Catalog

Refining the Performance-Based Allocation of Asian Development Fund Resources

The quantity of concessional financing needed by countries in Asia and the Pacific far exceeds what can be financed from the Asian Development Fund (ADF). The Asian Development Bank (ADB) developed the performance-based allocation (PBA) system to ration ADF support fairly among the many competing needs, and to direct the funds to where they will be used most effectively. The PBA policy, introduced as part of the seventh ADF replenishment (ADF VIII), was substantially revised during ADF IX to strengthen the link between performance and allocations.

In 2008, revisions to the PBA policy were made to address other emerging concerns encountered in earlier PBA allocations, and to incorporate agreements made in the course of the ADF X negotiations. The chief changes made to the PBA policy included:

• For large blend borrowers with PBA allocation shares exceeding 14%, the policy was modified to allow them to retain only half of the share above the 14% threshold. This will help ensure there is a broad distribution of ADF resources across large and small ADF-eligible countries and enhance ADF allocations to the poorest countries.



• A new conversion scale was adopted to reduce the volatility of portfolio performance ratings. Also, the definition of projects at risk is defined to be only those projects actually experiencing problems in order to reduce any subjective judgment in the assessment of portfolio performance used in PBA calculations. Appendix 3 explains the new conversion scale.



• The 4.5% earmark of ADF funds to the Pacific pool is retained. The distribution of these set aside resources continues to be based on the PBA system.



• The policy with respect to ADF allocations to post-conflict countries was revised, extending the phase out period from post-conflict status for Afghanistan and Timor-Leste to 6 years beginning with 2009–2010 allocations.



• As agreed by the ADF X donors, the share of ADF replenishment resources to support financing of subregional cooperation projects was increased to 10%. Project eligibility criteria were revised to ensure strong country ownership of subregional cooperation projects. An additional prioritization criterion has been added in the evaluation of proposals to use funds from the subregional cooperation pool. Beginning with the first biennial allocation under ADF X, consideration for the geographic distribution of subregional funds is added to prioritization criteria.

The modified PBA policy was applied beginning with the 2009–2010 allocations.

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Contents

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Executive Summary

1. Introduction

2. Approach to Performance-Based Allocation

1. Revised Performance-Based Allocation System
2. Experience with the Revised PBA System




3. Refining the Allocation Methodology

1. Enhancing Allocations to the Poorest Countries
2. Improving Portfolio Performance Measurement
3. Meeting the Special Needs of Pacific Developing Member Countries




4. IMPLEMENTING the Post-Conflict Assistance Phaseout

1. Approach to Post-Conflict Country Allocations
2. Application to Post-Conflict Countries




5. Subregional Project Assistance

1. Earmarking for Subregional Projects
2. Reinforcing Country Ownership of Subregional Projects




6. Recommendations

1. Calculation of the Composite Country Performance Rating
2. Allocation Formula for Asian Development Fund Resources
3. The Changing Approach to Country Performance Measurement
4. Allocation Criteria in the International Development Association Post-Conflict Framework
5. Proposed Revisions to Subregional Pool Funding Criteria

Links to earlier PBA policy papers:

• Revising the Framework for Asian Development Fund Grants (2007)
• Review of ADB's Policy on the Performance-Based Allocation of Asian Development Fund Resources (2004)
• Policy on Performance-Based Allocation for Asian Development Fund Resources (2001)