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Fighting Poverty in Asia and the Pacific: The Poverty Reduction Strategy

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The Strategy

To ensure that all aspects of ADB operations are driven by poverty considerations, ADB must translate the framework described in the previous chapter into a comprehensive strategy. The following sections describe how the three pillars of this framework (para.15) will underpin programs of policy reform, investment projects, and capacity building in individual countries. In keeping with its overarching goal, the Poverty Reduction Strategy will also be the driving force for ADB's Long-Term Strategic Framework.

Poverty Analysis

Since poverty causes and characteristics differ from country to country, the starting point must be a comprehensive examination of the constraints and opportunities for poverty reduction in each country. An initial task in poverty analysis will be a review of the sector poverty targets agreed under the Strategy 21 (Appendix 1) and the Agenda for Action on Social Development (para.5) and the principal sector strategies being followed. This will require understanding the nature, intensity, and spread of poverty; the distributional effects of macroeconomic policies; the focus and efficiency of public expenditures; and the effectiveness of government programs and institutions. ADB will involve other stakeholders in the analysis and build on the extensive data already developed by the government and the donor community.

In addition to such analysis at the macro level, field studies will be undertaken to help disaggregate the poor into those in the mainstream and those excluded by geographic or social factors. For each of these groups, the factors underlying their poverty will be identified, as will their varying needs, demands, and likely response patterns. Assessments of the quality of governance at the grassroots level will also be required. Here, participatory assessments and consultations with civil society leaders will be used to provide a picture of the quality and accessibility of basic services, poverty reduction programs, and the legal system.

Through this analytical process, ADB resources will be used to support the efforts of the government to develop policies and institutions that will more rapidly reduce poverty. In view of the growing importance of civil society and the private sector, their full involvement in this analysis is essential. ADB country teams with cross-cutting expertise will ensure that an integrated view is taken. Senior ADB staff will be directly involved in the process and will be accountable for its quality.

ADB recognizes that a large body of work is ongoing in the region and that many borrowing countries have well-developed strategies for poverty reduction and monitoring. In some cases, the strategies have been developed with support from other external agencies. In most countries, civil society is also active and has a wealth of accumulated knowledge and understanding of poverty issues at the grassroots level. In its analysis, ADB will use this body of knowledge and proven approaches. ADB will also support strengthening of data collection and management, poverty monitoring, participatory research, and poverty analysis. With Pacific island members, ADB will take the lead in capacity building for poverty analysis. Insofar as its own store of knowledge is concerned, ADB is accelerating its program to build a poverty database on each of its borrowing countries. This exercise will identify the gaps in data currently available and steps will be taken to fill these, to the extent possible, in cooperation with countries concerned and other agencies.

Poverty reduction will also increasingly be a major focus of the work program of the ADB Institute. In particular, the Institute will provide the analytical basis for long-term strategies for economic and social development and poverty reduction in the region.

Country Strategies

A High Level Forum to be organized and led by the Government - the key stakeholder - will be held to discuss the findings of the poverty analysis. NGOs and community-based organizations, the private sector, ADB and other donors will also participate. The purpose of the forum will be to discuss the causes and effects of poverty, and the activities that will have the greatest impact on poverty. The outcome will be a common understanding of what is required to achieve poverty reduction targets.

ADB's Country Operational Strategy will then be formulated on the basis of the priorities emerging from the poverty analysis and the high level forum. The Strategy will provide the analysis and set out the areas of focus, including policy reforms and sectoral emphases. It will also take into account the comparative advantage of ADB and the programs of other agencies.

A Partnership Agreement between the Government and ADB will be finalized to endorse the analysis and focus of the country operational strategy. Based on the inputs of government, civil society and funding agencies, the agreement will formalize a sustainable partnership setting out a long-term vision and agreed targets for poverty reduction. The agreement will also incorporate mechanisms to review performance, highlighting key indicators and institutional milestones necessary to monitor progress. The Partnership Agreement will be allied to an arrangement for linking performance to the allocation of ADB resources.

