USD, PPP
5. Strategic Options
5.4 The Asian Development Fund
The ADF faces already today a client base in terms of aver-age per capita income levels that the AfDF will reach not even by 2025. The ADF provides support to LICs and has a focus on the poorest countries, such as Afghanistan and Nepal, climate change prevention and mitigation urgent for the shareholders of the ADF.
The ADF is a major provider of concessional loans and grants in Asia and the Pacific, with a focus on basic in-frastructure. The key mandate for the ADB and ADF under ADF XI will be to reduce poverty in the poorest countries, such as Afghanistan, Nepal, and Tajikistan, but other countries which are MICs, such as Vietnam and Sri Lanka, also receive substantial amounts of concessional loans. Within the mandated region, the ADF simply does not find many LICs any longer (unlike the AfDF), but more poverty and unfilled basic needs than any other regional development bank. By 2025, our projections show that populous countries such as Bangladesh and Cambodia will graduate the operational cutoff; likewise, India will exceed the historical cutoff by then.
This scenario makes strategic decisions discussed in sec-tion 4 with respect to redefining cutoffs, concessional transition finance, subnational eligibility, as well as concessional finance for disaster prevention and mitiga-tion urgent for the shareholders of the ADF. The ADF is a major provider of concessional loans and grants in Asia and the Pacific, with a focus on basic infrastructure. The
ADB has recently presented a new proposal to enhance ADB’s financial capacity through a modified manage-ment of its capital resources. The proposal entails termi-nating ADF loan operations and combining ADF loans (and part of ADF liquid assets, projected to be USD 35.3bn in total) with the OCR balance sheet in January 2017. This would increase OCR equity from a projected USD 17.9bn to USD 53.2bn. ADF would henceforth provide only grant assistance, while ADB would continue concessional lend-ing through its OCR window (ADB, 2014).
ADF countries would benefit from receiving enhanced financial assistance of concessional loans and grants on the same terms as currently provided. The advantage of merging ADF with OCR resources would be raising lever-age and lending capacity without compromising ADB´s credit standing and borrowing capacity in international capital markets. ADB’s equity base would almost triple, the minimum equity-to-loan ratio would be set higher (from the current 25 percent to 37 percent to 40 percent), and the loan portfolio would become more diversified.
The major disadvantage could be lowered concessional funding for Asian LICs, in particular on “non-bankable”
social infrastructure spending. It is also likely to reinforce a pre-existing bias in the ADB for “bankable” projects in the profitable energy, telecommunications and transport subsectors or in agro-industry that generate hard curren-cy receipts which can be used to repay ADB hard loans.
The ADF seems hampered, however, by the skewed governance of the ADB, which will by 2025 be even less representative than today: Japan remains the largest shareholder and decision maker although China is by now, and will be even more by 2025, the larger economy (Nehru, 2012). Japan and the US are by far the biggest shareholders in the ADB with 15.7 percent and 15.6 per-cent, respectively. China, whose economy in USD terms surpassed Japan’s in 2010, has just 5.5 percent. As long as such governance issues are not seriously addressed by raising voices, votes and contributions by China (and India), multilateral concessional finance risks balkaniza-tion with the establishment of alternative institubalkaniza-tional channels, such as the future BRICS Bank and the Asian Infrastructure Investment Bank (Pilling, 2014). Another negative consequence of uneven representation is the negative impact on capital resources (to which China could amply provide) and hence lending capacity.
Financial constraints on both the ADF and ordinary capital resources (OCR) are stretching ADB’s capacity to the limit. If ADB is to maintain meaningful levels of in-volvement in ADF countries, it has to find creative ways to enhance its financial capacity – or it has to change representation as Japan´s fiscal resources are limited by rapid ageing, with the risk to turn Japan into a “middling donor” (Sawada, 2014). Although Japan is the largest fi-nancial contributor to the ADB, its policy positions are usually framed within the parameters set by the US-Japan relationship, which has effectively limited higher representation of and core funding by China and India in particular.
Appendix
Table A.1: Current (2013) IDA Recipient Countries Classified by GNI per capita
Above cutoffs Low-income
<USD 1,035
i.e., "civil works preference"
Lower-middle-income
<USD 1,205
i.e., below operational cut-off
Lower-middle-income USD 1,206 – 1,965 i.e., below historical, but above operational cutoff
Lower- and upper-middle-income
>USD 1,965
Afghanistan Cameroon Cote d'Ivoire Angola*
Bangladesh Mauritania Djibouti Armenia*
Benin Senegal Ghana Bhutan
Burkina Faso Solomon Islands India* Bolivia*
Burundi Yemen, Rep. of** Lao PDR Bosnia and Herzegovina*
Cambodia Lesotho Cape Verde*#
Central African Republic Nicaragua Congo, Rep.
