General Capital Increase V (GCI V)

GCI V triples ADB's capital base to approximately $165 billion

Who gave the increase?	ADB Board of Governors1 adopted a resolution for the fifth general capital increase (GCI V) of the Asian Development Bank—increasing its capital stock threefold.
Why is GCI V needed?	About 900 million people in Asia still live below the poverty line of $1.25 a day. A resource gap estimated at $53 billion a year compromises Asia's efforts to achieve the Millennium Development Goals. To support the priority investment needs of its developing member countries, particularly given the ongoing global economic crisis, a capital increase for ADB—the leading development bank based in the region—was essential.
What will GCI V do?	GCI V lets ADB move its strategic directions forward to address the development priorities of all ordinary capital resources2 (OCR) borrowers in partnership with other development agencies and the private sector.

ADB's Board of Governors has agreed to triple ADB's capital base from $55 billion to $165 billion, giving it much-needed resources to respond to the global economic crisis and to the longer-term development needs of the Asia and Pacific region.

Voting by ADB's 67 member countries on GCI V closed on 29 April 2009, with an overwhelming majority of members endorsing it. The 200% increase is ADB's largest, and the first since ADB increased its capital by 100% in 1994.

The 200% increase allows ADB to substantially increase its support to countries affected by the global downturn, enabling ADB to provide an additional $10 billion from its OCR over the next few years for crisis-related assistance.

Moreover, the increase better positions ADB to prevent the reversal of hard-won gains of our region in social and economic development and in poverty reduction.

GCI V lets ADB respond to the economic crisis and development needs of the region

The need for ADB's first GCI in 14 years was evident well before the current global economic crisis. We were running out of the financial headroom needed to respond to the vast investment and development needs of our region.

Before the crisis, our OCR borrowers faced an estimated resource gap of $53 billion a year in their efforts to achieve the United Nations Millennium Development Goals. And our research showed that more than 900 million people in Asia, 96% of them OCR borrowing countries, were still living below the poverty line of $1.25 a day.

ADB had been responding to this challenge by doubling the level of OCR operations from $4 billion in 2004 to $8.7 billion in 2008. The crisis, however, demanded additional and immediate financial support.

Without a GCI, ADB would have had to reduce its OCR lending to $4 billion a year in 2010, compared with $8.7 billion in 2008.

With GCI V ADB can move its strategic directions forward and strengthen its role and capacity to serve as a trusted, tested, region-based development partner for its OCR borrowers and stakeholders.

Responding to the economic crisis

ADB forecasts for 2009 that GDP growth in Asia will be 3 percentage points lower than in 2008 and 6 percentage points lower than in 2007. More than 60 million people could remain trapped in poverty.

But GCI V will allow our response to the global financial and economic crisis to be swift and proactive, protecting the poor and the most vulnerable in this region.

To increase effectiveness, ADB will support developing countries that face the worst impacts of the economic crisis. We are working on establishing a facility that will optimize use of OCR in crisis response during 2009–2011 and help mobilize voluntary contributions to assist Asian Development Fund³ (ADF) countries, particularly "ADF-only" countries.

We intend to provide an additional $10 billion out of our OCR in the next few years as a response to the economic crisis. About $1 billion of the extra assistance will be in the form of trade finance and the rest in guarantees, fast-disbursing assistance and support for project investments. An average annual lending level would be about $11 billion (an increase of roughly 26% over the current 2008 level) in and after 2011 until 2020.

G20 leaders singled out ADB for an immediate capital increase

To mitigate consequences of the financial crisis, the spring 2009 G20 Summit concluded a broad commitment to support a rise in lending up to $300 billion by development banks to low-income countries over the next 3 years.

"The Asian Development Bank should immediately proceed with a substantial general increase of 200% or $100 billion," G20 finance ministers and central bankers announced on 14 March 2009. In addition, reviews of the capital needs of other development banks to provide appropriate increases in funding were called for.

Forwarding our Strategy 2020⁴ goals

The region has made progress toward the Millennium Development Goals but its development needs remain vast. GCI V allows ADB to sustain strong investment in its developing member countries. Our lending will focus on inclusive and environmentally sustainable economic growth, regional integration, good governance, gender equity, and promotion of knowledge transfer; and leverage the private sector for growth and poverty reduction.

For infrastructure alone, ADB estimates the region will require investments of around $4.7 trillion over the next decade, including an estimated $100 billion a year to address environmental issues, $30 billion for renewable energy, $28 billion for adaptation to climate change, $14 billion for energy efficiency, and $8 billion for sustainable management of water resources.

Leveraging funds for maximum results

Shareholders' paid-in contributions will be limited to 4% of the total capital increase. Governments can, therefore, expect high leveraging of their funds at limited budgetary cost. ADB has an excellent track record in leveraging development finance, historically providing $15 of new lending for every $1 of OCR paid-in capital.

The bulk of the new capital will be callable—although there has never been an occasion in the past when capital has been called. ADB has a triple A (or AAA) credit rating and has never experienced default.

Given the current economic crisis and the long-term needs of the Asia and Pacific region, ADB is grateful to the funding increase provided by our shareholders.

We look forward to working together with our developing member countries and development partners in a continuing mission to reduce poverty in our region.