and evidence of alignment with its core objectives,particularly around economic growth, governance reform, and devolution. However, the studynoted that Pakistan had less of a record on harmonization, with aid agencies tending to operateindependently with little coordination at either the strategic or program level. The politicalturbulence of the 1990s and the fallout of the war on terror in the early 2000s were thought tohave inhibited harmonization and alignment. However, the large international response to theOctober 2005 earthquake had provided a boost to the aid effectiveness agenda, with thegovernment leading in efforts to integrate Paris principles into the reconstruction effort at anearly stage. However, the government reported that its recent initiative in creating an aidcoordination and harmonization cell had met with little support from the aid community.

1 Killick, Tony, and Qaim Shah. 2006. Improving Aid Effectiveness in Pakistan. Issues Paper for the PakistanDevelopment Forum 10-11 May Islamabad. May.

2 Agulhas. 2006. 2006 Asian Regional Forum on Aid Effectiveness: Implementation, Monitoring and Evaluation.Synthesis Report . Available: http://www.adb.org/Documents/Events/2006/Aid-Effectiveness/Synthesis-Report.pdf



Appendix 16 132

HIRSCHMANN-HERFINDAHL INDEX

The Hirschmann-Herfindahl Index formula is [n/p]^2 where n is the number of loans adeveloping member country (DMC) has in each sector, p is the DMC’s total number of loans,and the squares of n/p are summed across all sectors. The maximum index value of 1 isreached only if all of a DMC’s loans are in a single sector; the minimum index value approaches

0 as the total number of loans increases and they are spread evenly across all sectors. As thevalue of p increases, it generally becomes increasingly difficult to achieve a higher index, sowhen two DMCs have roughly the same index, the DMC with the larger number of loans shouldbe considered to have the more homogeneous portfolio. 2002 does not include Azerbaijan,while 2006 does not include Tonga and Vanuatu.

Table A16.1: Distribution of Ongoing Loans by Country and Sector in 2002,Sorted by Country with Most Loans

Sector

Country AG ED EN FI HL IN LW MS TC WSTotal

LoansTotal

SectorsLoans/Sector

2002HHI

Indonesia 21 6 6 3 4 2 4 7 5 58 9 6.4 0.188

Pakistan 9 5 5 7 3 4 7 5 5 3 53 10 5.3 0.111Bangladesh 10 4 8 1 1 4 7 35 7 5.0 0.202

Sri Lanka 13 3 3 3 2 3 6 1 34 8 4.3 0.213

Viet Nam 7 4 1 3 2 2 3 3 4 29 9 3.2 0.139

Lao PDR 5 3 2 2 1 4 4 1 22 8 2.8 0.157

Nepal 6 3 2 1 1 1 2 2 3 21 9 2.3 0.156

Cambodia 1 4 1 3 2 1 4 3 2 21 9 2.3 0.138

Mongolia 3 2 1 4 3 1 2 16 7 2.3 0.172

Regional 2 5 6 13 3 4.3 0.385

Uzbekistan 1 5 1 1 2 2 12 6 2.0 0.250

Papua New Guinea 4 1 1 1 2 2 1 12 7 1.7 0.194

Kyrgyz Republic 1 1 1 2 3 2 10 6 1.7 0.200Tajikistan 2 1 2 1 1 7 5 1.4 0.224

Maldives 1 2 1 1 1 6 5 1.2 0.222

Bhutan 1 1 2 1 1 6 5 1.2 0.222

Marshall Islands, Rep. of 1 2 1 1 5 4 1.3 0.280

Micronesia, Fed. States of 2 1 1 4 3 1.3 0.375

Samoa 1 1 1 3 3 1.0 0.333

Solomon Islands 1 1 2 2 1.0 0.500

Afghanistan 1 1 1 1.0 1.000

Cook Islands 1 1 1 1.0 1.000

Kiribati 1 1 1 1.0 1.000

Tonga 1 1 1 1.0 1.000

Tuvalu 1 1 1 1.0 1.000

Vanuatu 1 1 1 1.0 1.000

Total 83 46 36 29 17 17 28 44 52 23 375 10 37.5 10.663 AG = agriculture and natural resources; ED = education; EN = energy; Fed. = federated, FI = finance; HHI = Hirschmann-Herfindahl Index; HL = health, nutrition, and social protection; IN = industry and trade; Lao PDR = Lao People's DemocraticRepublic; LW = law, economic management and public policy; MS = multisector, Rep. = republic, TC = transport andcommunications; WS = water supply and sanitation.



