Policy-Based Lending 2008–2017: Performance, Results, and Issues of Design
Policy-based lending (PBL) provides developing member countries with fast-disbursing budget support while, at the same time, creating an opportunity for the Asian Development Bank (ADB) to influence policy reforms to boost growth and poverty reduction.
PBL operations amounted to $27.1 billion over 2008–2017, almost half of the total value of the PBL operations approved since the modality was first introduced 40 years ago in 1978. The evaluation notes that one of the countries’ primary motivations for using PBL is that it responds to their immediate financing needs, but they also value the policy advice and technical assistance that accompanies it. PBL has supported countries through difficult times. The evaluation period covers the years of the global financial crisis of 2008–2009 which prompted spiraling demands for financial support on a scale not experienced before. ADB’s total PBL approvals, a combination of conventional PBL and the countercyclical support facility, grew to nearly 45% of total sovereign lending in 2009.
PBL performance improved over the period, which is in line with performance trends at other multilateral development banks. The policy reforms it supported increasingly centered on public sector management (PSM)—mainly in public financial management and decentralization. These PBL operations produced better results in countries with initially low country performance assessment ratings for quality of governance and PSM. The evaluation also found that ADB has contributed to positive results in capital market development in several countries. However, in other areas the results were more variable. While many program completion reports registered policy reforms and positive outcomes, the criticality of the policy actions was not always clear. Furthermore, in both PSM and capital markets it was difficult to assess what difference the reforms supported had had on longer-term development outcomes, such as improved service delivery, economic growth and poverty reduction. ADB needs to be clear on why the policy reforms selected for support – increasingly in PSM – are the most urgent policy priorities that countries face, and the most effective way for ADB to contribute to longer term development outcomes through PBL.
There are several issues with PBL design that, if addressed, could enhance ADB’s role in shaping the region’s policy agenda. More attention to policy reforms in sectors where ADB makes significant investments could play to ADB’s strengths. Corporate guidance on what types of PSM are supported and what approach to take will make it easier to select appropriate interventions. Good coordination with the International Monetary Fund (IMF) is essential. In cases where ADB’s view of the macroeconomic situation diverges from that of the IMF, the risks should be assessed independently of the regional department. A focus on a few major policy actions will be effective and reduce complexity. A proliferation of process-related prior actions in policy matrixes needs to be avoided, and the results chain that links ADB-supported policy actions to reform outcomes needs to be specified more clearly. By investing additional resources in PBL design, capitalizing on ADB’s role as a knowledge bank, and improving monitoring and evaluation, ADB can enhance its contributions to growth and poverty reduction in the Asia and Pacific region.