Allocation of Concessional Resources

Demand for concessional financing which includes ADF grants and concessional ordinary capital resources lending (COL) in Asia and the Pacific exceeds what ADB can finance. ADB therefore allocates resources based on performance to direct the funds to where they will be used most effectively, on the principle that aid is most effective in accelerating economic growth and poverty reduction in countries where policy and institutional performance is strong. A performance-based allocation (PBA) mechanism is used to divide a limited pool of concessional resources among eligible countries using pre-specified criteria and a formula that links evaluated country performance (and other key variables) to individual country allocations. Many of ADB's developing member countries eligible for concessional assistance are classified as fragile and conflict-affected situations (FCAS) and small island developing states (SIDS).

The risk of debt distress determines the proportion of grants in the country allocation. The debt distress classification is based on debt sustainability analyses using the joint IMF-World Bank debt sustainability framework for low-income countries. It specifies that countries at low risk of debt distress receive no grants, countries at moderate risk of debt distress receive grant allocation equivalent to 50% of PBA share, and countries at high risk of debt distress receive full grant share.

The Concessional Assistance Policy for the ADF 13 Period (2021-2024) guides the allocation of concessional resources. It introduced revisions to the resource allocation frameworks to implement the strategic directions and improve the effectiveness and efficiency of the ADF and COL allocation process, as agreed between ADB Management and ADF donors during the ADF 13 replenishment negotiations.

The ADF 13 resource allocation framework for grants adopts a two-pillar approach, consisting of country- and theme-based components. Country allocations of ADF grants are the sum of PBAs, economic vulnerability premia for ADF grant-eligible SIDS, and the special allocation for Afghanistan. The allocation of COL is based on a combined PBA and a need-based approach (each accounting for 50% of overall resource allocation under ADF 13). For the need-based component, country allocation shares for eligible countries for the next year are determined based on a 5-year horizon as an average of actual commitments of programs and projects of the past two years and rolling pipelines of lending products of the current and next two years, following the most recent work program and budget framework¹.

¹ The work program and budget framework defines the parameters and main thrusts of ADB’s operations and provides the framework for preparing the budget for the upcoming year.

Country Performance Assessments

Country performance assessments (CPA) are the bedrock of the PBA. ADB gauges the performance of eligible borrowers with access to concessional resources by conducting CPAs and uses the results to derive the relative sizes of concessional resource allocations. ADB conducts its CPAs using the World Bank's country policy and institutional assessment questionnaire. Each country's performance is assessed based on the:

• coherence of its macroeconomic and structural policies;
• degree to which its policies and institutions promote equity and inclusion;
• quality of its governance and public sector management; and
• performance of its portfolio of ongoing projects and programs

The CPA results are used in the following:

• Key input to the PBA mechanism;
• Vehicle for policy dialogue;
• Assessments of fragile and conflict-affected states; and
• Credit worthiness assessments, to determine country group classification.

The CPA exercises are conducted every 2 years for ADF- and COL-eligible countries covering country performance during a given period with the results disclosed through a CPA Report. Country ratings along with the CPA averages are provided for ADF- and COL-eligible countries.

CPA Annual Reports