Appendix 16 133

Table A16.2: Distribution of Ongoing Loans by Country and Sector in 2006,Sorted by Country with Most Loans

Sector

Country AG ED EN FI HL IN LW MS TC WSTotal

LoansTotal

SectorsLoans/Sector

2006HHI

Pakistan 13 7 4 8 2 3 10 20 10 3 80 10 8.0 0.144

Sri Lanka 2 5 2 5 - 2 3 8 5 5 47 9 5.2 0.147Bangladesh 8 6 9 2 1 3 4 6 1 40 9 4.4 0.155Viet Nam 10 5 2 3 3 3 3 5 3 37 9 4.1 0.145Indonesia 6 3 3 3 1 7 10 2 35 8 4.4 0.177Lao PDR 6 3 2 4 1 1 3 4 1 25 9 2.8 0.149Nepal 7 4 1 2 1 1 2 5 23 8 2.9 0.191Cambodia 4 3 3 1 1 2 1 2 2 2 21 10 2.1 0.120Mongolia 2 2 1 3 3 1 2 2 2 18 9 2.0 0.123

Uzbekistan 5 5 1 1 1 1 3 17 7 2.4 0.218Tajikistan 3 1 2 1 1 1 3 12 7 1.7 0.181Papua New

Guinea3 1 1 1 5 1 12 6 2.0 0.264

Afghanistan 2 2 1 3 3 11 5 2.2 0.223Kyrgyz Republic 1 2 1 1 2 3 10 6 1.7 0.200

Azerbaijan 1 5 2 2 10 3 3.3 0.340Maldives 2 1 2 1 1 7 5 1.4 0.224Bhutan 1 1 2 1 1 6 5 1.2 0.222Micronesia, Fed.

States of 2 3 5 2 2.5 0.520

Samoa 1 1 1 3 3 1.0 0.333Tuvalu 2 2 1 2.0 1.000Cook Islands 1 1 1 1.0 1.000Kiribati 1 1 1 1.0 1.000Marshall Islands,

Republic of 1 1 1 1.0 1.000

Solomon Islands 1 1 1 1.0 1.000Regional 1 1 1 1.0 1.000

Total 83 51 33 35 17 20 28 69 59 31 426 8 53.3 10.076 AG = agriculture and natural resources; ED = education; EN = energy; Fed. = federated, FI = finance; HL = health, nutrition,

and social protection; IN = industry and trade; LW = law, economic management and public policy; MS = multisector, TC =transport and communications; WS = water supply and sanitation, HHI = Hirschmann-Herfindahl Index.Source: Asian Development Bank Management Information System.



MANAGEMENT RESPONSE TO THE SPECIAL EVALUATION STUDYON ASIAN DEVELOPMENT BANK VIII AND IX OPERATIONS

On 8 February 2008, the Officer-in-Charge, Operations Evaluation Department, receivedthe following response from the Managing Director General on behalf of Management:

I. General Comments

1. We welcome OED’s Special Evaluation Study (SES) on AsianDevelopment Fund (ADF) VIII and IX Operations. We note the SES assessmentthat (i) increasing goal congestion under ADF VIII (2001–2004) may havetemporarily stalled in the rising trend of project success over the years, and that(ii) the enhanced approach employed under ADF IX, started in 2005, is morelikely to resume the upward trend of project success, although it is early to say.

2. We also note the SES finding that a number of reforms and business

process changes1

introduced in 2004–2006 have led to such improvements of ADF operations. This SES finding confirms the importance of consolidating our ongoing reforms and change initiatives under ADB’s reform agenda. As observedin the SES, the reform agenda was our Management’s response to the need for changes for ADB to remain relevant in a dynamic Asia and the Pacific region.

3. Increase of ADF Size. We agree with the SES recommendation to ADFdonors that ADF’s size should increase if it is to accelerate the achievement of the Millennium Development Goals (MDGs). We believe that a certain criticalmass has to be deployed not only to achieve poverty reduction and address non-income MDGs, but also to ensure the leverage needed to achieve policy changeand governance objectives.

4. Usefulness of ADF Grants. The SES casts doubts on the effectivenessof ADF grants. However, we believe that it is too early to make any judgmentcalls on the usefulness of ADF grant instrument, introduced only under ADF IX,on development outcomes. And given that grants are processed, disbursed andsupervised in the same way as ADF loans, it is difficult to see how they wouldprovide fewer opportunities for policy dialogue than loans. Finally, as the SESobserves, our grants framework is closely aligned with that of the InternationalDevelopment Association, so that any changes would have to be embedded in awider reassessment of grants as a development tool.

5. Soundness of Performance-Based Allocation (PBA) System.

The SES questions the soundness of the PBA system introduced during ADF VIII. We maintain that the PBA system is the best practice available for achieving the highest level of development effectiveness with the limitedresources we have. Like other multilateral development banks (MDBs),we acknowledge that it is not perfect, and we endeavor to fine-tune it as we goalong (for example, for the Manila meeting, we plan to present donors with

1 These include the Enhanced Poverty Reduction Strategy, Medium-Term Strategy II, the newCountry Partnership Strategy process, the Resident Mission policy, the Public CommunicationsPolicy, and new financing instruments and modalities such as multitranche finance facility andlocal currency loan products, among others.



concrete proposals to attenuate some of the volatility and unpredictability of PBA outcomes).

