SDR Conversion Workshop
Opening Remarks by
Makoto Ojiro
Country Director, Tajikistan Resident Mission
Asian Development Bank
Dushanbe, Tajikistan
14 October 2008
Good morning ladies and gentlemen,
Welcome to the SDR Conversion Workshop of the Asian Development Bank for Tajikistan. I would like to take this opportunity to thank all the representatives from the President's Office, Ministry of Finance, Ministry of Economic Development and Trade, National Bank of Tajikistan and State Committee of Investments and State Property for your time to attend a very important Asian Development Fund initiative this morning.
Many of you may be aware that Tajikistan has been one of ADF borrowers since 1998. And currently, the aggregate balance as of August 2008 is around 207 million dollars equivalent for all 22 outstanding loans. ADB values this partnership and is committed to assist Tajikistan to further develop the country.
To achieve such commitment, among others, ADB strives to improve our products to assist and meet the needs of borrowers. On treasury operations, particularly on ADF, we recently introduced new initiatives, so called "new ADF currency management framework". We believe that this framework would help ADF borrowers to simplify their currency administration, reduce foreign exchange volatility related to ADF loans and streamline budgetary planning.
At this juncture, I would like to give you some background about this initiative.
To provide concessional loans to eligible members, ADF financial resources come principally from donor contributions through periodic replenishments. Most donor countries generally contribute funds to ADF in their national currencies. There were 15 currencies in the last replenishment for ADF IX and increase to 17 currencies in the latest replenishment or ADF X.
Prior to 2006, the ADF loan regulations restrict conversions of these donor currencies into other currencies. Thus, ADB maintained all donor currencies in the liquidity pool, used them for disbursements and thereby recorded the currencies used for disbursements as liability of borrowers. For example, if we select yen from liquidity pool for a disbursement, yen will be recorded as liability for the transaction. And for another disbursement, assuming we use Canadian dollar, thus the liability of this borrower now entail two currencies including yen and Canadian dollar. Thus, although the loan agreement indicates the approved loan amount in SDR, actual liabilities of borrowers will be based on various currencies which ADB used for all disbursements. As such, cumulatively, liability currencies can consist of all 15 donor currencies for some countries. In the case of Tajikistan, there are 10 liability currencies.
This currency management practice has caused difficulty for borrowers in currency and debt management and borrowers have voiced their concerns. In response to borrowers' requests, in various replenishments, ADB had tried to convince donors to allow conversion of their contributions to other currencies and to enable changes in ADF currency management. Finally, in late 2005, all donors agreed to allow conversions of their contributions in national currencies to SDR.
Thus, in January 2006, ADB had implemented the new ADF currency management framework and introduced a full-fledged SDR loan. Such changes in the ADF currency practice directly address and respond to the questions and concerns that ADB have been hearing from the borrowing member countries. The new practice is expected to bring about long-term benefits to borrowers such as lower foreign exchange volatility, simplified currency management and streamlined budget planning related to ADF loans. In addition, it will harmonize financial modality with the International Development Association's practice. Thus, the operational burden on borrowers will also be lessened.
The implementation of this framework is being carried out in two phases to allow borrowers to familiarize themselves with new practice.
In the first phase, loans which were invited for negotiation since 1 January 2006 are complied with the new currency framework and are classified as "full-fledged SDR loan". Whereas, loans which were negotiated prior to Jan 2006 are classified as "legacy loans". From January 2006 to August 2008, 5 full-fledged SDR loans have been approved for Tajikistan however the disbursed and outstanding balance of these loans is relative small at around two percent of total loan outstanding balance.
Starting in January 2008, the second phase implementation allows conversion of legacy loans to full-fledged SDR loans. Considering that about 98% of the outstanding balance is currently categorized under legacy loan, the conversion option will shorten the time horizon required to move towards the new framework and enable borrowers to attain the benefits of the new currency practice faster.
To inform all eligible ADF borrowers of the SDR conversion option and seeking their consents, in December 2007, ADB sent the letter of agreement to these governments. To date, 15 out of 28 countries already agreed for the conversion. This represents about 57% of loan outstanding balances and presently, more countries are in the process of seeking their internal approvals.
Recently, we were advised that the Government of Tajikistan would like to seek some clarifications about the option. Thus, today workshop is organized to provide you with relevant information including the ADF currency management practices, the conversion option, scenario analysis based on Tajikistan ADF exposure, the conversion process and post-conversion implications on disbursement, accounting and billing effects as well as legal applications.
To make the most out of this opportunity, please feel free to raise questions throughout the workshop.
With these opening remarks, let me give the floor to a staff from Treasury Department, Im-em Unkavanich, to begin the workshop.
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