October 2014

Work Program and Budget Framework, 2015–2017

This document is being disclosed to the public in accordance with ADB's Public Communications Policy 2011.

ABBREVIATIONS

ABMI ADB ADF AIF ANR ASEAN BIMP-EAGA BPMSD CAREC CKSP CoPs CPS DMC FCAS GACAP II GHG GMS ICT IDRM IMT-GT IRAA JFJCM Lao PDR MIC MTR O&M OCR PNG PPP PRC PSOD RAMP RCI SASEC SMEs TA TVET WPBF

– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

Asian Bond Markets Initiative Asian Development Bank Asian Development Fund ASEAN Infrastructure Fund agriculture and natural resources Association of Southeast Asian Nations Brunei Darussalam–Indonesia–Malaysia–Philippines East ASEAN Growth Area Budget, Personnel, and Management Systems Department Central Asia Regional Economic Cooperation country knowledge strategy and plan communities of practice country partnership strategy developing member country fragile and conflict-affected situation Second Governance and Anticorruption Action Plan greenhouse gas Greater Mekong Subregion information and communication technology integrated disaster risk management Indonesia–Malaysia–Thailand Growth Triangle indicative resources available for approval Japan Fund for the Joint Crediting Mechanism Lao People’s Democratic Republic middle-income country midterm review operations and maintenance ordinary capital resources Papua New Guinea public–private partnership People’s Republic of China Private Sector Operations Department risk assessment and risk management plan regional cooperation and integration South Asia Subregional Economic Cooperation small- and medium-sized enterprises technical assistance technical and vocational education and training work program and budget framework

NOTE

In this report, "$" refers to US dollars.

In preparing any country program and strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgment as to the legal or other status of any territory area.

Directors General K. Sakai, Strategy and Policy Department (SPD) Y. Kanzaki, Budget, Personnel, and Management Systems Department

(BPMSD) Directors S. Jarvenpaa, Operations Planning and Coordination Division, SPD

E. Zhukov, Budget and Management Services Division, BPMSD

Team Leaders A. Hussain, Lead Operations Planning and Coordination Specialist, SPD Y. Ye, Principal Budget and Management Services Specialist, BPMSD Team Members M. De Asis, Associate Strategy and Policy Analyst, SPD

I. De Guzman, Associate Strategy and Policy Officer, SPD V. Dimaano, Senior Strategy and Policy Officer, SPD X. Jia, Principal Institutional Coordination Specialist, BPMSD E. Lilly, Senior Budget and Management Services Specialist, BPMSD M. Macapanpan, Senior Strategy and Policy Assistant, SPD G. Ong, Strategy and Policy Officer, SPD M. S. Regalado, Strategy and Policy Officer, SPD G. Sevilla, Strategy and Policy Analyst, SPD K. Wangdi, Principal Budget and Management Services Specialist, BPMSD

CONTENTS EXECUTIVE SUMMARY i

I. INTRODUCTION 1

II. OPERATIONAL HIGHLIGHTS, 2015–2017 1

III. STRATEGIC PRIORITIES, 2015–2017 4

A. Sharpening ADB’s Operational Focus 4 1. Poverty Reduction and Inclusive Economic Growth 4 2. Environment and Climate Change 14 3. Regional Cooperation and Integration 22 4. Infrastructure Development 27

B. Responding to the New Business Environment 31 5. Middle-Income Countries 31 6. Private Sector Development and Operations 33 7. Knowledge Solutions 34

A. Strengthening ADB’s Capacity and Effectiveness 36 8. Financial Resources and Partnerships 36 9. Delivering Value for Money in ADB 38 10. Organizing to Meet New Challenges 41

IV. INDICATIVE RESOURCES AVAILABLE FOR APPROVAL 43 A. Lending Operations 43 B. Technical Assistance Operations 44

V. HUMAN RESOURCES AND BUDGET REQUIREMENT 45 A. Cost Drivers 45 B. Efficiency Measures to Contain Budget Growth 46 C. Staffing Requirements 47 D. Other Budgetary Resource Requirements 48 E. Budget Preview and Indicative Budget Growth 49

APPENDIXES 1. Iterative Planning Process 52 2. Indicative Sovereign Operations Program by Sector 53 3. Indicative Sovereign Operations Program by Strategic Agenda 55 4. Indicative Sovereign Operations Program by Drivers of Change 58 5. Ten-Point Procurement Reform Plan 60 6. Indicative Resources Available for Approval 62 7. Indicative Work Program: Summary of Selected Deliverables 65

EXECUTIVE SUMMARY The Work Program and Budget Framework (WPBF), 2015–2017 provides a medium-

term context for ADB’s 2015 budget. It is underpinned by strategic and operational priorities of the Asian Development Bank (ADB) within the framework of the midterm review (MTR) of Strategy 2020 approved in April 2014.1 The WPBF shows the magnitude, sector, and thematic composition of the pipeline of operations which have been jointly determined by ADB and its developing member countries (DMCs), taking into account priorities of each DMC and the MTR.

The operational pipeline for 2015–2017 shows that ADB is making initial progress in aligning its operations with the MTR priorities. The shares of education and health sector operations are expected to increase to 6 percent and 2 percent, respectively, although more efforts are needed to meet the MTR targets for these sectors at 6–10 percent and 3–5 percent. The volume of operations for food security and clean energy are expected to be about $2 billion each per year—the targets set in the MTR. Support for regional cooperation and integration is expected to increase to 25 percent of total project approvals, and support for the second-generation regional cooperation and integration strengthened, including assistance for trade facilitation, trade policy, and capacity development. The share of operations supporting governance and capacity development, which already exceeds the “above the baseline” corporate results framework target of 57 percent, is expected to further increase to 71 percent. The share of operations for gender mainstreaming is expected to be 51 percent, above the results framework target of 45 percent. However, there are areas where more efforts are needed, such as social protection and sustainable transport. In achieving sector operational objectives and deepening engagement with its DMCs, many of which will be acquiring middle-income country status, ADB will emphasize the key role of knowledge solutions.

During the WPBF period, ADB will (i) adopt a differentiated, country-focused approach; (ii) delegate greater authority and responsibility to its resident missions; (iii) strengthen partnerships with other development partners and civil society organizations; (iv) intensify efforts to mobilize cofinancing for its operational program; and (v) undertake institutional changes that will enable ADB to deliver the MTR priorities in a timely manner. ADB will undertake longer-term sector assessments, and improve the design and implementation of its operations to accelerate disbursements and produce outputs and outcomes in a timelier manner. The “One ADB” performance metric will be strengthened to foster greater synergy between sovereign and nonsovereign operations as well as knowledge solutions work. ADB will monitor its performance under the strengthened corporate results framework.

Regarding the indicative resources available for approval, the WPBF, 2015–2017 seeks to maintain a minimum of $10 billion annual ordinary capital resources operations which is consistent with its sustainable level of lending over the WPBF period. The level of annual Asian Development Fund (ADF) operations, $2.9 billion, is based on the available balance of ADF XI for 2015 and 2016. For 2017, it is assumed that ADF XII size will be the same as ADF XI. If realized, the proposed combining of ADF lending operations with ordinary capital resources balance sheet will have a major positive impact on financial resources in 2017. The proposal is still being discussed with the ADF donors and ADB shareholders. This WPBF does not incorporate the possible impact of the proposal on resource envelope in 2017. To meet larger demands from DMCs than its financial resources, ADB will step up efforts to seek cofinancing from official and commercial financing partners.

1 ADB. 2014. Midterm Review of Strategy 2020: Meeting the Challenges of a Transforming Asia and Pacific. Manila.

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Regarding the budget framework, while the annual approval level is expected to be stable during the WPBF period, the size of the portfolio of ongoing projects (projects approved with disbursements not yet completed) is expected to grow continuously, putting pressure on staff and other resources. The key drivers of incremental staff and budget resources during the WPBF period are related to implementation of MTR Action Plan. The budget formulation and staff resource planning process will continue to contain budget growth while meeting the demands of various cost drivers. A work load analysis will be undertaken in 2015 which together with the ongoing skills audit, will help in the medium run to identify any staff resource gaps and needs for rebalancing available resources.

Overall requirements for additional staff positions are estimated at 18 international staff, 32 national staff, and 32 administrative staff for 2015. No new staff positions are currently projected for 2016–2017. These requirements will be largely met through ADB-wide redeployment. Consequently, 6 new international staff, 11 national staff, and 11 administrative staff positions are proposed in 2015. Driven by these proposed new staff positions; costs related to the outposting of staff; and commensurate increases in support services, such as rentals of the field offices, communications, information technology services, and equipment, a volume increase of 1.4% or $8.5 million is estimated for 2015 budget. However, the projected efficiency gains in 2015 are expected to absorb $4.8 million or 0.8% out of the 1.4% volume increase. The net volume increase is thus estimated at only 0.6% or $3.7 million. Following the refined price factor calculation methodology, the price growth is projected at 3.7%. The overall budget growth for 2015 is therefore projected at 4.3%.

I. INTRODUCTION 1. The Work Program and Budget Framework (WPBF), 2015–2017 describes the strategic and operational priorities of the Asian Development Bank (ADB) within the framework of the midterm review (MTR) of Strategy 2020.1 The WPBF also provides a medium-term context for ADB’s 2015 budget. Given the short period between the approval of the MTR in April 2014 and the WPBF, ADB’s operational program will continue to be refined to support a fuller alignment with the MTR. 2. During the WPBF period, ADB will work with its developing member countries (DMCs) to make growth more inclusive and environmentally sustainable. ADB will increase support for regional cooperation and integration (RCI), strengthen private sector operations, and emphasize the key role of knowledge solutions. In doing so, ADB will (i) adopt a differentiated, country-focused approach; (ii) delegate greater authority and responsibility to its resident missions; (iii) further streamline its business processes; (iv) strengthen partnerships with other development partners; (v) intensify efforts to mobilize cofinancing for its operational program; and (vi) undertake institutional changes that will enable ADB to deliver the MTR priorities in a timely manner. 3. The WPBF, 2015–2017 has been formulated through an iterative planning process (Appendix 1). The process was introduced, following the Board discussions on ADB’s 2014 budget,2 for preparing the WPBF, the internal administrative expenditure budget, and underlying financial scenarios. The objective of this iterative planning process is to provide the Board with an early opportunity to share its views on these key documents, given the close linkages between them. The iterative planning process began earlier this year, with an informal Board seminar on 12 February 2014 to explain the details of the process. On 3 June 2014, the Budget Review Committee of the Board discussed the financial implications of salary and benefits review, and revised price factor methodology for the ADB budget. A Board and Management Retreat was held on 2 September 2014 which discussed (i) the strategic priorities of the WPBF, 2015–2017; (ii) the scenarios for the 2015 budget; and (iii) the financial scenarios underlying these two documents. The WPBF reflects the discussions at the Board and Management Retreat.

II. OPERATIONAL HIGHLIGHTS, 2015–2017

4. Demand for ADB financing continues to remain strong and significantly exceeds its existing resources to meet this demand. The cumulative value of the WPBF, 2015–2017 operational pipeline is constrained by the amount of resources available for approval. Therefore, in addition to its own funding, ADB will leverage its operations through mobilizing cofinancing for its operations during the WPBF period.

5. The following operational highlights were jointly identified by DMC governments and ADB during the 2014 annual country programming exercise, taking into account priorities of each DMC’s national development plan and of the MTR. These operational pipelines are revisited annually, and are subject to change.3 However, these could also be adjusted sooner

1 ADB. 2014. Midterm Review of Strategy 2020: Meeting the Challenges of a Transforming Asia and Pacific. Manila.

2 ADB. 2013. Budget of the Asian Development Bank for 2014. Manila.

3 A pipeline is a set of operations identified for approval during a specific period. In this document, “pipeline” is used

for sovereign operations identified for approval during 2015–2017. As the projects initially identified for ADB financing through country programming exceeded the available operational resources of ADB for this period, the pipeline was determined taking into account the available ADB resources as well as possible cofinancing.

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based on continuing discussions with DMC authorities on their development needs. The analyses of the operational pipelines for 2015−2017, with a data cutoff of 30 June 2014, indicate the following:

(i) Inclusive economic growth. Operations supporting pillars 1, 2, and 3 are projected at 42%, 57%, and 5% by number, respectively.4

(ii) Education. The operational pipeline shows that sovereign education sector operations are projected to be 6% by volume and 8% by number.

(iii) Health. Health sector operations (standalone projects and project components in multisector operations) are projected to be 2% by volume and number.

(iv) Food security. ADB operations promoting food security are cumulatively estimated at $5.9 billion, or 17% of sovereign operations.

(v) Financial inclusion. ADB’s support for financial inclusion is projected to increase by 46% to $476 million from $327 million in 2011–2013.

(vi) Gender equity. The pipeline shows that 44% by volume and 51% by number of sovereign operations plan to incorporate gender mainstreaming in project designs, particularly in the education and infrastructure sectors. For ADF operations, 54% by volume and 58% by number will incorporate gender mainstreaming.

(vii) Clean energy. Annual sovereign approvals for clean energy are projected at $1.9 billion—almost equivalent to the MTR annual target of $2 billion.

(viii) Environment and climate change. Of the planned sovereign operations during the WPBF period, 64% by volume and 61% by number are expected to support the environmentally sustainable growth agenda.

(ix) Sustainable transport. The operational pipeline for the WPBF, 2015–2017 shows that the share of road projects (nonurban) are expected to be 62%. The share of urban transport projects are projected at 23%, while the share of railway projects (nonurban) is projected to be 6%—compared with the MTR targets of 30% for urban transport and 25% for railway.

(x) Disaster risk management. Of the proposed sovereign operations, 12% by volume and 15% by number include integrated disaster risk management (IDRM) components.

(xi) Regional cooperation and integration. The pipeline shows that operations supporting RCI are projected to reach 25% by volume and 24% by number, compared with the MTR target of 30%.

(xii) Infrastructure development. Infrastructure will account for 68% of sovereign operations ($23.5 billion), comprising transport (41%), energy (35%), water (19%), and information and communication technology (ICT) and other infrastructure (5%). Of the 2015–2017 sovereign infrastructure operational pipelines, 53% by volume are expected to be in lagging areas.

(xiii) Private sector development and operations. Projects supporting private sector development and private sector operations are projected to be 44% by volume and 49% by number, compared with the MTR target of 50% by 2020.

(xiv) Governance and capacity development. The operational pipeline shows that operations supporting governance and capacity development are expected to

4 Inclusive economic growth has three requirements or pillars: (i) high and sustainable growth to create and expand

economic opportunities, including jobs—pillar 1; (ii) broader access to economic opportunities, including jobs, especially for the poor and disadvantaged, to ensure that members of society can participate in and benefit from growth—pillar 2; and (iii) provision of adequate social protection to reduce poverty and vulnerability—pillar 3. Support to social protection includes stand-alone social protection initiatives as well as social protection components in projects supporting pillars 1 and 2.

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reach 64% by volume and 71% by number—exceeding the 2016 ADB results framework target of 57%.5

(xv) Cofinancing. During the WPBF period, the cofinancing ratio is projected to reach 72%.6

(xvi) Technical assistance. During the WPBF period, technical assistance (TA) operations are expected to be $900 million or an annual average of $300 million. The 2015 TA program will support capacity development (50%), project preparation (28%), policy and advisory (14%), and research and development (8%).

(xvii) Contract awards and disbursements. Contract awards and disbursements for sovereign operations during 2015 are projected at $8.9 billion and $9.5 billion, respectively. Disbursements for 2015 nonsovereign operations are projected at $1.0 billion.

6. The sector composition of ADB’s operations in its DMCs for the WPBF, 2015–2017 is shown in Figure 1 and Appendix 2.

Figure 1: Sovereign Financing by Sector, 2015–2017 ($ million)

ICT = information and communication technology, PSM = public sector management. Notes: Water includes rural sanitation, rural water policy, institutional and capacity development, rural water supply services, urban flood protection, urban hazardous waste management, urban sanitation, urban sewerage, urban solid waste management, and urban water supply. Other infrastructure includes other urban services, renovation and protection of cultural heritage, urban housing, urban policy, institutional and capacity development, and urban slum development. Source: Asian Development Bank staff estimates.

5 ADB. 2012. Review of the ADB Results Framework. Manila.

6 ADB-wide and departmental targets for official cofinancing will be revisited annually based on project pipelines

similar to 2014 exercises.

ICT $114 (0.3%)

Transport $9,655 (28%)

Energy $8,253 (24%)

Water $4,417 (13%)

Agriculture $3,179 (9%)

Finance $2,498

(7%) PSM

$2,131 (6%)

Education $2,112 (6%)

Other Infrastructure $1,036 (3%)

Health $693 (2%)

Industry and Trade $504 (2%)

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III. STRATEGIC PRIORITIES, 2015–2017 7. The MTR identified 10 priorities, which will determine ADB’s strategic focus leading up to 2020. The priorities are (i) poverty reduction and inclusive economic growth, (ii) environment and climate change, (iii) RCI, (iv) infrastructure development, (v) middle-income countries (MICs), (vi) private sector development and operations, (vii) knowledge solutions, (viii) financial resources and partnerships, (ix) delivering value for money in ADB, and (x) organizing to meet new challenges. The first seven priorities seek to sharpen and rebalance ADB operations, and strengthen their responsiveness to the changing business environment. The remaining three aim to increase ADB’s capacity and effectiveness. A. Sharpening ADB’s Operational Focus

1. Poverty Reduction and Inclusive Economic Growth

8. Inclusive economic growth. During the WPBF period, ADB will support infrastructure,7 education, and finance coupled with assistance for health, agriculture, and public sector management to expand economic opportunities, promote broader access to these opportunities, and reduce vulnerability and inequality. Such interventions will connect the poor to the markets, increase their access to modern energy and social services, and reduce their vulnerability. ADB operations in lagging areas will help reduce geographical inequities.8 During 2011–2013, 48% of ADB sovereign approvals by number supported pillar 1 of the inclusive economic growth strategy, while 51% supported pillar 2 and 9% supported pillar 3. The operational pipeline for the WPBF, 2015–2017 shows that 42% of operations will support pillar 1, 57% will support pillar 2, and 5% will support pillar 3 (Appendix 3). In consultation with DMCs, ADB will undertake measures to increase the share of its operations supporting pillar 3 (social protection, footnote 4). Of the total 2015–2017 ADB sovereign operations of $35 billion, $17 billion (about 50%) are in the lagging areas.9 Of the $17 billion, 64% are in rural areas and 26% in urban areas. 9. Education. During 2011–2013, education sector projects accounted for 4% of sovereign approvals by volume and 5% by number. The operational pipeline shows that education sector operations are projected to be 6% by volume and 8% by number for the WPBF period, compared with the MTR target of 6%−10% by volume. As the implementation of the MTR progresses, education operations will need to increase further to meet that target. In addition to continuously improving the relevance of education projects in countries where ADB already has an active education portfolio, ADB will also consider increasing the number of DMCs in which it has education sector operations. More staff positions are needed for education sector to strengthen ADB’s staff capacity and skills in the sector.

10. Consistent with the MTR recommendations, ADB’s education sector projects during the WPBF period will focus on two broad areas: (i) technical and vocational training for skills development, and (ii) post-basic and higher education. In South Asia, ADB has shifted its agenda largely toward skills development, which will expand coverage in the social protection arena and help create jobs. Education interventions will be primarily in the areas of skills

7 Paras. 89–103 describe the contribution of infrastructure operations to inclusive economic growth.

8 A lagging area is defined as an area that is behind other areas when comparing socio-economic characteristics.

Specification of an area as lagging requires a comparison within a developing member country (DMC) to determine which areas are behind others.

9 Sovereign operations supporting lagging areas cover interventions in rural areas, and those that target a

geographic area, households, or binding constraints to the achievement of the Millennium Development Goals.

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development, secondary education, and school sector reform. Support for primary and secondary education will be maintained in Bangladesh. Similarly, Nepal’s education sector pipeline will aim to improve the quality of secondary education, contributing to the employability of poor and disadvantaged groups.

11. In Central Asia, ADB will seek to strengthen assistance to education sector, particularly in technical and vocational education and training (TVET) and skills development. ADB is undertaking analytics for MICs to ensure poorer households are well-served in skills development and education. A TVET project in Tajikistan pays particular attention to the handicapped, while Afghanistan, Azerbaijan, and Turkmenistan have expressed interest in further work in education reform, e-learning, and outreach for the underserved. In Southeast Asia, education sector assistance will emphasize post-basic education, including secondary education, senior secondary education, TVET, and higher education. Projects are proposed in Cambodia, the Lao People’s Democratic Republic (Lao PDR), the Philippines, and Viet Nam. In East Asia, ADB plans to provide assistance for education by supporting TVET projects in the less-developed provinces of the People’s Republic of China (PRC), such as the 2016 TVET project to help upgrade labor skills and boost social inclusiveness in Guizhou Province, one of the country’s poorest provinces. In Southeast Asia, the Myanmar TVET project, Preparing Youth for the Work Place will help bridge the skills gap by preparing youths with marketable employment skills. 12. Health. The MTR aims to expand health sector operations to 3%−5% of ADB’s annual approvals. During 2011–2013, health sector operations accounted for 0.7% of sovereign approvals by volume and 2% by number. The operational pipeline for the WPBF, 2015–2017 shows that health sector operations (stand-alone projects and health components in multisector operations) are projected to be 2% by volume and number. ADB plans to increase its health sector operations substantially to meet the MTR target. Dialogue for reengagement in the health sector has started and a more robust pipeline of operations is likely to emerge by the time of the next WPBF. A new health operational plan will be prepared by the end of 2014, and ADB is considering strengthening staffing for health sector operations.

13. In the proposed health sector operational pipeline, ADB’s operations in South Asia include preparation of two programs, totaling $500 million, during the WPBF, 2015–2017 to support the national urban health mission in India and the second urban primary health care sector development program in Bangladesh.10 In Central Asia, Uzbekistan has asked ADB to support e-health services, and ADB is likely to propose to the government a unique distance health service using television white space (a similar ADB-sponsored project is being pilot tested in Bhutan). In East Asia, ADB is discussing assistance requested by Mongolia for a health sector project on integration of people with disabilities into the labor market. In Southeast Asia, proposed health sector operations will include governance, health financing and insurance, expanding health services, health care access for vulnerable populations, and improved health sector regional goods. In the Lao PDR, a proposed health sector governance program will support public sector management and governance in the health sector. 14. Social protection. ADB assistance for social protection during the WPBF period comprises stand-alone projects, such as support for skills development and targeted cash transfer projects; and components of education, health, and public financial management projects. Compared to 2011–2013, the share of social protection projects is projected to

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The project preparatory technical assistance pipeline includes four health projects in Bangladesh, India, and Mongolia.

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decrease from 9% to 5%. ADB will work with its DMCs to increase assistance for social protection.