Chad Nigeria Dominica*#
Comoros Pakistan* Georgia*
Congo, D.R. Papua New Guinea* Grenada*#
Eritrea Sao Tome and Principe# Guyana
Ethiopia Sudan Honduras
The Gambia Uzbekistan* Kiribati#
Guinea Vietnam* Kosovo
Guinea-Bissau Zambia Maldives#
Haiti Marshall Islands#
Kenya Micronesia, Fed. States#
Kyrgyz Republic Moldova*
Liberia Mongolia*
Madagascar Samoa#
Malawi Sri Lanka*
Mali St. Lucia*#
Mozambique St. Vincent and the
Grenadines*#
Myanmar Timor-Leste*
Nepal Tonga#
Niger Tuvalu#
Rwanda Vanuatu#
Sierra Leone Somalia South Sudan Tajikistan
Above cutoffs Low-income
<USD 1,035
i.e., "civil works preference"
Lower-middle-income
<USD 1,205
i.e., below operational cut-off
Lower-middle-income USD 1,206 – 1,965 i.e., below historical, but above operational cutoff
Lower- and upper-middle-income
>USD 1,965
Tanzania Togo Uganda Zimbabwe*
Note: *asterisks indicate blend countries, underlining indicates upper-middle-income countries, # indicates small island economy exception;
** Yemen was listed as a country below the operational IDA cutoff in the World Bank 2013 Operational Manual with a 2012 GNI per capita listed as “NA”. However, the IMF data used for the simulation in Section 3 of the present paper provided a 2012 GNI per capita of 1270 USD for Yemen. This means for purposes of the simulation that Yemen was already considered to have graduated prior to 2013.
Source: World Bank (2013)
Table A.2: Poor Populations in 2025 in Countries Projected to have > 1 Million Poor People living on less
than USD 1.25 PPP per day (thousands)
India 141,696
Congo, D.R. 64,141
Nigeria 62,257
United Republic of Tanzania 24,102
Madagascar 22,964
Indonesia 19,566
Kenya 14,704
Zambia 13,922
Pakistan 9,891
Uganda 9,759
Malawi 9,616
Mali 8,507
Brazil 8,304
Angola 8,088
Ethiopia 7,316
Mozambique 6,979
Chad 5,884
Rwanda 5,403
Haiti 5,339
Yemen 5,289
Bangladesh 5,010
People living on less than USD 1.25 PPP per day (thousands)
Benin 4,408
Senegal 3,775
Burkina Faso 3,473
Central African Republic 3,131
South Africa 2,831
Côte d'Ivoire 2,556
Nepal 2,495
Nicaragua 2,330
Liberia 2,182
Colombia 2,143
Guatemala 2,122
Ghana 2,030
Congo 1,937
Venezuela 1,808
Papua New Guinea 1,774
Honduras 1,736
Togo 1,551
Bolivia 1,328
Sierra Leone 1,234
Philippines 1,092
China 1,526
Source: Calculations based on IMF World Economic Outlook and PovCalNet Database (2014)
Deaton, Angus (2005), Measuring Poverty in a Growing World (or Measuring Growth in a Poor World), The Review of Economics and Statistics, February 2005, Vol.
87, No. 1, Pages 1-19.
Dellmuth, Lisa and Michael Stoffel (2012), Distributive Politics and Intergovernmental Transfers: The Local Allocation of European Union Structural Funds, European Union Politics 2012, Vol. 13: 413.
Dixit, Avinash and Robert Pindyck (1993), Investment under Uncertainty, Princeton, NJ: Princeton University Press.
Dollar, D., Kleinberg, T. and A. Kraay (2013), Growth is Still Good for the Poor, World Bank Policy Research Working Paper #6568, August.
Droesse, Gerd (2011), Funds for Development:
Multilateral Channels of Concessional Financing, Asian Development Bank: Manila.
Economist (2013), Poverty: Not Always with Us, June, 1.
Edward, Peter and Andy Sumner (2013), The Future of Global Poverty in a Multi-Speed World: New Estimates of Scale and Location, 2010–2030, CGD Working Paper 327, June.
Feil, Moir; Stumm, Mario and Jürgen Zattler (2013), Pay Attention to Co-Benefits, Development and Cooperation (D+C), September.
Garroway, Chris et al. (2012), The Renminbi and Poor-Country Growth, The World Economy, 35.3, 273-294.
Garroway, Christopher and Juan de la Iglesia (2012), On the Relevance of Relative Poverty for Developing Countries. OECD Development Centre Working Papers
# 314. Paris: OECD, October.
Glennie, Jonathan (2014), 'The Donors’ Dilemma' – A Manifesto for International Public Finance in the 21st Century, Global Policy, March, 13.