ADB's Country Assistance Plans will translate the underlying thrusts of the partnership agreements into specific activities. The Plans, prepared annually, identify, on a three-year rolling basis, the program of loans and assistance for each borrowing country. Figure 1 shows how ADB's operational cycle will work.



ADB's Resident Missions will play a key role in the monitoring of the indicators and milestones set out in the partnership agreement. The resident missions will also be responsible for regular interaction with stakeholders and civil society organizations on progress in meeting the agreed poverty reduction targets.

Project Typology

All ADB loans and technical assistance will be expected to contribute to the reduction of poverty. Accordingly, all proposals will contain a specific assessment of their poverty impact, and the logical framework that accompanies each proposal will commence with poverty reduction as its ultimate objective. Projects or programs may (i) be designed to accelerate pro-poor growth, or (ii) focus on poverty directly.

Pro-Poor Growth Interventions will seek to address impediments to broad-based economic growth. Policy-based lending will be used to correct policy and institutional weaknesses. In the case of infrastructure investments, ADB will give priority to projects that have greater impact on poverty. This may include locating projects in poor areas or incorporating specific components to ensure increased access for the poor to project facilities or services.

Poverty Interventions will be designed to disproportionately benefit the poor. Many will be in the social sectors but some may also involve agriculture and infrastructure projects in rural areas, as well as environmental protection. These projects will address underlying weaknesses in policy and institutions while supporting the poor through (i) education, health, or other essential services; (ii) creation of income and employment opportunities in locations or among communities where poverty is disproportionately high; and/or (iii) mitigating risks for the poor or vulnerable. The defining characteristic of such projects is their concern for beneficiaries: the proportion of poor people among project beneficiaries will be significantly larger than their proportion in the overall population of the country, and in no case less than 20 percent. For purposes of classifying poverty interventions, national and rural poverty lines will be set out in the Partnership Agreement.

Core Poverty Interventions will be a subcategory of poverty interventions specifically designed to tackle extreme poverty. These will be tightly focused to ensure that a majority of the beneficiaries are below the poverty line. Such projects will frequently be smaller, slower, more expensive in preparation and supervision, and involve greater risks than other projects; however, the additional effort is worthwhile, as solutions have to be found to the more intractable poverty problems.

Program and Lending Targets

The partnership agreement with the borrowing country will bring together ADB's program of assistance. It will embody lending and nonlending instruments, including policy dialogue, technical assistance, and special studies. These constitute the program of activities ADB will undertake to help the country achieve its poverty reduction targets. Taken collectively, the partnership agreements with individual countries will provide the total picture of ADB's program goals and lending plans. Within this overall program, ADB's desired lending mix will include not less than 40 percent of all public sector lending for poverty interventions. This target of 40 percent is based on the assumption that an adequate level of concessionary funds will continue to be available to ADB.

Until now, ADB has committed itself to ensuring that at least 50 percent of its projects and 40 percent of lending volume are devoted to projects with goals other than pure economic growth. To monitor implementation of these targets, projects are classified according to primary and secondary goals of human development, poverty reduction, women in development, and environment. With poverty reduction now the overarching goal, the hierarchy of ADB's development objectives has changed and the classification scheme will be revised.

ADB's pursuit of poverty reduction is constrained at present because some countries do not have access to concessional funds (Box 3). Efforts may be required to ease this constraint and expand lending for poverty reduction in these countries.

Selection of Projects

In selecting projects, ADB will favor those that promise the biggest return in terms of poverty reduction. To this end, all three pillars of the strategic framework will be part of the mix of assistance offered to each country. Figure 2 depicts the way in which the pillars will influence the overall program.



ADB recognizes that it is often difficult in the case of individual countries to decide how much emphasis to place on poverty interventions and how much on more growth-oriented investments. Where past performance in poverty reduction has been weak and/or inequality is rising, the emphasis will be on governance and social development. In countries where essential reforms have been undertaken or are under way, growth-oriented investments will reduce poverty. In choosing between projects ADB will use specific assessment techniques, while giving attention to the likely impact on poverty of investments in different sectors (Box 4). To increase understanding in this critical area, ADB will intensify its analytical work so as to more confidently offer optimum support for poverty reduction.

