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p. 6 of 10 BACK | NEXT Executive Summary I. The Context II. Present Bank Policies and Practices III. Graduation Policies of Other Multilateral Development Banks IV. Rationalizing the Bank's Classification and Graduation System A. Graduation From ADF B. Graduation From Bank Assistance V. Other Operational Implications VI.Conclusions VII. Recommendation

A Graduation Policy for the Bank's DMC's : IV. Rationalizing the Bank's Classification and Graduation System

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A. Graduation From ADF

1. Criteria

36. The issue of graduation from ADF is closely tied to eligibility for ADF. When a country grouped under a given degree of ADF eligibility based on certain criteria develops to the point where it achieves and retains for an adequate length of time the criteria for the next level, it graduates to that level.

37. The criteria that determine the eligibility for and graduation from ADF should be based on the rationale for concessional financing. Many developing countries lack capital, both physical and human. Critical bottlenecks to solving this problem are low domestic saving and investment rates. The poor state of infrastructure, low absorptive capacity, and low creditworthiness typical of these countries has resulted in their being denied access to international capital markets. The resulting low growth rates and stagnant incomes complete a vicious cycle of low savings and low growth. Concessional finance helps such countries break out of this cycle by augmenting resources for investment available to them without straining their debt repayment capacities. Also, such funding helps finance the infrastructure and human resource and institutional development that will increase absorptive capacity and attract commercial funding in later stages of development. From the donors’ side, budgetary and other domestic considerations have constrained their contribution to concessional funds and this in turn has meant these funds have had to be carefully targeted to realize the greatest benefits. Concessional assistance is most needed and effective in countries that have weak debt repayment capacity, low domestic saving, and low income, and becomes progressively less needed as debt repayment capacity improves and incomes increase.
38. The foregoing arguments provide the context for formulating criteria that determine eligibility for and graduation from ADF while reinforcing the original rationale for concessional funding, i.e., a country’s general economic situation. In developing eligibility and graduation criteria, a useful starting point is the following recommendation in the Report of Donors: "the first and foremost criteria determining ADF access shall be country criteria, i.e., small- and medium-sized countries with low per capita income but without access to external resources and lacking the capacity to repay loans." At the same time, the Report of Donors states that project criteria could be a secondary consideration, supplementing country criteria in determining access to ADF. The identified criteria and their interlinkages are examined below.

a. Current Country Criteria: Income and Debt Repayment Capacity

39. The Report of Donors reiterated the importance of the two current criteria for ADF eligibility: income as measured by per capita GNP and debt repayment capacity. Donors direct their aid to low income countries on equity considerations. There is also an economic rationale for the income criterion. Development assistance could be viewed as an attempt to maximize the utility of world income by redistributing it from richer to poorer countries. The utility gain accruing to the poor from an additional unit of income is much greater in value than the utility loss suffered by the rich from forgoing it. The impact of income transfer will be greater, the poorer the recipient country and the more concessional the terms of the transfer.
40. A country’s overall debt repayment capacity remains an important consideration for determining the extent of its need for concesssional funding. The basic rationale for providing concessional assistance is the economic situation of DMCs and the needs of less developed members. Per capita GNP by itself is insufficient to assess the economic situation of DMCs. It has to be used in conjunction with another measure that reflects those aspects of the economic situation of a country not captured by per capita GNP, including access to international capital markets, saving rate, etc. Debt repayment capacity defined²⁵ in the broad sense is such a measure.

b. Additional Country Criteria: Country Size and Access to External Resources

41. In addition to the current country criteria, donors have suggested country size and access to external resources, both of which have a bearing on a country’s debt repayment capacity and can be subsumed under it. Country size²⁶ and location (isolated/landlocked) are relevant considerations for ADF eligibility to the extent that these factors affect the general economic circumstances of a country and hence its debt repayment capacity. Broadly speaking, the larger the country, the wider its economic base and consequently the more robust its long-term debt repayment capacity; conversely, the smaller and more isolated the country, the more adverse are its economic circumstances, including vulnerability to shocks, high costs of infrastructure, etc. The small island Pacific DMCs (PDMCs) fit this description.
42. Access to international capital markets serves as an indicator of debt repayment capacity for OCR loans. A DMC rated as “Investment Grade” by commercial rating agencies may have alternative sources for sovereign borrowing. The economic fundamentals that are taken into account in commercial creditors' assessments of country creditworthiness are the same considerations for determining capacity to service debt on OCR terms. In fact, the commercial creditors impose tighter constraints than the Bank, as the Bank's preferred creditor status allows it to lend into environments considered risky by private creditors.

