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Developing Asia Needs Concessional Resources for Sustainable Development

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 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.

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Cash flow the biggest problem facing business during COVID-19 crisis

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A new report  on the impact of the COVID-19 pandemic  on businesses shows that their greatest challenges have been insufficient cash flow to maintain staff and operations, supplier disruptions and access to raw materials.

With businesses already undergoing significant competitive pressure prior to the crisis, government restrictions, health challenges and the economic fall-out brought by COVID-19 further set back many enterprises.

Interrupted cash flow was the greatest problem, the survey found. More than 85 per cent reported the pandemic had a high or medium financial impact on their operations. Only a third said they had sufficient funding for recovery. Micro and small enterprises (those with 99 employees or fewer) were worst affected.

The survey, carried out by Employers and Business Membership Organizations (EBMOs), involved more than 4,500 enterprises in 45 countries worldwide. EBMOs gathered data from their enterprise members between March and June 2020. The businesses were asked about operational continuity, financial health, and their workforce.

At that time, 78 per cent of those surveyed reported that they had changed their operations to protect them from COVID-19, but three-quarters were able to continue operating in some form despite measures arising from government restrictions. Eighty-five per cent had already implemented measures to protect staff from the virus.

Nearly 80 per cent said they planned to retain their staff – larger companies were more likely to say this. However, around a quarter reported that they anticipated losing more than 40 per cent of their staff.

Looking into the future, preparing for unforeseen circumstances and mitigating risks associated with a disruption of business operations is needed. Fewer than half the enterprises surveyed had a business continuity plan (BCP) when the pandemic hit, with micro and small businesses the least likely to have made such preparations. Additionally, only 26 per cent of the enterprises who responded said they were fully insured and 54 per cent had no coverage at all. Medium-sized enterprises, (those with 100 to 250 employees), were most likely to have full or partial coverage.

Strengthening government support measures for enterprises are also vital for their recovery. Four out of ten enterprises said they had no funding to support business recovery while two-thirds said funding was insufficient. Of the sectors analysed, the tourism and hospitality sector, followed by retail and sales, were most likely to report funding issues.

The report production was facilitated by EBMOs who collected and shared the survey data with the Bureau for Employers’ Activities  (ACT/EMP) at the International Labour Organization. ACT/EMP is a specialized unit within the ILO Secretariat that maintains close and direct relations with employers’ constituents.

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Lithuania: COVID-19 crisis reinforces the need for reforms to drive growth and reduce inequality

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Effective containment measures, a well-functioning health system and swift public support to firms and households have helped Lithuania to weather the COVID-19 crisis to date. That said, the pandemic still carries significant economic risks, and the recent upsurge in infections is very concerning. Once a recovery is under way, Lithuania should aim to reform public companies, strengthen public finances, and ensure that growth benefits all people and regions, according to a new OECD report. 

The OECD’s latest Economic Survey of Lithuania says that prior to COVID-19, good economic management and an investment-friendly business climate were helping to lift average Lithuanian incomes closer to advanced country levels. While the recession provoked by the virus has been milder than elsewhere – with GDP projected to drop by 2% in 2020 before rebounding by 2.7% in 2021 – Lithuania’s small and open economy will be vulnerable to any prolonged disruption to world trade. Increasing public investment and improving governance at state-owned enterprises could help lift growth and productivity. Other reforms should focus on improving the effectiveness of spending and taxation. Over the longer term, Lithuania should establish a clear debt reduction path and a long-term debt target.

“Lithuania’s sound economic management of recent years, and its swift response to both the health and economic aspects of the pandemic, are helping the country to weather the COVID-19 crisis,” said OECD Secretary-General Angel Gurría. “It is now key to build on these achievements and restart the reform engine to ensure robust, sustainable and inclusive growth for the future.”

