MANILA, PHILIPPINES (30 March 2022) — The Asian Development Bank (ADB) should strengthen its approach to additionality in its private sector operations to ensure that it does not crowd out or displace private and commercial financing, says a report released by ADB’s Independent Evaluation Department (IED) today.
Additionality is a core principle that guides ADB’s support for the private sector and is classified as either financial or nonfinancial additionality. Financial additionality entails the provision of financing that is not readily available from the commercial market at reasonable terms. Nonfinancial additionality is provided through contributions to risk mitigation, standards setting, or capacity building.
The evaluation assessed ADB’s effectiveness in delivering additionality in its private sector projects and the extent to which these contributed to development outcomes during 2008–2020. ADB approved $26.9 billion in 350 private sector projects and $143.2 million in 141 technical assistance projects during the review period.
The evaluation found that ADB delivered additionality in 69% of the evaluated nonsovereign projects, although the satisfactory rate has been trending downward. While additionality interventions have contributed to positive development outcomes, mainly in the energy and finance sectors in Southeast Asia, South Asia, and Central and West Asia, their full potential for value addition was diluted by an inadequate system for ex ante assessment and monitoring of additionality during the review period.
Additionality efforts contributed mostly to the provision of financing not supplied by the commercial market and external capital. These efforts were less credible in cases when the client had strong market presence and demonstrated access to financing and no evidence was provided to substantiate ADB’s additionality claim.
The evaluation also found that while ADB’s corporate strategy has evolved to capture the concept of additionality more accurately, clear guidance to staff on how to operationalize additionality at the country and project levels is lacking. This has led to an uneven understanding of and justification for ADB additionality in project-level approval documents.
“This variance in the application of additionality is risky because of the possibility that, at least in some cases, ADB’s support could distort the market and crowd out private financing,” said IED Director General Emmanuel Jimenez. “This can negatively impact the long-term sustainability of economic development, including attracting much-needed resources to combat climate change and meet other sustainable development goals.”
The report recommends that ADB includes additionality and development effectiveness as core areas of strategic focus for its nonsovereign operations, including making financial additionality a minimum precondition for project approval. The report also recommends scaling up the good practice of assessing additionality when preparing country partnership strategies; further integrating additionality into existing systems to ensure better tracking, monitoring, and reporting; and instituting a capacity development and training program on additionality for staff and other stakeholders.
About Independent Evaluation at ADB
ADB's Independent Evaluation, reporting to the Board of Directors through the Development Effectiveness Committee, contributes to development effectiveness by providing feedback on ADB's policies, strategies, operations, and special concerns in Asia and the Pacific.