Baku, May 2 AZERTAC

The Asian Development Bank’s (ADB) Board of Governors has approved a groundbreaking initiative to combine the lending operations of the bank’s Asian Development Fund (ADF) with its ordinary capital resources (OCR) balance sheet. The merger will boost ADB’s total annual lending and grant approvals to as high as $20 billion—50% more than the current level. ADB assistance to poor countries will rise by up to 70%.

ADB President Takehiko Nakao made the formal announcement at a news conference on the first day of the 48th ADB Annual Meeting in Baku, Azerbaijan. He said the merger was an important milestone for ADB, as it will dramatically expand its lending capacity—particularly to poor countries—when it takes effect in January 2017. The ADF, established in 1973, provides concessional loans (longer loan maturities and lower interest rates) and grants to poorer countries. OCR loans are provided to middle-income countries at market-based rates.

Under the new initiative, OCR equity will almost triple to about $53 billion from about $18 billion as of January 2017. Together with cofinancing, ADB’s annual assistance will reach as high as $40 billion in coming years, up from $23 billion in 2014. Poor countries currently eligible for ADF loans will continue to receive concessional loans from expanded OCR on the same terms and conditions as current ADF loans. The ADF will be retained as a grant-only donor fund to provide assistance to eligible countries.

“This initiative is a win-win-win situation because it increases financial support for poorer members, expands capacity for operations in middle-income countries and the private sector, and reduces the burden for ADF donors,” Mr. Nakao noted. The merger will enhance ADB’s risk-bearing capacity and strengthen its readiness to respond to future economic crises and natural disasters. Donor contributions to continued ADF grant operations will be reduced by up to 50% from the current $1.2 billion, beginning with the next ADF replenishment in 2017.

“We will continue supporting countries in their efforts to sustain economic growth, through more efficient and effective use of our existing resources,” said Mr. Nakao. “The region’s poorer countries need more assistance to pursue economic prosperity while protecting the natural resources and ecosystems that we and future generations depend on.”

ADB started deliberations on the initiative in the summer of 2013. Since then, ADB has had extensive consultations with its developing member countries, particularly ADF recipient countries and ADF donor countries, and with civil society organizations. By the end of February 2015, all 34 of ADF’s donors gave their formal and unanimous consent to the merger, and ADB’s Board of Directors delivered its endorsement the following month.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members - 48 from the region. In 2014, ADB assistance totaled $22.9 billion, including cofinancing of $9.2 billion.