c. Project Criteria

43. The basic premise of the country classification system and the notion of graduation of DMCs is that country criteria rather than project criteria are the primary consideration for determining the source of funding. Some of the reasons why this principle makes economic sense and safeguards the interests of the DMCs and the Bank are discussed below. At the same time, when the supply of concessional resources is constrained, the Bank’s poorer and less developed DMCs could be denied needed access to funding if the Bank adhered strictly to the country criteria principle. Thus, the possibility of allowing exceptions that are consistent with the Bank’s developmental objective of boosting the overall debt repayment capacities of such countries will be examined.
44. i. Implications of Using Project Criteria as the Primary Consideration

44. If project considerations rather than country considerations were used as the primary criterion, then all DMCs would have to borrow on OCR terms for certain types of projects. As a result, over time, the outstanding nonconcessional loan balances of countries with weak debt repayment capacities would accumulate and they could experience repayment difficulties. Also, OCR exposure to DMCs with weak debt repayment capacity could have implications for the Bank's OCR portfolio risk. Further, if project considerations are accorded primacy in determining ADF access, then high income DMCs with strong debt repayment capacities would have the same degree of entitlement to ADF resources (provided they meet the specified project criteria for ADF access) as poorer countries with weaker debt repayment capacities. This does not appear justified on equity and effectiveness considerations. Thus, to avoid strain on the balance of payments of DMCs with weak debt repayment capacities, to avoid impairment of the Bank’s OCR portfolio, and to reflect equity and effectiveness concerns, project criteria should not be the primary consideration for ADF access.
45. ii. Project Criteria as a Secondary Consideration

45. The next issue is how project criteria can be used as a secondary consideration for ADF access. For DMCs categorized as blend countries, project criteria can be used as a secondary consideration for determining the appropriate funding source. This is essentially what the Report of Donors had envisaged when suggesting that the revenue-generating capacity of a project be used as a criterion for phasing out certain activities from ADF funding ahead of others. The following considerations are relevant in this regard. First, is the issue of criteria for distinguishing between revenue- and nonrevenue-generating projects. Any project that has at least some cost recovery could be considered as revenue generating. Adopting this definition would, however, mean that very few projects (other than projects involving pure public goods) would qualify for concessional funding. If a minimum level of financial internal rate of return (FIRR) is required for a project to qualify as revenue generating, then there would be the problem of choosing an appropriate FIRR, and for this there is no clear-cut answer.²⁷ Second, unlike foreign exchange-earning projects, projects that generate revenue in domestic currency are not necessarily self servicing, at least not in regard to servicing foreign-currency denominated debt. Third, sector heterogeneity makes it difficult to characterize entire sectors/market segments as revenue-generating and others as not. Even in the social infrastructure and environmental improvement sectors, there could be some projects where cost recovery is warranted. Fourth, given that money is fungible, a debt can be discharged with any money, not merely money generated by a particular project, provided a country has the requisite overall debt repayment capacity. Fifth, making funding decisions on the basis of the revenue-generating potential of a project could have an adverse impact on incentives for cost recovery, i.e., if low cost recovery is the basis for providing concessional funding, there is a built-in incentive to go in for suboptimal levels of cost recovery. Sixth, depending on the project pipeline to a country, a situation could arise that in a particular year or for several consecutive years, there could be no projects that qualify for concessional assistance using the revenue-generation criteria. In such cases, even though the country is eligible for ADF, it is not able to benefit from it. For these reasons, using the criteria of revenue generation to determine which projects in blend countries are to be funded out of ADF and which out of OCR is not problem-free.
46. Notwithstanding the foregoing concerns, some benefit could result if, in blend DMCs, on a case-by-case basis, projects clearly identifiable as revenue-earning could be funded out of OCR. This would provide a simple decision rule for applying OCR in blend DMCs with increasing access to OCR. However, the determination of the revenue-earning potential of projects should not be based merely on sectoral classification but on a confirmation of the revenue generation capacity of the projects through the Bank’s due diligence process.
47. iii. Foreign Exchange Earning Projects in DMCs with Weak Debt Repayment Capacities

