Catalog

	Table of Contents
p. 27 of 53 BACK | NEXT Executive Summary Summary of Conclusions and Recommendations by ADF Donors ADF VIII: Requests for Midterm Policy Reviews and Reports I. Introduction II. The International Development Goals III. Poverty in Developing Asia IV. ADB and ADF: Vision and Role V. ADB’S Framework for Poverty Reduction VI. Development through Partnership VII. ADF Resources: Portfolio Management and Performance VIII. The Strategy for Implementing ADF VIII A. General Strategy and Partnership B. Implementing ADB’s Poverty Reduction Strategy C. Performance-Based Allocation System for ADF Resources D. Governance Action Plan E. Development of the Private Sector F. Infectious Diseases including HIV/AIDS G. Core Labor Standards H. Gender and Development I. Environment J. Cooperation Among DMCs K. Money Laundering L. Drug Trafficking M. Improving Evaluation and the Linkage to Planning Operations N. Redesign of Operational Business Processes and Portfolio Management O. Strengthening Resident Missions P. Strengthening ADB’s Institutional Capacity IX. Planned Lending in ADF VIII X. Financing Framework for ADF VIII XI. Issues for Policy Review XII. Midterm Review of ADF VIII

ADF VIII Donor's Report: Fighting Poverty in Asia : VIII. The Strategy for Implementing ADF VIII

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C. Performance-Based Allocation System for ADF Resources

58. Donors reaffirmed that aid works best in reducing poverty in countries with sound policies and institutions. The main lesson has been that in order to realize the objectives for which aid is intended, it must flow to those who need it and make the best use of it. Against that background, Donors agreed that ADB should plan to strengthen its development impact and realize its overarching goal of poverty reduction through a closer linkage between country performance (effective development management) and the allocation of scarce ADF resources among recipient countries.

59. Donors considered ADB’s existing allocation system for ADF resources against the systems developed in IDA 12 and AfDF8. Donors advised ADB to strengthen the link between assessed development performance and ADF allocation based on measurable indicators and objective criteria to encourage the adoption of sound policies and sound management of development resources. This strengthened linkage should take into account, inter alia, (i) commitment and effectiveness with which a DMC addressed good governance, and economic, social, and environmental concerns; (ii) receptiveness to policy dialogue with ADB and donors and willingness to undertake necessary reforms; and (iii) efforts at domestic resource mobilization and public expenditure management. In that context, Donors also requested that the linkage with DMC creditworthiness and access to international capital markets should be maintained to ensure that low income DMCs with limited access to external commercial capital are allocated the dominant share of ADF resources. Donors agreed that ADB’s future performance-based allocation system need not be completely identical to the one in IDA or in AfDF8, so as to allow for the unique characteristics of ADB and the Region. However, Donors also agreed that the future system should be firmly grounded on the fundamental principle of a very robust relationship between performance—including performance on governance—and allocation of concessional resources, and should not convey or support the concept of an entitlement of ADF resources for ADF borrowers.

60. Against that background Donors reviewed ADB’s work-in-progress towards a formal performance-based allocation system for ADF resources. Appendix 5 provides information on the proposed criteria and weights assigned in the performance-based allocation system discussed and strongly endorsed by Donors. Donors concluded that the proposals contained in ADB’s work-in-progress establish a strong link between country performance and allocations and would ensure a transparent and fair but flexible performance-based allocation of ADF resources. Donors also endorsed the proposal that the performance-based allocation system should be structured on the three pillars of ADB’s Poverty Reduction Strategy (i.e., pro-poor sustainable economic growth, social development, and good governance). This will make the system unique, and will enable greater differentiation to be made in allocations to ADF recipients based upon their efforts and progress on measured reductions in poverty. Acknowledging the strong relationship between governance and economic impact, Donors recommended that ADB systematically promote the quality of governance for all DMCs and strengthen the linkage between the quality of governance and ADF lending levels. Support to DMCs with poor governance (i.e., a borrower is not pursuing policies conducive to pro-poor sustainable economic growth, social development and good governance) should be scaled back to non-lending services, or stopped entirely if necessary. Support to countries with weak governance (i.e., a borrower has poor policies but is making sustained efforts to improve them) should mainly target strengthening of institutional capacity and basic human needs. Donors acknowledged the need for ADB to exercise the necessary judgement and ‘flexibility’ in the application of a performance-based allocation system and in a transparent manner involving the Board of Directors. Donors also emphasized that the implementation of the system should not assume that ADF borrowers would consistently rank among the top performers, on the basis of a global comparison, and thereby convey or support a system of entitlement of ADF resources for ADF borrowers.

61. Donors agreed that it would be appropriate that ADB’s future performance-based allocation system reflect the unique characteristics of ADB and the Region. Donors reaffirmed that one of the distinguishing features of ADB’s Charter is the mandate to give special consideration to the needs of small countries. Many of these have high levels of per capital GNP that belie the significant development constraints they face. If these countries were treated on par with other countries for resource allocation purposes, their resulting shares would be too small to be operationally meaningful. Donors recommended that ADB’s performance-based allocation system should treat small-island economies as a separate category, that is, within an indicative or notional aggregate allocation of ADF resources (the percentage of resources allocated to small-island economies in ADF VII provides a useful reference). These economies would be subject to the same performance-based allocation system as other ADF borrowers.

62. Donors recommended that ADB prepare a policy on performance-based allocation for ADF resources, fully reflecting the understandings reached during the ADF VIII replenishment negotiations, and submit it to the Board of Directors before the end of 2000, with the expectation that the policy and associated staff instructions and guidelines will begin implementation and testing in early 2001, followed by full implementation of the system for determining ADF VIII allocations starting in year 2002. Donors called on ADB to make every effort to apply the principles of the system in the 2001-2003 CAPs to be discussed by the Board of Directors in October 2000, while recognizing that the system will be in a transition phase. Donors recommended that the country allocations derived from the performance-based allocation system be presented to the Board of Directors for endorsement in a formal meeting of the Board. Donors also requested that ADB provide information to Donors, at the time of the ADF VIII Midterm Review, on the implementation of the performance-based allocation system in 2001 and 2002.

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