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p. 6 of 6 BACK | NEXT Introduction New Approach for Cost Sharing and Expenditure Eligibility Proposed Cost Sharing and Expenditure Eligibility Rules Fiduciary Oversight Implementation Arrangements and Resource Implications Recommendations

Cost Sharing and Eligibility of Expenditures for Asian Development Bank Financing: A New Approach

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Recommendations

56. To enable ADB to enhance its project financing capability in a manner that is more consistent with market practice, and to respond more effectively to client needs, yield better results on the ground, the President recommends that the Board approve the following changes to ADB’s policy on cost sharing and expenditure eligibility rules:

1. Cost sharing. ADB should determine cost sharing limits in the context of a DMC’s overall development program, as well as the DMC’s funding capabilities over the short to medium term. Cost sharing ceilings should be determined during CSP preparation, and these should apply to the aggregate ADB portfolio in the DMC over the CSP period. A separate overall financing ceiling should be established for loans and TA operations. The actual share of a loan or TA to be financed by ADB would vary, depending on the sector, client, and project or TA characteristics. Further, the distinction between foreign and local currency costs in a project’s investment plan should be discontinued. The financing plan would show the level of ADB and partner financing for a given project, including the amounts provided by (a) government, (b) other multilateral and bilateral agencies, (c) commercial banks, (d) private equity groups, (e) capital markets, and (f) private sector, as applicable. This cost sharing framework would not change the ADB classification of DMCs, or the graduation policy.
2. Land acquisition and payments for rights-of-way. ADB should be allowed to finance land acquisition and payments for rights-of-way.
3. Taxes and duties. ADB should be allowed to finance reasonable costs for taxes and duties associated with project expenditures.
4. Other expenditures. ADB should be allowed to finance the following types of expenditures: (a) local transport and insurance, (b) late payment penalties, (c) food, (d) interest during construction on non-ADB loans, (e) bank charges, (f) retroactive financing of up to 20%, (g) secondhand goods, and (h) leased assets.
5. Imprest accounts. In DMCs with freely convertible currencies, ADB should allow borrowers to open imprest accounts in the currency of the DMC or in any freely convertible currency.

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