47. It has been suggested that, when a project has the capacity to generate high levels of foreign exchange and is profitable, then it should be funded out of OCR, even in countries considered to have weak debt repayment capacity. The merit of this argument is that such projects not only generate foreign exchange for servicing foreign debt but also earn foreign exchange over and above the debt service requirement, thereby contributing to strengthening a country’s debt repayment capacity. Accordingly, exceptions will be allowed to the ADF-only norm for Group A countries to allow OCR lending on a case-by-case basis for revenue-earning projects that generate net foreign exchange over and above the foreign debt service requirement and also meet other lending criteria of the Bank. This exceptional access will also apply to the Bank’s guarantee facility when used in conjunction with government counterguarantee. Even in such exceptional cases, prudence will need to be exercised in the amount of OCR lending, as the DMCs involved are those having weak debt repayment capacities overall.
iv. Financing Subregional Projects in Countries with Weak Debt Repayment Capacity

48. In considering the financing options for subregional projects, it has been suggested that for subregional infrastructure projects, OCR terms could be charged even for countries considered to have weak debt repayment capacity. In this connection, it is noted that in principle, it should make no difference whether a project is national or subregional in determining the source of funding: both types of projects should be financed out of concessional resources for countries with weak debt repayment capacity. However, subregional projects that fall under the exception made in the preceding subsection, i.e., profitable projects that generate adequate foreign exchange, could be considered for OCR funding in countries with weak debt repayment capacity.

2. Guidelines for Applying the Criteria

49. The foregoing discussion shows that the criteria relating to country size and access to international capital markets can be subsumed under the debt repayment criterion. Project considerations could apply on an exceptional basis for ADF-only countries with weak debt repayment capacity and as a secondary criterion for blend countries. This leaves two main country criteria for ADF eligibility: (i) per capita GNP, and (ii) debt repayment capacity. The proposed guidelines for applying these two criteria are discussed below.

a. Per Capita GNP

50. Current guidelines on per capita GNP thresholds (para. 16) could be rationalized. The following considerations merit consideration in revising the guidelines.

1. During the ADF VII negotiations, donors raised the issue of harmonizing ADF eligibility criteria with those of IDA. The IDA per capita GNP operational cutoff is updated each year using the international inflation rate as measured by the Special Drawing Rights (SDR) deflator in US dollar terms. To obtain per capita GNP estimates for individual countries, a three-year moving average of the official exchange rate is used, adjusting for differences in relative inflation between the country and the international inflation rate.²⁸ Against the background of the recent currency crisis, there have been suggestions that the use of per capita GNP estimates based on official exchange rates are unstable and, therefore, national income figures based on purchasing power parity (PPP) should be used. The PPP methodology is, however, not problem-free. The most important of its problems relates to consistency over time of PPP data and dependency of PPP-based rankings on methodological choices, including the choice of the base year and the process of aggregation. Further, PPP data are based on price surveys that use 1993 as the reference year. Annual updating of estimates would be difficult unless extrapolation is used. Finally, PPP-based estimates are not available for all the countries.²⁹

2. There have also been suggestions that per capita GDP rather than per capita GNP is a better measure of a country's income-generation capability. The difference between GDP and GNP is the net factor income from abroad. In this connection, net factor incomes truly constitute resources available to residents of the countries under consideration, or resources taken away from them. As such, operational decisions should continue to be based on per capita GNP rather than per capita GDP.

For the above reasons, the World Bank’s IDA operational cutoff and its per capita GNP estimates for DMCs based on the Atlas method are the most practical indicators available. The Bank’s existing operational cutoff of $1,017 at 1997 prices would cease to apply and would be replaced by the IDA operational cutoff (currently $925 at 1997 prices). The operational cutoff would be updated annually when IDA updates its per capita GNP operational cutoff.³⁰

b. Debt Repayment Capacity

51. In establishing guidelines for applying the debt repayment capacity criterion, it is necessary to distinguish between debt repayment capacity for OCR loans and creditworthiness for commercial loans. For graduation from ADF, debt repayment capacity for OCR loans is of primary relevance; for graduation from regular Bank assistance, creditworthiness for commercial borrowing is the key consideration.
52. Unlike the income criterion, debt repayment capacity cannot be captured in a single indicator such as the debt service ratio. Historically, situations involving debt-service ratios that were quite high have been successfully managed, and many countries have been in severe servicing difficulties with low ratios.³¹ To overcome these and other problems inherent in a single debt indicator, multidimensional evaluation procedures must be developed, combining quantitative and qualitative assessments.³² It is emphasized that it is the debt repayment capacity over the medium-term that is sought to be captured in such assessments.
i. Quantitative Component

For the quantitative component of debt repayment capacity, the following indicators will be used:

1. debt sustainability ratio,
2. share of private capital inflows in total capital inflows,
3. gross domestic savings rate, and
4. size of economy.