In each country, the mix and nature of projects will be shaped by the poverty analysis. This will help ensure that ADB tackles actual constraints and not merely symptoms. For example, widespread malnutrition or illiteracy may be caused by inadequate investment in public health or education, but (equally) may be the result of social exclusion, gender discrimination, or poor local governance. Finally, when designing interventions, consultations with the poor are essential to ensure their priorities and preferences are truly being addressed.

Cross-Cutting Priorities

ADB will promote good governance through the way in which it processes projects, as well as through specific governance-related initiatives. Procedures for identifying and designing projects will help empower the poor and civil organizations that represent them. All dealings with public sector entities will be through transparent procedures that ensure full disclosure of information. This will also require effective stakeholder participation to establish the priorities and targets for poverty reduction and to help direct project identification and design. Specific projects will seek to improve public expenditure management at central and local levels, increase government accountability through fiscal decentralization and local empowerment, and develop effective regulation of financial markets and public utilities.

The contribution of the private sector to poverty reduction will be enhanced through enterprise development, expansion of infrastructure and other public services, and improvement of corporate governance and responsibility. Enterprise development will likely be handled through intermediary institutions, themselves usually in the private sector. ADB will explore innovative approaches, including "challenge funds," to encourage the private sector to extend financial services and marketing support to groups currently excluded. Private operators could be enabled to increase their participation in providing infrastructure and public services and in projects targeting the poor. Regulatory reform will, however, need to precede sector-specific approaches such as privatization, contracting-out, and private-public partnerships. ADB will also seek to influence the quality and terms of employment by promoting better corporate governance and responsibility.

The majority of the poor in the region are women. This necessitates policy changes and investments in women across all sectors. Investments that provide women with access to education, health care, employment, and financial services will constitute a substantial part of ADB's interventions for poverty reduction. Stand-alone projects or project components targeting women will be designed and implemented. Such interventions will be required as long as structural constraints and barriers restrict women's access and participation. This is especially true where cultural traditions dictate the segregation of sexes or in situations where women require special assistance to enable their full participation in economic and social activities. Improving the status of women is central to any strategy to reduce poverty in the region.

Environmental sustainability is, likewise, critical for poverty reduction and is intertwined in development strategies that promote economic growth, enhance human capital (including clean water and sanitation), increase agricultural productivity, and improve the overall quality of life for the poor. As in the case of women, environmental interventions must encompass virtually all sectors of the economy. In addition to stand-alone interventions with specific environmental objectives, many important environmental issues are addressed through projects with other development aims.

Sector Priorities

1. Agriculture and Rural Development

   Most of the region's poor live in rural areas and their quality of life lags far behind that in urban areas. Despite increasing urbanization and a wide range of poverty reduction programs, the number of rural poor in most countries continues to grow. However, sustained economic growth in rural areas is likely to have a much higher impact on job creation than equivalent urban growth. This fact, along with the generally low levels of investment in rural development, provides a compelling reason for ADB to reverse its recent drift away from the rural sector. In particular, ADB will give greater emphasis to development of agroclimatic areas that have been bypassed by green revolution technology. ADB will also give greater attention to the social, environmental, and institutional factors necessary to enhance efficiency and productivity in all areas of agricultural production, and associated nonfarm activities. Likewise, ADB will vigorously seek new ways to promote private sector activity in rural areas.

   For the rural poor, governance must be especially effective and responsive, since the support of government institutions is vital in poverty reduction programs. Unfortunately, rural government institutions are frequently the weakest in capacity, commitment, and accountability. Accordingly, ADB's emphasis on NGOs and user groups will be strengthened to institutionalize and expand the social capital of the poor (especially of poor women) and ensure accountability of public institutions. At the same time, ADB will strive to increase the capacity of local governments to take a more effective role in rural poverty reduction. In the past, institutional capacity building has been focused on government institutions; in future, the emphasis will increasingly be on the client, i.e., community-based organizations, peoples' organizations, and cooperatives. Such refocusing promotes development through (i) more efficient information and technology transfer, (ii) reduced transaction costs in microfinance and extension operations, (iii) identification of and resource mobilization for local development initiatives, (iv) increased capacity to identify and articulate the more ambitious development priorities requiring external support, and (v) increased power and capacity to demand accountability from public institutions.