The pandemic has exposed high levels of income inequality in Lithuania, where relative poverty is high among the unemployed, the less educated, single parents and older people due to a tax-benefit system that is insufficiently redistributive. The Survey recommends Lithuania to continue providing temporary support to people and businesses hit by COVID-19, as well as to increase regular social support while retaining incentives to work.

In terms of support to the economy, the Survey notes that while Lithuania’s government spending has increased considerably over the past two years, it remains below the OECD average. Public investment also remains low. Given the importance of modernising infrastructure and stimulating crisis-hit demand, the Survey recommends maintaining or increasing current levels of investment and improving investment quality by carrying out rigorous cost-benefit analysis for individual projects. Increasing investment in rural areas, and giving local government more say in tax policy and spending, could help reduce regional disparities and promote inclusive growth.

The Survey also recommends phasing out environmentally damaging fossil fuel subsidies and increasing environmental taxation, which would benefit public finances while helping the shift to a lower-carbon economy.

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United States confirms its leading role in the fight against transnational corruption

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The United States continues to demonstrate an increasing level of anti-bribery enforcement, having convicted or sanctioned 174 companies and 115 individuals for foreign bribery and related offences under the Foreign Corrupt Practices Act (FCPA) between September 2010 and July 2019. The United States is thus commended for a significant upward trend in enforcement and confirming the prominent role it plays globally in combating foreign bribery.

The 44-country OECD Working Group on Bribery has just completed its Phase 4 evaluation of the United States’ implementation of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and related instruments.

Given developments since the United States’ last evaluation in 2010, the Working Group made a range of recommendations to the United States, including to:

  • Consider ways to enhance protections for whistleblowers who report potential FCPA anti-bribery violations by non-issuers and provide further guidance on available whistleblower protections;
  • Continue to further evaluate and refine policies and guidance concerning the FCPA;
  • Make publicly available the extension and completion of NPAs and DPAs with legal persons in foreign bribery matters as well as the grounds for extending DPAs in FCPA matters;
  • Continue to evaluate the effectiveness of the Corporate Enforcement Policy in particular in terms of encouraging self-disclosure and of its deterrent effect on foreign bribery; and
  • Continue to address recidivism through appropriate sanctions and raise awareness of its impact on the choice of resolution in FCPA matters.

The report praises the United States for its sustained commitment to enforcing its foreign bribery offence as well as its key role in promoting the implementation of the Convention. This achievement results from a combination of enhanced expertise and resources to investigate and prosecute foreign bribery, the enforcement of a broad range of offences in foreign bribery cases, the effective use of non-trial resolution mechanisms, and the development of published policies to incentivise companies’ co-operation with law enforcement agencies.

The report also notes a large number of positive developments and good practices, such as the DOJ’s reliance on several theories of liability to hold both companies and individuals responsible for foreign bribery, and the United States’ successful co-ordination that has allowed multi-agency resolutions against alleged offenders in FCPA matters. In parallel, the United States has increasingly sought to co-ordinate and co-operate in investigating and resolving multijurisdictional foreign bribery matters with other jurisdictions. Finally, the United States has helped foreign partners build their capacity to fight foreign bribery through joint conferences and peer-to-peer training thus enabling the law enforcement authorities of these countries to better investigate and sanction prominent foreign bribery cases.

The United States’ Phase 4 report was adopted by the OECD Working Group on Bribery on 16 October 2020. The report lists the recommendations the Working Group made to the United States on pages 111-113, and includes an overview of recent enforcement activity and specific legal, policy, and institutional features of the United States’ framework for fighting foreign bribery. In accordance with the standard procedure, the United States will submit a written report to the Working Group within two years (October 2022) on its implementation of all recommendations and its enforcement efforts. This report will also be made publicly available.

The report is part of the OECD Working Group on Bribery’s fourth phase of monitoring, launched in 2016. Phase 4 looks at the evaluated country’s particular challenges and positive achievements. It also explores issues such as detection, enforcement, corporate liability, and international co-operation, as well as covering unresolved issues from prior reports.

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