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Business Session at 52nd ADB Annual Meeting – Takehiko Nakao

Speech | 4 May 2019

Report by ADB President Takehiko Nakao to ADB Board of Governors at the Business Session of the 52nd ADB Annual Meeting on 4 May 2019 in Fiji

Introduction

Good afternoon. This is a good opportunity for me to personally report to the Board of Governors regarding the state of ADB.

Last July, ADB’s Strategy 2030 was approved by the Board of Directors. We are now taking steps to implement the strategy to better respond to the complex challenges and changing needs of our developing member countries.

Today, I would like to discuss key achievements in 2018 and our prospects for 2019 and going forward, without repeating the points I made in my opening remarks yesterday.

Performance in 2018

In 2018, ADB’s commitment of loans and grants reached a record high of $21.6 billion, a 10% increase from $19.7 billion in 2017. Disbursements also improved, rising to $14.2 billion in 2018, an increase of 24% from the previous year.

We quickly responded to emergencies, including Cyclone Gita in Tonga and the earthquake disaster in Indonesia. ADB provided assistance to displaced people in Bangladesh with a grant of $100 million. Although Bangladesh is not eligible for ADB grants, we made an exception thanks to the support of the Asian Development Fund (ADF) donors, enabling ADB’s flexible response to this humanitarian crisis.

In our private sector operations, we are increasingly providing loans to the private sector in local currencies, not only such as renminbi, baht, and Indian rupee but also including currencies of Armenia, Georgia, Mongolia, and others, to respond to client needs and foster capital market development in our developing member countries. To fund these operations, the Treasury Department is expanding local currency bond issuance.

ADB is expanding equity investment to nurture the private sector in frontier economies. We recently strengthened our equity teams both in the Private Sector Operations Department and the Office of Risk Management.

In 2018, our private sector operations mobilized $7.2 billion in cofinancing on top of $3.1 billion from its own resources, an increase of over 20% from the previous year. Commercial cofinancing includes B-loans and parallel financing with commercial banks and risk transfers to private insurance companies. We are also increasing our public cofinancing for our private sector operations, such as the trust funds from JICA (LEAP) and the Canadian government (CFPS).

We secured seven new mandates for public-private partnership (PPP) transaction advisory services and reached commercial closure on three transactions. We are effectively using the Asia Pacific Project Preparation Facility to support PPPs.

On the funding side, we raised more than $23 billion in 17 different currencies, including 11 local currencies, which is one of the most diversified borrowing programs ADB has implemented. The 2018 borrowing program included issuance of thematic bonds such as green, gender, and water bonds, totaling $1.8 billion.

ADB is expanding our role as a knowledge provider. We are establishing a High-Level Advisory Group on Digital Technology for Development that will be composed of recognized leaders in academia and IT industries. The group will advise ADB on how digital technologies can be applied in our operations.

ADB is modernizing itself by advancing a digital transformation. Through our Digital Agenda 2030 which the Board of Directors approved last year, we will make an internal capital IT investment that amounts to $118 million in its first stage from 2019 to 2023. The Digital Agenda will further strengthen ADB’s IT systems, including real-time access to data.

I am pleased to announce that 2018 was ADB’s best year since we started a corporate scorecard in 2009 in our corporate results framework. At all levels—from delivery of development results, to performance of ongoing operations, to internal management—key targets were achieved or surpassed.

Implementing Strategy 2030

This year, we started implementing Strategy 2030.

To achieve the ambitious goals under Strategy 2030, we need to strengthen our human resources. We introduced a new performance management system that includes a 360-degree assessment of managers. In 2018, we recruited a record 370 new staff, including 22 young professionals. We made good progress on staff diversity, in particular gender balance. Women now account for 36% of ADB’s international staff, putting us one step closer to meeting our target of 40% by the end of 2022. One area where further progress is needed is gender balance of the Board of Directors. Recognizing it is the responsibility of ADB’s Governors to nominate and elect Directors and Alternate Directors to ADB’s Board of Directors, I seek the cooperation of all Governors in giving gender balance more attention going forward.

We will continue to recruit fresh talent. To develop and deploy our staff more effectively, we will promote staff mobility between departments, introduce flexible work arrangements, and continue to strengthen training for managers and staff.

ADB puts utmost importance to transparency and accountability. In 2018, ADB was ranked first by the International Aid Transparency Initiative among multilateral and bilateral donor organizations. Also last year, we adopted our new Access to Information Policy, which is based on presumption in favor of disclosure. This will further increase our transparency and promote the participation of stakeholders, including civil society organizations.

Let me talk a little bit about our financial resources. As I mentioned earlier, last year’s total commitment of loans and grants was $21.6 billion compared to $13.9 billion in 2013 when I was appointed President of ADB. Such an expansion became possible thanks to the successful merger of our ordinary capital resources balance sheet and the ADF concessional lending operations in 2017.

Going forward, ADB’s operations are expected to continue to increase moderately to respond to growing client needs. This is possible without asking for a capital increase in the near future. I want to emphasize that, from now on, ADB should intensify its focus on quality. Achieving volume targets remains important, but it should come with quality.

One of the important agendas for this year is to consider greater diversification of our financing terms. We have a system of providing regular OCR loans, concessional loans, ADF grants, and their combinations depending on the country’s stage of development and situations. While we are continuing to support upper-middle income countries in such areas as climate change and regional public goods, it is natural to consider differentiated pricing among our regular OCR loans reflecting the evolution of country situations.

ADB will continue to apply the graduation policy with close consultation with the country, based on the three criteria: (i) per capita national income; (ii) availability of commercial capital flows on reasonable terms, and (iii) strength of key economic and social institutions.

Providing grant support to the poorest and most vulnerable developing member countries will remain an essential function of ADB. We started consultations with our donors for the ADF 13 replenishment that covers 2021 to 2024. We are considering how to use the grants for some thematic priorities such as climate change, gender, disaster prevention and management, and regional public goods such as regional health security. We are aiming at next year’s annual meeting for the conclusion of the ADF 13 replenishment. I look forward to your constructive input and discussion to that end.

I would like to touch upon the governance of ADB. The G20 Eminent Persons’ Group report published last year emphasized that the governance of multilateral development banks (MDBs) needs to be brought up to date. ADB is reforming and reinventing itself.

As part of ADB’s governance reform, we are reviewing the functional relationship between our Board of Directors and Management. We aim to enhance our effectiveness by reorienting the Board’s focus to strategic priorities and adopting a practical risk-based approach that delegates greater responsibility to ADB Management for project and program approvals. As the scale and complexity of ADB’s operations increase, we need a new model to achieve the dual targets of securing the role of the Board on the direction of ADB on the one hand, and enhancing efficiencies and speed in decision making on the other.

Contrary to some perceptions, MDBs have been closely collaborating with each other and the IMF at various levels. MDB leaders meet at least three times a year. In addition, MDB staff from almost all departments have regular meetings with other MDB peers. As encouraged by the G20 Eminent Persons’ Group, ADB will continue to strengthen its collaboration among MDBs and the IMF to work as a system. This includes the idea of country platforms with a focus on (i) ownership by countries, (ii) debt sustainability, (iii) involvement of bilateral financiers, and (iv) and private sector resource mobilization.

Closing

Let me conclude by reaffirming my commitment to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific. I expect your continued strong support.