15. Examples of ADB assistance for social protection include the following. In Central Asia, health insurance for low-income women and their families is being rolled out in Pakistan under the Social Development Protection Project. Other initiatives being explored in the region include (i) support to the ultra-poor, (ii) voice recognition software for mobile money services, and (iii) ICT methods for distance labor provision. ADB is considering using applied research and knowledge product development in assessing outreach initiatives to poorer households in government services and determining how to more efficiently and effectively target and deliver such services—from debit card payment of pensions in Tajikistan to retargeting of energy subsidies in Pakistan. 16. In South Asia, the Secondary Education Sector Development Investment Program in Bangladesh (tranche 2 in 2015 and tranche 3 in 2017) includes elements of social protection, e.g., a stipend program for girl students and incentives for teachers in underserved areas. In Southeast Asia, social protection lending will include community-driven development approaches and expansion of conditional cash transfer programs, such as the ongoing Social Protection Support Project and the KALAHI-CIDSS National Community-Driven Development Program in the Philippines.11 In Cambodia, ADB will continue supporting social protection elements in ongoing projects, such as poverty-targeted sanitation grants and consumption smoothing,12 such as scholarships, public works programs, and the Voucher Skills Training Program, as well as skills bridging for out-of-school youth (under TVET operations). In the Lao PDR, ADB will continue supporting the Health Equity Fund for northern provinces under the proposed Health Governance Reform Program. In Myanmar, ADB will cooperate with other development partners in engaging the government in policy dialogue and sharing international experiences from the region. A sector development program on preparing youth for the workforce will include social protection elements, possibly targeted stipends and/or other support to disadvantaged students, as well as expanding access to TVET to poor youth. 17. In East Asia, ADB plans to continue with its ongoing social protection initiatives. In the PRC, for example, the TA for Performance Evaluation Model for the Urban and Rural Subsistence Security System aims to provide policy recommendations for strengthening the management information system in order to improve performance evaluation of the PRC’s urban and rural subsistence social protection system. In addition, it will help to increase the efficiency, inclusiveness, and household-level impact of the dibao (urban and rural low-income household subsistence security) system, which forms a safety net of last resort for the rural and urban poor, and serves as the basic building block of the PRC’s social protection system. Additionally, ADB will support the PRC’s reforms to improve social services for senior citizens and strengthen health insurance through private sector participation. In Mongolia, elements of social protection will be included in two proposed projects: Ensuring Integration of People with Disabilities Project, and Ulaanbaatar Urban Services and Ger Area Development Program (Tranche 2).

18. Two new regional capacity development TA projects supporting social protection in DMCs will also be implemented. These TA projects will provide knowledge support to

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ADB. 2010. Report and Recommendation of the President: Proposed Loan and Technical Assistance Grant for, and Administration of Technical Assistance Grant by the Republic of the Philippines for the Social Protection Support Project. Manila; and ADB. 2013. Report and Recommendation of the President: Proposed Loan to the Republic of the Philippines for the KALAHI–CIDSS National Community-Driven Development Project. Manila.

12 Consumption smoothing means the desire to have a relatively even pattern of consumption over time.

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(i) develop the capacity of DMCs to assess and monitor social protection programs through the initiative on the Social Protection Index, (ii) build the statistical capacity of national statistics offices to integrate social protection module in national household income and expenditure surveys, and (iii) improve the delivery of social protection programs by expanding the application of ICT in targeting and payment mechanisms of social protection programs in DMCs. Expected total assistance during the WPBF, 2015–2017 for social protection is estimated at $487 million, of which $152 million will be financed by the ADF. 19. Financial inclusion. As called for in the MTR, ADB will strengthen assistance for microfinance and small- and medium-sized enterprises (SMEs) during the WPBF period, including providing greater access to such services for women and other disadvantaged groups. Complementing its support for SME development, ADB will provide assistance to enhance skills that would match the needs of the industries and support integrated value chains in the agriculture sector. Emphasis will be placed on promoting financial literacy and consumer protection to ensure that risks of exposure to financial services are properly understood and mitigated. ADB will work to deepen financial markets and broaden access to finance to create a more inclusive financial sector and development of capital markets. The financial sector operational plan is expected to be revised in 2014 to target these two key elements and an inclusive business action plan will be prepared by March 2015.

20. Building on its knowledge work on microinsurance, mobile financial services, and risk management for SME finance in Central and West Asia, ADB plans to provide assistance for microfinance in Azerbaijan, women's SME finance in Armenia, mobile banking in the Kyrgyz Republic and Tajikistan, and more regional and inclusive SME and rural housing lending in Uzbekistan. 21. To create a policy and institutional environment conducive to enhanced private sector participation in South Asia, ADB will continue providing support for SME sector development and finance sector development. In Bangladesh, Bhutan, and Nepal, ADB is assisting the governments in developing and deepening the capital markets. In India, ADB is providing a bond guarantee facility to broaden the investor base for infrastructure projects and expand the project bond market. In the Maldives, ADB is developing and expanding micro, small, and medium-sized enterprises for broad-based and sustainable growth. In Sri Lanka, ADB is helping enhance the business environment by improving business registration and e-procurement systems. In Southeast Asia, financial inclusion will be central to ADB’s finance sector operations in Cambodia, the Lao PDR, and Myanmar. Before designing its interventions, ADB is partnering with other development partners to conduct comprehensive diagnostics of the supply and demand situation in each country. 22. To promote financial inclusion in East Asia, ADB operations in the PRC will help improve access to microfinance and SME finance, and inclusive business. ADB plans to continue undertaking knowledge work on microfinance and rural finance to feed into ADB’s policy dialogue on inclusiveness. In Mongolia, ADB’s financial inclusion program (micro and SME finance) will help disadvantaged rural and urban groups to gain better access to finance. In the Pacific, access to finance will increase through a further roll-out of the secured transactions reform, supported under the Private Sector Development Initiative. SMEs in the Pacific will benefit from the Pacific Business Investment Facility that will strengthen their ability to access commercial finance for business expansion and diversification. Financial inclusion will be progressed through the expansion of mobile banking and financial literacy programs in the Solomon Islands and strengthening financial institutions in Papua New Guinea (PNG) and Timor-Leste. The pipeline for the WPBF, 2015–2017 shows that demand for ADB support for

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microfinance and SME finance is projected to increase to $476 million, 46% higher than in 2011–2013. Support for inclusive finance represents 19% of finance operations during this WPBF period. 23. Food security and agricultural productivity. As envisaged in the MTR, ADB operations during the WPBF period will continue to address major constraints encountered by DMCs in ensuring food security and sustaining the agriculture and natural resources (ANR) sector (para. 66). All three pillars relevant to food security (productivity, connectivity, and resilience) will be addressed. More efficient water use, sustainable system operations, and optimum allocation of water resources will be pursued through sector policy dialogue and integrated water resources management. Inadequate connectivity between producers and consumers, which is a food security constraint, will be addressed in part by providing farm-to-market roads and strengthening urban–rural connectivity. 24. Support to strengthen agriculture value chains and provide microfinance also forms part of ADB’s proposed support for improving ANR sector outputs and enhancing food security. The MTR aims to commit about $2 billion dollars in new funding annually for food security. The operational pipeline for the WPBF, 2015–2017 shows annual approval for food security at about $2 billion ($1.96 billion). A new operational plan for ANR is being prepared and is expected to be completed by the end of 2014. 25. Examples of proposed ADB assistance include (i) enhancing agricultural productivity, such as improved quality seed availability at affordable prices, more efficient water use, appropriate utilization of fertilizers, and improved post-harvest handling in Afghanistan, Cambodia, Indonesia, Myanmar, Nepal, the Philippines, and Tajikistan; (ii) promoting agricultural diversification, including support for agricultural research and development and extension services of high-value crops and livestock in Armenia, Cambodia, the PRC, the Kyrgyz Republic, the Lao PDR, Myanmar, and Tajikistan; (iii) supporting commercialization and connectivity, such as defragmentation of agribusiness value chains, improved farm-to-market roads, and enhanced commodity-specific market links in Cambodia, the Lao PDR, Mongolia, Myanmar, Nepal, the Philippines, Samoa, and Viet Nam; and (iv) supporting sustainable natural resources management, such as river basin and watershed planning and management and soil classification and conservation in Cambodia, Indonesia, the Lao PDR, Nepal, Pakistan, the Philippines, and Viet Nam. 26. In July 2014, ADB approved the regional TA on Food Security and Resilience of the Association of Southeast Asian Nations (ASEAN) Member States to Food Price Volatility,13 which will (i) strengthen the ASEAN regional rice reserves system, (ii) develop policies that increase ASEAN rice and food trade and investments, and (iii) develop the market intelligence capacity of the ASEAN food security information system. Further, ADB will catalyze finances and partnerships for food security by (i) monitoring and reporting on the Multilateral Development Banks’ Action Plan on Food and Water Security, a Group of Twenty commitment; (ii) collaborating on operations and knowledge with the Consultative Group on International Agricultural Research, Food and Agricultural Organization, International Fund for Agricultural Development, and World Food Program; and (iii) accessing the Global Agriculture and Food Security Program fund, and implementing projects funded from it.

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ADB. 2014. Technical Assistance for Food Security and Resilience of the Association of Southeast Asian Nations Member States to Food Price Volatility. Manila. ASEAN comprises Brunei Darussalam, Cambodia, Indonesia, the Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Viet Nam.

9

27. Through support from its private sector operations, ADB is increasing its involvement in agribusiness and looking at new transactions that will help improve climate resilience in crop yield improvement, water resource efficiency, and diversification. The sector composition of ADB support for food security during the WPBF period is illustrated in Figure 2.

Figure 2: Sovereign Operations Supporting Food Security by Sector, 2015–2017 ($ million)

ICT = information and communication technology. Note: Other infrastructure refers to urban policy, institutional and capacity development, and rural market infrastructure. Source: Asian Development Bank staff estimates.

28. Narrowing gender gaps. ADB has exceeded the gender mainstreaming target of 45% by number of projects in its corporate results framework. The operational pipeline for the WPBF, 2015–2017 shows that 51% of sovereign operations by number are planned to incorporate gender mainstreaming in project designs particularly in the education and infrastructure sectors. For ADF operations, 58% by number are expected to incorporate gender mainstreaming compared to the target of 55% (Appendix 4). The MTR recognized that mainstreaming alone will not be sufficient to narrow persistent gender gaps and entrenched gender inequalities. While continuing to monitor its projects’ contribution to gender equity and effective gender mainstreaming during the WPBF period, ADB, in consultation with host DMCs, will develop and finance projects aimed at correcting gender disparities and promoting the economic empowerment of women.

29. Proposed ADB operations in Central Asia will (i) seek to increase jobs and income-earning opportunities for women in infrastructure projects; (ii) support business development services for women entrepreneurs, including business incubators, business registration, and access to networks and information; (iii) pilot projects to study the use of ICT to leverage women’s entrepreneurship in Azerbaijan, Kazakhstan, the Kyrgyz Republic, and Uzbekistan; and (iv) include provision of financial services and access to credit in Armenia, Kazakhstan, and the Kyrgyz Republic.

30. In South Asia, ADB will support results-oriented development of secondary and higher education, as well as TVET programs, to improve the employability of young women. Several projects will support energy-based livelihood improvement through women’s microenterprise

Agriculture $2,560 (44%)

Transport $1,029 (18%)

Water $988 (17%)

Other Infrastructure $402 ( 7%)

Finance $345 (6%)

Energy $202 (3%)

Education $190 (3%)

ICT $95 (1%)

Public Sector Management $35 (0.5%)

Industry and Trade

$30 (0.5%)

10

development and skills training. Further, the upcoming energy projects in the 2015–2017 operational pipelines will offer opportunities to provide women with access to labor-saving technologies that will help reduce drudgery, as well as provide opportunities for energy-based income-generation activities. Examples include the proposed 2016 operations in India: Implementation of a Solar Agricultural Pump Program, and Rajasthan Renewable Energy Transmission Investment Program (Tranche 2). 31. In Southeast Asia, ADB plans to (i) develop a project in the Philippines to support rural enterprise development, emphasizing women beneficiaries; (ii) support a grant project to create well-paying local jobs and businesses for women living in rural segments of the East–West economic corridor in Myanmar; and (iii) support the development and implementation of a TVET strategic plan, 2014–2018 and gender policy in the TVET sector in Cambodia to address women’s enrollment. In East Asia, ADB will support projects in the PRC and Mongolia that build pathways for advancement and employment for women through investments in TVET programs, business development services, and rural financial services. Investments in urban development and transport continue to develop project designs which promote women's participation; and address access and mobility needs and assure that services are affordable, convenient and safe. In Mongolia, ADB will support women to engage in forest management and diversity livelihood activities (Sustainable Forest Management to Improve Livelihood of Local Communities) and assist the National Committee on Gender Equality to build capacity for implementing the law on gender equality. 32. In its Pacific DMCs, ADB will seek to achieve effective gender mainstreaming in key infrastructure projects, including urban water activities. Business law reforms supported by the Private Sector Development Initiative are enabling women to start businesses without the need to obtain permission from male relatives. Financial inclusion reforms, particularly through the use of mobile technology, are enabling women to maintain financial accounts that are independent of their male relatives. To better understand the context for gender mainstreaming, updated country gender assessments have been completed in partnership with government and donors for PNG, and Timor-Leste, and are planned for Fiji and Solomon Islands. 33. Governance and capacity building. Recognizing that weak governance and institutional capacities continue to constrain development in many DMCs, the MTR noted that ADB will expand its support for good governance and developing capacity to strengthen the capacity of public institutions to foster inclusive economic growth. More rigorous risk assessment and risk management plans (RAMPs) will be prepared, starting from the country partnership strategy (CPS) stage.14 These will be cascaded from the national level to the sector and project levels, including assessments of capacity in each of these key areas, supplemented by capacity assessments of project executing and implementing agencies. Governance risk assessments are being streamlined, and revised staff guidance on the implementation of Second Governance and Anticorruption Plan (GACAP II) is expected to be completed by December 2014.15

34. Given the spread of ADB operations to lagging areas and to local governments, special attention will be paid to assessing capacities, identifying risks, and outlining remedial measures.

14

Governance RAMPs were prepared in 34 DMCs since 2006, with 33 country-level and 93 sector-level RAMPs in 26 countries completed. RAMPs for country and/or sector levels are ongoing for Cambodia, Pakistan, the Philippines, Tajikistan, and Viet Nam to inform their next country partnership strategies. RAMPs are planned for the Lao PDR, Myanmar, and other sectors in Viet Nam.

15 ADB. 2011. Revised Guidelines for Implementing ADB's Second Governance and Anticorruption Action Plan (GACAP II). Manila.

11

During 2011–2013, 60% of ADB approvals by volume and 62% by number supported governance and capacity development. The operational pipeline for the WPBF, 2015–2017 shows that operations supporting governance and capacity development are expected to reach 64% by volume and 71% by number—exceeding the “above baseline” target of 57% in the ADB corporate results framework. In addition, about 68% of sovereign TA operations, by volume, in 2015 are expected to support capacity development or provide policy and advisory support. Some $74 million (25%) of sovereign TA operations in 2015 will support public sector management, particularly economic affairs management, public expenditure and fiscal management, and public administration. The procurement risk assessments introduced under the ten-point procurement reform plan (Appendix 5) support the procurement aspects of GACAP II, ensuring synergy and efficiency. 35. In Central Asia, ADB will design and deliver RAMP-response TA projects in Azerbaijan and the Kyrgyz Republic to address procurement risks. In the Kyrgyz Republic and Uzbekistan, work on e-procurement will continue to enable public procurement to shift to a more transparent system. In East Asia, follow-on work will continue for the sector risk assessments conducted under GACAP II for both the PRC and Mongolia. In Southeast Asia, governance systems and institutional capacities will continue to be strengthened in the transport sector in Cambodia, Indonesia, the Lao PDR, and the Philippines. In South Asia, capacity development support is planned for (i) provincial road agencies in Sri Lanka; (ii) sector ministries in Bangladesh, Bhutan, the Maldives, and Nepal on policy, planning, design, supervision, and implementation capacity; and (iii) regulatory bodies in Sri Lanka on public sector utilities. In the Pacific, where fragility and small size adds to the difficulties of capacity building, regional approaches to capacity building and supplementation will continue to be explored, including in audit and economic management. For Timor-Leste, a technical assistance project on strengthening infrastructure services, governance and safeguards is planned for 2016. 36. Public management reforms and anticorruption efforts. The pipeline for the WPBF, 2015–2017 show that demand for ADB assistance for public sector management is estimated at $2.1 billion—or an annual average of $710 million. To improve governance in DMCs, the findings of the review of GACAP II would be central to ADB operations, especially with respect to the three focus areas of public financial management, procurement, and anticorruption measures.16 37. During the WPBF period, ADB plans to support governance and institutional strengthening for (i) health and transport sector operations in the Lao PDR, (ii) state enterprise reform and corporate governance in Viet Nam, and (iii) access to justice and combating money laundering and terrorism financing, among others, in Myanmar. In East Asia, ADB will continue to support the governments’ efforts to strengthen the policy, legal, fiduciary, and regulatory frameworks and practices to improve the delivery and management of infrastructure and public services, and promote an enabling environment for private sector development. To increase awareness of DMCs on methodologies for risk identification and corruption mitigation, the TA on enhancing integrity and anticorruption in ADB projects will directly impact the quality of relevant ADB project outputs and result in reduction and prevention of integrity violations. 38. In South Asia, ADB will deepen its assistance to Bangladesh through the Third Urban Governance and Infrastructure Improvement Project, which sets governance and public service standard targets to be met for funding eligibility. ADB will also deepen its assistance for public sector management through the Strengthening Public Management Program II in Nepal, which

16

ADB. 2013. Implementation Review: Second Governance and Anticorruption Action Plan (GACAP II). Manila.

12

focuses on improving subnational public financial management, advancing reforms in public procurement, and promoting policy reforms to combat corruption. ADB assistance is also envisaged for strengthening local governance and building capacities of local bodies: institutional strengthening for economic management in the Maldives, and establishing fiscal policy management units in Punjab and West Bengal in India to help with medium-term fiscal programming, appraisal, and evaluation of government projects. In addition, planned ADB assistance for the state governments of Punjab and West Bengal will help with cash forecasting, developing debt management policies and strategies, improving revenue administration, targeting salary expenditures, transferring payments, and rationalizing subsidies. 39. ADB, along with other development partners, will continue to support Pacific DMCs with governance reforms and capacity development through policy-based operations, sector-based programmatic investment modalities (e.g., multitranche financing facilities and results-based lending), and TA operations. ADB will continue to contribute directly to anticorruption efforts in the region, including through a TA project to support for the preparation of new legislation targeted at combatting money laundering and the financing of terrorism in PNG. This work will assist authorities in meeting the compliance thresholds of the Organisation for Economic Co-operation and Development’s Financial Action Task Force. It is also essential for the continued development of the domestic finance industry and its links with international markets. 40. Support for small developing member countries and fragile and conflict-affected situations. As highlighted in the MTR, ADB will pay special attention to low-income countries and DMCs in fragile and conflict-affected situations (FCAS).17 To provide a meaningful amount of concessional resources to its small DMCs, most of which are in the Pacific and in FCAS, ADB approved the provision of a minimum ADF allocation (Box 1), effective 1 January 2015.18 As a result, the resources available for approval for six small countries (Kiribati, the Marshall Islands, the Federated States of Micronesia, Nauru, Palau, and Tuvalu) benefiting from this measure are projected to increase from $7.6 million per year in 2011–2013 to $17.5 million19 in 2015–2017—an increase by a factor of 2.3. Greater support from ADB can bring significant benefits, including improved connectivity, more climate resilient-infrastructure, and stronger maritime links. Growing programs in small DMCs will take into account capacity limitations. For FCAS countries, the operational pipeline for the WPBF, 2015–2017 totals $1.5 billion with the assistance targeted at infrastructure development (78%), education (6%), and agriculture (7%). ADB will allocate more TA resources for FCAS countries. TA operations in those DMCs are projected at about $19 million in 2015. In addition, ADB will continue to expand private sector operations in ADF-recipient countries.

17

ADB. 2013. Operational Plan for Enhancing ADB’s Effectiveness in Fragile and Conflict-Affected Situations. Manila. FCAS countries include Afghanistan, Kiribati, the Marshall Islands, the Federated States of Micronesia, Nauru, Nepal, Solomon Islands, Timor-Leste, and Tuvalu.

18 ADB. 2014. Introducing a Minimum Allocation in ADF's Performance Based Allocation System. Manila.

19 Excluding the ADF set-aside for the disaster response facility.

13

Box 1: Minimum Asian Development Fund Allocations to Address Endemic Fragility of ADB’s Smallest Members

The smaller Pacific island developing member countries (DMCs) of the Asian Development Bank (ADB) are in many ways endemically fragile. Their size and remoteness mean growth is constrained and volatile, and the cost of basic service delivery high. With the significant increase in demand by the small Pacific DMCs for investment, particularly in infrastructure and transport, in recent years, the Asian Development Fund (ADF) allocations have been inadequate for ADB to provide a meaningful level of assistance to them. To overcome this challenge, ADB will introduce a minimum allocation of $3 million per year in the performance-based allocation system for ADF DMCs, starting in January 2015.

ADB’s smallest members—Nauru and Tuvalu—have total populations of only about 10,000. The cost of essential infrastructure, such as an airport, can equal one-third of annual gross domestic product (GDP). Similarly, Kiribati has a population of 100,000 people spread across 21 inhabited islands, in three time zones, 4,000 kilometers from major metropolitan centers, in an area of ocean equivalent in size to India. The fragility of the small Pacific DMCs is compounded by their vulnerability to natural hazards, which on average cost 2% of GDP each year. Climate change is an existential threat, especially for atoll nations with a highest point above sea level at only 2–3 meters.

ADB is scaling up the assistance it can provide to the smallest Pacific island countries. The decision by the Board in July 2014 to increase the minimum ADF allocation to $3 million per year will allow ADB to provide greater support for six of its smallest DMCs—Kiribati, Marshall Islands, Micronesia, Nauru, Palau, and Tuvalu. Several of these DMCs previously received ADF allocations of only about $0.6 million per year. ADB is also using regional ADF resources to encourage economies of scale and greater integration, and will work closely with partners to leverage support.

With greater ADF allocations, ADB will explore opportunities to connect smaller and more remote countries, such as Palau, Micronesia, and potentially the Marshall Islands. Minimum ADF allocations will allow ADB to scale up efforts to make key infrastructure more climate resilient. Examples include current investments in Kiribati to rebuild the main road—where ADB is working with the Government of Australia and the World Bank on the largest single project in that country since World War II—and to improve water and sanitation. In Nauru and Tuvalu, as well as across the Pacific, the introduction of minimum ADF allocations opens opportunities for new investments in wharves and jetties to improve maritime links. ADB has helped to increase renewable energy generation significantly across the Pacific to reduce reliance on expensive imported diesel; additional resources will provide opportunities to replicate and expand this work. ADB is playing a lead role with partners and governments to support policy reforms that encourage private investment, accelerate growth, and rebuild economic buffers. ADB will ensure that growing programs in the smallest Pacific DMCs recognize capacity limitations. ADB will also aim to replicate success elsewhere in the Pacific, forge regional solutions, and on strengthen coordination with partners. Source: Asian Development Bank.