See Appendix 2 for a technical description of the methodology.

ii. Qualitative Component

The quantitative assessment may fail to capture a number of qualitative considerations that are relevant for assessing debt repayment capacity. Also, comparable quantitative data may not be available on each indicator for all the countries. Therefore, a supplementary assessment is needed that takes into account the following categorical variables (for details see Appendix 2):

1. categorization as a heavily indebted poor country (HIPC),
2. vulnerability to fluctuations in export growth,
3. main external financing source,³³
4. degree of access to IDA³⁴ resources, and
5. whether rated by Moody’s or Standard & Poor’s for sovereign borrowing.

Overall assessment of debt repayment capacity will be made taking into account both quantitative scores and qualitative assessments.

c. Decision Matrix

A weakness in the existing system has been the procedure by which the per capita GNP criterion and the debt repayment capacity criterion should jointly determine access to concessional assistance. The basic premise of the existing system has been that a DMC with low per capita GNP would also have low debt repayment capacity. As a country's income reaches the range for middle income countries, so too would its debt repayment capacity. However, the system needs to have a mechanism for dealing with departures from this symmetry. Such departures occur when a DMC with a low level of per capita GNP has the capacity to service debt on nonconcessional terms, including OCR terms. Conversely, a country with a relatively high level of per capita GNP could have a low debt servicing capacity for OCR loans. As noted in para. 21, country profiles for development finance are changing, particularly in the Bank’s region. A systematic approach to country criteria is, therefore, necessary to deal with emerging patterns. The proposed approach is to apply the country criteria in a two-stage process.

1. In the first stage, the operational cutoff for per capita GNP would be applied to divide DMCs into two categories: those below and those above the latest available IDA per capita GNP cutoff.

2. In the second stage, within each income category (i.e., below and above cutoff), DMCs would be further differentiated on the basis of debt repayment capacity. Three levels of differentiation among DMCs’ debt repayment capacities for OCR loans are proposed: (a) weak, (b) limited, and (c) adequate.

The categories that would result from the application of the criteria as proposed above and their eligibility for/access to ADF are shown in the decision matrix in Table 1.

Table 1: Proposed Decision Matrix for ADF Eligibility


The matrix provides a framework for determining a DMC's degree and priority of access to ADF based on the joint application of the two country criteria.

1. DMCs below the per capita GNP cutoff would be eligible for ADF (whether or not classified as LLDCs). However, their degree of ADF eligibility would be circumscribed by their debt repayment capacity. (a) DMCs with weak debt repayment capacity would be eligible for ADF-only. However, in the exceptional circumstances described in para. 47, OCR funding could be considered. (b) DMCs with limited debt repayment capacity would be eligible for ADF with limited amounts of OCR. Non-concessional lending for this group would preferably be for financing revenue-generating projects but the criterion should be applied on a case-by-case basis (para. 46). (c) DMCs with adequate debt repayment capacity would be eligible for OCR with limited amounts of ADF. For this category of countries, the primary consideration for limited ADF eligibility is relative poverty. The Report of Donors recognizes the strong case for concessional assistance to low-income Asian countries on grounds of equity (because of the magnitude and intensity of poverty) as well as efficiency. Concentrating aid on low-income countries does not guarantee that the funds will be used to reduce poverty but it does make such a focus more likely as noted in a World Bank document.³⁵ To the extent, however, that a few of these low-income countries have the capacity for servicing OCR loans, their access to ADF should be limited. OCR funding would be provided for revenue-earning projects.
2. DMCs that are above the per capita GNP cutoff but are classified as LLDCs would also be eligible for ADF but as with DMCs in (i), their degree of eligibility will fall successively from ADF-only through ADF with limited OCR to OCR with limited ADF, corresponding to the progressive levels of debt repayment capacity.

3. DMCs that are above the cutoff and are not classified as LLDCs would be eligible for ADF with limited amounts of OCR if they have weak debt repayment capacity, OCR with limited ADF if they have limited debt repayment capacities, and OCR-only if they have adequate debt repayment capacities. On equity considerations, such DMCs should not have the same degree of ADF eligibility as DMCs below the per capita GNP cutoff or LLDCs.

