ADB board approves $3.4bn additional fund

Wednesday, June 17, 2009

ISLAMABAD: The Asian Development Bank (ADB) Board of Directors has approved allocation of $3.4 billion as additional fund to help developing member countries (DMCs) respond to the global economic crisis.

According to an announcement of the ADB here on Tuesday, it has established a $3 billion Countercyclical Support Facility (CSF) that will provide short-term, fast-disbursing loans. It will support DMCs aiming to ramp up fiscal spending to counter the crisis, but lack financial means to do so amid tight global credit conditions and a sharp increase in funding costs.

The CSF, which will be available to DMCs which qualify for loans from ADB’s Ordinary Capital Resources (OCR), will be capped at $500 million per country.

The ADB will also make available a further $400 million to the Asian Development Fund (ADF). This will benefit countries with no access to OCR. ADF resources are provided in the form of concessional loans and grants to low-income DMCs with limited debt repayment capacity.

The additional ADF resources will be used to provide funds to finance key development investments in low-income countries that are among the most fiscally constrained in responding to the crisis.

Conditions for accessing the CSF include a significant slowdown in growth, exports and remittances; fiscal constraints; and difficulty in sourcing finance from international capital markets on favourable terms. DMCs will also need to put in place a specific countercyclical development programme, to be supported by CSF, which includes investment in public infrastructure or a social safety net scheme targeting the poor and vulnerable.

Loans under the new facility will have a five-year tenor, with a three-year grace period, and will cost around 200 basis points above ADB’s financing cost, the pricing that is lower than its special programme loan facility set up to help the region in the wake of the 1997-98 Asian financial crisis.

The ADB plans to increase its lending assistance by more than $10 billion in 2009-2010, bringing total assistance for these two years to about $32 billion. This compares with about $22 billion in 2007-2008. Of the proposed $10 billion increase in lending, $1 billion is committed to supporting trade finance, $3 billion to the CSF and $6 billion to extending loans such as those for infrastructure investment.

The ADB will also expand its crisis-related support through grants for policy analysis and capacity building.

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