41. The MTR notes the importance of understanding the local context, making long-term commitments, and ensuring country ownership, in addition to being flexible in responding effectively to the unique challenges in FCAS countries. Thus, ADB will continue to support the New Deal for Engagement in Fragile States in implementing its FCAS operational plan with its focus on supporting state building and long-term institutional capacity development in DMCs in FCAS.20 Through TA support ADB will operationalize its innovative tools and frameworks (e.g., peacebuilding tool, fragility index, practical guide to fragility assessment) to support improved project design and smoother project implementation in the challenging operating environment of FCAS countries. A customized risk management framework has been developed to guide staff in managing risks differently in FCAS countries. It highlights the existing flexibilities in ADB’s

20

Available at http://www.newdeal4peace.org/

14

business processes which can be customized in each phase of the project cycle to better address or mitigate economic, political, governance, and natural risks. An institutional strengthening framework will guide long-term institution building customized to each DMC in FCAS. It presents a results-based approach, with steps designed to identify, prioritize, and refine an understanding of FCAS institutional and capacity gaps, as well as to find the means to fill these gaps.21 42. Nonsovereign operations supporting inclusive growth. ADB’s private sector operations will promote inclusive economic growth and poverty reduction by financing infrastructure and increasing access to finance. Where feasible, ADB will also undertake more targeted poverty reduction and inclusive business initiatives, such as direct funding of rural education, rural off-grid power supply, and agriculture-related businesses. It will work with financial institutions to target specific, highly developmental customer segments. ADB will also build on its work to improve access to finance for small farmers and entrepreneurs, who typically have limited access to formal bank credit or credit that is often very short in tenor and costly. ADB will evaluate opportunities of providing credit lines to banks that target small farmers or guarantees to share risks with banks, thereby encouraging them to provide greater access to capital for these borrowers. During the WPBF period, ADB will examine the issue of staff resources in its Private Sector Operations Department (PSOD) for strengthening inclusive growth transactions. 43. ADB’s private sector operations will continue to support microfinance institutions through its existing Microfinance Guarantee and Risk Participation Program, which mobilizes funding to women and people in rural areas. The program is expected to be renewed in early 2015 with a proposal to remove the sunset clause. Through private equity investments, ADB supported a fund focused on health care in 2013 and is processing an agribusiness-focused fund in 2014. On a selective basis, ADB will evaluate the prospects of similar type of private equity investments during the WPBF period.

2. Environment and Climate Change

44. To help DMCs pursue environmentally sustainable growth, the MTR calls for ADB to consider providing greater financial and technical support to reduce their vulnerabilities arising from environmental degradation and rising levels of water and air pollution, including greenhouse gas (GHG) emissions and enhance their resilience to climate change and natural hazards. During the WPBF, 2015–2017, ADB’s support for environmentally sustainable growth—totaling $22 billion or 64% of sovereign operations—will include assistance for clean energy, sustainable transport, climate change adaptation, and disaster risk reduction. New TA operations for 2015 promoting environmentally sustainable growth are expected to reach 21% by volume and 22% by number.

45. The operational pipeline for the WPBF, 2015–2017 shows that 13% of the planned sovereign operations by volume and 25% by number are expected to support climate change investments (Figure 3). Of these operations, 7% by volume and 16% by number will support adaptation to climate change; 6% by volume and 9% by number will support mitigation. ADB will work with its DMCs to increase the share of climate change mitigation and adaptation, particularly during the project design phase.

21

Available at www.adb.org/fragile-situations.

15

Figure 3: Share of Climate Change Investments in Sovereign Operations, 2015–2017 ($ million)

Note: Sovereign operations by volume. Source: Asian Development Bank staff estimates.

46. Clean energy. In the energy sector, the operational focus during the WPBF period will remain on clean energy, including renewable energy, energy efficiency, and energy access.22 Examples of planned programs in the WPBF, 2015–2017 include promoting (i) the expansion of power systems; (ii) smart meters; (iii) use of solar photovoltaic and concentrated solar power technology; (iv) wind power; (v) geothermal; (vi) application of demand-side energy efficiency in the industrial sector, public and commercial buildings, and residential sectors; (vii) switching to cleaner fuels, such as natural gas from coal; and (viii) strengthening transmission and distribution systems to reduce system losses and improve system reliability, particularly through projects in lagging areas and regions. Renewable energy and energy efficiency will help improve energy security, mitigate climate change, and increase energy access in many DMCs, while contributing to economic, environmental, and social sustainability. ADB’s energy sector operations during WPBF, 2015–2017 will be designed to demonstrate clean energy technologies with a smaller carbon footprint, and maximize energy access to the poor people. 47. The operational pipeline for the WPBF, 2015–2017 shows projected annual sovereign approvals for clean energy of $1.9 billion—almost equivalent to the MTR annual target of $2 billion (Figure 4). With some nonsovereign operations also supporting clean energy initiatives during the WPBF period, attainment of the annual target through ADB’s resources is considered achievable. ADB is also the custodian of a number of clean energy trust funds that can contribute towards clean energy investments, and ADB will work to help DMCs access these funds within ADB and other global funds where ADB has access to in addition to its own funding in support of clean energy initiatives (see also para. 69).

22

ADB. 2009. Energy Policy. Manila.

Other Sovereign Operations

$29,960 (87%)

Mitigation Investment $1,999 (6%)

Adaptation Investment

$2,632 (7%) Climate Change Investments $4,631 (13%)

16

Figure 4: Clean Energy Investments in Sovereign Operations, 2011–2013 and 2015–2017 ($ million)

Note: Clean energy investment is the portion of Asian Development Bank assistance used to fund projects or project component(s) involving renewable energy, energy efficiency, and/or fuel switching. The common denominator of all clean energy projects is that they reduce greenhouse gas emissions. ADB's clean energy (CE) investment may be calculated as follows: CE Investment = β x ADB assistance, where β is the percentage of the total project cost that may be attributed to funding the clean energy component. Figures represent average annual approvals of sovereign Asian Development Fund and ordinary capital resources operations, by volume. Figures in parentheses represent the share of the clean energy investments to total sovereign operations for the period. Source: Asian Development Bank staff estimates.

48. In Central Asia, renewable energy, energy efficiency, and clean energy will continue to be priority areas. The aim is to undertake renewable energy projects in all ADB DMCs in Central and West Asia countries by 2018. New DMCs adopting renewable energy in 2015–2017 include Armenia and Azerbaijan. ADB also plans to promote hydropower generation through projects that will improve Pakistan’s energy mix, while contributing to environmental sustainability. The Second Solar Power Development Project in Uzbekistan will complement an earlier project in Samarkand to increase renewable energy generation and reduce GHG emissions. In Southeast Asia, ADB plans to increase investments in clean energy, including off-grid renewable energy in Indonesia, Myanmar, and Viet Nam. 49. In East Asia, ADB’s energy sector operations in the PRC are designed to demonstrate clean energy technologies with lower carbon footprint, reduced local pollution impacts, and improvements in demand-side energy efficiency. These include demonstrating an innovative renewable energy technology (concentrated solar power) in Gansu Province, as well as a project to support energy efficiency improvements and mitigate local pollution in the chemical industry. ADB is also supporting the use of natural gas for residential space heating in Qingdao in the PRC as it has a smaller carbon footprint and environmental impact than the coal-based space heating that is widely prevalent in the PRC. In Mongolia, ADB plans to support the proposed Energy Efficiency and Renewable Energy Project.

50. In South Asia, the operational focus remains on clean and renewable energy, and energy efficiency. In India, ADB will expand smart grid and concentrated solar power technology and strengthen transmission and distribution systems, particularly through projects in lagging states. The development of hydropower will be a priority in Nepal and Bhutan, while Bangladesh will focus on energy efficiency, grid interconnection, gas and thermal power. Renewable based energy supply will help diversify the energy sources in India and Sri Lanka. The development of hydropower in Nepal and Bhutan will support the South Asia Subregional Economic

1,332 (11%)

1,919 (17%)

-

500

1,000

1,500

2,000

2,500

2011–2013 2015–2017

17

Cooperation Program (SASEC) regional integration in the energy sector. Energy export public–private partnerships (PPPs) will be promoted in Nepal and Bhutan. 51. In the Pacific, energy sector operations will continue the growth trend established in previous planning periods, which has seen the proportion of renewable energy projects and TAs in the pipeline roughly double. ADB is now the largest source of external finance for renewable energy in the Pacific region, making up roughly half of all external support. ADB has ongoing or planned operations relating to renewable energy or energy efficiency in 12 of the 14 Pacific DMCs. During the planning period, new projects and TAs will total over $200 million. 52. Nonsovereign operations supporting clean energy. Through its private sector operations, ADB will continue to focus on environment and climate-focused investments. ADB targets having 25% of its private sector approvals, by number, in clean energy by 2015. During the WPBF, 2015–2017, ADB will continue to support the financing (through financial institutions or targeted private equity investments) of high-priority renewable energy projects such as solar photovoltaic, concentrated solar power, geothermal, wind, hydropower, and waste-to-energy. These projects will help to reduce GHG emissions, especially in MICs, which have larger GHG footprints. It will also help reduce these countries' dependence on imported fossil fuels, reduce pollution impacts, and improve energy security and diversification.

53. Sustainable transport. During the WPBF period, ADB’s transport sector operations will increasingly stress environmental and operational sustainability. Projects will be designed in line with the pillars and principles of ADB’s Sustainable Transport Initiative.23 While gaps in road infrastructure are still a priority for many DMCs, ADB will design such projects so that they contribute to environmental sustainability. Like all other ADB projects, transport projects will also incorporate initial climate risk screening that will identify the need for climate adaptation measures to be incorporated during further processing.

54. Examples of switching to a more environment-friendly transportation system are the proposed electrification of the diesel-powered railway system in selected Central and South Asian DMCs, which will save energy and maintenance cost, and help reduce GHG emissions. The operational pipeline for the WPBF, 2015–2017 shows that the share of road projects (nonurban) are expected to increase slightly from 61% of total transport operations by volume during 2011–2013 to 62%. The share of urban transport projects is projected to increase from 21% to 23%,24 while the share of railway projects (nonurban) is projected to decrease slightly from 8% to 6%—compared with the MTR targets of 30% for urban transport and 25% for railway. ADB needs to step up efforts for these subsectors. As operational pipelines get adjusted each year, and given the nature of investments in urban and railway projects, the proportion of the subsector other than roads could increase in subsequent years. 55. In Central and West Asia, greater attention is placed on asset management, road safety, and cross-border connectivity in the road projects. A railway project is planned in Tajikistan and various urban transport projects are planned in Armenia, Azerbaijan, Georgia, Kazakhstan, and Pakistan. In East Asia, supporting green, sustainable transport is the key theme of the sector in the PRC and Mongolia. The 2015–2017 transport sector operational pipeline will support climate

23

ADB. 2010. Sustainable Transport Initiative: Operational Plan. Manila. ADB will mainstream sustainability in existing areas of operations, and introduce new and enhanced sustainable transport operations especially on (i) urban transport, (ii) addressing climate change in transport, (iii) cross-border transport and logistics, and (iv) road safety and social sustainability.

24 Includes mass rail transit, light rail transit, road-based public transport, footpaths, cycle lanes, urban waterway transport, urban roads, and traffic management.

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mitigation by shifting transport to cleaner modes, including urban public transport and nonmotorized transport in Ji’an, Jiangxi Province in the PRC and Ulaanbaatar in Mongolia; railways in the PRC and Mongolia; and multimodal logistics and intelligent transport systems in both countries. Implementation of the ongoing projects to develop inland waterway transport in Hunan and Anhui provinces in the PRC will continue to be supported. ADB transport projects in the PRC and Mongolia will incorporate initial climate risk screening that will identify the need for climate adaptation measures to be incorporated during further processing. In South Asia, while the demand for the road subsector remains high, ADB will also support proposed railways projects in Bangladesh and India. In Southeast Asia, ADB will explore possibilities to help develop sustainable transport projects for cities in Indonesia, Myanmar, and the Philippines. 56. In the Pacific, ADB’s transport sector operations are designed to increase connectivity to domestic and international markets, as well as improve access to jobs and social services. ADB will continue to process and implement investments and TA through (i) investments in the maritime and land transport subsectors; (ii) regional analysis and capacity building for trade facilitation and transport logistics; and (iii) policy advice for transport planning, capacity development, and institutional strengthening. A new multitranche financing facility for the Land Transport Improvement Investment Program in PNG is being developed. 57. Climate change adaptation. In accordance with the MTR, ADB will further mainstream adaptation and climate resilience in development planning, as well as in project design and implementation. During the WPBF period, ADB will scale up its support for adaptation to climate change by (i) strengthening DMCs’ planning and management capacity for climate adaptation, both nationally and in communities; (ii) systematically applying climate risk screening tools in all infrastructure projects, and ensuring that infrastructure investments with high climate change risk in agriculture, water resources, transport, energy, and rural and urban development are climate-proofed; (iii) supporting DMCs in generating climate data, information, and high-quality projections, including climate-related hazards such as floods, droughts, and tropical cyclones, and promoting a regional public goods approach to the provision of data; and (iv) improving DMCs’ access and ability to manage climate funds, and working with other development partners to increase financial flows for adaptation. ADB has developed tools and technical guidance to support comprehensive, rapid, and cost-effective climate risk management at sector and project levels. The ADB portfolio of climate-resilient projects comprises a wide range of public sector operations in several DMCs with investments in water resources management, urban development, flood risk management, transport, institutional capacity, and knowledge management. In 2013, ADB mobilized almost $1 billion for adaptation. 58. In South Asia, transport projects in the pipeline have design elements that incorporate climate change adaptation and disaster risk mitigation. For example, rural connectivity and district roads projects (e.g., the Jharkhand State Roads ll Project and the Uttar Pradesh District Roads Investment Program [Tranche 1]) in India have elements to achieve significant environmental improvements. Similarly, the Climate-Resilient Rural Connectivity Project in Bangladesh will build elevated rural roads that will provide connectivity in flood-prone areas. In Central Asia, urban transport projects in Azerbaijan, Georgia, Kazakhstan, and Pakistan will support adaptation to climate change and environmental sustainability. Urban development projects will provide flood risk management infrastructure and other urban infrastructure that will reduce the vulnerability of the poor, as well as make urban infrastructure (including water, sewerage, solid waste management, and transport) climate resilient. 59. ADB will continue to support the technical and financial climate change needs of Pacific DMCs through a three-pronged strategy: (i) scaling up adaptation and mitigation investments;

19

(ii) building capacity; and (iii) integrating climate change and disaster resilience in national plans, and promoting effective responses including access to finance. To improve adaptation responses, ADB will continue to help governments make their investments climate-proof and disaster-resilient. Technical designs and incremental finance for adaptation will continue to be standard practice during the WPBF, 2015–2017. To contribute to mitigation, investments in renewable energy exceeding $70 million are planned over the next 3 years. Assistance for sustainable transport will represent a growing share of about $400 million invested in the transport sector each year. ADB will support mainstreaming through the Pilot Program for Climate Resilience, and will improve access to climate data, risk screening, and projection tools. ADB’s TA projects will contribute to improved designs and future investment opportunities. Following the approval of the Climate Resilience Sector Project in Tonga, financed by the Strategic Climate Fund, ADB plans to process the Strategic Program for Climate Resilience Implementation Project in PNG, also financed by the Strategic Climate Fund, for $29 million in 2015. 60. Through its private sector operations, ADB is strengthening its support for environmental improvement, especially in the PRC, to combat the side effects of rapid economic growth. ADB provided assistance to several wastewater treatment and solid waste management projects in the PRC recently and will expand its support to these and other important areas and subsectors in the PRC. 61. Integrated disaster risk management. To reduce vulnerability to natural hazards, as indicated in the MTR, ADB plans to expand its support for IDRM and promote the integration of climate change adaptation with IDRM. During the WPBF, 2015–2017 in selected DMCs, ADB plans to (i) scale up support for the development of disaster risk financing strategies and instruments; (ii) invest in improved integrated water resources management, including flood risk management; and (iii) scale up community-based adaptation and IDRM initiatives. During 2011–2013, 16% by volume and 11% by number of ADB projects included measures to strengthen disaster resilience.25 By comparison, the operational pipeline for this WPBF period shows that 12% of the proposed sovereign operations by volume and 15% by number will include IDRM components. ADB plans to develop screening tools and guidance notes to strengthen the consideration of disaster risk in CPSs and projects. ADB recently prepared a new operational plan for IDRM, 2014–2020, which seeks to (i) promote IDRM in ADB operations; (ii) strengthen DMC’s IDRM capabilities, knowledge, and resources; and (iii) mobilize additional PPPs and resources for IDRM.26 ADB will continue to implement the IDRM Fund and the Asia Pacific Disaster Response Fund. 62. Based on the project pipeline for Southeast Asia during the WPBF, 2015–2017, ADB plans to scale up community-based adaptation and IDRM initiatives in Cambodia and the Philippines (funded by the Pilot Program for Climate Resilience). It will assist in enhancing carbon sequestration through effective management of critical forest landscapes in the Greater Mekong Subregion (GMS) and Indonesia, and coastal and marine resources in Indonesia and the Philippines. ADB also plans to initiate innovative disaster risk insurance systems focusing on earthquakes in the Philippines. 63. In Central Asia, ADB plans to design water resources management projects in Afghanistan and Tajikistan in line with the principle of integrated water resources management.

25

This includes disaster risk management components of sovereign projects, but excludes early recovery and reconstruction projects.

26 ADB. 2014. Operational Plan for Integrated Disaster Risk Management, 2014–2020. Manila.

20

These projects will address better water resources management and integrated risk management for disasters such as drought and flood, as well as climate change risk. In East Asia, a combination of public finance work (e.g., fiscal resource management system) and financial market measures (e.g., disaster insurance, weather index insurance, catastrophe insurance, and catastrophe bonds) is planned to achieve prudent IDRM in the PRC and Mongolia. 64. In South Asia, operational programs in the pipeline for Bhutan, India, and Nepal have elements relating to improved governance in water resources management. They also cover the preparation of a national integrated water resources management plan, a river basin master plan, and a national irrigation master plan, with future climate change scenarios taken into consideration and integrated flood and river erosion management programs. In Nepal, ADB will continue to mainstream and scale up its school earthquake resiliency (structural and nonstructural) activities under the School Sector Program in 2016, as part of the multi-donor Nepal Disaster Risk Reduction Consortium. 65. ADB will support ongoing IDRM capacity building through water hazard risk mapping and associated institutional developments in the water resources subsector. Many other ADB projects in the public finance and urban development subsectors also contribute to natural resource conservation, enhanced water management, and environmental improvements. ADB will continue the implementation of a pilot project in Bangladesh, financed by the Japan Fund for Poverty Reduction, on weather index-based crop insurance. This project is expected to overcome the weaknesses of traditional agricultural insurance, such as moral hazards and costly and time-consuming individual farm assessment. The pilot will be the first in the country to launch an innovative crop micro-insurance scheme. 66. Natural resource management. Based on the project pipelines for the WPBF period, ADB plans to continue assistance for ANR. ADB will continue to support investments in (i) integrated water resources management; and (ii) sustainable management of land, forests, and coastal and marine resources. ADB will also continue to support regional cooperation initiatives on the management of large-scale critical ecosystems in the region. This will include scaling-up investments and leveraging additional finance from the Global Environment Facility for the Coral Triangle and the GMS through the Biodiversity Conservation and Corridors Initiative and the Biodiversity Conservation Corridors Project. In Central Asia, for example, ADB will seek to further develop ANR projects in rural areas of Afghanistan, Pakistan, Tajikistan, and Uzbekistan. These will help increase rural income by improving agricultural productivity. ADB’s support will comprise (i) rehabilitating and developing new irrigation and water resources infrastructure, with associated expansion and improvement in enterprise returns, (ii) developing market-based agriculture infrastructure; (iii) introducing advanced mechanization and crop diversification; and (iv) creating an enabling regulatory environment to facilitate growth in the sector. In East Asia, ANR projects will help reduce income inequalities between rural and urban areas and provide inclusive business opportunities in rural areas. Examples from the PRC include the Gansu Featured Agriculture and Financial Services System Development Project, the Fujian Farmland Sustainable Utilization and Demonstration Project, and the Agribusiness Development Project. 67. In South Asia, ADB will support irrigation and integrated water resource management, particularly efficiency in water use, river erosion, climate change, agriculture, and IDRM. Food security will be addressed through interventions in the agriculture sector, mainly by improving productivity and supporting the development of value chains and market infrastructure. In Southeast Asia, support for natural resource management includes the Myanmar Irrigation

21

Command Area Development Project and two projects in Indonesia, namely, Integrated Participatory Development and Management of Irrigation and Improved Marine Resources Management. During the WPBF, 2015–2017, ADB’s agriculture-related assistance is projected to be $3.6 billion (Figure 5), significantly higher than the $2.6 billion in assistance during 2011–2013. In addition, $26 million (9%) of sovereign TA operations will support ANR in 2015.

Figure 5: Agriculture and Agriculture-Related Infrastructure Operations, 2015–2017 ($ million)

Notes: Sovereign operations by volume. Others include rural water policy, institutional and capacity development, rural sanitation, and livestock. Source: Asian Development Bank staff estimates.

68. Policies and capacity for environmental management. In line with the MTR, ADB will continue to support the effective implementation of the Safeguard Policy Statement.27 This will include supporting DMCs to strengthen their country safeguard systems and developing their capacities to address potential project impacts on people and on the environment. Through its Environmental Justice Program, ADB will support initiatives to strengthen capacity and governance in environmental adjudication and enforcement in the region. ADB will continue to support the development and sharing of knowledge and innovation in environmental management practices, including air quality management, payment for ecosystem services, and climate change adaptation. For example, ADB has in 2014, signed agreements with the Ministry of Environment and the National Development Reform Commission in the PRC to support work on air, water and soil pollution, ecosystem degradation, low carbon development, and climate change adaptation. 69. Access to global and regional environment and climate change funds. As indicated in the MTR and requested by the ADB governors from the Pacific DMCs at the 2014 Annual Meeting, ADB will continue to help its DMCs access environment and dedicated climate change funds, in addition to ADB resources. During the WPBF period, for example, ADB will help its

27

ADB. 2009. Safeguard Policy Statement. Manila.