Graduation from one level of ADF access to the next would be triggered under the following conditions:

1. for both LLDCs and non-LLDCs (other), when debt repayment capacity improves from weak to limited, or from limited to adequate;

2. for LLDCs, when they graduate from the LLDC classification and are also above the per capita GNP cutoff; and

3. for non-LLDCs (other) below the per capita GNP cutoff, when they cross the per capita GNP threshold.

In the event of a combination of (i) and (ii), or (i) and (iii), the graduation would take place over two levels (for example, from Group A to Group B2 or Group B1 to Group C). Movement through the decision matrix can be bi-directional, i.e., graduation would not be irreversible. To avoid frequent movements back and forth between groups, a time lag, say four years, should be provided between the achievement of the criteria and formal graduation. Formal reclassification of a DMC to a lower category would generally require that the deterioration in its economic circumstances is not a transitory phenomenon; in the meantime, the Bank would have the operational flexibility to provide appropriate assistance to the DMC. Eligibility for, or graduation from, ADF will normally be coterminous with the ADF replenishment exercise.

To sum up, application of the proposed levels of differentiation in the per capita GNP and debt servicing criteria yield the following degrees of ADF access: (i) ADF-only (Group A); (ii) ADF with limited amounts of OCR (Group B1); (iii) OCR with limited amounts of ADF (Group B2); and (iv) OCR-only (Group C). Within the blend category, two levels of ADF access, viz., ADF with limited OCR and OCR with limited ADF, are proposed. The rationale is that the countries that are at the lower end of the per capita GNP and debt repayment capacity spectra will have access to predominantly ADF with limited amounts of OCR, with the amount of OCR lending circumscribed by considerations of the country’s debt repayment capacity and the Bank’s risk exposure. At more advanced stages of increased OCR access, the funding mix will be reversed, with limited amounts of ADF, based on resource availability, after the needs of DMCs with higher priority for ADF access have been met. This would ensure that the Bank's portfolio risk remains within acceptable limits.

The decision matrix (Table 1, para. 56) provides the foundation for the proposed Bank policy for classifying and graduating DMCs. The matrix is underpinned by the identification of a core set of indicators that can be used to place DMCs in the appropriate categories. The values of these indicators for the DMCs and thresholds would have to be updated whenever a review is undertaken, and as a result the composition of DMCs in the various cells might change. However, the principles for reclassification and graduation captured in the structure of the decision matrix would continue to apply. This point is emphasized because the current crisis could understandably weigh so heavily on stakeholders’ perceptions that the distinction could be blurred between (i) the criteria and the structure of the decision matrix; and (ii) the application of the criteria at different points in time to match changing economic circumstances of DMCs (and consequently their location in the decision matrix).

3. Application of Guidelines to Current Data on DMCs

Fitting the guidelines proposed above to current data implies the following:

1. Per Capita GNP In para. 50, it was recommended that the IDA operational cutoff (currently $925 at 1997 prices) and per capita GNP estimates based on the Atlas methodology be adopted as one of the country criteria for determining ADF access. Applying this cutoff, 17 DMCs fall below this cutoff, while the other 17 DMCs are above it.

2. Debt Repayment Capacity The debt repayment capacity of borrowing DMCs assessed using the latest available data that is comparable across countries shows (a) 19 DMCs including nine PDMCs as having weak debt repayment capacity; (b) six DMCs as having limited debt repayment capacity; and (c) nine DMCs as having adequate debt repayment capacity.

On the basis of the proposed per capita GNP cutoff and the assessment of debt repayment capacities, DMCs may be reclassified as in Table 2.

Table 2: Proposed ADF Eligibility of DMCs as per Decision Matrix^a

1. Some of the cells in Table 2 are “empty” because current borrowing DMCs do not fit the specific characteristics of a particular cell. This could change as new members are classified and existing DMCs graduate to the next level.
2. The following DMCs are classified as LLDCs: Afghanistan, Bangladesh, Bhutan, Cambodia, Kiribati, Lao PDR, Maldives, Myanmar, Nepal, Samoa, Solomon Islands, Tuvalu, and Vanuatu. Least Developed Countries. 1997 Report. United Nations Conference on Trade and Development.
3. Limited OCR eligibility will take effect only after the country’s external debt position has improved.
4. Assessed as having adequate debt repayment capacity over the medium term but due to fragile social and political situation over the short term, placed on “watchlist” for graduation out of ADF.
5. No ADF access during the ADF VII period as mandated by donors.

