- ADB's range of public sector loans and grants respond to the evolving needs of its developing member countries and the Asia and Pacific region as a whole.
- ADB’s policy-based loans provide general budget support to public sector borrowers, helping countries that are facing a financing gap in their annual budget.
- ADB’s sector development program combines policy-based lending with investment lending, providing an integrated solution to a country’s sector needs.
ADB offers its developing member countries different types of financing modalities to support governments in boosting economic growth and solving development challenges. Responding to the evolving needs of countries and the Asia and Pacific region as a whole, ADB's range of public sector loans and grants differ in purpose, focus, financing and disbursements, and implementation arrangements. This video explains ADB’s policy-based lending (PBL) modality and the sector development program (SDP). PBL provides general budget support to public sector borrowers, helping countries that are facing a financing gap in their annual budget. PBL is disbursed only when the borrower completes policy reforms or actions that have been agreed with ADB. The sector development program (SDP) combines PBL with an investment loan, responding to occasions when a country has both an investment requirement and a need for policy reform in a given sector. SDP finances a country’s reform program along with a specific investment project linked to the program, providing an integrated solution to a country’s sector needs.
Transcript
To support its developing member countries, ADB commonly offers loans that pay for expenses to complete specific investment projects. The policy-based lending—or PBL—modality is different. It transfers loan amounts to the government’s general budget instead of paying for explicit project costs. This helps countries that may be facing a financing gap in their annual budget, and may need additional funds to pay for general development expenditures.
PBL is disbursed only when the borrower completes policy reforms or actions that have been agreed with ADB. Examples include reforms to improve revenue collection and management of public resources, reforms to create a more business friendly investment climate, or those that improve governance and performance of state-owned enterprises. This creates a platform and incentive for governments to carry out improvements with a sector- or economy-wide impacts.
PBL can also be used to respond to a country’s needs in case of crisis, be it economic or caused by disasters triggered by natural hazards.
ADB’s PBL operations fall under two categories: conventional and crisis response PBL. Under these are different forms of PBL that cater to various country situations.
A standalone PBL supports a single program of reforms in a sector over the short- to medium- term. Amounts may be disbursed in one or more tranches depending on the policy actions and timing of implementation agreed with ADB.
A programmatic approach comprises a series of subprograms over the medium-term. Policy actions are tied to each subprogram.
The contingent disaster financing option—or CDF—provides quick-disbursing budget support in case of a disaster triggered by a natural hazard. The government completes reforms focused on disaster preparedness and response before a natural hazard occurs. When it strikes, the country can tap the CDF for urgent relief and recovery efforts.
A policy-based guarantee—or PBG—is also based on completing policy actions, but instead of providing a loan, ADB partially covers a government’s credit risk when it borrows from a private lender or issues a bond. By assuring lenders that ADB will cover the risk of non-repayment, the PBG gives countries access to more credit sources. It also allows the government to learn best practices in commercial borrowing.
Some PBLs are designed for rapid response to fiscal crises. The countercyclical support facility helps deliver fiscal stimulus during an economic crisis. The special PBL supports countries facing balance-of-payments difficulty.
There are times when a country has both an investment requirement and a need for policy reform, in a given sector. ADB provides the sector development program—or SDP—for this purpose. The combined modalities finance a country’s reform program plus a specific investment project linked to the program. SDP provides an integrated solution to a country’s sector needs.
All types of PBLs, including SDP, require strong government ownership and commitment to reform. Policy actions must have sector- or economy-wide impacts. Fiduciary arrangements ensuring efficient use of resources should be in place. There must be close coordination with the International Monetary Fund and other development partners on the proposed reforms, macroeconomic analysis, and to confirm that the borrower’s macroeconomic conditions and policies are satisfactory.
PBL and SDP are key tools in ADB’s support for policy reforms in developing member countries, and for providing general budget support for country’s financing needs.