Irrigation $1,217 (34%)

Water-Based Natural Resources

Management $762 (21%)

Rural Flood Protection $242 (7%)

Agricultural Production $237 (7%)

Land-Based Natural Resources

Management $236 (6%)

Agro-Industry, Marketing, and

Trade $202 ,(6%)

Rural Water Supply Services

$153 (4%)

Agricultural Drainage

$143 (4%)

Rural Market Infrastructure

$134 (4%)

Agricultural Policy, Institutional and

Capacity Development

$124 (3%)

Others $145 (4%)

22

DMCs access one or more of the following: Climate Investment Fund, Global Environment Facility, Green Climate Fund, Clean Energy Financing Partnership Facility, Urban Environmental Infrastructure Fund, and Urban Climate Change Resilient Trust Fund. As of 30 June 2014, cumulative available balance for Climate Investment Funds, Global Agricultural and Food Security Program, and Global Investment Facility amounted to $867 million. ADB has established a working group for the guidance of trust fund managers with the primary objective of increasing the use of these funds in conjunction with ADB resources.

3. Regional Cooperation and Integration 70. During the WPBF, 2015–2017, ADB will continue to support ongoing RCI initiatives as highlighted in the MTR, for (i) expanding connectivity, (ii) supporting trade facilitation and other trade and investment related development, (iii) facilitating second generation regional cooperation initiatives, (iv) strengthening financial and monetary cooperation, and (v) supporting regional public goods. ADB’s RCI work will be informed by past experience of implementing regional cooperation programs and knowledge products that would help support second-generation RCI initiatives as well as provide overall policy recommendations. In undertaking these initiatives, ADB will continue to support various subregions such as Central Asia, South Asia, Southeast Asia, and the Pacific. In order to define second generation RCI products, a series of activities backed by regional TAs will seek to generate RCI products that address the challenges identified in the MTR such as slowing productivity growth, rising inequality and helping DMCs better mitigate vulnerability risks in the region. ADB plans to consider an OCR set-aside to support RCI projects. 71. During 2014–2015, ADB is implementing a TA to address the recent slowdown in productivity growth globally and regionally with its scope primarily narrowed down to pillar 2 of the RCI Strategy (trade and investment), and to provide DMCs with a range of RCI-related policy, project, and program options to enhance productivity. The activities to be undertaken in each of these geographical areas are highlighted in paras. 72–76. During 2011–2013, RCI approvals amounted to 21% of sovereign operations by volume and 22% by number. By comparison, the operational pipeline for this WPBF period shows that operations supporting RCI are projected to reach 25% by volume ($8.6 billion [Figure 6]) and 24% by number, compared with the MTR target of 30% of ADB operations. Additional projects during this WPBF period are likely to be classified as supporting RCI when project designs and alignments are developed further. About $89 million (18%) of sovereign TA operations will promote RCI in 2015.

23

Figure 6: Regional Cooperation and Integration Operations by Region, 2015–2017 ($ million)

Note: Sovereign operations by volume. Source: Asian Development Bank staff estimates.

72. Expanding connectivity and extending value chains. In the Central Asia Regional Economic Cooperation (CAREC) framework, ADB will continue its support for greater connectivity in the transport and energy sectors, as well provide support for regional value chains and help the transformation of regional corridors to economic corridors. For energy connectivity, ADB will support the development of the Central Asia–South Asia energy corridor and help CAREC develop a list of medium-term priority projects in the sector. In the context of the CAREC Transport and Trade Facilitation Strategy 2020,28 ADB and CAREC will encourage countries in the region to emphasize investments that will foster the development of viable competitive private sectors, and generate synergy with the core areas of the CAREC Program, such as investments in logistics infrastructure, and spatial transformation and agglomeration of economic activities around economic clusters (cities and small towns). In East Asia, ADB is developing a RCI strategy to promote broader regional cooperation between the PRC and Mongolia. 73. Through the SASEC program, ADB’s ongoing and planned investments aim to improve north–south transport connectivity, providing landlocked Bhutan and Nepal access to seaports in Bangladesh through Northeast India. They will also upgrade sections of the Asian Highway linking northeast India to Myanmar, thereby initiating efforts toward South–Southeast Asia connectivity. ADB’s planned assistance for deepening RCI in SASEC countries encompasses multimodal transport projects, including (i) road improvements in northeast India leading to Myanmar; (ii) railway investments in Bangladesh; (iii) upgrading of roads in Bhutan, India, and Nepal; (iv) port improvements in India; and (v) airport improvements in Bhutan and Nepal. ADB will continue to support investments to expand cross-border transmission capacity and hydropower development, renewable energy, and energy efficiency projects, all of which are in line with the priorities of the SASEC energy working group. 74. ADB support to subregional programs in Southeast Asia will be further enhanced. In the GMS, the transport and energy sectors will continue to need the most investments. Transport projects fostering subregional connectivity will continue to be a priority, including (i) the completion of key road corridors in the subregion (e.g., extending the east–west economic

28

ADB. 2014. CAREC and Transport and Trade Facilitation Strategy 2020.Manila.

Central and West Asia

$2,045 (24%)

Southeast Asia $3,230 (37%)

South Asia $1,812 (21%)

East Asia $1,047 (12%)

Pacific $500 (6%)

24

corridor into Myanmar and completing the southern economic corridor to link Cambodia, the Lao PDR, and Thailand); (ii) cross-border transport infrastructure (especially in Cambodia, the Lao PDR, and Viet Nam); and (iii) intermodal transport links (such as railway lines between the PRC and Viet Nam, as well as between Cambodia and Thailand). ADB will also assist the Brunei Darussalam–Indonesia–Malaysia–Philippines East ASEAN Growth Area (BIMP-EAGA) and the Indonesia–Malaysia–Thailand Growth Triangle (IMT-GT) in the development of priority economic corridors, such as the West Borneo economic corridor, and the Greater Sulu Sulawesi corridor. ADB will also support a power interconnection project in Indonesia to allow sharing of power between Indonesia and Malaysia. 75. ASEAN connectivity is one of the key elements to realize the ASEAN Economic Community. In developing the ASEAN connectivity, ADB has been supporting various infrastructure financing initiatives, namely the ASEAN Infrastructure Fund (AIF) and the Regional Project Development Facility for ASEAN developing member countries. Both of these financing facilities are administered by ADB. 76. In its Pacific DMCs, ADB is leveraging its investments in priority integrative infrastructure, such as ports, airports, and ICT, with support for trade facilitation and transport logistics. In 2015–2016, ADB will process three port projects in Samoa, Timor-Leste, and Tuvalu, as well as additional financing for the Domestic Maritime Support (Sector) Project in the Solomon Islands. The remaining two tranches under the Civil Aviation Development Investment Program in PNG will also be processed in 2015 and 2017. Regional ADF resources have been critical to the financing of RCI projects in the Pacific, given the limited country allocations, and will continue to be so. Regional ADF will be sought for key national ICT and transport projects, which play a fundamental role in enhancing RCI. A regional ADF allocation will continue to be sought for the University of the South Pacific’s higher education program. 77. Trade facilitation, trade policy, and capacity development. Based on the project pipelines for the WPBF, 2015–2017, ADB plans to support the following CAREC investments to improve border management and customs modernization: renovation of border crossing points, amendments to customs codes, automated customs information systems, establishment of national single windows, and border control risk management systems. In the SASEC region, through a combination of investments and national and regional TA projects, ADB will assist in putting in place the necessary reforms, building the requisite capacity, and creating and sustaining platforms for regional dialogue and knowledge sharing in the areas of customs modernization, sanitary and phytosanitary and standards, transport facilitation, and border-crossing infrastructure. The SASEC Trade Facilitation Development Project in Nepal, for example, will provide cross-border transport and customs infrastructure (dry port, inland container depots, and logistic hubs) along critical trade routes between India and Nepal, while promoting customs modernization and automation. 78. In the GMS, ADB will support the development of soft infrastructure to complement physical infrastructure investments, including ICT.29 This will help address the strong demand for transport and trade facilitation measures to enhance customs operations, engage the trade-related private sector, and modernize control operations by customs administrations as well as sanitary and phytosanitary agencies. In the BIMP-EAGA and IMT-GT subregions, ADB will continue to promote coordination and linking of ASEAN and subregional groupings by facilitating

29

Trade facilitation measures can be undertaken along two dimensions: “hard” infrastructure (e.g., ports, airports, roads, and rail infrastructure); and in “soft” infrastructure or institutional aspects (e.g., transparency, border and transport efficiency, business and regulatory environment measures, customs efficiency, and institutional reforms).

25

dialogue to identify joint projects requiring collaboration in trade and transport facilitation. ADB will also coordinate with other development partners to adopt a coordinated approach in developing economic corridors and supporting efforts towards the ASEAN Economic Community in 2015, as well as its post-2015 agenda. 79. In the Pacific, implementation of a $2 million regional TA project, financed by the Japan Fund for Poverty Reduction, through 2015 and 2016 will identify inefficiencies at gateways, in clearance procedures, and in transport logistics, as well as improvements in relevant transport infrastructure, services, policies, and processes that are critical to lowering trade costs. This and other RCI assistance contribute to improved designs and future investment opportunities. 80. Support for second-generation regional cooperation and integration. In CAREC, ADB will support second-generation RCI with the goal of helping CAREC countries expand trade and increase competitiveness in implementing CAREC 2020: A Strategic Framework for the Central Asia Regional Economic Cooperation Program 2011–2020.30 As the CAREC secretariat, ADB will strengthen the program’s operational focus on behind-the-border, at-the-border, and across-the-border issues to develop logistic services, promote coordinated border management, and facilitate the movement of goods and people. In SASEC countries, ADB is developing India's first coastal economic corridor, extending from Kolkata in the east to Tuticorin in the south. The first phase of this engagement aims to develop the Vizag–Chennai industrial corridor. This adopts a market-driven spatial focus for industrial development along the east coast of India that can be harnessed by providing an enabling policy environment and institutional framework to stimulate manufacturing, create jobs, and act as a catalyst to attract domestic and foreign investment. This approach is likely to provide ADB an opportunity to deepen its engagement through integrated development of project pipelines, transaction advisory services, financing, and capacity building exercises. 81. The GMS climate-friendly Agribusiness Value Chains Development Project planned for 2016 and 2017 will improve the competitiveness of agribusinesses in GMS countries and promote inclusive, environmentally sustainable, and climate-resilient economic growth. The project will include (i) agribusiness value chain infrastructure, (ii) agribusiness support centers, (iii) rural bio and renewable energy, and (iv) project management. Developing cross-border economic zones in the GMS is also expected to enhance the access of enterprises in the GMS to regional and global value chains, and increase their overall competitiveness by enabling them to reap the benefits of economic and industrial agglomeration. ADB will support the establishment and financing of special economic zones, particularly cross-border economic zones at the areas between GMS countries. The opening up of Myanmar presents new opportunities to strengthen land-based connections within Southeast Asia, especially with the Lao PDR, Thailand, and Yunnan Province in the PRC, as well as with South Asia and East Asia. Such opportunities will be explored during the WPBF period. 82. ADB will continue to deepen its engagement with middle- and high-income countries in the region: Brunei Darussalam, Malaysia, and Singapore. ADB’s close cooperation with Singapore in various areas, including PPP development and AIF operations, has contributed to Singapore’s commitment to support other regional countries. Similar efforts will be pursued to forge a partnership with Brunei Darussalam, and strengthen its contributions to regional development frameworks such as ASEAN and BIMP-EAGA. For Malaysia, ADB will continue

30

ADB. 2012. CAREC 2020: A Strategic Framework for the Central Asia Regional Economic Cooperation Program, 2011–2020. Manila.

26

exploring reimbursable TA projects in areas where ADB can contribute to knowledge and capacity development, and leverage Malaysia’s strong support for BIMP-EAGA and IMT-GT. 83. ADB will continue to support the development of “green” cities in IMT-GT with the aim of realizing a sustainable urban future, reducing urban carbon emissions, and enhancing the attractiveness of urban areas for investment. Green city action plans will be prepared for Songkhla in Thailand and Medan in Indonesia, following the successful recent completion of such a plan for Melaka in Malaysia. The program will also provide a knowledge-sharing platform in which cities in IMT-GT can learn from one another and replicate best practices. ADB will also assist the IMT-GT secretariat in developing subregional databases to include trade, investment, and tourism data. 84. Financial and monetary cooperation. ADB’s work will focus on three major streams: (i) addressing financial vulnerability, (ii) strengthening financial stability by supporting local-currency bond market development, and (iii) supporting ASEAN finance sector integration. Under the first stream, both macro and micro prudential work will be undertaken. Under the second stream, ADB will continue to work closely with ASEAN+331 under the Asian Bond Markets Initiative (ABMI) to further (i) develop local-currency bond markets at the national level; (ii) facilitate cross-border bond issuance and transactions, and improve cross-border settlement to pave the way for regional bond market integration; (iii) provide information on bond market development (including Asia Bond Monitor and Market Guides on 11 ASEAN+3 member countries) across the region on AsianBondsOnline; (iv) broaden the investor base to reduce market volatility and decrease the impact of the reversal of capital flows; and (iv) explore the development of hedging instruments. Further, where possible, capacity building in various areas required for bond market development will be provided to officials from member countries whose markets are at the early stage of development to enable all member countries to benefit from regional bond market integration. Similarly, where possible, capacity building provided under ABMI will continue to be extended to officials from other member countries of ADB. 85. Under the third stream, ADB will continue to support ASEAN central banks as they examine the regional financial landscape and develop milestones for financial integration as part of the agenda of ASEAN Economic Community 2015. ADB will continue to serve as co-chair of the steering committee on capacity development and continue to support ASEAN central banks as they pursue financial integration. Where possible, capacity building in areas required for bond market development will be provided to officials from member countries whose markets are in the early stage of development to enable all member countries to benefit from regional bond market integration. Similarly, where possible, capacity building provided under ABMI will continue to be extended to officials from other ADB members. Further, where possible, capacity building in various areas required for bond market development will be provided to officials from member countries whose markets are at the early stage of development to enable all member countries to benefit from regional bond market integration. Similarly, where possible, capacity building provided under ABMI will continue to be extended to officials from other member countries of ADB, and appropriate legal and regulatory infrastructure in Asian capital markets will be strengthened through TA projects. 86. Aside from ABMI, ADB will also continue to work with ASEAN+3 on future priorities for financial cooperation to explore three areas: (i) insurance against natural disaster risks, (ii) use of local currency for settlement of trade, and (iii) infrastructure financing. This will include extensive feasibility studies to be conducted in the last two areas. ADB will continue to expand

31

ASEAN+3 is a regional grouping comprising members of ASEAN plus the PRC, Japan, and the Republic of Korea.

27

its work on financial and monetary cooperation beyond ASEAN and ASEAN+3 to cover Central and West Asia, and South Asia. This work will be anchored to the regional departments’ finance sector programs and projects so that it continues to be operationally relevant. 87. Nonsovereign operations supporting regional cooperation. ADB is targeting one new RCI project a year. ADB’s Trade Finance Program (TFP) will continue to facilitate trade in the region by filling market gaps. The program provides guarantees and loans to banks to support trade. The TFP supports a wide range of trade transactions in the region—from commodities and capital goods to medical supplies and consumer goods. More than 90% of the trade supported is for ADF countries. The program will support about 2,000 transactions, representing $1.5 billion in trade per year. ADB is considering providing staff positions for the TFP operations, which are currently supported by staff consultants. The expected savings from terminating consulting services are not likely to be sufficient to meet the full cost of additional staffing to manage the TFP, hence a budget increase is expected. 88. In South Asia, ADB is evaluating solutions for alleviating power transmission constraints in Nepal, which will allow the development and financing of cross-border hydropower projects between India and Nepal. This solution could unlock commercial investment in Nepal, while also helping to address the energy deficiency in India's northern states. Bhutan and India also have opportunities for private cross-border power projects, which will be explored during the WPBF period. Following the example of a regional energy project in Georgia, (facilitating export hydropower electricity to Turkey and displacing coal-fired thermal generation), ADB is talking with other DMCs and clients in the Caucasus to take a similar approach to promoting regional integration of energy supply. ADB is also exploring opportunities in the GMS to foster and assist more cross-border infrastructure investments, which will significantly support economic growth in these DMCs.

4. Infrastructure Development 89. Sovereign operations. As noted in the MTR, given the huge infrastructure financing needs of its DMCs, ADB operations will continue to focus on infrastructure, which contributes to inclusive economic growth, environmentally sustainable growth, and regional integration. ADB will continue to emphasize rural infrastructural development with support for rural roads, irrigation facilities, and schools contributing to inclusive economic growth (see also the discussion in para. 23 about proposed interventions for food security and agricultural productivity and para. 66 on natural resource management). 90. During 2011–2013, infrastructure projects accounted for $24.8 billion or 69% of sovereign approvals, comprising transport (51%), energy (32%), water (14%), and other infrastructure (2%). By comparison, the operational pipeline for the WPBF, 2015–2017 shows $23.5 billion or 68% of sovereign operations will be in infrastructure, comprising transport (41%), energy (35%), water (19%), and ICT and other infrastructure (5%). Of the sovereign infrastructure operational pipelines for 2015–2017, 32% by volume is expected to be in rural areas and 45% in urban areas; and about $12.3 billion (53%) in lagging regions (Figure 7).

28

Figure 7: Location of Infrastructure Operations, 2015–2017 ($ million)

91. Based on the project pipelines, ADB operations in the transport sector during this WPBF period will focus on inclusive economic growth with access to markets, trade opportunities, and job creation being the major objectives. In the energy sector, the emphasis will remain on renewable energy and energy efficiency. Urban services projects are increasingly using an integrated urban development approach with the city as the growth and employment center for inclusive economic growth and additional focus on cities with growth potential along economic corridors. Consideration of nationally balanced growth has led ADB to implement many of its operations in lagging areas, including economically less-developed regions. 92. For ADB operations in South Asia, infrastructure development will remain the primary means to promote inclusive economic growth. The operational pipeline for the WPBF, 2015–2017 shows that about two-thirds of ADB’s lending program in South Asia will be directed at infrastructure, with sizable investments in transport, energy, and urban infrastructure and services. Pipeline projects include investments in renewable energy development, transmission systems, energy efficiency enhancements, roads and railways, promotion of city clusters and economic corridors, and water supply and irrigation improvements. In addition to national projects, ADB will also facilitate regional connectivity projects that link South Asia to Southeast Asia. 93. In Central Asia, the 2015–2017 work program prioritizes energy, transport, irrigation, and water supply and sanitation. The energy supply and networks will be expanded in Afghanistan, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Pakistan, Tajikistan, and Uzbekistan through projects in generation (renewable energy and thermal power), transmission, distribution, clean energy, solar, wind, and small hydropower schemes, and energy efficiency. Generation and transmission projects are general interventions that will indirectly benefit the poor through increased and more reliable power supply, as well as more jobs. During project preparation, poverty and social analyses will assess the impact channels and identify opportunities to develop inclusive design features to ensure that all segments of the population will benefit. 94. The expansion of transport corridors in these countries will contribute to inclusive economic growth by increasing access to jobs, opportunities, markets, and basic social services

Nationwide $2,618 (11%)

Regional $2,797 (12%)

Lagging Areas (Rural)

$7,476

Urban Operations in Lagging Areas

$4,060

Other Urban Projects

$6,523

Urban $10,583 (45%)

Source: Asian Development Bank staff estimates.

Rural $7,476 (32%)

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(education and health), particularly for vulnerable and poor people. Transport project designs are increasingly including separate components to address inclusive economic growth, such as improvement of village feeder roads, construction of roadside public facilities (e.g., rest areas and market places), provision of training on business development and skills, community capacity development, public campaigns for community road safety awareness, and prevention of HIV/AIDS and human trafficking. Higher agricultural production and productivity will contribute to inclusive economic growth through projects in rural areas, including (i) rehabilitation and improvement of irrigation and drainage systems; (ii) disaster management, including flood risk management; and (iii) better agricultural marketing and processing. 95. In East Asia, ADB’s planned road, railways, and logistics projects in the PRC serve the lagging central and western provinces where poverty rates remain high. The proposed Ningxia Liupanshan Poverty Reduction Rural Roads Development Project will provide direct poverty intervention. In Mongolia, the proposed Eastern Regional Corridor Development Project will extend the national road network to a remote and disadvantaged area, fostering inclusive economic growth by enabling the establishment of a major new border crossing with the PRC at Bichigt. An ongoing TA project on Connectivity for Future Growth is identifying priority investments and policy actions to improve transport in poor and remote areas of Mongolia. The proposed energy sector projects in the PRC, such as the Gansu Jinta Concentrated Solar Power Project, and the Qingdao Smart Low-Carbon Project coupled with the Ulaanbaatar Power Transmission and Distribution Upgrading Project in Mongolia, will contribute to inclusive and environmentally sustainable growth. 96. In Southeast Asia, ADB will consider support for Indonesia’s reform program through policy-based lending, addressing energy pricing issues and other crosscutting regulatory constraints. In the Lao PDR, ADB will process a national backbone transmission line project during the WPBF period. In the transport sector, ADB will provide advisory support, including transaction advisory services, for the development and implementation of bankable pilot PPP projects, such as expressways in Thailand. ADB also plans to assist Cambodia, Indonesia, the Lao PDR, Myanmar, and the Philippines with the construction and rehabilitation of rural roads, as well as rural urban links to improve climate-resilient access and connectivity. Assistance is also planned for rural electrification, including in lagging areas, to support human and industrial development. 97. ADB’s initiatives for urban infrastructure development in Southeast Asia will include (i) follow-on support to the GMS to develop cities and towns along the regional economic corridors; (ii) the green cities approach in Viet Nam to support the government’s efforts in developing secondary cities as regional economic centers, improving urban environment, and introducing climate-change-resilient designs in infrastructure construction and upgrading; (iii) urban infrastructure and services improvements in Myanmar using loans for building larger-scale infrastructure, grants for supporting community-based basic services, and TA for capacity development and institutional strengthening in urban planning and management; and (iv) a solid waste management project in the Philippines to improve access of the urban population to improved disposal by increasing the number of local governments outside Metro Manila with solid waste management facilities. 98. In South Asia, ADB will promote integrated urban development with the city as growth and employment center for inclusive economic growth. The focus will be on medium-sized cities with growth potential along economic corridors. The Bangalore City Cluster Development Project in India is expected to create a convergence of private sector participation and Government investments. In its Pacific DMCs, ADB’s infrastructure program during the WPBF

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period will continue to focus on transport and energy—sectors where ADB is the largest development partner in the region—and water and sanitation. ICT continues to hold potential for further growth as submarine cable projects are planned in Cook Islands, and Samoa. Land transport projects will focus on national integration, while maritime operations will build regional connectivity and facilitate trade. ADB will continue to coordinate its infrastructure investments in the rapidly growing urban areas of the Pacific to promote improved urban planning, with specific urban investments planned in both Port Vila and Luganville in Vanuatu. 99. Nonsovereign operations. ADB’s private sector operations in support of infrastructure development will look to fill gaps in financial markets, seek opportunities to catalyze local and international commercial bank participation, and mitigate risks for projects that have a demonstrable development impact beyond the individual project. The core infrastructure sectors will remain energy (including power generation—notably renewable power projects—upstream and downstream oil and gas, demand- and supply-side energy efficiency, and power and gas transmission and distribution), transport (including seaports and port services, airports, rail, mass rail transit, roads, and logistics hubs, shipping, etc.), water and wastewater, telecommunications, and certain natural resources projects. 100. In addition, where feasible, ADB will gradually increase its support and financing for social infrastructure, including health, education, and agriculture, often through direct equity investments (to complement other private sector support through financial intermediaries). This approach will also consider increasing ADB’s emphasis on inclusive business and high impact investments outside of core infrastructure projects (e.g., off-grid energy access). One of the key directions for ADB’s private sector infrastructure financing will be the increased emphasis on the use of cofinancing products (credit and partial risk guarantees, B-loans, risk transfers, blended finance with development partner funds, and other similar products) to leverage ADB’s own resources and attract a higher percentage of direct value-added cofinancing−while noting the volatility and unpredictability of such cofinancing. 101. Operational sustainability. In designing and implementing its infrastructure projects, ADB will also pursue policy, regulatory, and governance reforms to strengthen public infrastructure management systems and promote the role of the private sector in infrastructure development. The private sector will play an increasingly important role in leveraging finance for large infrastructure projects. For example, India requires about $1 trillion in investment for 2012–2017, about half of which is expected to be made by the private sector. Such needs will require deepening the long-term debt market, and creating an enabling regulatory and institutional environment to encourage foreign direct investment and private participation. ADB will support its DMCs with capital market development by encouraging PPPs, including strengthening the legal frameworks for PPPs, and exploring funding for large projects through transaction advisory services and other innovative financing modalities, equity financing, local bond issuance, and closer cooperation with development partners. 102. Policy dialogue will continue to establish dedicated asset management funds and increase private sector participation in infrastructure operations through the use of toll roads and performance-based maintenance contracts. Other measures to ensure that work and installed equipment is good quality will include strict prequalification and/or qualification criteria for contractors, work with executing agencies in recruiting loan consultants, and coordination with other development partners in advising executing agencies on the preparation of investment and rehabilitation plans and maintenance of a proper inventory of assets. Moreover, ADB will consider providing capacity development assistance to strengthen sector governance and institutional arrangements. In South Asia, the Climate-Resilient Rural Connectivity Project in

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Bangladesh will adopt road design that could be maintained by local communities. In Sri Lanka, the Integrated Road Investment Program (Tranche 3) will have a performance based road operations and maintenance (O&M) contract with private sector participation. In Nepal, all investment projects and associated TAs will be designed with in-built components to strengthen institutional capacity and policy frameworks for improving O&M and sustainability of project assets in the respective sectors. 103. In the Pacific, ADB will continue to support sector reforms, including formulation of infrastructure policies and asset management plans through TA and partnerships. National transport plans have been formulated or are under way in three countries. National infrastructure investment plans have been developed in seven countries and are under way in two more through the Pacific Region Infrastructure Facility, which ADB manages on behalf of its eight partner agencies. Port master plans will begin soon in Samoa and Fiji. These plans will lead to the implementation of investments as they are incorporated into country strategies. ADB will also pursue greater use of PPPs for investment and O&M, particularly for capital-intensive projects in ICT, ports, and power generation. Moreover, ADB will continue to support the development of sustainable domestic financing arrangements through dedicated transport funds to enhance predictability for operation and maintenance budgets.

