Special Evaluation Study on the Asian Development Fund Operations: A Decade of Supporting Poverty Reduction in Asia and the Pacific Region

Background

ADB established the Asian Development Fund (ADF) for concessionary lending to poorer developing member countries (DMCs) by reconstituting an earlier Special Fund in 1974. The ADF's purpose is to promote economic and social development in those DMCs. Its resources are replenished every 3-5 years by donors and are allocated to eligible DMCs according to a formula (known as performance-based allocation) that is based on the country performance assessment rating, per capita income (or gross national product where national income estimates are not available), and population. ADF donors' reports, prepared at the conclusion of replenishment negotiations, provide the framework for ADF resource allocation to eligible countries. These reports also contain commitments or statements agreed upon during negotiations. ADF resources are used for providing loans; technical assistance (TA); and, since 2005, grants under certain conditions.

This study reviews the development effectiveness of ADF operations approved during ADF VIII and ADF IX (2001-2008) and reports on progress in the first 2 years of implementing ADF X (2009-2010). It focuses on the development effectiveness of ADF-financed operations. It identifies key issues, and offers recommendations for strengthening ADF operations in DMCs.

Key findings

On financing ADF operations

• The size of the ADF has increased faster than donor contributions.
• There is a need to respond more flexibly and substantially to the requirements of poorer and smaller crisis-affected countries.
• Blend countries have relied more on ordinary capital resources.
• ADF sector allocations have largely met ADF commitments.
• Support for economic crisis has been uneven.

On performance of ADB operations (2001-2010)

• The performance of ADF operations at the country-level presents a mixed picture.
• The success rate of ADF projects improved, but the average was adversely affected the poor performance of projects in Pakistan.
• Success rate varied substantially among sectors.
• Efficiency ratings improved but remain low.
• Achievement of envisaged project and sector development outcomes was weak, in part due to the low effectiveness of the Pakistan portfolio.
• The success rate for program loans improved, but policy-based operations need to be more effective.
• ADF contributed towards development impact.
• Both project design and implementation influenced project success.
• Sustainability of ADF operations continues to be a challenge.
• Weak institutional capacity is an important threat to project effectiveness and sustainability.

Progress in other areas

• Governance continues to be a major challenge.
• ADB's focus on private sector development has been increasing.
• Gender mainstreaming has been back on track in recent years after some setbacks.
• Environmental sustainability as a theme has grown in ADF operations.
• Regional cooperation is becoming more prominent in ADF operations.
• Harmonization and alignment have improved.
• Progress in implementing recommendations of the 2007 evaluation of ADF operations.

Key issues

• Limited progress in non-income Millennium Development Goals.
• Growing inequalities.
• Emerging development challenges such as climate change, natural disasters, economic and environmental fragility, rapid urbanization, food security and macroeconomic and financial sector vulnerability.
• Impact of crises on ADF countries.
• Impact of grants on future ADF support.
• Decline in project preparatory TA.

Recommendations

• Seek increased donor funding for ADF operations, particularly for ADF-only countries, to further reduce poverty (income and non-income) and enable them to better cope with vulnerabilities.
• Increase education, rural infrastructure, water and sanitation, and environment operations to help achieve related Millennium Development Goal targets.
• Strengthen capacity development efforts on the basis of capacity development strategies at country and sector levels.
• Strengthen ADF operations through adequate allocation of TA resources to improve project design and country institutional capacity.
• Improve the development effectiveness of ADF operations further by adopting a proactive, holistic approach to addressing sustainability concerns in country strategies and programs.