The Asian Development Bank (ADB) should continue to deliver concessional assistance—comprised of very low interest loans and grants—to countries in need in the Asia and Pacific region to enhance their chances of achieving their targets under the Sustainable Development Goals (SDGs), recommends ADB’s Independent Evaluation Department (IED).
The evaluation report, Relevance and Results of Concessional Finance: Asian Development Fund (ADF) XI and 12, released by IED today assesses the relevance and results of the use of concessional loans and grants by ADB from 2013 to 2018—the period covered by ADF XI and the first half of ADF 12. ADB’s concessional assistance amounted to nearly $21 billion over 2013–2018, of which $5.8 billion was provided as grants.
The report states that there is a strong rationale for continuing concessional support in Asia and the Pacific. Growing inequality, rapidly accelerating climate crisis, especially in small Pacific atolls, and unrelenting conflict and insecurity in several countries mean there is a risk that poverty gains may be reversed in the medium term, and that there will not be enough progress on climate change mitigation and global peace and security. Without accelerated efforts, the region is unlikely to meet any of the 17 SDGs by 2030.
ADF was established in 1974 as a source of low-interest loans for ADB’s poorest member countries financed largely by ADB’s non-borrowing members. In 2005, grants were also added making ADF a concessional loan and grant facility. However, after the transfer of ADF’s concessional loan portfolio to ADB’s ordinary capital resources (OCR) balance sheet in January 2017, ADF became a grant-only facility providing grants to member countries in debt distress. “The transfer was a very innovative mechanism that has tripled ADB’s capital, allowing a greater response to the region’s development needs,” said ADB Director General of Independent Evaluation Mr. Marvin Taylor-Dormond.
As a grant-only facility, ADF is now concentrated on a much smaller group of countries. They are among the world’s poorest and most vulnerable with exceptional development challenges. The largest of these is Afghanistan while the rest are mainly small Pacific islands. Both are challenging contexts where development results are much harder to achieve. While the small Pacific island states are isolated and suffer from extreme climate conditions and natural hazards, Afghanistan is one of the world’s poorest countries grappling to secure lasting peace. The evaluation found that countries with fragile and conflict-affected situations are not well addressed by ADB in its operations. It also found that sustainability challenges faced by small Pacific island states as a result of climate change are not adequately considered during ADF resource allocation.
“We need to appreciate that traditional development approaches do not work in these complex contexts,” said Mr. Taylor-Dormond. “ADB needs to adapt its business processes to better suit complex country conditions.” The evaluation recommends increasing support to ADF countries for adaptation to climate change and continuing to provide a higher allocation to Afghanistan—which currently accounts for more than half of ADF grant allocations.
The evaluation found that project performance and results have been stronger in the ADF XI and 12 periods so far than in previous ADF periods. While overall performance has improved, sustainability of the investments made was weak, particularly in countries that are disadvantaged in capacity, well-functioning institutions, and peace and stability.
The report underscores the importance of the private sector in achieving SDGs and calls on ADB to scale up support for private sector development in countries eligible for concessional assistance. “Private sector development through nonsovereign operations is a key objective of ADB, but few nonsovereign operations have been undertaken in ADF countries because of the high risk of doing so,” said ADB Principal Evaluations Specialist and the evaluation’s main author Ms. Joanne Asquith. “ADB can introduce a blended finance window to derisk nonsovereign operations in concessional assistance countries, especially in areas where private sector operations are likely to have a high impact on the SDGs.” ADF currently does not provide blended concessional finance for nonsovereign operations.