   At the policy level, ADB will continue to address inefficiencies resulting from inappropriate subsidies, market distortions, and the conflicting signals often given to farmers and rural enterprises. In rural finance, ADB will encourage institutional reform and policies that support the emergence of sustainable and accessible financial institutions. Because nonfarm enterprises are of increasing importance in the survival of the rural poor, particularly women, priority will be given to expanding the very limited coverage and accessibility of microfinance.

   The natural environment is of crucial importance to the poor because so many of them depend for their survival on a fragile, and usually dwindling, resource base. ADB support will increasingly address the critical issue of sustainable resource management. This will entail special emphasis on the rights (and responsibilities) of indigenous peoples and traditional users. In turn, this may require support for tenurial rights and traditions and for moving from government control to comanagement by government and the people who depend on the resources. At the policy level, ADB will continue to support governments in developing, in a participatory manner, master plans for effective management of critical water, forest, and marine resources.

2. Social Sectors

   ADB will increase its support for human capital development since such investments are frequently the most effective way of breaking the cycle of intergenerational poverty. By supporting efforts to improve policy and institutional arrangements, ADB will help ensure that the poor, especially women, have access to essential social services. Through access to quality basic education and primary health care, the poor will progressively increase their chances of successfully employing their main asset-labor. Improving social protection will reduce risks and indebtedness that otherwise entrap the poor in a vicious circle of poverty.

   Education. ADB will provide strong and innovative support to expand access to and quality in basic and nonformal education and skills development, particularly for women, girls, and others excluded for social or geographic reasons. Special emphasis will be given to promoting gender equity in schooling. ADB will expand its support for equitable, cost-efficient, and relevant education by promoting better performance monitoring, decentralized management, relevant curricula, and stronger linkages to civil society.

   Health and Population. ADB will increase its investments in primary health care, including preventative and promotive services targeted towards the poor. Efforts will focus on health issues that disproportionately affect the poor and on population programs. Particular attention will be given to reproductive health care and malnutrition because of its pervasiveness and significance in perpetuating poverty. ADB will continue to promote early child development (Box 5) because of its strong links to poverty reduction. At the policy level, the performance of the overall health system in reaching the poor, especially women, will be closely monitored. Special attention will also be given to involving the private sector and NGOs, to increase efficiency and outreach.

   Social Protection. This recent area of ADB involvement is an essential component of a comprehensive social policy. To address the social protection need, ADB will support programs to cushion the adverse effects of shocks (especially those affecting women), a critical element in breaking the cycle of poverty. Support will be designed to bolster economic security for the poor through the development of social assistance for the vulnerable; social insurance against risks of unemployment, disability, work-related injury and old age; and labor market programs.

   Urban Development. Because of the continuous migration of rural poor to urban-based economies, urban poverty is rising. Millions of poor families now reside in "squatter" settlements. Access to municipal services, such as safe drinking water and sanitation, is notoriously poor. Many urban poor find their livelihood in the informal sector where poorly developed microfinance markets limit access to affordable credit for working capital, housing, or other purposes. When rapid and uncontrolled growth damages the urban environment, the poor are most affected.

   To address this situation, ADB will support the development of accountable local governments and improved urban management. Sector agencies will also be supported to ensure sound environmental management. Greater private sector and community participation, the creation of a conducive policy environment, and the use of market-based approaches will be essential elements of this strategy. Finally, ADB will support equitable, cost-effective, and sustainable investments in microfinance, water supply and sanitation, upgrading of informal settlements, and innovative schemes for the provision of low-income shelter and basic services.

3. Infrastructure and Finance

   Because poverty in the region is concentrated in rural areas, ADB will give priority to projects impacting directly on the poor. These include rural roads and electrification, promotion of small and medium enterprises, and water supply and sanitation programs (wherever the absence of basic services jeopardizes the health of the poor). Special attention will be paid to job creation in the design, implementation, and operation of projects.

