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p. 1 of 3 BACK | NEXT I. Background and Rationale II. The Poverty Reduction Cooperation Fund III. Recommendation

Cooperation with the Government of the United Kingdom and Northern Ireland Poverty Reduction Cooperation Fund

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I. Background and Rationale

1. Poverty in Asia. Close to 900 million of the world’s poor (i.e., those living on less than $1 a day) are in the Asia and Pacific region. Nearly one in three Asians is poor. Although the proportion of people below the poverty line has been declining, the absolute number of poor people is still increasing due to population growth. South Asia, one of the poorest subregions in the world, now has more than half a billion poor, of whom 450 million are in India alone. The People’s Republic of China (PRC) has 225 million poor. About 55 million poor are in Southeast Asia, where in the wake of the Asian financial crisis, over 10 million have joined the ranks of the poor. In the Greater Mekong Subregion, with the onset of peace in the 1990s, many people are experiencing rapid improvements in living standards, but poverty is still particularly high among indigenous and socially excluded groups. Many in the Central Asian republics have also slipped into poverty with disruptions in the transition to market economies. The small island countries of the Pacific, despite their relatively higher per capita income, remain vulnerable because they are remote, prone to natural disasters, and have limited capability to deal with external economic shocks. To counteract all this, the bilateral and multilateral development organizations have committed themselves to making a significant contribution to the Millennium Development Goals and reducing poverty throughout the Asia and Pacific region.

2. ADB Fighting Poverty in Asia and the Pacific. Recently, an international consensus has emerged, refocusing development assistance toward strategies aimed at poverty reduction. The Asian Development Bank (ADB) is a major development partner of the poorer countries in Asia. In November 1999, ADB’s Board of Directors approved the Poverty Reduction Strategy, focusing on pro-poor sustainable economic growth, inclusive social development, and good governance.1 With the adoption of this strategy, poverty reduction has become ADB’s overarching objective, and all activities of ADB are being geared to achieving this. ADB’s new comprehensive Long-term Strategic Framework (LTSF)2 and Medium-Term Strategy 2001-2005 (MTS)3 support the poverty reduction strategy for the Asia and Pacific region. In 2002, ADB underwent a major reorganization and revision of its business processes with the objective of further strengthening its country-focused operations.

3. Progress in Implementing the Poverty Reduction Strategy. Since the adoption of its Poverty Reduction Strategy, ADB has implemented major changes to have greater impact on poverty in the region:

1. Poverty analysis processes have been initiated in all developing member countries (DMCs), and poverty partnership agreements (PPAs) have been signed in seven countries, with a further 14 PPAs in preparation.
2. Country strategies and programs (CSPs) have been reformulated to better reflect the poverty reduction agenda.
3. At least 40% of each year’s public sector lending volume is targeted for poverty interventions.
4. The share of core poverty interventions has continuously increased.
5. Loan projects are being redesigned to better address poverty reduction and to assess the impact of loans on the poor. In this context ADB has focused on those sectors in which it has a comparative advantage for sustainable poverty reduction, such as enhancing the poverty reduction impact of its economic infrastructure, income and employment generation, and education projects.
6. Various technical assistance (TA) and capacity-building activities to support poverty reduction have been initiated.
7. A variety of thematic, economic, and sector work is focusing on poverty reduction. For example, work is being done on social protection, nutrition for the poor, and the impact of roads on poverty.
8. New funding sources have been obtained to pilot poverty reduction and governance activities and to help mainstream the new thinking in ADB.
9. New staff have been hired to work as poverty reduction specialists.
10. ADB has also improved its knowledge management and cooperation with other aid agencies. This has been particularly demonstrated in joint conferences and publications such as the Manila Social Forum (November 1999) and the Asia and Pacific Poverty Forum (February 2001).

4. Challenges for ADB. However, to implement the Poverty Reduction Strategy successfully, ADB faces some major challenges. First is the decline of resources for TA grants to support capacity building and advisory inputs for poverty reduction, policy formulation and programming, and poverty impact assessments of investment projects.4 Second, ADB is strengthening the role of its resident missions (RMs) and its cooperation with other funding agencies at the country level in support of nationally led poverty reduction strategies. Third, ADB needs opportunities to pilot-test new approaches for poverty reduction. Strengthening its role as a regional development bank, ADB needs to promote cross-border activities to cope with regional volatility, which affects the poor adversely. Fourth, ADB needs to further strengthen its capacity to incorporate cross-cutting and multidisciplinary dimensions for poverty reduction, such as governance, social development, gender, and environment. The reorganization of ADB has recognized the need to strengthen the function of ADB as a knowledge management and learning institution, and to enhance multidisciplinary collaboration. The Regional Sustainable Development Department (RSDD) has been created to ensure consistency and compliance with policies, and to promote knowledge dissemination within and outside the bank.

5. United Kingdom’s Support. The Government of the United Kingdom of Great Britain and Northern Ireland (UK) strongly supports ADB’s Poverty Reduction Strategy, and common priorities are reflected in ADB’s LTSF and MTS and in the Department for International Development’s (DFID) White Paper on International Development 5 and its Institutional Strategy Paper for ADB.6 ADB’s and DFID’s policies are thus closely aligned for poverty reduction. DFID and ADB recognize that ADB has considerable potential to make a significant contribution to the Millennium Development Goals of poverty reduction throughout Asia. DFID is committed to supporting the mainstreaming of poverty in ADB’s programs, and to strengthening ADB’s learning and knowledge management functions. It also supports ADB’s move to strengthen country focus and aid coordination through enhanced responsibilities in RMs and cross-border activities. The LTSF points out that ADB needs a higher proportion of nonloan funding (which includes activities other than TA). It commits ADB to develop, in partnership with bilateral and other sources, mechanisms such as trust funds to target poverty interventions better. Given the constraints on availability of resources for technical and pilot assistance, trust fund money is needed to (i) help ADB ensure a consistent and comprehensive integration of poverty reduction issues into individual country strategies, (ii) develop more detailed poverty analysis (particularly on distributional benefits) for individual loans, (iii) encourage more participatory processes at all stages of the project cycle, (iv) promote subregional capacity-building work, and (v) undertake pilot projects for future ADB operations. DFID is willing to offer support through a Poverty Reduction Cooperation Fund (PRF), which will help ADB reorient and supplement its portfolio in line with its poverty reduction objectives, and enhance its potential to contribute to the Millennium Development Goals.

6. Coordination in Partnership. The PRF will complement the Cooperation Fund in Support of the Formulation and Implementation of National Poverty Reduction Strategies (NPRS), which was established in November 2001 as a trust fund from the Government of the Netherlands.7 While the NPRS supports poverty strategy formulation and regional capacity-building activities on poverty reduction in selected DMCs of ADB, the PRF will broaden this framework by including all eligible DMCs,8 and additional activities as specified in paras. 8 and 9. The PRF will also supplement the Japan Fund for Poverty Reduction, which pilots innovative poverty reduction projects in Asia.9 Furthermore, the PRF will closely coordinate with the UK’s country-specific poverty reduction fund for India.10 The PRF is open for other donors to contribute.

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