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p. 13 of 14 BACK | NEXT Preface Emerging Asia: Challenges to Development The Strategic Agenda Implementing the Strategy Resources for the Strategy Next Steps

The Long-term Strategic Framework of The Asian Development Bank (2001-2015)

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Resources for the Strategy

The fight against poverty and the huge development challenges facing Asia and the Pacific in the achievement of the IDGs will require the mobilization of considerable financial resources over the next 15 years. To an important extent, these resources will have to come first from the people and the governments of the DMCs themselves. Robust, sustainable growth will be necessary, hence policies to accelerate inclusive economic growth need to be reinforced; domestic resource mobilization, including tax efforts, must be enhanced; and the management and prioritization of public investment and expenditure must be widely improved.

The development experience of the Asia and Pacific region has shown that the private sector can contribute significantly to the generation of resources for development. To mobilize such efforts, reforms to remove market distortions, strengthen public institutions and governance, and develop efficient and transparent financial and capital markets must be pursued further at various levels throughout the countries of the region. With a conducive environment in place, external capital will supplement domestic private resources. However, access to international capital markets remains very unequal, being concentrated in few countries and, within these countries, only in more advanced regions. For the lower income countries, access to private external capital will remain very limited, while for middle and higher income countries, access will fluctuate and remain volatile. For all countries (particularly the lower income countries, but also middle income countries), maturities and costs might not be suited to the large demands for longer-term development programs. Hence, over the next decade and a half, resources for development in the Asia and Pacific region, both public and private, will fall far short of requirements.

The role of a regional development bank such as ADB will remain essential for mobilizing and catalyzing resources for the development of the DMCs, with the nature of this role varying with the level of development and capabilities of the individual countries. This LTSF outlines how ADB intends to address this continued role. Financial support for a sustainable and inclusive development process, together with strong, effective governance policies and institutional reforms, is the core of the strategy. This support will be supplemented by promoting private sector development, by utilizing ADB’s unique mandate, experience, and capacity for promoting regional cooperation; and by efforts to enact environmentally responsible policies and reverse the worst effects of environmental degradation.

The availability of concessionary sources of financing through ADB will remain essential throughout the duration of the long-term strategy for the poorer DMCs, those with no access or limited access to foreign private funds, and weak domestic private sectors. Such financing will enable these poorer DMCs to respond to their development needs and help them significantly reduce poverty, while avoiding the burden of excessive debt. For middle income DMCs, DMCs with limited international capital market access, and even for more advanced DMCs, ADB’s role in financing development and catalyzing development finance will remain crucially important. In addition, ADB can help smooth fluctuations and volatility in access to international capital markets and provide longer-term finance for physical and social investment with long gestation periods. In these countries, ADB will retain the roles of mitigating sovereign risk and supporting more advanced policy and institutional reforms. Flexible degrees of intervention based on development levels and policy and institutional capacities are central to ADB’s LTSF. In the Asia and Pacific region, ADB is in a unique position to provide such needed combinations of financial intermediation and nonlending services.

ADB’s long-term strategic agenda is ambitious, but it is flexible and adapted to the perceived needs of its DMCs over the next decade and a half for achieving the IDGs and furthering their development. For ADB together with the DMCs to realize this ambitious agenda, and for ADB to play a lead regional role and have the required developmental impact, ADB’s resources and capital base will need to be sufficient and to be reviewed over the duration of the LTSF. ADB’s envisaged expanded role in private sector operations over the duration of the strategy will also require particular attention to resource availability. Paramount considerations will have to be the effective role of ADB in the region, its developmental impact through the implementation of the long-term strategy, and, importantly, the financial soundness of the institution. Without adequate resources, ADB’s strategic agenda will need to be significantly cut back and narrowed. Its catalytic role in directly and indirectly mobilizing development finance for the DMCs will have to be substantially reduced, as will its support for policy reforms and capacity building. If ADB is to remain an effective institution, and the major regional development partner of the developing countries of the Asia and Pacific region, it must be supported by all its stakeholders over the time horizon of the LTSF.

The delivery of the LTSF also implies diverse and intensified demands on ADB’s internal resources in the next 15 years. ADB’s new strategic agenda comprises highly resource-intensive activities. The much higher degree of complexity of ADB’s development interventions and closer engagement with stakeholders in the DMCs will require corresponding administrative financial and staff resources to maintain and increase the quality of services and ensure maximum development impact. To maintain a flexible pool of highly qualified staff and remain competitive with the private sector will require increasing resources. Appropriate levels of administrative budgets will be needed to strengthen the operations of resident missions to deliver the strategic agenda, while maintaining strong core capabilities at headquarters. Some of these changes have already been implemented, but they will continue and are likely to expand over the duration of the strategy. ADB has always been efficient and careful in the use of administrative resources. However, delivering the strategic agenda without adequate internal resources, both staffing and financial, will have an adverse impact on the quality of the institution’s activities and its development impact, and ultimately will constrain DMCs’ development in general and poverty reduction in particular.

The demand for grants to support much enhanced capacity building activities and to address regional public goods issues will also increase, putting further pressure on resources. ADB will need to look at these resource requirements, and actively seek new and/or additional sources of financing for such activities, in particular through partnerships with bilateral donor agencies and private foundations and entities within and outside the region. Although there is some potential for substitution, such as lending versus grants to finance capacity building, these options are limited. Productivity increases and greater efficiency will also be sought, partly through improved processes and organizational changes. Hence, there will be increasing competitive demands on the use of ADB’s net income, including demands to increase reserves. Maintaining ADB’s financial soundness in the face of increasing demands on its resources will be essential to fulfill the strategy, meet the poverty reduction targets set by the DMCs, and achieve the IDGs. Meanwhile, ADB must maintain high internal efficiency and effectiveness.

The two major elements of ADB’s financial soundness are the strength of shareholder support and its stand-alone financial position. These two elements complement each other and jointly determine the cost-effectiveness of ADB’s financial intermediation; both are closely watched by rating agencies, underwriters, and investors. The international capital markets demand clear and adequate shareholder support and a strong financial position in order for them to provide the necessary funds to ADB for its development agenda.

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