Asian Development Fund VIII and IX Operations

Evaluation Document | 31 December 2007

This evaluation assesses how relevant and efficient the Asian Development Fund was, and how effective and sustainable its outcomes are.

Donors to ADB's Asian Development Fund endorsed a program of $5.6 billion over 2001-2004 (called ADF VIII) and $7 billion over 2005-2008 (called ADF IX). The ADF is ADB's main instrument to help poorer countries in Asia and the Pacific. It does this by providing cheap concessional loans to governments for projects, and grants for technical assistance. Since 2005, the ADF also funds projects through grants. This study assesses how relevant and efficient the ADF was, and how effective and sustainable its outcomes are.

The study has special attention for some novel features introduced over the period. Notably these are:

  • a special drive to target the poor in ADF's projects in 2001-2004
  • a drive to add a good governance dimension to ADF operations
  • the performance based allocation mechanism introduced in 2001
  • the project grant mechanism introduced in 2005
  • more attention for aid coordination and harmonization.

Special studies were done in Bangladesh, Lao People's Democratic Republic, Nepal, Pakistan and Viet Nam.

Summary of assessments

ADF VIII was assessed partly relevant but ADF IX highly relevant. ADF VIII was driven by ADB's 1999 Poverty Reduction Strategy. ADF IX was based on the 2004 Enhanced Poverty Reduction Strategy. The first favored an approach directing all ADB's activity to targeting the poor disproportionately. The second redirected this by highlighting the need to address poverty reduction at a broader level. Poverty reduction was to be achieved by well-balanced country strategies and programs rather than by targeting the poor in each individual operation.

ADF VIII was assessed as likely less effective. It is too early to assess the outcomes of ADF IX, but there are some positive signs. Success rates of ADF operations overall have gone up over the decades since ADF's beginnings in 1973. They stood at 67% for operations approved in the 1990s. The case studies of 25 ongoing ADF operations initiated over 2001-2004 point to more complex project designs in a turbulent time in ADB. This has led to these projects experiencing more project delays and associated problems, and possibly lower success rates. The study expects that project complexity has reduced under ADF IX. Progress is reported with a number of thematic priorities of the ADF agenda. For instance there were more governance oriented projects. There was also more involvement of civil society organizations in ADB projects, more aid harmonization, and better safeguards enforcement. Some challenges have remained in the areas of managing for development results, capacity development, and private sector development.

The administration of ADF VIII is assessed less efficient; and that of ADF IX, provisionally, as efficient. ADB has gone through a transition during 2002-2005. There was an internal reorganization and a shift in approach from sector to country-oriented management. These factors led to disruptions, a period of evolving country planning, and more inclusive project design. Over 2004-2006, there were many positive policy reforms and business process changes. Some still need time to be fully internalized. The study expects that the final period of ADF IX will bring more stability. The ADF IX approach is viewed as more likely to be sustainable than that of ADF VIII. This is due to the reorientation of the poverty reduction strategy, the reforms and the process changes undertaken.

Recommendations

  • Reduce goal congestion in ADB, and individual operations
  • Reflect on sector coverage at corporate level, but especially at country level; and
  • Consider increasing ADB's operational staff if the purpose of ADF remains poverty reduction.

The study notes that most of the poor in Asia do not live in the countries currently under the ADF. ADF donors may wish to consider the implications for the credibility of the ADF in the long run. OED supports an expansion of the size of ADF. The study recommends ADB to fundamentally review the performance-based allocation policy for ADF, and to be cautious in moving to grants as a major funding mechanism for ADB's investment project operations.