Relevance and Results of Concessional Finance: Asian Development Fund XI and 12
The Asian Development Bank’s (ADB) concessional finance window, the Asian Development Fund, is approaching 50 years of existence. Over that time, it has allocated funding to the poorest countries in Asia and the Pacific, rewarded good performance, and provided exceptional support to the region’s smallest countries as well as those affected by fragility and conflict. It has added finance for specific development objectives for regional and global public goods and crisis response and introduced grants to help countries suffering debt distress. Used in this way, concessional resources have contributed to ADB’s long-term development goal of poverty reduction in Asia and the Pacific. However, the current more challenging sustainable development agenda, which has moved beyond income poverty outcomes, now requires urgent attention across all countries.
While dramatic progress has been made in lifting people out of extreme poverty, many millions remain economically insecure, living on or just above the poverty line. The rapidly accelerating climate crisis, especially in small Pacific atolls, unrelenting conflict and insecurity in several countries, huge damage done by natural hazards in increasingly overcrowded and unplanned environments, and slow progress toward achieving the Sustainable Development Goals mean there is a risk that poverty gains may be reversed in the medium term.
Growth and poverty reduction cannot come at the cost of further environmental degradation, especially when technological advances mean that cleaner and more sustainable alternatives are available, and concessional resources can be used to incentivize countries to follow low-carbon paths. The climate crisis should not be accompanied by a tragedy of the commons, with developing countries reluctant to take a first step. In line with Strategy 2030, ADB must do all it can to lift efforts to tackle the urgent risks that the region now faces, and which in some of the smaller, more isolated developing member countries have led to an existential crisis.
Leveraging ADB financing in innovative ways is imperative. Through combining its concessional and nonconcessional balance sheets, ADB has already taken bold steps to increase the supply of concessional resources, including grants. However, leveraging finance for sustainable development must also include the private sector, given the ambition of the sustainable development agenda. Incentivizing private finance by using concessional resources to reduce the risks of investments that have potentially high social and environmental public good payoffs should be pursued in countries eligible for concessional assistance. ADB can use results-based incentive payments (e.g., grants and targeted concessional loans or guarantees) to help combat global public bads, e.g., to encourage low-carbon development choices or by changing the risk-return profile of financing structures.
While this evaluation looks back at how concessional resources have been used in ADB and how this has contributed to results, its strategic intentions and main message are clearly forward looking; concessional resources need to play a significant role in ensuring sustainable development in the Asia and Pacific region. Some benefits will go beyond it. ADB has made good use of concessional resources in the battle against poverty, but it now needs to use them to tackle the growing risks threatening the region’s remarkable achievements and to continue supporting the most vulnerable. ADB has demonstrated innovation and leadership in this and should continue to do so contributing at the same time to accelerate efforts towards the Sustainable Development Goals.