4. Implications for DMCs

62. The implications of the proposed system for graduation of DMCs from their current state of ADF eligibility may be summarized as follows:

1. Bangladesh, Cook Islands, Marshall Islands, Micronesia, Sri Lanka, Tonga, and Viet Nam will move from the ADF-only group to the ADF with limited OCR group. Pakistan is currently a de facto blend country.

1. Bangladesh is below the per capita GNP cutoff and, on the basis of the selected indicators, has limited debt repayment capacity. It is an IDA-only borrower of the World Bank. On balance, it is considered appropriate to give Bangladesh eligibility for ADF with limited amounts of OCR.
2. Cook Islands is above the per capita GNP cutoff. It is not a member of the World Bank. Although Cook Islands has a weak debt repayment capacity, it is not an LLDC. It is therefore proposed to categorize Cook Islands’ eligibility status as ADF with limited OCR. However, in view of its recent debt rescheduling, the limited OCR eligibility will be applied only after the debt position improves.
3. Marshall Islands, Micronesia, and Tonga, are above the per capita GNP cutoff.³⁶ These countries have weak debt repayment capacities, but they are not LLDCs. Marshall Islands and Micronesia are IBRD-only borrowers of the World Bank while Tonga is an IDA-only borrower. It is proposed to categorize their eligibility as ADF with limited OCR.
4. Pakistan is below the per capita GNP cutoff and has limited debt repayment capacity. As such, it will continue to have access to ADF with limited amounts of OCR. Pakistan will now be formally recognized as a blend country on account of its capacity to service a limited amount of OCR loans.³⁷ This is consistent with Pakistan's access to both IDA and IBRD resources of the World Bank Group.
5. Sri Lanka is below the per capita GNP cutoff and has limited debt repayment capacity. The ongoing civil strife in the country has adverse implications for its debt repayment capacity and Sri Lanka is an IDA-only borrower of the World Bank. However, on the basis of quantitative and qualitative assessments of debt repayment capacity based on the available information, it is considered appropriate to give Sri Lanka access to ADF with limited amounts of OCR.
6. Viet Nam is below the per capita GNP cutoff and has limited debt repayment capacity. Viet Nam is an IDA-only borrower and has been classified as a severely indebted country by the World Bank. However, its debt burden has been assessed as sustainable over the long term. The regional crisis is likely to dampen Viet Nam’s growth prospects. Nevertheless, the country is still expected to grow at around 5-6 percent over the next two years. As such, it will have access to ADF with limited amounts of OCR.

2. PRC and India are below the cutoff but have adequate debt repayment capacity. The proposed approach as per the decision matrix would have allowed these countries limited eligibility for ADF resources. However, the Report of Donors states that it would not be possible to make ADF resources available to PRC and India during the ADF VII period. Both PRC and India are IDA-IBRD blend borrowers.

3. Papua New Guinea and the Philippines (both blend DMCs under the existing system) will graduate from ADF.

1. In terms of the relevant indicators, the Philippines has adequate debt repayment capacity to service loans on OCR terms. Its per capita GNP is above the IDA operational cutoff of $925 at 1997 prices. The Philippines crossed the applicable IDA operational cutoff in 1994 and has remained above the cutoffs updated in subsequent years. It graduated from IDA in 1993.
2. Papua New Guinea has adequate debt repayment capacity for servicing loans on OCR terms, is also above the per capita GNP operational cutoff, and graduated from IDA in 1982.

4. Due to its current economic circumstances, Indonesia will be classified under OCR with limited ADF but will be placed on a “watchlist” for subsequent graduation from ADF.

5. Two Central Asian DMCs, Kazakhstan and Uzbekistan, are above the proposed per capita GNP operational cutoff. They also have adequate capacity over the medium term to service debt on OCR terms. These DMCs will be graduated to OCR-only.

63. As per the above classification, four countries will move from blend status to OCR-only status. The phase out of ADF has been operationally completed for three of the four DMCs, namely Kazakhstan, Philippines, and Uzbekistan. The fourth DMC, namely Papua New Guinea, is programmed as of date for ADF lending up to 2001. Following the reclassification, it is proposed that the phaseout of ADF for Papua New Guinea be advanced to the year 2000, i.e., over the next two years. These countries together with Thailand (a DMC that ceased to have access to OCR in 1983 but has remained in Group B) will be reclassified from Group B to Group C.

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