Asian Development Fund (ADF)
What is the Asian Development Fund?
The Asian Development Fund (ADF) provides grants to ADB's lower-income developing member countries (DMCs). Established in 1974, the ADF initially provided loans on concessional terms. Grants were introduced in 2005, and beginning 2017, with ADB’s concessional lending financed from its ordinary capital resources (OCR), the ADF has become a grant-only operation. Activities supported by the ADF promote poverty reduction and improvements in the quality of life in the poorer countries of the Asia and Pacific region.
How is ADF funded?
ADF resources come mainly from contributions of ADB's member countries, which are mobilized under periodic replenishments, and net income transfers from OCR. Initial contributions to the ADF were pledged in 1973 and designated as ADF I. Since then, the ADF has been replenished several times. The eleventh replenishment (ADF 12), which will support grant operations during the period 2017–2020, is the first after the combination of concessional loan operations with ADB’s OCR balance sheet. Thirty-four members of ADB have provided direct contributions to the ADF since its establishment:
Australia; Austria; Belgium; Brunei Darussalam; Canada; China, People’s Republic of; Denmark; Finland; France; Germany; Hong Kong, China; India; Indonesia; Ireland; Italy; Japan; Kazakhstan; Korea, Republic of; Luxembourg; Malaysia; Nauru; The Netherlands; New Zealand; Norway; Portugal; Singapore; Spain; Sweden; Switzerland; Taipei,China; Thailand; Turkey; United Kingdom; United States
Who is eligible for ADF assistance?
Currently, 18 DMCs are classified as concessional assistance only and eligible for ADF grants: Afghanistan, Bhutan, Cambodia, Kiribati, Kyrgyz Republic, Lao People’s Democratic Republic, Maldives, Marshall Islands,Federated States of Micronesia, Myanmar, Nauru, Nepal, Samoa, Solomon Islands, Tajikistan, Tonga, Tuvalu, and Vanuatu.
However, only DMCs with moderate to high risk of debt distress are allocated ADF grants. These DMCs fall under one of three groups based on risk of debt distress:
- "grants-only" countries;
- “ADF-blend" countries, which have access to both the ADF grants and concessional OCR loans (COL); and
- “COL-only” countries.
How are ADF resources allocated?
ADB's concessional assistance policy guides the allocation of concessional resources, including ADF grants. The main instrument for distributing concessional resources is a performance-based allocation system which uses a formula that includes a number of key development variables designed to fairly allocate concessional support among the many competing needs, and to direct the funds to where they will be used most effectively.
The proportion of assistance provided as grant financing is contingent on the country's risk of debt distress. This is determined by the outcome of a forward-looking debt sustainability analysis. High-risk countries will receive 100% of their allocation as grants and moderate-risk countries, 50%, while low-risk countries will receive only loans. To avoid rewarding poor performance, a 20% volume discount will be applied to the grant portion of a country's performance-based allocation.
How are ADF resources utilized?
ADF-financed operations serve many of the economic, strategic, and humanitarian interests of contributing members in a cost-effective manner. No other multilateral fund is as directly and broadly involved in the economic and social development of poor and less creditworthy countries in Asia and the Pacific.
ADB member countries see ADF financing as important for achieving ADB's vision of a region free from poverty. In support of this overarching objective, ADF financing is used to support development projects and programs that include:
- policy support and policy reform;
- production capacity, human development, and environmentally sustainable investments;
- good governance and capacity building for development management; and
- regional cooperation.