Opening Remarks at the Second ADF 12 Replenishment Meeting - Takehiko Nakao

Speech | 24 February 2016

Opening remarks by ADB President Takehiko Nakao at the Second ADF 12 Replenishment Meeting on 24 February 2016 in Kathmandu, Nepal

Mr. Chair, Honorable Minister Bishnu Prasad Paudel, ADF deputies and delegates, Board members, ladies and gentlemen,

A very good morning to you all.

To begin, I would like to offer my condolences to the people of Fiji and Tonga for the tragic loss of lives and property caused by the Category 5 Tropical Cyclone Winston. I have written to Prime Minister Bainimarama of Fiji. Our team is also in contact with Tongan authorities. Mr. Eke, the Finance Minister of Tonga, is here with us at this meeting. ADB is coordinating with the authorities in both countries to provide urgent assistance for relief and recovery, and to support a post-disaster needs assessment for rehabilitation and reconstruction.

Ladies and gentlemen,

I would like to thank the Government of Nepal for the hospitality extended to us in Kathmandu. As you would have noted in your field visit yesterday, Nepal has demonstrated strong resilience following the devastating impact of the 2015 earthquake. We believe that the recently established National Reconstruction Authority will facilitate the implementation of reconstruction projects with the “build-back-better” concept. ADB is closely working with the government to accelerate the reconstruction of schools, roads, and government buildings.

I would like to thank the ADF deputies for your constructive engagement on the ADF 12 replenishment. Your perspectives and feedback have helped us tremendously in refining our position and proposals for this replenishment.

Our original intention was to complete the replenishment in two meetings. However, several donors informed us that they need more time for substantive discussion and prefer to pledge at the next meeting. Therefore, we will convene a short formal pledging session in Frankfurt before our Annual General Meeting. We expect to complete all substantive discussions and reach agreement on all outstanding matters during this meeting.

Ladies and gentlemen, 

ADF 12 represents an important opportunity for us to collectively commit to the long-term development of the poorest countries in Asia and the Pacific. As I mentioned during the first meeting, the ADF‒OCR merger has made it possible for ADB to scale up both market-based and concessional operations during the ADF 12 period, from 2017 to 2020.

We propose to increase our concessional assistance, both concessional loans and grants, from $11.1 billion during ADF XI to $15.4 billion during ADF 12, an increase of about 40%. We intend to further increase our annual financing commitment to concessional assistance countries by up to 70% by combining our concessional and market-based assistance. Our support for Afghanistan and other fragile and conflict-affected countries will significantly increase during the ADF 12 period. Our support for small Pacific countries will increase by more than 120%.

We are seeking a strong replenishment of $3.8 billion for the ADF 12 period. This will support country operations through performance-based allocations (PBA), the post-conflict premium for Afghanistan, regional operations through the regional set aside, the disaster response facility, and the technical assistance special fund. While ADB’s income transfer and investment income will take care of $1.2 billion, we need $2.5 billion in new donor contributions. This financing request is consistent with the Scenario 2 we had proposed in the first meeting.

Under ADF 12, we will increase the minimum allocation for each country from $3 million to $6 million, which will particularly help small countries. We also propose to ensure that the allocation for any country does not go down in real terms. This notably will help Papua New Guinea, whose allocation would have otherwise gone down with the removal of the 4.5% set aside for Pacific countries. In addition, as requested by you, for gap countries that have exceeded the IDA eligibility cut-off for two consecutive years and can no longer access IDA grants, we are proposing in ADF 12, 2 extra years during which they can continue to access ADF grants.  

We have planned a strong program of assistance to use this financing in the most effective and efficient way. We will pursue 7 key thematic priorities during ADF 12 to deliver inclusive and sustainable development in concessional assistance countries.

These priorities are: mainstreaming gender in operations; addressing fragile and conflict-affected situations; promoting food security; strengthening private sector development; improving governance and capacities; strengthening preparedness and response to climate change and natural disasters; and supporting regional public goods.

Let me emphasize 3 key areas for which we seek your support.

The first is disaster risk reduction. We have mainstreamed disaster risk reduction and dropped the idea of a supplementary ADF facility—as you had suggested at the first meeting. Your support will help strengthen disaster risk preparedness, build institutional capacities, and redress the systemic underinvestment in dealing with disaster risk. The frequency and severity of natural disasters, including most recently Tropical Cyclone Winston which struck our Pacific DMCs, highlight the need for ADB to assist vulnerable countries with financing and capacity building support to develop disaster preparedness and build resilience.

The second is regional health security. While we do not specifically request additional resources for this, we are seeking your support to use grants from the regional set aside for investments to deal with deadly cross-border diseases.

Third, we are seeking your consensus to relax the three-year ceiling from current 22.5% for policy-based operations in all concessional assistance countries. We will make our utmost effort to ensure this share does not exceed 30%. Should it exceed 30%, we will report back to the Board and seek its guidance.

We have carefully managed our policy-based operations. But we are now hitting the 22.5% ceiling. Last year, a planned ADF policy-based operation in one country had to be partly financed from OCR to avoid breaching the ceiling. This hard ceiling severely constrains our ability to support reforms that are critically needed in low-income countries. There is no such ceiling at the World Bank, and at the Inter-American Development Bank it is 30%. The ADB ceiling has not been reviewed in the last 25 years. We believe the ceiling needs to be revised urgently.

I want to share with you a problem that has recently been of concern to me. Uncertainty in the global economy is making many of our low-income developing member countries (DMCs) anxious. Many fear that their economic prospects could be seriously impaired by lower commodity prices, sharp reductions in remittances, declining trade due to weaker growth in the People's Republic of China, and negative spillovers from financial volatility, including pressures on exchange rates. The extent of these impacts is not yet fully known, but we should be ready to support all our DMCs irrespective of whether they are eligible for concessional assistance or market-based assistance. We need to make sure we have the right toolkit to respond.

In this context, one possibility could be to use the “ADF grant reserve for changes in debt distress classification” to provide additional grant support to countries, should their economic conditions deteriorate. Likewise, we could use the “concessional lending reserve” to provide additional loan support to countries. This is not an issue to be resolved before the completion of the ADF 12 replenishment negotiations. However, the reason why I put this issue on the table in this meeting is because we need to start thinking ahead. We plan to come back to you with a more concrete proposal as part of our regular dialogue with donors as well as consultation with Board members.

Ladies and gentlemen,

We will discuss these issues over the next two days. I am confident that we will have productive deliberations on these and other topics.

ADF has played a critical role in supporting low-income countries in the region. Our partnership still has a long way to go in fighting poverty and improving the quality of lives of people in our region. The countdown to deliver on the Sustainable Development Goals and the global climate deal has already begun. We cannot afford to fail on these shared goals.

Thank you.