B. Responding to the New Business Environment

5. Middle-Income Countries 104. Lower MICs continue to face issues similar to low income countries.32 ADB will maintain its support to lower MICs on reducing poverty and vulnerability; achieving inclusive economic growth; developing infrastructure; promoting innovative approaches to addressing development challenges; strengthening legal and regulatory frameworks, and quality of public institutions; and fostering research into the causes of continuing deprivation, vulnerability, and inequality. 105. The MTR notes that a large majority of ADB DMCs are likely to attain MIC status by 2020. ADB is preparing an approach paper for engagement with upper MICs. It will use a differentiated country approach in meeting the development challenges of MICs. For upper MICs, capacity development efforts will address the adoption of innovative and cutting-edge elements and modalities, such as use of results-based lending and greater use of country systems. The use of a results-based, sector-wide program approach with clear results frameworks encourages other development partners to align their programs, but also allows government agencies to establish clearer accountability and allocate resources more efficiently to achieve key sector results. In addition to the investment element of infrastructure projects, support for leveraging finance and knowledge is an equally important part of the planned operations for MICs. The operational pipeline for the WPBF, 2015–2017 shows that $5.4 billion or 16% of sovereign operations will be in upper MICs with 74% of those operations in infrastructure and 17% in agriculture development.

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Low income countries are those with gross national income (GNI) per capita of $1,045 or less. These include Afghanistan, Bangladesh, Cambodia, Myanmar, Nepal, and Tajikistan. Lower MICs are those with GNI per capita of $ 1,046 to $4,125. These include Armenia, Bhutan, Georgia, India, Indonesia, Kiribati, the Kyrgyz Republic, the Lao People’s Democratic Republic, the Federated States of Micronesia, Mongolia, Pakistan, Papua New Guinea, the Philippines, Samoa, Solomon Islands, Sri Lanka, Timor-Leste, Uzbekistan, Vanuatu, and Viet Nam. Upper MICs are those with GNI per capita of $4,126 to $12,745. These include Azerbaijan, the People’s Republic of China, the Cook Islands, Fiji, Kazakhstan, the Maldives, the Marshall Island, Nauru, Palau, Thailand, Tonga, Turkmenistan, and Tuvalu.

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106. In the PRC, ADB operations will emphasize innovation and value addition. The operations will support demonstration and pilot-type projects that can be scaled up and replicated throughout the country. Moreover, ADB operations in the PRC will continue to innovate by repositioning sector priorities to help meet the country’s rapidly changing needs and maximize the development impact by strengthening the links with global and regional public goods, protecting the environment, developing social sectors, promoting RCI, and developing the private sector. ADB's operations in the PRC are supporting the demonstration of cutting-edge clean energy technologies, financial intermediation to expand the access to credit for energy efficiency and rural development, best practices in TVET, urban environmental protection, sustainable transport and multimodal transport hubs, and natural resources and river basin protection.

107. In India, ADB will remain engaged in the economically lagging regions and urban growth centers, and help create jobs through the development of economic corridors. The proposed pipeline for India also covers lending for skills development, which is essential for managing projects efficiently and facilitating access of the unemployed and underemployed to job opportunities. By supporting projects such as the East Coast Economic Corridor Project, ADB will enable port-led industrial development in India, thus facilitating of global production networks. This project will also encourage multimodal connectivity and the development of city clusters to promote urbanization. At the same time, ADB is assisting with sophisticated financial products, instruments, and modalities—including PPPs—in the more developed sectors of the economy.

108. In the upper MICs of Central Asia, ADB will use modern approaches in urban development, partnerships and sophisticated tools for financial services, advanced solutions for energy efficiency, and reimbursable nonlending products. 109. In Southeast Asia, ADB’s assistance for upper MICs will include blending sovereign and nonsovereign support (e.g., in Indonesia, the Philippines, and Thailand). In Indonesia, ADB is moving away from basic public infrastructure projects to new catalytic projects with a strong demonstration effect, including leveraging private sector funding needed to scale up support. ADB’s ongoing dialogue and support to the Government of the Philippines on PPPs is expected to create opportunities for public and private sector lending. The Philippine PPP engagement model also has the potential to spill over to other DMCs in Southeast Asia, including Indonesia. In more mature PPP markets, such as Thailand, ADB intends to provide transaction advisory services and sovereign lending for flagship projects, along with possible investment and credit enhancements. 110. To promote finance sector development in upper MICs, ADB’s private sector operations will support the development of capital markets. Initiatives may include equity opportunities in the insurance sector, which may help promote individual and family security against certain types of loss as well as develop capital markets. ADB may also explore support for stock exchanges and rating agencies. Depending upon the level of bond market development, ADB can also provide guarantees to banks or financial institutions issuing bonds to either lengthen the tenor or attract institutional investors. In this regard, ADB is exploring several alternatives to support the emergence of a “project bond” market in Asia, including through the use of guarantees and other risk-mitigation products to attract investors to financing and refinancing of infrastructure projects. The provision of subordinated debt to banks may also be necessary as

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many MICs move to Basel III standards.33 ADB will also focus on economically lagging states within MICs, as well as on new technologies or important sectors for development where securing adequate commercial financing is difficult. ADB will invest in the latest renewable technologies, waste management, water sector, and social sector PPPs, among others. 111. Knowledge advancement and innovation will also play a key role in ADB’s engagement with upper MICs, including the PRC. ADB will explore innovative private sector approaches to the development of labor skills and competencies in Indonesia and Thailand. Knowledge-driven policy reform and investment is fundamental to Thailand’s goal of making the transition to a high-income, knowledge-based economy. ADB will seek opportunities to promote knowledge sharing and cooperation, including plans to establish a knowledge-sharing platform for MICs in the region. ADB will place an increasing emphasis on “knowledge partnerships” and catalyze peer learning between DMCs (e.g. through south-south knowledge sharing).

6. Private Sector Development and Operations

112. The MTR observed that more private investment is needed to address large infrastructure needs, support economic growth, create jobs, and reduce poverty. Under the “One ADB” approach during the WPBF period, private sector development operations of ADB’s regional departments will seek to improve the investment climate, support capacity development, and facilitate the upstream activities necessary for the use of PPPs in various sectors. This work will be coordinated with PSOD, which among other activities will also explore the possibility of local currency financing, partner with other development partners in supporting private sector operations, and assist with the promotion of private sector involvement in RCI. 113. During the WPBF period, ADB’s private sector operations will continue to support inclusive economic growth through infrastructure development, finance sector development, and RCI. Further, ADB will gradually increase its support and financing for social infrastructure sectors—including health, education, and agriculture—often through direct equity investments (to complement support from other private sector operations support through financial intermediaries). This approach will also include greater emphasis on inclusive business and high-impact investments outside of core infrastructure projects (e.g., off-grid energy access).

114. During 2011–2013, private sector development and private sector operations approvals reached 35% by volume and 38% by number. By comparison, the operational pipeline for the WPBF, 2015–2017 shows that private sector development and operations are projected to be 44% by volume and 49% by number, compared with the MTR target of 50% by 2020. About $90 million (33%) of TA operations will support private sector development and operations in 2015. Further, private sector operations, as a share of OCR approvals, reached 17% during 2011–2013 and are projected to be 20% by 2017, compared with the MTR target of 25% by 2020. ADB continues to take steps to increase allocations for private sector operations, including additional allocations available for approval to the PSOD during the year.

115. In December 2013, ADB’s senior management reviewed constraints to expansion of nonsovereign operations. To alleviate these constraints, 12 actions were identified to support expansion of nonsovereign operations. To date, work on the following four actions has been

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"Basel III" is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector. These measures aim to (i) improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source; (ii) improve risk management and governance; and (iii) strengthen banks' transparency and disclosures.

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completed, namely, (i) 3-year allocation of resources available for approval for nonsovereign operations; (ii) return of resources available for approval released on account of risk transfer arrangements; (iii) use of PSOD’s resources available for approval for sovereign-backed partial risk guarantees in Group A and Group B countries; and (iv) introduction of “One ADB” performance metric for fostering greater synergy between PSOD and regional departments. ADB will seek to be more of a structuring lead-arranger in financing projects, as opposed to being just a source of long-term financing. This will improve ADB's offerings to DMCs and their growing private sector needs. More TA will be deployed to help assess new areas for intervention and preparation of challenging transactions. Consideration is also being given to the adoption of an economic capital planning model for allocation of resources to PSOD, which would provide it with greater certainty and flexibility in resource planning. ADB will seek to improve its offerings of local currency products for the private sector (Box 2).

7. Knowledge Solutions 116. Under the “One ADB” approach, knowledge operations are being integrated with country programs. Knowledge management plans for countries are being developed and integrated with the CPS, and knowledge products are included in the annual country operations business plans. During the WPBF period, ADB will promote knowledge dialogue with DMCs, coordinated by its resident missions, to prioritize and generate joint knowledge solutions work. Further, ADB will strengthen knowledge partnerships with other multilateral development banks, international institutions, policy and research institutions, and civil society in DMCs. ADB will finalize in 2014 a knowledge solutions results framework to define, measure, and report performance of ADB’s knowledge solution. ADB will also work to increase access to and use of its knowledge products through the development of an Open Access Repository which provides free and unrestricted access to ADB's scholarly information and wider availability of ADB's scholarly content in online dissemination channels for institutions and individuals. 117. Country diagnostic studies will continue to inform the CPSs (Box 3). Sector assessments, road maps, and other studies and assessments will continue to apprise ADB’s dialogue with DMCs and guide country programming. The “One ADB” approach will be used for the knowledge partnership process with the PRC and Indonesia as the initial target countries. ADB will also explore and adopt new techniques to support evidence-based, policy-making RCI. During the WPBF, 2015–2017, ADB’s RCI-related knowledge work will include providing in-depth thematic analyses on drivers of second-generation RCI, such as trade and investment

Box 2: Local Currency Financing Enhancement

Since the introduction of the local currency product in 2005,a local currency operations have become a

key area in the quest by the Asian Development Bank (ADB) to fight poverty in its developing member countries. In 2006, ADB also introduced the local currency guarantee product. ADB’s local currency operations have addressed the need of borrowers to hedge the currency risk associated with borrowings in foreign currency. They have also furthered capital market developed through the issuance of bonds and cross-currency swaps in local markets. To advance its local currency operations, ADB intends to introduce an exposure limit on unhedged local currency guarantee operations at 1% of ADB’s statutory reporting basis total equity. This would enhance the usability and attractiveness of the local currency guarantee, especially in frontier economies where this instrument can be leveraged to create significant development impact. a ADB. 2005. Introducing the Local Currency Loan Product. Manila.

Source: Asian Development Bank.

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cooperation, cross-border infrastructure to support connectivity (beyond subregions and economic corridors), monetary and financial cooperation, and regional public goods.

Box 3: Country Diagnostic Studies

With the objective of improving the effectiveness of its operations, the Asian Development Bank (ADB) has introduced country diagnostic studies, which help identify the constraints faced by a developing member country. These studies help ADB and the developing member country remove the most binding development constraints, which is expected to have the largest impact on a country’s inclusive growth. ADB’s country diagnostic studies draw from the inclusive growth diagnostics framework anchored on three policy pillars: (i) create and expand economic opportunities through rapid and sustained growth, (ii) ensure equal access to opportunities for all members of a society, and (iii) provide adequate social safety nets to ensure minimum economic well-being. It also incorporates other diagnostics frameworks to identify constraints to inclusive growth, assess the underlying reasons for such constraints, and propose micro- and macroeconomic policy options for overcoming these constraints at the country and sector levels.

The country diagnostic studies are timed to help guide the preparation of ADB’s country partnership strategies and to support the preparation of governments' medium-term development plans. Thus, they are factored into the results frameworks at both the country and sector levels. Each country diagnostic study will be conducted in three steps: (i) review of development performance and patterns, (ii) overarching diagnosis of constraints to rapid and inclusive economic growth, and (iii) in-depth diagnosis in the areas identified by the overarching diagnosis.

ADB, through the Economics and Research Department (ERD), has completed country diagnostic studies for Bhutan, Indonesia, Nepal, Papua New Guinea, and the Philippines, while studies for Cambodia, Fiji, the Maldives, Myanmar, and Thailand are ongoing and will be completed in 2014. Country diagnostic studies will be initiated for three more countries in 2015 (Bangladesh, Mongolia, and Sri Lanka). In addition, regional departments, with support from ERD, have undertaken studies for the Kyrgyz Republic, the Lao People’s Democratic Republic, and the South Asia region. Under the “One ADB” approach, regional departments’ country teams and ERD form a partnership to conduct of country diagnostic studies by pooling expertise and other resources complementing the regional department’s own capacity building activities.

Source: Asian Development Bank.

118. ADB will continue to enhance knowledge production and dissemination in the following areas: (i) insurance against natural disasters, (ii) use of local currency for settlement of trade, and (iii) infrastructure financing. To consolidate its work on transport corridors and their potential contribution in addressing rising inequality across DMCs, ADB will focus on transforming these to economic corridors. In doing so, ADB will also disseminate best practices on economic corridors from other regions and institutions. This will cover mainly the work done by regional departments on small, secondary town development; special economic zones; rural roads; agricultural value chains; financial inclusion; trade facilitation; and transportation of goods, which may reduce inequalities through improved economic conditions in coastal areas.

119. In addition to its flagship publications, such as the Asian Development Outlook, Key Indicators, Asian Economic Integration Monitor, and Country Diagnostic Studies, ADB’s knowledge work during the WPBF, 2015–2017 will also focus on (i) education for inclusive economic growth, (ii) affordable housing for inclusive economic growth, (iii) labor mobility in the ASEAN economic community, (iv) strengthening economic assessment capacity, (v) taxation and market-based instruments for green growth, (vi) improving employment outcomes, (vii) economic analysis of gender inequality, (viii) rethinking growth potential and growth models, and (ix) financing Asia’s growth.

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120. In East Asia, ADB will further intensify interdepartmental cooperation in the provision of knowledge products and services in both the PRC and Mongolia in collaboration with the concerned governments. In the PRC, "One ADB" approach will be pursued further for more strategic and collaborative provision of knowledge products and services, and in cooperation with the Government, efforts will be made to work on smaller number of larger TA projects to achieve greater impact. Together with the preparation of CPS 2016–2020, a knowledge partnership strategy will be prepared for the PRC. Activities under the Regional Knowledge Sharing Initiative will be enhanced to support South-South knowledge cooperation. Knowledge work in Mongolia as well as for the entire East Asia region will also have greater strategic focus. 121. In South Asia, knowledge management plans in relation to CPSs have been developed in three of the six countries in the region: Bhutan, India, and Nepal. Initiatives on knowledge solutions in South Asia include: (i) India Resident Mission’s Capacity Development Resource Center and Knowledge Exchange Hub which helps states and others share knowledge, including through south-south learning; (ii) urban knowledge hub, which helps cities in South Asia interact with each other; and (iii) cutting edge knowledge and research work, such as on economic corridors in India. For DMCs in Southeast Asia, sector assessments, and other studies and assessments are being produced to inform the country dialogue process and guide country programming. CPSs are prepared with country knowledge strategies and plans (CKSPs) that provide broad knowledge solution strategies tailored to each country. CKSPs for the Philippines, Thailand, and Viet Nam have been completed and endorsed by the respective governments. A CKSP for Indonesia has been prepared and shared with the government for inclusion in the next CPS. Work on CKSPs for Cambodia, and Myanmar are close to completion, while it has commenced for the Lao PDR. 122. The Pacific Regional Knowledge for Development Program will continue to focus on four thematic areas: (i) improved connectivity, (ii) broadened access to quality services, (iii) expanded resilience, and (iv) increased private sector development. CKSPs are being developed for Fiji, PNG, and Timor-Leste as part of the CPS process. PNG’s knowledge management plan highlights the importance of ensuring ADB’s knowledge management efforts pursue a targeted program of activities, clearly linked to ADB operations. 123. For all DMCs, ADB will develop knowledge products to disseminate information on lessons learned from sovereign ADB projects of prior years to assist ADB staff and DMCs in better implementing ADB projects and preserve project integrity. 124. ADB is developing case studies on some key private sector demonstration projects, especially related to its climate change program. These studies are intended to share knowledge across ADB’s DMCs about how to creatively use different sources of financing to address risks and catalyze new sources of debt. A. Strengthening ADB’s Capacity and Effectiveness

8. Financial Resources and Partnerships

125. Enhancing lending capacity. An innovative proposal has been presented to ADF donors and ADB shareholders to enhance ADB’s financial capacity for poverty reduction in a sustainable manner through more efficient management of its capital resources. The proposal entails merging the lending operations of the ADF with the OCR balance sheet by January 2017. If accepted by ADF donors and ADB shareholders, this proposal could result in an increase in the total resource envelope in 2017 from $13 billion to $15 billion–$16 billion.

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However, as the proposal is still under discussion, this WPBF does not incorporate the impact on resources available for approval for 2017.

126. Strengthening partnerships and enhancing cofinancing. During the WPBF period, ADB will intensify its partnerships with other development partners, financial institutions, academia, and civil society. The aim is to strengthen collaboration on operational matters, including learning from best international practices and evaluating their replicability for ADB’s country operations. 127. ADB also remains committed to matching its financing with an equivalent amount of cofinancing by 2020, and to leverage its resources by seeking financing partnerships that would allow ADB to design larger operations. During the WPBF, 2015–2017, ADB’s average cofinancing ratio is projected to reach 72%, and 78% in 2017.34 For its private sector operations, cofinancing opportunities will help spread the risk and mitigate the constraints caused by sector and country exposure limits. For official and other concessional cofinancing operations, ADB will explore ways and means to fully utilize existing cofinancing commitments and also seek additional cofinancing framework agreements that would impart a greater degree of certainty to expected available resources. ADB will seek new partners with substantial concessional cofinancing programs and demonstrated ease of doing business. These will include private foundations and philanthropies, institutional investors, and new public sector partners. Measures to mainstream concessional cofinancing will continue particularly in delivering country partnership strategies and country operations business plans with identified projects with cofinancing.

128. Concessional cofinancing processes will be streamlined through enhanced knowledge of operations and alignment of processes between ADB and its partners. To meet its objectives, ADB will explore ways to fully utilize existing cofinancing commitments and seek additional cofinancing framework agreements that would clarify the amount of expected available resources.35 ADB will build on its collaborations with official and nonofficial cofinancing opportunities from countries including Australia, the PRC, Germany, Japan, Republic of Korea, the United Kingdom, and the United States. In addition to cofinanciers for its private sector operations, ADB will also seek collaboration opportunities with other international financial institutions, country funds, and institutions such as Agence Française de Développement, European Bank for Reconstruction and Development, European Investment Bank, European Union, OPEC Fund for International Development, Swedish International Development Cooperation Agency, and Swiss Agency for Development and Cooperation. 129. ADB will continue to use trust funds as vehicles to support common development priorities with financing partners. In clean energy, for example, ADB in June 2014, approved the establishment of the Japan Fund for the Joint Crediting Mechanism (JFJCM) with a grant of ¥1.8 billion (about $17.65 million) from the Government of Japan. The JFJCM will support the adoption of advanced low-carbon technologies in ADB’s DMCs. With the establishment of the JFJCM, ADB is the first multilateral development bank to have a trust fund for supporting GHG

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Departmental targets for official cofinancing will be determined annually based on the operational pipeline. 35

As of 31 July 2014, ADB has signed 10 framework cofinancing arrangements with the following partners: Abu Dhabi Fund for Development, PRC’s Export-Import Bank, Eurasian Development Bank, Agence Française de Développement, Germany’s KfW, Islamic Development Bank, Japan International Cooperation Agency, Republic of Korea’s Economic Development Cooperation Fund, Nordic Development Fund, and OPEC Fund for International Development. Nine of these arrangements are in effect for a total program of about $7.7 billion. About $6 billion remains available in 2014–2016, primarily by way of official loan cofinancing, provided the appropriate projects can be identified in consultation with the partners and the relevant DMCs.

