Publications

	Table of Contents
p. 4 of 5 BACK | NEXT Introduction Review of ADB's Policies on cost-Sharing Limit The Other MDB's Policies on cost-Sharing Limit Proposed Revision of Cost-Sharing Limits Conclusion and Recommendation

Review of Cost-Sharing Limits for Projects Financing as an Element of ADB's 1998 Graduation Policy

---

IV. Proposed Revision of Cost-Sharing Limits

A. Rationale for Revision of Cost-Sharing Limits

21. It has been noted that there are large differences in cost-sharing limits for Group B2 and Group C countries between ADB and the World Bank. The stringent cost-sharing limits of ADB in these countries have put ADB’s operations at a disadvantage in serving the needs of its DMCs. Given its mandate, the World Bank has a full and comprehensive understanding of the macroeconomic and fiscal positions of DMCs and how these may impact a DMC’s public expenditure management for development finance. In this context, there are no apparent reasons for such a significant gap in cost-sharing limits between ADB and the World Bank for Group B2 and Group C borrowers.

22. Many DMCs in Group C (and including Indonesia in Group B2) were hard hit by the Asian financial crisis or the Russian financial crisis and are still recovering from the crises. These economies remain weaker than the economies that were formerly classified as Group C, particularly the four graduate economies. It is noted that these economies are constrained by strict fiscal positions over the last several years.

23. Furthermore, the existing cost-sharing limits were basically inherited from the costsharing ceilings introduced in 1983. However, over the past two decades, ADB’s operations have changed gradually, with increased emphasis on poverty reduction and social development, and, poverty reduction was declared ADB's overarching goal in 1999. Since poverty reduction and social development projects normally have lower financial rates of returns and higher levels of local currency expenditures than other projects, which taken together can put undue pressure on governments’ short- and medium-term fiscal positions, ADB needs to be ready to provide a higher share of financing for poverty reduction projects.

24. Thus, ADB needs to revise upward its cost-sharing limits, taking into consideration similar policies and practices of other MDBs.

B. The Proposed Revision

25. It is proposed that ADB’s policy on cost-sharing limits be adjusted upward in the context of existing policy, to be generally in alignment with the World Bank’s nominal cost-sharing limits, as shown in Table 4.

26. It is worth noting that there is no change of cost-sharing limit for Group A countries. Except the only changes in percentage points of cost-sharing limits for Group B1, Group B2, and Group C countries, the existing policy framework, including graduation policy, relating to cost-sharing limits for project financing is retained. As per current policy, under exceptional circumstances and where justified on country and project grounds, ADB financing may also exceed the normal cost-sharing limit.

C. Comparison of the Revised Cost-Sharing Limits with Those of the World Bank

27. Table 5 compares the proposed cost-sharing limits (revised) with those of the World Bank (current).

28. The revised cost-sharing limits will bring ADB’s policies on cost-sharing limits in alignment with that of other MDBs and will require minimum changes of ADB’s operational procedures.

Back The Other MDB's Policies on cost-Sharing Limit	Next Conclusion and Recommendation