   Transport and Communications. The focus in transport and communications will be on reducing costs of transport to and from rural areas and between growth centers, and increasing access of the poor to markets, education, health care, and employment. Preference will be given to locating projects in poorer parts of countries or those that connect poor or isolated areas to the economic mainstream. Concerted efforts will be made to find innovative ways of harnessing the potential of information technology so that it enhances, rather than militates against, the human capital and market access of the poor.

   Energy. Increased emphasis will be given to rural electrification and renewable energy. Where feasible, this will be promoted in conjunction with microfinance access to provide affordable energy to isolated communities. The introduction of competitive markets through restructuring of public utilities and private sector participation will also be necessary to ensure energy supply to industry and households at the most economic cost. Where traditional power projects continue to be unattractive to the private sector, governments and ADB may have to maintain their investment role to ensure an adequate supply of electricity.

   Finance. Policy reforms and market infrastructure will be promoted to encourage the emergence of sustainable financial institutions geared to better serving the needs of medium-, small-, and micro-enterprises. Sound and efficient banking systems and capital markets will also be promoted, since these remain indispensable for macroeconomic stability, mobilizing savings, and ensuring availability of long-term financing, an essential requirement for pro-poor growth.

Using New Tools

To make antipoverty operations more effective, ADB must choose the right modality of assistance. In some situations, new instruments or new ways of using existing ones may be required. Investments in the social sectors work best when preceded by policy and institutional reforms; this suggests increased use of longer term, sector development programs, where front-end support for policy change and capacity building pave the way for productive investment. Slow disbursing policy-based lending in support of national poverty reduction programs could be considered, with a view to ensuring that such programs are correctly targeted and effective. Since poverty solutions are not always obvious, careful note will be taken of pilot projects by bilateral agencies or NGOs. Where no such efforts have been undertaken, ADB may initiate pilot loans to test innovative approaches. As such loans are necessarily small and flexible and have learning objectives, they will warrant simplified approval procedures.

ADB will take initiatives to bring its operations closer to the poor. Such measures could include lending directly to local governments, promoting social investment funds, and supporting NGOs that have proven track records in working with the poor (Box 6). Exploring new approaches for expanding social capital and participation (e.g., to strengthen participation of previously excluded groups and communities in local government) may call for innovative mechanisms. Strengthening capacity in civil society may require a regional program involving apex NGO bodies.

Monitoring Impact

Strategies are more effective if outcomes are monitored and the results fed back to improve performance. However, outcomes such as declines in the proportion of people below the poverty line, illiteracy rates and gender gaps take time to achieve. Hence, there is need to develop poverty indicators that provide early information on progress in approaching the desired outcomes. Under the partnership agreement with governments, such indicators will be identified for each critical area of poverty. Since poverty measurement is a complex matter, ADB will help borrowing countries improve their capacity to generate timely and reliable data, as well as indicators that are comprehensible and easily used. In monitoring progress toward the agreed targets, ADB will assist borrowing governments to refine policies and programs for poverty reduction. In the process, ADB will also become more accountable for its own work. To better gauge the impact of specific projects and strategies, evaluation will focus increasingly on impact assessment. To complement more rigorous evaluation processes, greater use will be made of faster, more qualitative measures, especially those in which the poor are direct participants. ADB's resident missions will increasingly play an important role in monitoring activities.

Coordination Among Funding Agencies

Development institutions have an obligation to use scarce resources with maximum efficiency and impact. While recognizing that the recipient country should be directing coordination of external funding, ADB will, in all its analysis and programming activities, integrate its efforts closely with those of governments as well as other development agencies. By coordinating with other agencies and, where appropriate, NGOs, ADB will enhance its effectiveness, avoid duplication, and accelerate its learning. In this context, ADB will, in cooperation with other agencies, examine the effectiveness of the Comprehensive Development Framework proposed by the World Bank. To this end, the concept is being pilot-tested in two borrowing countries, Kyrgyz Republic and Viet Nam.

As an integral part of its strategy, ADB will also pursue innovative forms of cofinancing to increase synergy and efficiency in poverty reduction efforts. For example, where bilateral agencies are active in developing the software necessary for poverty reduction (local organizations, extension systems, etc.), ADB may collaborate in financing the associated requirements for physical infrastructure.

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