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emission-reduction projects under the Joint Crediting Mechanism—a bilateral carbon market mechanism between the Government of Japan and developing countries to promote GHG emission-reduction projects.

130. ADB will continue to administer the Afghanistan Infrastructure Trust Fund, which pools financial resources from development partners (currently the governments of Japan, the United Kingdom, and the United States) to cofinance with ADB infrastructure projects in Afghanistan. In Southeast Asia, ADB will continue to benefit from the AIF. For its private sector operations, ADB will continue exploring parallel financing and unfunded risk participations from offshore and onshore sources, in addition to credit support for longer tenors. For frontier markets, PSOD will consider political risk coverage as a way of engaging participation from commercial banks, and blending commercial funds and concessional funds.

9. Delivering Value for Money in ADB 131. Linking resource allocation to disbursements. As a first step towards improving disbursements, ADB has established disbursement targets for its public and private sector operations for 2014 on a departmental basis. During the WPBF, 2015–2017, ADB will cascade these targets to countries and develop a mechanism linking annual OCR resource allocations with OCR disbursement performance.36 132. Business processes. To maximize development effectiveness, increase disbursements, reduce transaction costs for DMCs, and ensure timely delivery of outputs and outcomes, ADB has started to implement measures for the project cycle, including enhanced quality-at-entry, strengthened results-based project implementation, and more timely undertaking of completion reports. Such measures will be bolstered during the WPBF period, and additional measures identified under the MTR Action Plan will be pursued.37 These are elaborated below.

(i) Project readiness. ADB has instituted measures to improve project readiness,

including application of more rigorous project-readiness filters.38 Projects that meet these criteria have a higher probability of accomplishing their outcomes and achieving project impacts in a timely fashion—thus contributing to economic development. Some key measures already instituted and those to be made effective within 2014 include (a) adoption of realistic project implementation schedules with annual targets for project readiness; (b) advanced actions wherever feasible on design, procurement, safeguards, counterpart budget allocations, and project management offices and teams; and (c) establishment of the following targets for the annual approval of high readiness projects: 40% in 2015, 50% in 2016, and 80% in 2017. In February 2014, ADB extended the pilot

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The performance-based allocation system for ADF resources has a mechanism that accounts for portfolio performance in determining the quantum of country-specific ADF resources.

37 ADB. 2014. Midterm Review of Strategy 2020 Action Plan. Manila.

38 Design-ready projects are those that have completed one of the following steps before project approval: (i) detailed engineering design suitable for preparing and launching bidding documents for a major construction or goods contract (for sector projects, detailed engineering design for those subprojects for which construction is scheduled to start in the first 2 years should be available); or (ii) preliminary design and specifications suitable for preparing and launching bidding documents for (a) construction contracts that include detailed design as its part, and/or (b) turnkey or engineering, procurement, and construction contracts.

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period for the project design facility and improved its design to address impediments to its use.39

(ii) Procurement and project management reforms. A ten-point procurement reform action plan has been approved and is under implementation. This includes a new risk-based approach to procurement governance and specific actions on procurement risk assessments, thresholds, risk-based prior/post review limits, risk classification, procurement committee process, procurement review system, and consulting services review (Appendix 5). These will reduce procurement time, accelerate disbursements, increase efficiency and improve project delivery, while maintaining sound fiduciary oversight. Contract awards and disbursements for sovereign operations during 2015 are projected at $8.9 billion and $9.5 billion, respectively. Disbursements for 2015 nonsovereign operations are projected at $1.0 billion.

(iii) Information and communication technology. The MTR calls for increasing

ADB’s efficiency through more effective use of ICT. In response, ADB will review projects and activities under the Information System and Technology Strategy III,40 and strive to provide an end-to-end project monitoring system that can track progress from the listing of projects in the country operations business plan to financial closing. By end of 2015, ADB will (a) refine current eOperations to meet operational needs and pilot of a new system in case eOperations cannot be fixed,41 (b) develop and implement Procurement Review System to monitor end-to-end procurement process, (c) provide a client portal for faster processing of disbursement claims, and (d) establish nonsovereign portfolio management and reporting platforms.42 ADB will also arrange for seamless connectivity between headquarters and resident missions by 2015; develop data warehouses and business intelligence tools that will allow staff to easily search and access project information, including knowledge products and services by 2014; and explore providing tools for social collaboration and knowledge sharing. In addition, telecommunications network architecture and speed of mobile access to ADB e-mail and documents will be improved by 2015.

(iv) Private sector operation reforms. Measures have been proposed to streamline private sector business processes without compromising the quality of operations or the oversight functions (see also para. 115). These measures, which are part of the MTR Action Plan, aim to (a) provide greater flexibility for small, highly developmental projects,43 (b) streamline the workings of the Investment Committee at concept review stage (including enhancements to streamline the concept review paper), (c) provide greater flexibility in retaining resources within PSOD on account of risk transfer arrangements with third parties, and (d) delegate approval of designated procedures from the Board to Management (relating to B-Loans and risk transfers). An economic capital planning model is also being explored to give PSOD greater multiyear flexibility in resource

39

ADB. 2014. Pilot Financing Instruments and Modalities: Proposed Extension of Pilot Period for the Project Design Facility with Modification. Manila.

40 ADB. 2013. Information Systems and Technology Strategy III and Capital Expenditure Requirements. Manila.

41 Discussions on simplifying eOperations are ongoing.

42 An information technology system for ADB’s cofinancing operations is expected to be developed by June 2016.

43 An overall framework for streamlined processing of small transactions will be presented to the Board for approval. This will be conducted within the current risk appetite and risk principles governing nonsovereign operations.

40

planning. Other measures include improving the offerings of local currency product for the private sector, and relaxing practices for sovereign-backed guarantees.

133. Empowering resident missions. To increase ADB’s responsiveness, additional measures are proposed to empower resident missions. During the WPBF, 2015–2017, ADB will explore cost-effective ways to meet the objectives of empowering resident missions, including financing of such cost drivers as outposting of headquarters-based staff and greater provision of ICT facilities at resident missions. These are elaborated below. While most of the staff resources required for empowering resident missions will be met through redeployment of staff positions and outposting of staff from headquarters to the resident missions and “regional hubs,” additional budget will be required to cover the associated increases in staff costs and expansion expenses of some resident missions and ICT systems.

(i) For the six largest resident missions with existing capacity—Bangladesh, the

PRC, India, Indonesia, Pakistan, and Viet Nam—ADB will eliminate the distinction between “delegated” and “non-delegated” projects, and will bring all projects under resident mission responsibility, establish a strong country-based project administration unit structure, and authorize country directors to act on and approve all matters up to the decision authority.

(ii) For medium-sized and small resident missions, the regional departments will

(a) designate resident missions under their jurisdiction as a regional hub or sub-hub, and place an adequate number of staff to handle activities pertaining to safeguards, social development, procurement, financial management, and disbursement, subject to adequate portfolio size; (b) delegate procurement decision approvals up to the revised Procurement Committee limit to country directors of selected medium-sized resident missions if the regional or sub-hubs have adequate human resources, including staff that have Procurement Accreditation Skills Scheme accreditation—with procurement decision approvals for smaller resident missions done out of headquarters; and (c) allow greater flexibility in assigning functions to small resident missions, depending on staff composition, skills mix, and overall resource availability.

(iii) Regional departments will examine if more international staff can be outposted or

provided to small and micro resident missions, either directly or through a regional or sub-hub arrangement. In addition, ADB will consider a proposal to (a) give more recognition and authority to national staff, institutionalize incentives for them, and strengthen the capacity of those who will be given project implementation leadership responsibilities; (b) formulate and implement an ICT upgrade plan for resident missions; (c) allow country directors (along with sector directors) to endorse all project concept notes and draft reports and recommendations of the President; and (d) reallocate resources for the large resident missions, selected medium-sized resident missions, and Pacific Department to process knowledge cluster TA projects in order to structure effective knowledge dialogue and support the delivery of highly responsive knowledge solutions to client DMCs.

134. Monitoring Results. ADB is updating its corporate results framework (footnote 5) to include MTR priorities, and is introducing a scorecard system for departments and offices for

41

key result areas. In addition, ADB is updating its CPS, and project design and monitoring framework guidelines.

10. Organizing to Meet New Challenges

135. To effectively deliver its recommendations, the MTR envisages an organization that is dynamic, agile, innovative, and results-focused. ADB therefore plans to strengthen its skills, incentives, and institutional arrangements during the WPBF period.

a. Strengthening Skills

136. Addressing skills gap. As a part of its ongoing talent management program, ADB will (i) conduct a structured human resources and skills audit to identify gaps in projected skills requirements;44 (ii) develop a structured workforce planning methodology that comprehensively assesses future resourcing and skills requirements; (iii) strengthen staffing and skills where gaps are identified as part of the workforce planning methodology; and (iv) consider more flexible options for recognizing and remunerating staff through total compensation review. 137. Nurturing and retaining technical talent. Key initiatives will include (i) conducting an annual organizational talent review of staff potential and performance, (ii) developing managerial and technical talent pools, (iii) developing key talent through additional learning offerings and opportunities, (iv) implementing a formal succession management exercise for senior positions, and (v) introducing a more transparent and merit-based process for filling vacancies through face-to-face interviews. Further, implementation of term contracts and 360 degree feedback for senior staff (international staff levels 9 and 10); development of managerial and technical talent streams; implementation of additional talent acquisition initiatives to source required skills and capacity; and strengthening the management of poor performers are underway. 138. Staff development framework. ADB will continue to support staff’s technical and professional development through the continual and periodic review and alignment of the staff development framework. Programs will continue to be designed and delivered to (i) support the development of new and potential managers (Assessment Development Center graduates), supervisors, new mission leaders, and mission team members; and (ii) enhance learning and practical expertise of operations staff (e.g., updated project design and management, financial management and analysis of investment projects, PPP for All, Basel III, COSO [Committee of Sponsoring Organization of the Treadway Commission] internal control integrated framework, and COBIT [control objectives for information and related technology] framework). The human resource function will be professionalized through the completion of the human resource qualifications of the Chartered Institute of Personnel Development by 32 ADB staff by the end of 2015; those qualifications will eventually be used as a basis for the recruitment, promotion, and career development of ADB’s human resource practitioners, as well as increasing their employability in the external job market. ADB will increase support for the development assignment program, and the number of staff who will take such assignments is expected to increase. In addition, ADB will continue to promote the technical skills registry as an open tool to locate skills and build teams. ADB will also implement mechanisms and tools to assess the long-term impact of delivering training programs for identified courses.

44

This exercise will inform the potential redeployment, retraining, or managing out of redundant or inappropriate skills—in line with the MTR priorities.

42

b. Strengthening Institutional Setting 139. Mobilizing interdepartmental teams. ADB will introduce “One ADB” performance metrics to strengthen teamwork and staff collaboration across regional departments, PSOD, support departments, and specialized knowledge departments45 as part of annual performance reviews. With the growth in private sector operations including greater use of PPPs, ADB will strengthen advisory skills of staff in assessing integrity related risks for ADB to be able to effectively deal with the changing financial landscape. To enhance institutional effectiveness and increase efficiency, in line with the MTR, ADB has established a new Office of Public–Private Partnership under the Office of the President. The PPP office will function as an apex body for transaction advisory services, and it is expected to facilitate ADB in achieving the corporate results framework target of 50 project development transactions for PPP by 2016. Further, roles and responsibilities of sector and thematic communities of practices (CoPs) will be strengthened, among others, by (i) anchoring sector CoPs in operations departments, with the chairs rotated among sector directors; (ii) anchoring thematic CoPs in RSDD; and (iii) establishing full-time secretariats for each CoP in RSDD and assigning full-time a senior technical advisor with appropriate sector and thematic expertise to provide oversight and leadership. 140. Further, ADB will develop a framework for awarding cooperation credits (by way of incentives and recognition) for staff demonstrating substantive collaboration, cooperation, and knowledge sharing with staff outside of their division, including as part of annual performance review; implement a system to facilitate staff sharing across departments to bridge specific project management skills gaps; and explore options for rotating staff from operations departments through specialized knowledge departments and vice versa to ensure that knowledge work is operationally relevant, and implement related measures. 141. Diversity and inclusion. In 2013, ADB adopted a new diversity and inclusion framework to ensure a more gender-balanced, diverse, and inclusive work place.46 ADB will implement the framework across the organization through (i) integration of diversity and inclusion principles into all human resource policy and programs, including recruitment, promotion, and retention practices and outcomes; (ii) continual review of administrative orders and human resource policies to eliminate non-inclusive features; (iii) continual pursuit of diversity in ADB staff; (iv) implementation of initiatives for a more inclusive organizational culture, such as learning programs for managers and staff; and (v) operationalization of the diversity and inclusion working group and champions to monitor and make recommendations regarding diversity and inclusion implementation progress.

45

The Economics and Research Department, Office of Regional Economic Integration, and Regional and Sustainable Development Department.

46 ADB. 2013. Diversity and Inclusion Framework, 2013–2016. Manila.

43

IV. INDICATIVE RESOURCES AVAILABLE FOR APPROVAL

A. Lending Operations 142. The WPBF, 2015–2017 seeks to maintain a minimum of $10 billion annual OCR operations which is consistent with its sustainable level of lending (SLL) over the WPBF period.47 The level of annual ADF operations, $2.9 billion, is based on the available balance of ADF XI for 2015 and 2016. For 2017, it is assumed that ADF XII size will be the same as ADF XI.48 If realized, the proposed combining of ADF lending operations with OCR balance sheet will have a major positive impact on financial resources in 2017. The proposal is still being discussed with the ADF donors and ADB stakeholders. This WPBF does not incorporate the

possible impact of the proposal on resource envelope in 2017. 143. Sovereign Operations. Of the 3-year average annual indicative resources available for approval (IRAA) of $12.9 billion per annum (Table 1), the average annual sovereign OCR IRAA is $8.1 billion. To increase the level of nonsovereign operations, the size of sovereign operations is projected to decline in 2016 compared to 2015. Within sovereign operations, project lending will be the predominant modality accounting for 87% of the available resources, while the balance will be in the form of relatively quicker disbursing policy-based lending. Although the projected level of policy-based lending is within the 20% ceiling set by ADB, this will continue to be monitored given its fast disbursing nature and associated implications on the SLL.49 144. Country allocations of OCR are primarily based on demand and ADB’s overall OCR financial capacity. In assessing country’s demand, ADB takes into account country borrowing levels in the previous five years, change in country classification (from ADF-only to Blend, and from Blend to OCR-only), major changes in the country’s demands and borrowing policies, and disaster and economic crisis response needs (Appendix 6).

145. Regarding allocation of ADF resources, after making provision for set aside resources,50

the balance are allocated to countries through a performance-based allocation mechanism that takes into account a country’s economic and social performance, population, and gross national income per capita.

47

Determining the SLL for a given financial resource position involves the following steps: (i) projecting ADB’s loan, equity investments, and guarantee portfolio; (ii) projecting the financial constraints, i.e., lending limitation, borrowing limitation, and the equity to loan ratio; and (iii) selecting highest level of operations that will keep ADB’s portfolio from exceeding any of its financial constraints at any time. The SLL is updated annually based on factors such as actual and planned levels of lending, disbursements, repayments, operating income, income transfers, and exchange rates. Additional details are discussed in the 2014 Second Quarter Treasury Report and the working paper entitled Enhancing ADB’s Lending Capacity.

48 The 2017 estimated ADF allocation will be revised. Based on the size of ADF XII replenishment, the annual allocations could be higher than under the ADF XI replenishment.

49 Other things being equal, a quick disbursing modality consumes SLL at a faster rate.

50 A portion of the ADF resources is set aside for subregional projects, post-conflict DMCs, and the disaster response facility.

44

Table 1: Indicative Resources Available for Approval, 2015–2017 ($ million)

Operations

Actual Approvals Estimate Indicative Resources Available for Approval

2011 2012 2013 2014 2015 2016 2017 Average

A. Sovereign 11,752 11,300 12,611 12,838 11,140 11,040 11,040 11,073 ADF 2,552 3,005 3,850 3,481 2,940 2,940 2,940

a 2,940

OCR 9,201 8,295 8,761 9,357 8,200 8,100 8,100 8,133 B. Nonsovereign 2,106 1,841 1,602 1,650 1,800 1,900 2,000 1,900

OCR 2,106 1,841 1,602 1,650 1,800 1,900 2,000 1,900 C. Total ADB

Resources (C = A + B)

13,858 13,141 14,213 14,488 12,940 12,940 13,040 12,973

ADF—Total 2,552 3,005 3,850 3,481 2,940 2,940 2,940 2,940 OCR—Total 11,306 10,136 10,363 11,007 10,000 10,000 10,100 10,033

D. Cofinancing 7,483 8,125 6,370 8,400 8,700 9,300 10,000 9,333 E. Technical

Assistance 359 298 434 367 300 300 300 300

F. TOTAL IRAA

(F = C + D + E) 21,700 21,564 21,017 23,255 21,940 22,540 23,340 22,607 ADB = Asian Development Bank, ADF = Asian Development Fund, IRAA = indicative resources available for approval, OCR = ordinary capital resources. Note: Historical amounts are based on gross approval. Numbers may not add up precisely because of rounding. a The magnitude of the 2017 ADF resources will depend on the size of the ADF replenishment, available commitment

authority, and the outcome of the annual country performance assessments.

Source: ADB estimates. 146. Nonsovereign operations. Future levels of nonsovereign operations are determined based on market conditions, client demand, OCR availability, and ADB’s institutional capacity—both from a financial risk and human resource perspective. The IRAA for nonsovereign operations is $1.8 billion in 2015, $1.9 billion in 2016, and $2.0 billion in 2017 (Table 1).51 Nonsovereign operations’ share of total OCR approvals is planned to increase from 15% in 2014 to about 20% by 2017.52 Whenever possible, ADB supplements its nonsovereign resources during any given year.

147. Cofinancing. Over the WPBF period, ADB will make concerted efforts to leverage its resources by proactively seeking cofinancing opportunities. ADB expects to mobilize about $9.3 billion annually (see also para. 127). B. Technical Assistance Operations 148. During the WPBF, 2015–2017, TA resources are estimated at $900 million or an annual average of $300 million. TA operations in 2015, totaling $300 million, comprise capacity development (50%), project preparation (28%), policy and advisory (14%), and research and development (8%). The majority of sovereign TA operations in 2015, by volume, will support

51

See also para 115 regarding economic capital planning model. 52

The projections are sensitive to the modeling assumptions discussed in the 2014 Second Quarter Treasury Report and the working paper entitled Enhancing ADB’s Lending Capacity.

45

public sector management (25%), energy (19%), transport (14%), finance (9%), and agriculture (9%). Meanwhile, 68% of the sovereign TA program will support governance and capacity development. 149. Technical Assistance Reform. Based on ADB’s review and informed by the Independent Evaluation Department’s 2014 thematic evaluation study on the role of TA, ADB will (i) revise the TA allocation process and the Operations Manual section on TA to better align ADB’s allocation processes and systems with the changing TA needs of its DMCs; (ii) review TA processes to better accommodate and respond to opportunities for receiving bilateral funds and establishing partnerships; (iii) explore options to make better use of TA instruments to respond to the diverse needs of its DMCs; (iv) enhance the involvement of DMCs in all stages of the TA project cycle to increase ownership and sustainability; and (v) develop a comprehensive TA information management system to improve learning and knowledge management.

V. HUMAN RESOURCES AND BUDGET REQUIREMENT 150. The budget formulation and staff resources planning process for 2015–2017 will continue seeking to contain budget growth, while meeting the demands of various cost drivers. 151. ADB’s operations during 2015–2017 are expected to further diversify for greater development impact, with more focus on project readiness, greater emphasis on project quality at entry, and improved project implementation and disbursements. For the most part, ADB plans to meet the resources requirements associated with these changes with the savings by broadening and deepening the efficiency, cost-reduction measures, and flexible use and proactive reallocation of existing resources. At the same time, modest additional resources are required to effectively implement several recommendations of the MTR and its action plan.

152. Additional resources will be required to implement the MTR action plan, particularly the items related to empowering and strengthening resident missions; rebalancing ADB operations; scaling up the private sector portfolio and commercial cofinancing; strengthening CoPs, including establishing CoP secretariats; strengthening PPP operations and centralizing PPP transaction advisory services; and improving internal ICT systems and capacity. A. Cost Drivers

153. The key drivers of incremental budget resources of the WPBF, 2015–2017, which are mostly related to the implementation of the MTR action plan, are

(i) improving project performance significantly in terms of outputs and outcomes, strengthening project implementation and portfolio quality, enhancing development effectiveness, and improving disbursement performance;

(ii) preparing and implementing projects with greater focus on inclusive economic growth, including projects in lagging areas as well as innovative projects;

(iii) empowering and strengthening resident missions and establishing and/or designating regional hubs, and placing an adequate number of safeguards, social development, procurement, and disbursement staff in them;

(iv) rebalancing ADB operations, particularly increasing ADB’s involvement in climate change and the education and health sectors;

(v) scaling up the private sector portfolio and commercial cofinancing; (vi) strengthening PPP operations, including centralizing PPP transaction advisory

services;

46

(vii) realigning roles and responsibilities of CoPs, particularly establishing their permanents secretariats;

(viii) revamping the information technology infrastructure and platform to meet operational needs, including refining the current eOperations system, strengthening ICT support for resident missions, and other information technology requirements;

(ix) addressing business continuity and emergency preparedness; and (x) strengthening internal organization to cope effectively with the increased and

more diversified operations. 154. The minimum incremental resources demanded by these cost drivers in 2015 will be quantified to the extent possible during the 2015 budget formulation. Rigorous efforts will be made to first absorb these additional resource requirements through efficiency measures, which are summarized in paras.156–159. Only the net additional resource requirements, after implementing the efficiency measures, will be requested in the 2015 budget. B. Efficiency Measures to Contain Budget Growth 155. During 2015–2017, ADB will pursue the following measures to generate savings and improve resource efficiency (paras. 156–159). These measures include suggestions from ADB staff collected during the efficiency campaign launched in March 2014.53

156. Business process improvements. Improvements in business processes will deliver savings during 2015–2017 by allowing support departments such as the Office of Administrative Services, Treasury Department, Controller’s Department, and Office of Risk Management to scale up activities within the existing resource envelope. Many departments are scheduling back-to-back missions, making greater use of videoconferencing facilities, and improving procedures for back-to-office reporting. Savings are expected from efficiency measures such as Lean Six Sigma projects, business travel reforms, improved use and planning of staff consultants, energy saving and resource-conservation initiatives, streamlined business process for institutional procurement, better internal cooperation for reducing interdepartmental duplication of work, closer collaboration with other multilateral development banks, and other general procedural measures. 157. Staffing optimization. Organizational realignments to better meet the evolving needs of ADB, improve the delineation of responsibilities, and increase productivity will be key elements of staffing optimization. A comprehensive review of ADB’s salary and benefits, including the pension scheme, will also result in efficiencies during 2015–2017. The time management system is helping to match staff resources to departmental work programs and priority areas. Savings are expected through the release of positions by departments back to BPMSD during the departmental realignment exercise, which are being reallocated according to corporate priorities. 158. Information technology efficiency. During 2015–2017, the successful implementation of new systems, such as the consulting management system, the time management system, eServe, and eProtocol, along with various upgrades to key systems, will generate savings.