II. Specific Recommendations

Recommendation: ADF X should avoid goal congestion inoperations and in ADB as a whole.

6. We fully agree that ADB should avoid "goal congestion" in its ADFoperations. This objective has already been anchored in the selectivity approachof the Medium-Term Strategy (MTS) II, and is also a crucial component of theLong-Term Strategic Framework (LTSF) 2008–2020 currently being finalized.

Recommendation: The ADF needs to be more selective in itssupport for sectors in many countries.

7. We fully agree with this recommendation. In the ongoing ADF Xreplenishment negotiations, donors have for their part supported the need for selectivity and the emerging consensus is that ADF should focus on what it has

been doing best over the years, mainly infrastructure projects which will addresspoverty reduction in an indirect manner through economic growth and jobopportunities, and increased access to markets and social services (healthservices, water and sanitation, and education).

Recommendation: Poverty reduction is an appropriate goal for ADFoperations, and requires more than direct targeting of the poor ineach country.

8. We agree with the SES recommendation that poverty reduction should bethe main goal of ADF operations. We also support the SES finding that povertyreduction requires more than direct targeting of the poor in each country.

As stated in the SES, we have already internalized this lesson of ADF VIII intoour operations.

Recommendation: Aid harmonization and coordination remainnecessary elements of the ADF approach.

9. We agree with the SES finding that donor harmonization and aidcoordination is crucially important for aid effectiveness. We also agree thatcoordination of country programs among major donors to increase sector specialization should be a priority. However, as the implementation of the ParisDeclaration should be, and in fact is, mostly country-driven, an effective divisionof labor between various actors depends significantly on country-specific

circumstances.

Recommendation: An ADF geared to poverty reduction andgovernance is staff intensive and needs specialized skills.

10. We acknowledge this SES recommendation. As part of the HumanResources Strategy (HRS) adopted in October 2004, measures are beingintroduced to address to ADB’s skills mix issues and skills gaps. We have alsoaligned our skills mix more closely with the priorities of MTS II. Subsequent to thestaff engagement survey being undertaken in early 2008 and the adoption of



LTSF (2008–2020), we will review the HRS with the assistance of externalexperts and plan for appropriately increasing investment, if required. This reviewof the HRS will include the staffing issues to implement ADF operations and thespecific requirements in resident missions.

Recommendation: Major governance issues should be primarilyaddressed through program lending, with agreed reforms being

supported by advisory and capacity building technical assistance.

11. We believe this SES suggestion has to be qualified. The choice of lendingmodality should be determined on a case by case basis. We note that when acountry's budget framework and financial management system is weak, provisionof program loans could involve a significant degree of fiduciary risk. Also, onemust recognize that governance efforts can also be effectively pursued byfocusing efforts on the key sectors in which we deliver investment projects.Investment projects can also help strengthen institutions and capacity at thesector level, as highlighted by the Second Governance and Anticorruption ActionPlan.

Recommendation: ADB should undertake a rigorous analysis to testthe validity of the various country performance assessment (CPA)indicators.

12. We note the SES recommendation. However, although not perfect,the present CPA system is considered collectively by MDBs and donors as bestpractice presently available. It is not clear if alternative methods cited by theSES, like tying allocations to developing member countries’ commitments toremove "binding constraints" for development would be less subjective andproduce more comparable results across the range of ADF recipients.

Recommendation: ADB needs to pursue a varied approach to debt

distress of ADF countries and not rely mainly on the institution of anADF grant mechanism.

13. While the main purpose of the ADF grant framework is to promote debtsustainability, we agree with the SES observation that this instrument alone isinsufficient. As the SES notes, countries must have a sound legal framework tomonitor and manage public debtin conjunction with sound macroeconomicmanagementto ensure that levels of public debt do not become burdensome.The Bretton Woods institutions are leading initiatives to strengthen debtmanagement, and ADB will coordinate with them to ensure a consistentapproach.



DEVELOPMENT EFFECTIVENESS COMMITTEE

Chair's Summary of the Committee's Discussion on 15 February 2008 of the

Special Evaluation Study of the Asian Development Fund VIII and IX Operations

1. Under the special evaluation study (SES) of Asian Development Fund (ADF) VIII and IXoperations for the period 2001–2008, assessments were made of ADF’s efforts to target thepoor; the Performance-Based Allocation (PBA) Policy; adding a governance dimension tooperations; the grant mechanism; and progress with aid coordination, cofinancing, andharmonization.