ADB (2014), Enhancing ADB’s Financial Capacity to Achieve the Long-Term Strategic Vision for the ADF, Manila, February.
AfDF (2012), ADF Long-Term Financial Sustainability and Capacity, African Development Bank: Tunis, August.
AfDF (2013), AfDF-13 Report: Supporting Africa’s Transformation, African Development Bank: Tunis, December.
AfDB, OECD and UNECA (2010), The State of Public Resource Mobilisation in Africa, African Economic Outlook, OECD Development Centre: Paris.
AfDB (2013), AfDB Strategy for 2013–2022 – At the Center of Africa’s Transformation, African Development Bank:
Tunis.
Arndt, Christiane and Charles Oman (2006), Uses and Abuses of Governance Indicators, OECD Development Centre Studies, OECD: Paris.
Atsiphon, Vararat; Bueren, Jesus; De Paepe, Gregory;
Garroway, Christopher and Stijns, Jean-Philippe (2011) Revisting MDG Cost Estimates from a Domestic Resource Mobilization Perspective, OECD Development Centre Working Paper 306.
Borensztein, Eduardo et al. (2008), Aid Volatility and Macro Risks in Low-Income Countries, OECD Development Centre Working Paper No. 273, OECD:
Paris, June.
Chibber, Ajay and Gaurav Nayyar (2008), Pro-poor Growth: Explaining the Cross-country Variation in the Growth Elasticity of Poverty, International Journal of Development Issues, Vol. 7. 2, pp. 160 – 176.
Cohen, D.; Jacquet, P. and H. Reisen (2006), After Gleneagles: What Role for Loans in ODA?, OECD Development Centre Policy Brief No. 31, OECD: Paris, December.
Collier, Paul (2007), The Bottom Billion: Why the Poorest Countries are Failing and What Can be Done about It.
New York: Oxford University Press.
References
Kanbur, Ravi (2012), Aid to the Poor in Middle-Income Countries and the Future of IDA, Dyson School Cornell University WP No. 2012-02, January.
Kanbur, Ravi (2014), Resetting IDA’s Graduation Policy, Cornell University, mimeo, January.
Kanbur, Ravi and Andy Sumner (2011), Poor Countries or Poor People? Development Assistance and the New Geography of Global Poverty, CEPR Discussion Paper 8489, CEPR: London.
Kaul, Inge (2014), The Donors’ Dilemma – Time to Think in Terms of Global Public Policy, Global Policy, February, 11.
Kharas, Homi (2010), The Emerging Middle Class in Developing Countries, OECD Development Centre Working Papers, No. 285, OECD Publishing.
Kharas, Homi and Andrew Rogerson (2012), Horizon 2025: Creative Destruction in the Aid Industry, London:
Overseas Development Institute.
Linn, Johannes (2013), Realizing the Potential of the Multilateral Development Banks, Brookings, September.
Milanovic, Branko (2013), Global Income Inequality by the Numbers: In History and Now – An Overview, World Bank: Washington DC.
Moss, Todd J. and Benjamin Leo (2011), IDA at 65:
Heading Toward Retirement or a Fragile Lease on Life?
Center for Global Development Working Paper No. 246.
Nehru, Vikram (2012), The World Bank and the Asian Development Bank: Should Asia Have Both?, ADBI Working Paper Series No. 385, Asian Development Bank Institute, October.
Nowak-Lehmann, Felicitas et al. (2013), Does Foreign Aid Promote Recipient Exports to Donor Countries?, Review of World Economics, Vol. 149, pp. 505 – 535, May.
ODI (2013), The Geography of Climate Change, Disasters and Climate Extremes in 2030, Overseas Development Institute: London.
OECD (2013a), Perspectives on Global Development.
Industrial Policies in a Changing World. OECD: Paris.
Guillaumont, P. (2011), The Concept of Structural Economic Vulnerability and its Relevance for the Identification of the Least Developed Countries and other Purposes (Nature, Measurement, and Evolution), UN-DESA, CDP Background Paper No. 12, ST/ESA/2011/
CDP/12, September.
Guillaumont, P. (2013), Measuring Structural
Vulnerability to Allocate Development Assistance and Adaptation Resources, FERDI Working Paper No. 68, Ferdi: Clermont-Ferrand, March.
Guillaumont, P. and C. Simonet (2011), Designing an Index of Structural Vulnerability to Climate Change, FERDI Working Paper I.08, March.
Gündüz, Yasemin Bal et al. (2013), The Economic Impact of IMF-Supported Programs in Low-Income Countries, IMF Occasional Papers #277: Washington DC.
IDA (2001), IDA Eligibility, Terms and Graduation Policies, January 2001.
IDA (2012), Review of IDA´s Graduation Policy, World Bank: Washington DC, October.
IDA (2013), Follow-Up on IDA’s Graduation Policy And Proposal For Transitional Support For Graduating Countries, World Bank: Washington DC, March.
