Publications

1. Existing Resources

111. Donors considered the experience with the new ADF financial planning framework introduced in ADF VII. The expanded advance commitment authority (EACA) scheme, through which future reflows are used to generate advance commitment authority, was taking hold. Its introduction was accompanied by exchange rate fluctuations, the negative impact that took place during ADF VII period which was alleviated, in part, by a number of initiatives to increase the volume of reflows, i.e., ADF loan term hardening, advanced use of loan savings and cancellations, and higher ADF net income.

112. In terms of both the efficiency of the EACA scheme and the volume of reflows, Donors recognized that at $2.740 billion ADB had maximized planned commitment authority for the ADF VIII period from existing resources within prudent limits. They confirmed the need to keep the EACA scheme under regular review to continue to examine the possibility of increasing commitment authority. Donors recognized the importance of balancing the use of existing resources to make advance commitments with the need for prudential management of risks associated with financial inflows from past loans and financial conditions well into the future.

113. In the context of ADF net income, Donors raised the issue of the basis for the allocation of ADB’s administrative expenses between ADF and OCR. Currently, ADB allocates its administrative expenses on an ex-post basis between OCR and ADF based on the ratio of loan approvals from the two windows, with all administrative expenses being considered allocable. The ongoing implementation of the Information Systems and Technology Strategy, which is expected to be completed in 2002, will lead to an improvement in the information base that is needed to make an assessment of existing cost-sharing arrangements and should allow ADB to consider options for reviewing and refining or possibly changing the basis for allocation of administrative expenses between OCR and ADF. Such a review would also include a detailed analysis of cost-sharing implications of any possible change therefrom.

114. Donors urged Management to increase the volume of existing resources through net income transfers from ADB’s ordinary capital resources (OCR). They noted, however, that the current financial situation put constraints on the allocation of OCR net income transfers to ADF. However, they emphasized that, as the financial situation improves in future years, ADB should continue to examine the possibility of such transfers, subject to the provisions of ADB’s Charter and financial policy requirements.

2. Currency Risk Management

115. Donors noted that the currency imbalance between resources in national currencies and loan commitments in special drawing rights (SDRs) can lead to two types of currency risk problems: the commitment risk and the disbursement risk. Donors considered a variety of options to address these risks. They felt that while the options provided technical solutions, they may not be feasible on other considerations. Further, the volatility in exchange rates experienced during ADF VII may not be representative. During previous replenishment periods, exchange rate movements led to significant increases in commitment authority. Therefore, Donors recommended to extend the existing planning systems in ADF for managing risk with one change, namely, the conduct of operational planning in SDRs to alleviate commitment risk.