Summary of Discussions

2. The Committee discussed key areas of the study and considered Management’sresponse to OED’s recommendations.

3. Development Effectiveness Committee (DEC) noted the study’s observation that only asmall proportion of the poor in the Asia-Pacific region is targeted by ADF. However, some DECmembers emphasized that ADF has specific goals that are not directed towards the entire poorpopulation of the region. Some middle income countries have better access to commercial loansand the poor population of these countries is not covered by ADF operations. Some other DECmembers believed that ADB should look for ways to support the poor in these countries.

4. Performance-Based Allocation. Management clarified that ceilings and/or allocationsof assistance, determined on the basis of PBA, are disclosed to the country through the Board;but not put out in the public domain.

5. DEC noted the study’s findings that ADB and World Bank (WB) have different weights

and formulas; and that the ratings and weights of indicators in the ADF and IDA formulae lead todifferent shares in ADF and IDA funds. The study also found that ADB’s formula favors smallerpopulation, which leads to greater allocation on a per capita basis to smaller countries.

6. Management noted that while other MDBs have been using the PBA system for a longtime, ADB’s experience was limited to a shorter period. DEC noted donors’ emphasis on theneed for a harmonized procedure between ADB and other MDBs.

7. DEC noted OED’s recommendation that the issues on governance may be addressedthrough both program and project lending. However, DEC members cautioned that addressingthe governance issue through program lending would only be effective if the country hassufficient capacity.

8. Loans versus Grants. One Board member opined that while grants do not solve debtdistress, grants do not compound the distress. One DEC member observed that providing loansto debt-distressed countries is tantamount to giving grants, since the likelihood of loanrepayments is low.

9. DEC noted the SES’s findings that grants lead to lower volume of assistance to acountry, as compared to when loans are provided. The study suggested higher concessionalityor debt forgiveness as an alternative to grants.



10. Efficiency of Administration of ADF funds. DEC noted the study’s findings that ADFoperations are relatively inefficient compared to OCR operations. The study stated thatimplementation of ADF IX has been more efficient than ADF VIII.

11. DEC expressed concern on the capacity of ADF’s costing methods, and suggested that

ADB finds ways to estimate total cost to OCR borrowers arising from ADF operations.

12. Goal Congestion. DEC believed that goal congestion is a serious issue in ADFoperations. Management agreed and explained that ADB is trying to be selective and morefocused on goals to reduce congestion. The ongoing review of the Long-Term StrategicFramework hopes to address this. OED added that ADF IX addresses this issue by delegatingspecific goals to development partners specializing in those specific fields.

13. Staff Transfers. DEC expressed concern about the impact of staff transfers on projectimplementation and sought assurance from Management that this would not happen in thefuture. Management, however, admitted that while assurance may not be given, all efforts wouldbe made to ensure that at least mission leaders stay with the projects during the first year of

implementation.

14. Management stated that with limited resources, staff need to be transferred to whereverthey may be needed. Further, avoiding staff transfers would deny staff with opportunities for jobpromotion.

15. Data Classification. DEC viewed that changes in classification make comparisonbetween operations over time difficult. DEC suggested that when the classification systemchanges, the old data should be re-classified according to the new system to facilitatecomparisons over time.

Conclusions

16. In conclusion,

(i) DEC noted that ADF currently covers only a small proportion (about 18%) of the620 million poor in Asia-Pacific region. However, many of the countries notcovered by ADF have been fighting poverty using other resources. DEC notedthat for a resolute assault on poverty in Asia and the Pacific, much moreresources, as well as effective ways of utilizing such resources would be neededin the Asia-Pacific region. ADB may have a role to play in this regard.

(ii) ADF, particularly the newly introduced grant framework, could be an effectiveway of fighting poverty without adding to the problem of debt distress in thehighly-indebted poor countries.

(iii) There is a problem of goal congestion as noted in the SES. Managementassured DEC that the LTSF under preparation will address this issue.

(iv) DEC noted the recommendation of SES on need for selectivity of sectors in ADFoperations.

(v) SES clarified the comparability problem over time, because of frequent changesin data classification. DEC wanted Management to re-classify the old datawhenever a new classification system is introduced.

(vi) DEC noted that apart from the direct transfer of OCR net income for fundingADF, there was some cross-subsidization of ADF operations by OCR operations



because of the relatively more staff time per dollar of loan devoted to ADFoperations.

(vii) SES raised questions on the PBA, and the appropriate weights to be attached togovernance. DEC noted that the rating and weighting of indicators for ADF andIDA formulas are different. DEC encouraged staff to carry out appropriateanalysis of PBA system and weights attached to governance.

Ashok K. LahiriChair, DEC