Review of Lending Foreign Exchange for Local Currency Expenditures on Projects

Despite efforts to mobilize resources, some developing member countries (DMC) cannot meet the local financial requirements of a development program from domestic savings
Sometimes the overall financial requirements cannot be met when ADB finances only the foreign exchange costs of development projects

ADB's Charter authorizes selective local cost financing (LCF).

ADB began LCF operations in 1974. The importance of LCF in ADB operations has been increasing, from 1.6 percent of total lending in 1974-1977 to 10.1 percent in 1983-1993
The percentage of a project ADB may finance with LCF depends on the DMC's income category, i.e. Group A (lowest-income), B, or C.
LCF has helped relax the resource constraints facing the poorest DMCs. Such constraints will likely continue, hence the need for selective LCF remains
LCF should be used to support the achievement of ADB's medium-term strategic objectives

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Introduction
Background
1. The Charter Provision
2. Evolution of the LCF Policy Framework
3. Review of Past Experience
4. LCF Policies of Other Multilateral Development Banks
Proposed Approach
1. Need for LCF
2. Comments by the Board
3. Indirect Foreign Costs and LCF: A Comparison with World Bank Practice
Conclusions and Recommendations

Appendixes [ PDF: 105kb | 26 pages ]

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