Publications

Home : Publications : Online Publications : Document


Table of Contents
p. 13 of 14 BACK | NEXT
The need for a strategy
The strategy
The required internal changes
Operational orientation, skills, and processes
Operating principles
>> Instruments
The implementation plan
Private Sector Development Strategy : The required internal changes

Instruments

ADB will use all instruments at its disposal for PSD, including policy dialogue, public sector project and program lending, TA, equity investments, loans without government guarantees, cofinancing, and guarantee schemes. The existing instruments of public sector operations are considered adequate to meet the requirements of the strategy. There is, however, a need to consider enhancements in the PSO instruments (Box 5). These instruments will be examined in separate Board papers. Furthermore, as the headroom for PSO becomes exhausted within the next couple of years, a decision will have to be made on the need to increase PSO’s resource allocation, which currently stands at $1.5 billion.


Box 5. Enhancement of Instruments for Private Sector Operations


Equity Investments and Loans
ADB has tended to use mainly senior loans and equity investments for its private sector operations (PSO). ADB will continue to use these instruments as well as others at its disposal (e.g., equity-linked and subordinated loans) based on the needs of its client companies. Currently, the prudential limit for a single project exposure is $50 million (or 25 percent of project cost). With inflation increasing the investment size of infrastructure projects, it may be appropriate to raise the limit of $50 million, while ensuring it is not more than 25 percent of the project cost.

Partial Risk Guarantee
ADB has not yet provided a partial risk guarantee (PRG). Borrowers have preferred to obtain a direct private sector loan from ADB rather than avail of a PRG (without government counterguarantee), given that both instruments are subject to a combined limit of $50 million, which is the same as the limit for a stand-alone direct loan. A separate and higher limit is needed for PRG (without government counterguarantee) to enable ADB to meet the needs of clients, and to play a more significant role in mitigating sovereign risks. A separate review paper on PRG, currently under preparation, will analyze ADB's experience with PRG and propose modifications to existing policy.1

Local Currency Financing
ADB will aim to develop local markets for long-term debt by issuing or guaranteeing local currency bonds and debt instruments to lengthen maturities and provide interest rate benchmarks. Through this, ADB could provide or facilitate long-term local currency financing for local projects and reduce currency mismatches on the balance sheet of corporate borrowers, such as infrastructure projects that earn local rather than foreign currency revenues. This could help borrowers avoid foreign exchange risk and enable ADB to more effectively participate in corporate debt restructuring exercises.

Technical Assistance Funds for Project Development
For ADB to extend the reach of its PSO to smaller countries and newer sectors, it must enhance its capability to develop projects. Resources for technical assistance are needed for this, particularly to develop facilities to assist SMEs and microenterprises.

____________________

  1. At the Inter-American Development Bank (IDB), the single project limit for PRG (without sovereign counterguarantee) was recently set at $150 million or 50 percent of project cost, whichever is less. This is double IDB's limit for a direct loan of $75 million or 25 percent of project cost, whichever is less.

<<Back
Operating principles		Next>>
The implementation plan