53

In March 2014, BPMSD issued a call for suggestions from ADB staff on ways to improve internal efficiency. A dedicated e-mail address (efficiency@adb.org) was set up to receive the suggestions. This mailbox received more than 60 e-mails, outlining more than 150 suggestions, which were grouped into about 100 items for ADB-wide circulation and feedback. An additional 50 suggestions were received from departments by July 2014.

47

Wireless connectivity was introduced in headquarters, and other projects and activities under the Information System and Technology Strategy III (footnote 40) are expected to generate gains in coming years. Savings are expected through improved online access and resources, extension of the useful life of existing resources, other information technology initiatives, and implementation of new systems. 159. Discontinued activities. If an activity is not critical to ADB’s goals, discontinuation can result in efficiencies. Savings are expected from reduced production, printing, and dissemination costs after halting the physical publication of the magazine Development Asia. 160. The savings expected from these efficiency measures will be quantified to the extent possible during the 2015 budget formulation. These savings will be used to offset the incremental resource requirements of the 2015 budget.

161. ADB will use a systematic approach to identify and monitor efficiency measures implemented. This is progressing through enhancements to budget utilization reporting, and the upcoming dashboard reporting on business travel budget, as a part of the reforms implemented in 2014. Efficiency gains from MTR initiatives will be monitored directly and improvements are expected in quantifying and monitoring existing smaller scale measures by departments. Staff awareness will be further improved through the continuing efficiency suggestion facility. ADB will initiate a workload review in 2015, and the time management system data may provide a basis to self-benchmark the efficiency of departments. C. Staffing Requirements 162. Strategic priorities set out by the MTR aim to sharpen and rebalance ADB's operational focus. Some of the notable adjustments in the focus include increase in share of assistance in education sector operations from 3% during 2008–2012 to 6%–10% by 2020, and health sector from 2% to 3%–5%. MTR also commits to expanding operations in FCAS countries, with seven of these located in the Pacific. Moreover, support for social protection, financial inclusion, and inclusive business will be ramped up. These and other adjustments in the operational focus will entail additional staffing implications. 163. The MTR has also identified a number of areas for improving ADB's capacity and effectiveness. The MTR Action Plan, recently approved by the Management, outlines a number of concerted actions in strengthening resident missions and establishment of regional and sub-hubs, enhancing project implementation and procurement, promoting knowledge support, as well as some specific recommendations such as centralizing the PPP transaction advisory teams. Ongoing operations such as the TFP continue to require additional staff resources to internalize the program implementation and cope with the increased demand. 164. A substantial part of staffing requirements for implementing the MTR Action Plan will be met through outposting of staff to the field from the operations departments, as well as line departments such as the Controller's Department, Operations Services and Financial Management Department and Office of the General Counsel. Indicative requirements for outposting are estimated at 39 international staff and 3 national staff. The final number, sourcing and allocation of outposted staff will be further discussed with the relevant departments and offices during 2015 budget formulation and implementation. 165. In addition to outposting, requirements for additional staff positions are estimated at about 18 international staff, 32 national staff, and 32 administrative staff for 2015 to (i) expand operations in health and education sectors, and in social protection and inclusion related

48

initiatives; (ii) strengthen Myanmar Resident Mission; (iii) strengthen resident missions and establish regional hubs or sub-hubs; (iv) strengthen support to FCAS countries; (v) strengthen project management capacity; (vi) decentralize procurement; (vii) strengthen the Office of Public Private Partnership; (viii) strengthen communities of practice and knowledge work; (ix) strengthen legal advisory support; (x) support the TFP implementation; and (xi) meet the Independent Evaluation Department’s requirements. However, these requirements will be largely met through ADB-wide redeployments, with requirement for net new positions limited to 6 international staff, 11 national staff, and 11 administrative staff. 166. The expected annual growth of ADB’s portfolio, approvals by volume and number, and staff resources are shown in Box 4. As part of instituting a strategic workforce planning mechanism, a work load analysis will be undertaken in 2015. Such an analysis, together with the ongoing skills audit, will help in the medium run to identify any resource gaps and needs for rebalancing the available resources. It is anticipated that the rebalancing will contribute toward meeting the medium-term resource requirements emerging from expanding private sector operations, increased level of transaction advisory services, growing portfolio in the Pacific region, and increasing demands from the treasury services. D. Other Budgetary Resource Requirements 167. In addition to the staffing for resident missions, resources will be required during 2015–2017 for the expansion of office premises to accommodate the increased number of staff in the resident missions. A commensurate increase in support services will also be required, such as communications, information technology services, and equipment. Resources will also be required for knowledge activities and improvement in ICT facilities under the MTR action plan.

49

Box 4. ADB’s Portfolio and Approvals by Volume and Number, and Staff Resources During the Work Program and Budget Framework (WPBF), 2015–2017, the number of approvals is projected to average about 143 projects, including sovereign and nonsovereign operations, totaling $12.9 billion per year during the WPBF period—a 14% increase from the level in 2008 (Figure). The size of the portfolio is projected at about 908 operations valued at $73 billion during the WPBF period—an increase of 46% by number and 59% by volume from the levels in 2008.

a In addition to ongoing work on

processing and administering lending operations, staff is also involved in other operational activities such as processing and implementing technical assistance projects, preparing and disseminating knowledge solutions, preparing country partnership strategies and operations business plans, preparing project and technical assistance completion reports, organizing regional knowledge sharing activities, as well as providing training to developing member country officials. The need for staff strength is projected to increase in order to deliver the strategic priorities of the Midterm Review of Strategy 2020.

b

Figure: ADB Operations and Staffing, 2008–2017 (2008 = 100)

A. Operations by Volume

B. Operations by Number

Note: The drop in volume of approvals in 2015 is due to an unusually high volume of available resources for approval in 2014 resulting from a combination of additional savings and cancellations, frontloading from 2015, and carryover of resources from 2013. a Refers to sovereign and nonsovereign ordinary capital resources loans and Asian Development Fund loans and

grants, including periodic financing requests. b A clearer picture will be available for discussion in the context of the 2015 budget.

Source: Asian Development Bank.

E. Budget Preview and Indicative Budget Growth

168. The price factors such as inflation in the Philippines and DMCs where field offices are located and the fluctuating exchange rates of local currencies against US dollar will impact the sub-components of the internal administrative expenses and influence the requirements for budgetary resources.54 The annual adjustments in salary structure of staff will also partly contribute to the increase in price factor. In addition to the price increase, the implementation of MTR action plan will also contribute to the increase in budgetary resource requirements in 2015.

54

The expenses for the field offices are in local currencies. Further, certain portion of expenses in the headquarters is in pesos. They are converted to US dollar when preparing the internal administrative expense budget.

100

120

140

160

180

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Portfolio Approvals Staff Positions

100

120

140

160

180

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Portfolio Approvals Staff Positions

50

169. Overall additional staff requirements for 2015 are estimated at 18 international staff, 32 national staff, and 32 administrative staff with estimated additional staff costs of about $8.7 million. No new staff positions are currently projected for 2016–2017. ADB will meet the additional staff requirements of 12 international staff, 21 national staff, and 21 administrative staff positions through ADB wide redeployments, reducing estimated incremental staff costs by about $5.8 million. Consequently, 6 new international staff, 11 national staff, and 11 administrative staff positions are proposed in 2015. In addition to staffing, commensurate increases in budget will be required for expansion of office premises, communications, information technology services, knowledge activities and improvement in ICT facilities, business travel, and staff consultants. The total additional costs for 2015 (including staffing and outposting) are estimated at about $8.5 million for 2015. 170. Rigorous efforts have been made to meet the resource requirements with savings by broadening and deepening the efficiency, cost-reduction measures, and flexible use and proactive reallocation of existing resources. The efficiency gains from these measures are expected to absorb $4.8 million of the volume increase. The net volume increase for 2015 budget is therefore estimated at $3.7 million. The price growth is projected at $22.1 million for 2015 budget based on the refined price factor calculation methodology. Combining the price and volume increases, the initial estimate of the net internal administrative expenses budget for 2015 is about $624.2 million (Table 2) or 4.3% increase over 2014 budget, comprising of a modest volume increase of 0.6% and a price increase of 3.7%. The projected 2015 budget includes a general contingency of 1%.

Table 2: Summary of the Asian Development Bank Budget by Expense Category

($ million)

Internal Administrative Expenses Category 2013

Actual 2014

Budget 2015

Preview

Change over 2014 Budget

(%)a

Board of Governors 1.6 2.4 2.5 4.7 Board of Directors 30.5 31.2 32.3 3.3 Operational Expenses 433.2 448.1 465.6 3.9 Administrative Expenses 103.8 118.6 125.8 6.1 Total Before Contingency 569.2 600.4 626.2 4.3 General Contingency - 6.0 6.3 Fee Reimbursements

b (7.8) (8.2) (8.2)

Net Internal Administrative Expenses 561.3 598.4 624.2 4.3 () = negative. Note: Numbers may not sum precisely because of rounding. a

Percent change is based on absolute number. b

Estimate service charge for administering external grants excluding Japan trust fund. Source: Asian Development Bank.

171. ADB will firm up the internal resource envelope and budget allocation required to support the implementation of the 2015 work program55 and the MTR Action Plan during the preparation of the 2015 budget. Guidance from the Board was sought during the Board and Management Retreat56 on the medium-term strategic planning and budget growth scenarios for 2015. The guidance and the feedback of the Budget Review Committee of the Board, which will be received during the discussions on the 2015 draft budget in November 2014, will be taken into account. During the implementation of the 2015 budget, programs and activities of departments 55

Key deliverables during the Work Program and Budget Framework period are described in Appendix 7. 56

The Board and Management Retreat was held on 2 September 2014 in Manila.

51

and offices will be reviewed, monitored regularly, and continually prioritized, as appropriate, to ensure that resources are allocated and reallocated based on the evolving strategic priorities. 172. The indicative budget growth is projected as 3.9% for 2016 and 3.2% for 2017. As mentioned in para. 125, ADB is discussing with the ADF donors and ADB shareholders possible enhancement of ADB’s financial capacity. The proposal entails merging the lending operations of the ADF with the OCR balance sheet by January 2017. If accepted, this proposal could result in an increase in the total resource envelope in 2017 from $13 billion to $15 billion–$16 billion. This, in turn would require reassessment of ADB’s budget parameters to support the expanded program. 173. The projected budget growth for 2015–2017 in comparison with ADB’s historical budget growth is shown in Table 3 and Figure 8.

Table 3: Budget Growth, 2013─2017

Item 2013 2014 2015 2016 2017

Price (%) 4.2 3.9 3.7 3.7 3.7 Volume (%) 1.7 0 1.4 1.1 0.4 Gross Budget Growth (%) 5.9 3.9 5.1 4.8 4.1 Less: Efficiency Gains

a (%) - - (0.8) (0.9) (0.9)

Net Budget Growth (%) 5.9 3.9 4.3 3.9 3.2 a Expected efficiency gains were factored in the budget growth projection but not presented

separately prior to 2015. Source: Asian Development Bank staff estimates.

Figure 8: Budget Growth, 2008–2014 and Projected Budget Growth, 2015–2017

Source: Asian Development Bank staff estimates.

6.1 6.6

5.1 4.9 5.3 4.2 3.9 3.7

1.2

2.3

8.0 8.0

4.5

1.7

-

0.6

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Price Volume Budget Growth

52 Appendix 1

ITERATIVE PLANNING PROCESS

OPERATIONAL

PROGRAMS

BUDGET

Feb Apr Jun Aug Sep Oct Nov Dec

11 Apr 2 Oct

12 Dec3–5 and

10–12 NovNov

11 Sep

3 Jun

12 Feb 2 Sep

BMR on

Medium

Term

Strategic

Planning

BRC

Meeting

on

Planning

Directions

BRC Meeting on

Financial

Implications of

Salary and Benefit

Review and Review

of Price Factor

Methodology for

Budget

Board Meeting

on Total

Remuneration

Review and

Salary Paper

Board

Meeting

on

Budget

for 2015

Board

Circula-

tion of

WPBF

2015–

2017

Board

Meeting

on

WPBF

2015–

2017

FINANCIAL

PLANNING

8 Apr 12 Dec17 Sep

Board

Meeting on

Net Income

Allocation

Board

Circulation of

Q2 Treasury

Report

(Sustainable

Level of

Lending)

Board

Meeting on

Proposed

Loan Charges

and

Allocation of

Net Income

IBS on

Proposed

Iterative

Planning

Process

(one time)

Oct

Board

Circulation

of Salary

Paper and

Initial SRP

Findings

BRC

Meeting on

the

Progress

of 2014

Operations

5 Aug

BRC

Meeting

on

Schedule

and

Topics of

BRC for

2014

5 Feb

BRC

Meeting

on

Budget

for 2015

BMR = Board and Management Retreat, BRC = Budget Review Committee of the Board of Directors, IBS = informal Board seminar, Q = quarter, SRP = staff retirement plan, WPBF = Work Program and Budget Framework. Source: Asian Development Bank.

Appendix 2 53

INDICATIVE SOVEREIGN OPERATIONS PROGRAM BY SECTOR

Table A2.1: Sovereign Operations by Sector Classification, 2011–2017

2011–2013 (Annual Average)

a

2014 (Estimate)

2015–2017 (Estimated Annual Average)

b

Sectors No. % $ million % No. % $ million % No. % $ million %

Core Sectors 109 79 9,639 81 126 80 10,004 83 104 75 9,361 81

Infrastructure 93 67 8,254 69 106 67 8,135 67 83 60 7,825 68 Energy 20 14 2,682 23 23 15 2,351 19 21 15 2,751 24 Transport 35 25 4,229 36 41 26 4,073 34 30 22 3,218 28 Water 22 16 1,168 10 27 17 1,318 11 22 16 1,472 13

ICT 1 0.5 9 0.1 2 1 34 0.3 1 0.7 38 0.3 Other

Infrastructurec

16 11 166 1 13 8 360 3 9 6 345 3

Education 7 5 529 4 12 8 988 8 11 8 704 6 Finance 9 6 857 7 8 5 881 7 10 7 833 7 Other Areas of Operation 29 21 2,248 19 32 20 2,071 17 35 25 2,169 19

Agriculture 14 10 841 7 16 10 894 7.4 16 11 1,060 9 Health 3 2 81 0.7 1 1 0.2 0.002 2 2 231 2 Industry and Trade

2 1 37 0.3 4 3 42 0.3 4 3 168 1

PSM 10 7 1,289 11 11 7 1,135 9 13 9 710 6

Total 139 100 11,888 100 158 100 12,076 100 139 100 11,531 100

ICT = information and communication technology, No. = number of operations, PSM = public sector management. Notes: The number of operations includes (i) projects supporting a particular sector, and (ii) sector operations supported by multisector projects. Figures may not sum precisely because of rounding. a Figures adjusted based on the new project classification system introduced in 2014.

b Data for 2015–2017 are projections based on the pipelines of country operations programs jointly developed by

developing member countries and the Asian Development Bank.

c Other infrastructure includes other urban services, renovation and protection of cultural heritage, urban housing, urban

policy, institutional and capacity development, and urban slum development. Source: Asian Development Bank staff estimates.

Table A2.2: Asian Development Fund Operations by Sector Classification, 2011–2017

2011–2013 (Average Annual )

a

2014 (Estimate)

2015–2017 (Estimated Annual Average)

b

Sectors No. % $ million % No. % $ million % No. % $ million %

Core Sectors 56 76 2,246 72 72 77 2,559 80 49 69 2,177 76

Infrastructure 45 61 1,765 56 59 63 2,147 67 37 51 1,661 58 Energy 8 11 481 15 12 13 903 28 8 11 525 18 Transport 15 21 793 25 23 24 776 24 14 19 605 21 Water 12 17 400 13 14 15 366 11 10 14 422 15

ICT 1 0.9 9 0.3 2 2 18 1 0 0.5 6 0.2 Other

Infrastructurec

8 11 81 3 8 9 85 3 4 6 103 4

Education 5 7 304 10 8 9 288 9 8 11 416 15 Finance 6 8 177 6 5 5 124 4 5 7 99 3

54 Appendix 2

2011–2013 (Average Annual )

a

2014 (Estimate)

2015–2017 (Estimated Annual Average)

b

Sectors No. % $ million % No. % $ million % No. % $ million %

Other Areas of Operation 17 24 890 28 22 23 647 20 22 31 677 24

Agriculture 8 11 346 11 11 12 491 15 7 10 272 10 Health 3 4 81 3 0 0 0 0 2 2 64 2 Industry and Trade

2 2 27 1 4 4 42 1 4 5 65 2

PSM 5 7 437 14 7 7 115 4 10 14 276 10

Total 73 100 3,136 100 94 100 3,206 100 71 100 2,854 100

ICT = information and communication technology, No. = number of operations, PSM = public sector management. Notes: The number of operations includes (i) projects supporting a particular sector, and (ii) sector operations supported by multisector projects. Figures may not sum precisely because of rounding. a Figures adjusted based on the new project classification system introduced in 2014.

b Data for 2015–2017 are projections based on the pipelines of country operations programs jointly developed by

developing member countries and the Asian Development Bank.

c Other infrastructure includes other urban services, renovation and protection of cultural heritage, urban housing, urban

policy, institutional and capacity development, and urban slum development. Source: Asian Development Bank staff estimates.

Table A2.3: Ordinary Capital Resources Operations by Sector Classification, 2011–2017

2011–2013 (Average Annual)

a

2014 (Estimate)

2015–2017 (Estimated Annual Average)

b

Sectors No. % $ million % No. % $ million % No. % $ million %

Core Sectors 65 86 7,394 84 63 82 7,445 84 68 82 7,185 83

Infrastructure 58 77 6,489 74 54 70 5,988 68 58 70 6,164 71 Energy 14 18 2,201 25 13 17 1,448 16 16 20 2,226 26 Transport 24 32 3,436 39 22 29 3,296 37 20 24 2,613 30 Water 12 16 767 9 13 17 952 11 16 19 1,051 12

ICT 0 0 0 0 1 1 16 0.2 1 0.8 32 0.4 Other

Infrastructurec

8 11 85 1 5 6 275 3 5 6 243 3

Education 2 3 225 3 5 6 700 8 3 4 288 3 Finance 5 6 680 8 4 5 757 9 7 8 733 8

Other Areas of Operation

11 14 1,358 16 14 18 1,424 16 15 18 1,492 17

Agriculture 7 9 496 6 7 9 403 4.5 10 12 788 9 Health 0.3 0.4 0.1 0.001 1 1 0.2 0.002 1 1 167 2 Industry and Trade

0.3 0.4 10 0.1 0 0 0 0 1 1 103 1

PSM 3 4 852 10 6 8 1,021 12 4 5 434 5

Total 76 100 8,752 100 77 100 8,870 100 83 100 8,677 100

ICT = information and communication technology, No. = number of operations, PSM = public sector management. Notes: The number of operations includes (i) projects supporting a particular sector, and (ii) sector operations supported by multisector projects. Figures may not sum precisely because of rounding. a Figures adjusted based on the new project classification system introduced in 2014.

b Data for 2015–2017 are projections based on the pipelines of country operations programs jointly developed by

developing member countries and the Asian Development Bank.

c Other infrastructure includes other urban services, renovation and protection of cultural heritage, urban housing, urban

policy, institutional and capacity development, and urban slum development. Source: Asian Development Bank staff estimates.

Appendix 3 55

INDICATIVE SOVEREIGN OPERATIONS PROGRAM BY STRATEGIC AGENDA

Table A3.1: Sovereign Operations by Strategic Agenda, 2011–2017

Strategic 2011–2013 (Average)

2014 (Estimate)

2015–2017 (Estimated Average)

Agenda No. % $ million % No. % $ million % No. % $ million %

Inclusive Economic Growth

Pillar 1 48 48 6,563 55 45 39 5,662 47 48 42 5,241 45 Pillar 2 52 51 5,159 43 71 61 6,414 53 65 57 6,173 54 Pillar 3 9 9 718 6 8 7 577 5 6 5 487 4

Environmentally

Sustainable Growth

47 46 5,311 45 73 63 6,741 56 70 61 7,424 64

Regional

Integration 22 22 2,497 21 30 26 3,996 33 28 24 2,878 25

No. = number of projects; Pillar 1 = economic opportunities, including jobs, created and expanded; Pillar 2 = access to economic opportunities, including jobs, made more inclusive; Pillar 3 = extreme deprivation prevented and effects of shocks reduced (social protection). Notes: (i) The former thematic classification terminology has been replaced with strategic agendas and drivers of change.

Subsequently, references to themes have been discontinued. As all strategic agendas are equally important for the Asian Development Bank (ADB) to achieve its vision of Asia and the Pacific free of poverty, a project may contribute to any or all of the strategic agendas. Thus, the sum of the percentages may add up to more than 100%.

(ii) Data for 2015–2017 are projections based on the pipelines of country operations programs jointly developed by developing member countries and ADB.

Source: ADB staff estimates.

Table A3.2: Asian Development Fund Operations by Strategic Agenda, 2011–2017

Strategic 2011–2013 (Average)

2014 (Estimate)

2015–2017 (Estimated Average)

Agenda No. % $ million % No. % $ million % No. % $ million %

Inclusive Economic Growth

Pillar 1 25 44 1,424 45 26 38 1,293 40 24 41 1,134 40 Pillar 2 30 54 1,546 49 42 62 1,913 60 33 57 1,678 59 Pillar 3 6 11 327 10 5 7 261 8 4 7 152 5

Environmentally

Sustainable Growth

22 40 1,050 33 41 60 1,867 58 30 51 1,514 53

Regional

Integration 14 26 970 31 16 24 756 24 17 29 826 29

No. = number of projects; Pillar 1 = economic opportunities, including jobs, created and expanded; Pillar 2 = access to economic opportunities, including jobs, made more inclusive; Pillar 3 = extreme deprivation prevented and effects of shocks reduced (social protection). Notes: (i) The former thematic classification terminology has been replaced with strategic agendas and drivers of change.

