ADB to Adopt New Financing Approaches to Better Respond to Development Needs
MANILA, PHILIPPINES (31 August 2005) - ADB has approved three initiatives that will help improve ADB's business model by removing bottlenecks that constrain its capacity to respond better and more quickly to its clients.
The three initiatives are part of ADB's Innovation and Efficiency Initiative (IEI), which aims to make and keep ADB more client and results-oriented, efficient, and effective.
"These new approaches and concepts will allow ADB to meet in a more efficient and more responsive manner the needs of our developing member countries," says Geert van der Linden, Vice President for Knowledge Management and Sustainable Development.
First, a new approach to cost sharing and expenditure eligibility will improve ADB's project financing capability in a manner more consistent with market practices.
The approach involves a more flexible determination of cost sharing limits, and expands the eligible expenses ADB can finance to include land acquisition and payments for rights-of-way, taxes and duties, and other expenses such as bank charges and secondhand goods.
ADB has also developed new financing modality concepts, to be pilot tested over three years, that aim to provide ADB and its developing member countries with alternatives to better and more effectively respond to development financing needs.
A multitranche financing facility will allow ADB to finance long-term projects in structured and staggered multiple loans. The facility will minimize the negative impact that standard ADB financing now has on a client's balance sheet and cofinancing capabilities.
Another instrument for subsovereign and nonsovereign public sector financing will allow ADB to better finance projects at the provincial and municipal level and of state-owned enterprises, provided that it is accompanied or preceded by reforms.
Two other modalities will mobilize greater domestic and international financing for poverty-reduction projects, and allow refinancing to fundamentally sound projects with high development impact but weak financing plans.
"These new concepts are designed to make ADB more compatible with existing and evolving market practices, as well as to help ADB work better with its development partners and the private sector," says Bindu N. Lohani, Director General for ADB's Regional and Sustainable Development Department.
Finally, ADB will expand its coverage into local currency lending through bond issues and commercial swaps.
"This will reduce currency mismatches and pave the way for ADB to support capital markets development, in line with ADB's strategic framework," says Mikio Kashiwagi, ADB Treasurer.
In addition to these three, the IEI includes proposals on country and strategy programs, business processes, consulting services and procurement, and safeguards in relation to policy implementation. These are expected to be approved in 2007.
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