IDA (2014), IDA 17: Maximising Development Impact, World Bank: Washington DC, March.
IMF (2012), Review of Facilities for Low-Income Countries, June: Washington DC.
IMF (2013), Review Of Facilities For Low-Income Countries— Proposals For Implementation: Washington DC, March.
IMF (2013), World Economic and Financial Surveys, World Economic Outlook Database, October 2013 Edition.
Kanbur, Ravi (2005), Reforming the Formula: A Modest Proposal for Introducing Development Outcomes in IDA Allocation Procedures, CEPR Discussion Paper 4971, CEPR: London.
Séverino, Jean-Michel and Todd Moss (2012), Soft Lending Without Poor Countries, Center for Global Development: Washington DC, October.
Sumner, Andy (2013a), Where Do The Poor Live?, World Development, Vol. 40(5), pp. 865-877.
Sumner, Andy (2013b), Global Poverty, Aid, and Middle-Income Countries, WIDER Working Paper No. 2013/062, UNU-WIDER: Helsinki, June.
Université catholique de Louvain, Centre for Research on the Epidemiology of Disasters. The International Disasters Database. www.emdat.be.
World Bank (2013), The World Bank Operational Manual O.P 3.10 - Annex D “IBRD/IDA and Blend Countries:
Per Capita Incomes, Lending Eligibility, and Repayment Terms”, July.
Yoshida, Nobuo; Uematsu, Hiroki and Carlos E. Sobrado (2014), Is Extreme Poverty Going to End? An Analytical Framework to Evaluate Progress in Ending Extreme Poverty, World Bank Policy Research Paper 6740, World Bank: Washington DC.
OECD (2013b), The Where of Development Finance.
Towards Better Targetting of Concessional Finance, DCD/DAC (2013)29: Paris.
Pilling, David (2014), Beijing plans $50bn Asian-wide infrastructure fund, Financial Times, May, 29.
Pisani-Ferri, Jean (2014), The New Growth Conundrum, Project Syndicate, February, 27.
Pritchett, Lant (1997), Divergence, Big Time, The Journal of Economic Perspectives, Vol.11.3, pp 3-17.
Ravallion, Martin (2009), Do Poorer Countries Have Less Capacity for Redistribution? World Bank Policy Research Working Paper No. 5046, September.
Ravallion, Martin (2012), Should We Equally Care About Poor People Wherever They May Live?, World Bank Blog.
Reisen, Helmut; Soto, Marcelo and Thomas Weithöner (2004), Financing Global and Regional Public Goods Through ODA: Analysis and Evidence from the OECD Creditor Reporting System, OECD Development Centre Working Papers 232, OECD Publishing.
Reisen, Helmut (2008), How to Spend It: Commodity and Non-Commodity Sovereign Wealth Funds, OECD Development Centre Policy Brief 38, OECD.
Reisen, Helmut, Capital Market Access as IDA Eligibility Criterion – Worthless and Dangerous. Retrieved April 20, 2014, from http://www.shiftingwealth.blogspot.
de/2014/04/capital-market-access-as-ida.html.
Roach, Stephen (2014), China´s Growth Puzzle, Project Syndicate, February, 27.
Sawada, Yasuyuki (2014), Japan’s Strategy for Economic Cooperation with Asian Countries, Policy Research Institute, Ministry of Finance, Japan, Public Policy Review, Vol.10, No.1, March 2014.
Schlögl, Lukas (2013), The End of Poverty Alleviation?
Effects of Shifting Global Wealth on Aid Allocation and Graduation from Foreign Aid Eligibility, International Development Institute, King's College London.
Published by
Deutsche Gesellschaft für
Internationale Zusammenarbeit (GIZ) GmbH
Registered offices Bonn and Eschborn, Germany
Sector Project Development Economics Köthener Straße 2
10963 Berlin Germany
Tel. +49 (0) 30 338424 – 166 Fax +49 (0) 30 338424 – 22166 info@giz.de
www.giz.de Authors
Helmut Reisen, Christopher Garroway Design and layout
fgl-werketage, Berlin
Photo credits
Cover: © GIZ / Ursula Meissner
As at July 2014
GIZ is responsible for the content of this publication.
On behalf of
Federal Ministry for Economic Cooperation and Development (BMZ), Division World Bank Group; IMF; Debt Relief
Addresses of the BMZ offices
BMZ Bonn BMZ Berlin
Dahlmannstraße 4 Stresemannstraße 94
53113 Bonn 10963 Berlin
Germany Germany
Tel. + 49 (0) 228 99 535 – 0 Tel. + 49 (0) 30 18 535 – 0 Fax + 49 (0) 228 99 535 – 3500 Fax + 49 (0) 30 18 535 – 2501