Subsequently, references to themes have been discontinued. As all strategic agendas are equally important for the Asian Development Bank (ADB) to achieve its vision of Asia and the Pacific free of poverty, a project may contribute to any or all of the strategic agendas. Thus, the sum of the percentages may add up to more than 100%.

(ii) Data for 2015–2017 are projections based on the pipelines of country operations programs jointly developed by developing member countries and ADB.

Source: ADB staff estimates.

56 Appendix 3

Table A3.3: Ordinary Capital Resources Operations by Strategic Agenda, 2011–2017

Strategic 2011–2013 (Average)

2014 (Estimate)

2015–2017 (Estimated Average)

Agenda No. % $ million % No. % $ million % No. % $ million %

Inclusive Economic Growth

Pillar 1 23 52 5,139 59 26 43 4,369 49 28 41 4,107 47 Pillar 2 22 48 3,613 41 34 57 4,500 51 40 58 4,494 52 Pillar 3 3 6 391 4 5 8 316 4 3 4 335 4

Environmentally

Sustainable Growth

24 54 4262 49 40 67 4,874 55 49 71 5,910 68

Regional

Integration 8 18 1,527 17 18 30 3,240 37 14 20 2,051 24

No. = number of projects; Pillar 1 = economic opportunities, including jobs, created and expanded; Pillar 2 = access to economic opportunities, including jobs, made more inclusive; Pillar 3 = extreme deprivation prevented and effects of shocks reduced (social protection). Notes: (i) The former thematic classification terminology has been replaced with strategic agendas and drivers of change.

Subsequently, references to themes have been discontinued. As all strategic agendas are equally important for the Asian Development Bank (ADB) to achieve its vision of Asia and the Pacific free of poverty, a project may contribute to any or all of the strategic agendas. Thus, the sum of the percentages may add up to more than 100%.

(ii) Data for 2015–2017 are projections based on the pipelines of country operations programs jointly developed by developing member countries and ADB.

Source: ADB staff estimates.

Appendix 3 57

Figure A3: Sovereign Operations Supporting Inclusive Economic Growth, 2011–2013 and 2015–2017

(Annual Averages)

No. = number. Notes: (i) Inclusive economic growth (IEG) pillars 1 and 2 are mutually exclusive. IEG pillar 2 includes projects that

(a) have high rural impact, (b) support gender equity, and (c) target poverty directly. (ii) IEG pillar 3 (social protection) is composed of (a) stand-alone social protection projects, (b) operations

focusing on growth creation of jobs and opportunities [or pillar 1] with social protections components, and (c) operations focusing inclusive access to jobs and opportunities [or pillar 2] with social protection components.

(iii) The breakdown of IEG pillar 3 projects, including stand-alone social protection projects, is presented in table below.

Social Protection Operations No. %

2011–2013 Stand-alone social protection projects 1.0 1.0 a Focus on Pillar 1 with social protections components 2.3 2.3

b Focus on Pillar 2 with social protections components 5.3 5.3

TOTAL 8.6 8.6 2015–2017

Stand-alone social protection projects 1.3 1.2 a Focus on Pillar 1 with social protections components 0.0 0.0

b Focus on Pillar 2 with social protections components 4.7 4.1

TOTAL 6.0 5.3

(iv) The Asian Development Bank’s support for IEG pillar 1 + pillar 2 + pillar 3 > 100%; this is because of the overlap within IEG pillars 1 and 3, and IEG pillars 2 and 3 represented by green shade in diagram.

(v) However, support for IEG pillar 1 + pillar 2 + stand-alone pillar 3 = 100% of ADB operations. For example, in 2011–2013, by number of projects: 48% (support for pillar 1) + 51% (support for pillar 2) + 1% (stand-alone pillar 3) = 100%.

Source: Asian Development Bank staff estimates.

Pillar 3: Social Protection

WPBF Period No. %

2011–2013 9 9 2015–2017 6 5

Pillar 1: Growth Creation of Jobs and Opportunities

WPBF Period No. %

2011–2013 48 48 2015–2017 48 42

Pillar 1 overlapping with Pillar 3 (social protection investment: 15%–49%)

a

Pillar 2: Inclusive Access to Jobs and Opportunities

WPBF Period No. %

2011–2013 52 51 2015–2017 65 57

Pillar 2 overlapping with Pillar 3 (social protection investment: 15%–49%)

b

58 Appendix 4

INDICATIVE SOVEREIGN OPERATIONS PROGRAM BY DRIVERS OF CHANGE

Table A4.1: Sovereign Operations, 2011–2017

Drivers of Change

2011–2013 (Average)

2014 (Estimate)

2015–2017 (Estimated Average)

No. % $ million % No. % $ million % No. % $ million %

Private Sector Development and Private Sector Operations

26 26 2,990 25 51 44 5,910 49 41 36 3,989 35

Governance and Capacity Development

63 62 7,138 60 97 84 9,496 79 81 71 7,430 64

Gender Equity and Mainstreaming

54 53 5,079 43 62 53 5,753 48 59 51 5,046 44

Knowledge Solutions

a

… … … … 52 45 5,047 42 38 33 2,936 25

Partnershipsa … … … … 65 56 6,134 51 45 40 3,835 33

… = data not available, No. = number of projects. Notes: (i) The former thematic classification terminology has been replaced with strategic agendas and drivers of change.

Subsequently, references to themes have been discontinued. As all drivers of change are equally important for the Asian Development Bank (ADB) to achieve its vision of Asia and the Pacific free of poverty, a project may contribute to any or all of the drivers of change. Thus, the sum of the percentages may add up to more than 100%.

(ii) Data for 2015–2017 are projections based on the pipelines of country operations programs jointly developed by developing member countries and ADB.

a ADB began monitoring knowledge solutions and partnerships in 2014.

Source: ADB staff estimates.

Table A4.2: Asian Development Fund Operations, 2011–2017

Drivers of Change

2011–2013 (Average)

2014 (Estimate)

2015–2017 (Estimated Average)

No. % $ million % No. % $ million % No. % $ million %

Private Sector Development and Private Sector Operations

16 29 839 27 29 43 1,401 44 21 36 873 31

Governance and Capacity Development

37 66 2,391 76 60 88 2,880 90 41 70 1,899 67

Gender Equity and Mainstreaming

34 60 1,793 57 41 60 1,951 61 34 58 1,544 54

Knowledge Solutions

a

… … … … 32 47 1,668 52 21 35 814 29

Partnershipsa … … … … 43 63 2,364 74 30 51 2,764 97

… = data not available, No. = number of projects. Notes: (i) The former thematic classification terminology has been replaced with strategic agendas and drivers of change.

Subsequently, references to themes have been discontinued. As all drivers of change are equally important for the Asian Development Bank (ADB) to achieve its vision of Asia and the Pacific free of poverty, a project may contribute to any or all of the drivers of change. Thus, the sum of the percentages may add up to more than 100%.

(ii) Data for 2015–2017 are projections based on the pipelines of country operations programs jointly developed by developing member countries and ADB.

a ADB began monitoring knowledge solutions and partnerships in 2014.

Source: ADB staff estimates.

Appendix 4 59

Table A4.3: Ordinary Capital Resources Operations, 2011–2017

Drivers of Change

2011–2013 (Average)

2014 (Estimate)

2015–2017 (Estimated Average)

No. % $ million % No. % $ million % No. % $ million %

Private Sector Development and Private Sector Operations

14 25 2,151 25 28 47 4,509 51 26 37 3,116 36

Governance and Capacity Development

31 56 4,747 54 49 82 6,616 75 47 68 5,531 64

Gender Equity and Mainstreaming

26 47 3,286 38 28 47 3,802 43 32 46 3,502 40

Knowledge Solutions

a

… … … … 27 45 3,378 38 21 31 2,122 24

Partnershipsa … … … … 29 48 3,770 43 20 30 2,594 30

… = data not available, No. = number of projects. Notes: (i) The former thematic classification terminology has been aligned with the strategic agendas and drivers of change

in the Midterm Review of Strategy 2020. Subsequently, references to themes have been discontinued. As all drivers of change are equally important for the Asian Development Bank (ADB) to achieve its vision of Asia and the Pacific free of poverty, a project may contribute to any or all of the drivers of change. Thus, the sum of the percentages may add up to more than 100%.

(ii) Data for 2015–2017 are projections based on the pipelines of country operations programs jointly developed by developing member countries and ADB.

a ADB began monitoring knowledge solutions and partnerships in 2014.

Source: ADB staff estimates.

60 Appendix 5

TEN-POINT PROCUREMENT REFORM PLAN

1. New procurement risk assessments will review country, agency, and project risks. This will help determine supervision parameters, prior- and post-review thresholds, and capacity to take on greater delegation of procurement responsibility. 2. New international competitive bidding (ICB) thresholds set the upper limit for national competitive bidding where country systems are to be used.

3. New prior-review thresholds have been established for contracts (Table A5.1).

Table A5.1: Risk-Based Prior-Review Thresholds

Procuring items Procurement Risk Assessment Result

Low Medium High Works and goods up to $20 million up to $10 million up to $5 million

Note: The previous practice for prior review thresholds is not risk based. It is linked to the international competitive bidding threshold ($1 to $10 million for works and $0.5 to $1 million for goods). Source: ADB. 2014. Midterm Review of Strategy 2020 Action Plan. Manila

4. The Procurement Committee threshold has been increased to $40 million, with differentiated approaches for procurement decisions below the committee’s threshold (Table A5.2).

Table A5.2: Procurement Decision Authorities

Prior and/or Post Review Threshold Signed off by

Post review by sampling (optional) $0 to $5 million Regional departments (on sample basis)

Prior and/or post review $0 to below $20 million Regional departments

Prior review $20 to below $40 million Regional departments, OSFMD Prior review with Procurement Committee $40 million or more Regional departments, OGC, OSFMD

OGC = Office of the General Counsel, OSFMD = Operations Services and Financial Management Department. Note: The previous Procurement Committee threshold is $10 million and above. Regional departments approve up to $10 million. Source: ADB. 2014. Midterm Review of Strategy 2020 Action Plan. Manila

5. Regional departments to classify projects according to procurement risks and complexity at concept clearance (Table A5.3). For high-risk and complex projects, the Operations Services and Financial Management Department will join project teams at the start of the process, and regional departments will include capacity building as part of the project design.

Table A5.3: Procurement Risk and Complexity Category

Procurement Risk and Complexity Category Definition

Category A high risk and complex procurement

Category B low risk and less complex procurement

Source: ADB. 2014. Midterm Review of Strategy 2020 Action Plan. Manila.

6. The launch procurement review system will automate and allow monitoring of the end-to-end procurement process.

Appendix 5 61

7. Regional departments will agree with borrowers on master bidding documents and procurement time lines, wherever possible, before loan negotiations.

8. The new streamlined Procurement Committee process will facilitate concurrent reviews, less back and forth with executing agencies, and faster decisions. 9. The new procurement approval form will simplify documentation for all procurement.

10. End-to-end consulting services process time lines will reduce consulting services recruitment process and incorporate measures to improve the quality of contractors and consultants.

62 Appendix 6

INDICATIVE RESOURCES AVAILABLE FOR APPROVAL

Table A6.1: Indicative Ordinary Capital Resources and Asian Development Fund Resources Available for Approval by Region and Country, 2011–2017

($ million)

Actual Approvals Indicative Resources

Region/Country 2011–2013 (Average)

2014 Estimate 2015 2016 2017

2015–2017 (Average)

Sovereign Operations 11,888 12,838 11,140 11,040 11,040 11,073

Operations Group 1 6,900 6,732 5,995 5,925 5,863 5,927 Central and West Asia 3,202 2,849 2,612 2,678 2,514 2,601

Afghanistan 359 142 182 182 120 161 Armenia 76 186 146 146 128 140 Azerbaijan 300 188 169 232 185 195 Georgia 186 159 172 162 148 161 Kazakhstan 284 310 329 311 299 313 Kyrgyz Republic 86 108 67 67 74 69 Pakistan 1,026 1,354 979 947 987 971 Tajikistan 163 40 77 77 85 80 Turkmenistan 42 51 53 19 41 Uzbekistan 680 362 440 500 468 469 South Asia 3,698 3,883 3,384 3,247 3,349 3,326

Bangladesh 945 833 841 802 845 829 Bhutan 37 141 28 28 35 30 India 2,129 2,159 1,990 1,896 1,894 1,927 Maldives 3 38 6 6 7 7 Nepal 250 255 179 179 198 185 Sri Lanka 332 457 339 336 370 348 Operations Group 2 4,988 5,696 4,779 4,750 4,788 4,772 East Asia 1,540 1,734 1,492 1,480 1,501 1,491

China, People's Republic of 1,450 1,520 1,400 1,400 1,392 1,397 Mongolia 90 214 92 80 109 94 Pacific 279.5 261.8 391 360.9 372.1 374.7

Cook Islands 3.6 1.2 2.1 2.4 2 2.2 Fiji 100 101.1 50.5 47 66.2 Kiribati 2.5 0.8 2.9 2.9 2.9 2.9 Marshall Islands 1.7 0.2 2.9 2.9 2.9 2.9 Micronesia, Federated States of 3 6.6 6 5.2 4.9 5.4 Nauru 1.3 0.9 2.9 2.9 2.9 2.9 Palau 9.6 0.7 5.3 4.0 8.9 6.1 Papua New Guinea 182.1 51.2 201.5 227.5 223 217.3 Samoa 14.3 4.7 6.4 6.4 7.9 6.9 Solomon Islands 9.3 33.7 12.3 12.3 14.3 12.9 Timor-Leste 37.7 43.2 33.9 30.3 41.9 35.4 Tonga 7.4 7.1 4.2 4.2 4.9 4.4 Tuvalu 0.8 1.1 2.9 2.9 2.9 2.9 Vanuatu 5.3 10.6 6.6 6.6 5.7 6.3 Regional 0.9 Southeast Asia 3,168 3,700 2,896 2,909 2,915 2,907

Cambodia 137 251 130 130 144 134 Indonesia 811 928 706 688 709 701 Lao, People’s Democratic Republic of 145 89 82 82 91 85 Myanmar 212 80 169 169 124 154 Philippines 661 934 546 549 685 593 Thailand 80 101 65 46 71 Viet Nam 1,152 1,338 1,161 1,227 1,115 1,168 Regional 50 Regional ADF 324

Unallocated ADF regional, hard-term and disaster response facilities

86 366 366 389 374

Nonsovereign Operations 1,850 1,650 1,800 1,900 2,000 1,900

Total 13,737 14,488 12,940 12,940 13,040 12,973

ADF = Asian Development Fund. Note: Figures may not sum precisely because of rounding. Source: Asian Development Bank staff estimates.

Appendix 6 63

Table A6.2: Indicative Ordinary Capital Resources Available for Approval by Region and Country, 2011–2017

($ million)

Actual Approvals Indicative Resources

Region/Country 2011–2013 (Average)

2014 Estimate 2015 2016 2017

2015–2017 (Average)

Sovereign Operations 8,752 9,357 8,200 8,100 8,100 8,133

Operations Group 1 4,809 4,609 4,312 4,241 4,225 4,259

Central and West Asia 2,010 1,692 1,694 1,759 1,721 1,725

Armenia 33 100 88 88 128 101

Azerbaijan 300 188 169 232 185 195

Georgia 92 100 106 96 148 117

Kazakhstan 284 310 329 311 299 313

Pakistan 741 730 656 624 635 638

Turkmenistan 42

51 53 19 41

Uzbekistan 517 264 294 355 307 319

South Asia 2,799 2,917 2,618 2,482 2,504 2,535

Bangladesh 457 410 438 399 405 414

Bhutan 80

India 2,129 2,159 1,990 1,896 1,894 1,927

Sri Lanka 213 268 190 187 205 194

Operations Group 2 3,943 4,748 3,888 3,859 3,875 3,874

East Asia 1,476 1,700 1,453 1,441 1,458 1,450

China, People's Republic of 1,450 1,520 1,400 1,400 1,392 1,397

Mongolia 26 180 53 41 66 53

Pacific 158 163 283 253 257 264

Cook Islands 4 1 2 2 2 2

Fiji

100 101 50 47 66

Micronesia, Federated States of 2 2 3 2 2 2

Palau 9

2 1 6 3

Papua New Guinea 120 40 153 179 176 169

Timor-Leste 24 20 21 17 24 21

Southeast Asia 2,309 2,885 2,153 2,165 2,160 2,159

Indonesia 811 928 706 688 709 701

Lao, People's Democratic Republic of 33

Philippines 661 934 546 549 685 593

Thailand

80 101 65 46 71

Viet Nam 755 943 799 865 720 794

Regional 50

Nonsovereign Operations 1,850 1,650 1,800 1,900 2,000 1,900

Total 10,602 11,007 10,000 10,000 10,100 10,033

Note: Figures may not sum precisely because of rounding. Source: Asian Development Bank staff estimates.

64 Appendix 6

Table A6.3: Indicative Asian Development Fund Resources Available for Approval by Region and Country, 2011–2017

($ million)

Actual Approvals Indicative Resources

Region/Country 2011–2013 (Average)

2014 Estimate

a 2015

b 2016

b 2017

c

2015–2017 (Average)

Operations Group 1 2,091 2,123 1,683 1,683 1,638 1,668 Central and West Asia 1,192 1,157 918 918 793 876

Afghanistand 359 142 182 182 120 161

Armeniae 43 86 58 58 38

Georgiae 94 59 66 66 44

Kyrgyz Republic 86 108 67 67 74 69 Pakistan 285 624 323 323 352 333 Tajikistan 163 40 77 77 85 80 Uzbekistan 163 98 146 146 161 151

South Asia 899 966 765 765 845 792

Bangladesh 489 423 403 403 440 415 Bhutan 37 61 28 28 35 30 Maldives 3 38 6 6 7 7 Nepal 250 255 179 179 198 185 Sri Lanka 119 189 149 149 165 154

Operations Group 2 1,045 947 891 891 913 898 East Asia 64 34 39 39 43 40

Mongolia 64 34 39 39 43 40

Pacific 121.6 98.6 108.3 108.3 115.1 110.6

Kiribatif 2.5 0.8 2.9 2.9 2.9 2.9

Marshall Islandsf 1.7 0.2 2.9 2.9 2.9 2.9

Micronesia, Federated States off 1.5 4.6 2.9 2.9 2.9 2.9

Nauruf 1.3 0.9 2.9 2.9 2.9 2.9

Palauf 0.6 0.7 2.9 2.9 2.9 2.9

Papua New Guinea 61.9 11.2 48.5 48.5 47.0 48.0 Samoa 14.3 4.7 6.4 6.4 7.9 6.9 Solomon Islands 9.3 33.7 12.3 12.3 14.3 12.9 Timor-Leste 14.1 23.2 12.9 12.9 17.9 14.6 Tonga 7.4 7.1 4.2 4.2 4.9 4.4 Tuvalu

f 0.8 1.1 2.9 2.9 2.9 2.9

Vanuatu 5.3 10.6 6.6 6.6 5.7 6.3 Regional Entity

g 0.9

Southeast Asia 859 815 744 744 755 747

Cambodia 137 251 130 130 144 134 Lao, People’s Democratic Republic of 112 89 82 82 91 85 Myanmar

h 212 80 169 169 124 154

Viet Nam 398 395 362 362 395 373

Regional ADF 324

Unallocated ADF regional, hard-term and disaster response facilities

86 366 366 389 374

Total 3,136 3,481 2,940 2,940 2,940 2,940

Note: Figures may not sum precisely because of rounding. a Reflects the balance of available Asian Development Fund (ADF) resources for the biennial period 2013–2014,

including allocations from savings and cancellations, disaster response facility, and hard-term facility. b

Reflects indicative performance-based allocations (PBA) except for Myanmar (footnote h). Final allocations will be determined by changes in the commitment authority and the outcome of the country performance assessments.

c Reflects half of the projected 2017–2018 biennial allocations.

d Includes post-conflict assistance.

e Armenia and Georgia are assumed to graduate from ADF assistance by end-2016.

f A minimum allocation of $3 million per year for ADF countries was introduced to the PBA system starting with the 2015–

2016 biennial allocations. PBAs of small ADF countries that fall below $3 million per year will be topped to the minimum level. The 20% volume discount will not be applied to the grant portion of the minimum allocation. However, 3% of the minimum allocation will be retained under the pilot disaster response facility.

g Refers to the University of South Pacific.

h Myanmar receives special ADF allocations (ADB. 2013. Financing ADF Operations in Myanmar. Manila).

Source: Asian Development Bank staff estimates.

Appendix 7 65

INDICATIVE WORK PROGRAM: SUMMARY OF SELECTED DELIVERABLES

Key Outputs

2014 2015 Average

2016–2017

A. Investment Operations 1. Project Processing

a. Public Sector Operations i. Projects

a (number) 117 125 110

Projectsa ($ million) 12,838 11,140 11,040

ii. Multitranche Financing Facility (number) 8 11 8 Multitranche Financing Facility ($ million) 3,155 4,003 3,158

iii. Project Design Advance (number) 4 11 1 Project Design Advance ($ million) 24 54 8

b. Private Sector Operations (number) 25 26 30 Private Sector Operations ($ million) 1,650 1,800 1,950

2. Portfolio Management a. Ongoing Projects as at Year-End (number)

Regional Departments 679 698 695 of which, ADF and OCR projects 618 652 671

Private Sector Operations 171 190 223 b. Contract Awards ($ million) 7,805 8,921 To be determined c. Disbursements ($ million) 10,300 10,500 To be determined d. Project Completion Reports (number) 78 85 86

B. Cofinancing Operations ($ million) 8,400 8,700 9,650 C. Technical Assistance Operations (number)

Active Technical Assistance as at Year-End 1,024 921 845 New Technical Assistance Approvals 314 284 151

1. Project Preparatory Technical Assistance a. Active Technical Assistance as at Year-End 218 219 232 b. New Technical Assistance Approvals 75 87 41

2. Capacity Development, Policy and Advisory, and Research and Development Technical Assistance

a. Active Technical Assistance as at Year-End 806 702 613 b. New Technical Assistance Approvals 239 197 110

D. Knowledge Products and Services (number)

a

Operation Departments 462 320 391 Non-Operation Departments 272 240 256

E. Country and Regional Strategies and Operations

Business Plans (number)

1. Country Partnership and Regional Cooperation Strategy

8 8 7

2. Country and Regional Operation Business Plans 49 41 41

ADF = Asian Development Fund, OCR = ordinary capital resources. Note: The indicative work program is as of 30 June 2014, and will be revisited during preparation of staff’s annual results-based work plans. a

Include investment projects, periodic financing requests, policy-based lending products, results-based lending, sector development programs, and sector lending.

b Knowledge services pertain to a range of activities, including event organization, independent evaluation,

knowledge sharing tools and systems creation, partnership facilitation, peer and compliance reviews, policy and planning advice, sector and thematic network support, and training. Knowledge products are outputs of knowledge services, and may be in the form of databases, multimedia, and publications or documents.

Source: Asian Development Bank staff estimates.