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p. 14 of 27 BACK | NEXT Executive Summary I. Introduction II. The Performance-Based Allocation Policy III. Lessons, Issues, and Directions IV. Enhancements to the Policy A. Principles to Guide Revisions B. Country Performance Criteria C. Country Ratings D. Proposed Allocation Formula E. Extra-Formula Allocations F. Disclosure G. Monitoring the Policy H. Summary V. Implementation VI. Recommendation Appendixes

Review of the Asian Development Bank's Policy on the Performance-Based Allocation of Asian Development Fund Resources : IV. Enhancements to the Policy

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B. Country Performance Criteria

65. CPAs are the bedrock of PBA. The current CPA framework is already substantively similar to IDA’s CPIA (with an added ARPP rating). For operations in the poorest countries of developing Asia, institutional mandates and client groups are insufficiently distinctive to warrant differences between them. With the prospect of increased public disclosure of CPAs, the advantages of aligning country performance criteria outweigh any benefits from customization. The use of common criteria would help reduce clients’ costs, support improved performance assessments, and, by extension, lead to more effective use of scarce ADF resources.

66. This review proposes that beginning in 2005, the CPA framework be modified to accommodate the main recommendations of the independent expert panel and, thereby, that it be aligned with the World Bank’s CPIA. The criteria set out in Table 10 would form the basis for the 2005 CPAs. The World Bank’s CPIA exercise for 2004 will use identical performance criteria (1–16), plus its ARPP rating. ADB will use the World Bank’s rating guidelines and detailed rating guidelines will be publicly disseminated. The new CPA has 17 criteria compared with 20 in the old CPA.³¹ Continued alignment of performance criteria might require future adjustments.³² Management would report subsequent revisions, if any, to the Board.

67. Standardizing performance criteria will reduce transaction costs for clients and help improve their understanding of ratings and the rating process. However, the integrity of the policy and of the allocation process will require that ADB carry out independent assessments and determine its own ratings. Accountability for the use of ADF resources would also be compromised by the adoption of third-party ratings. Accordingly, full institutional ownership of country ratings at both the operational and corporate levels will be crucial. At the same time, independent performance assessments that are broadly congruent should help buttress the credibility of ratings and may increase their currency with country authorities. If ratings diverge, deeper analysis and more intensive dialogue with country authorities will be needed. Although the possibility of divergent assessments may risk undermining the credibility of ratings, outside scrutiny should eventually help to reconcile any differences. In the context of the broader harmonization agenda, the possibility of joint CPAs could be considered in terms of initiatives to more closely coordinate business processes and analytical work to support country strategies. The PBA policy supports joint assessments for postconflict and weakly performing countries and would not preclude joint performance assessments in other countries provided that these do not impair ownership of and accountability for ratings.

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