ADB raises share of project funding in developing nations

MANILA, Feb 4 (AFP) - The Asian Development Bank (ADB) is to substantially increase its share of funding for projects in developing member countries to help them tide over fiscal and other financial constraints, officials said. The Manila-based bank's funding share has been between 40 and 80 percent of the cost of projects since 1998. Effective January 1, 2003, ADB's minimum share would rise to 65 percent but the ceiling would remain largely unchanged, Ann Quon, the bank's director of external relations, told AFP Thursday. "The bottomline is that ADB is now able to provide a larger proportion of project cost financing than done previously," she said. Although the change applies only to new project loans, it will be a welcome relief to nearly 33 countries banking on the ADB for funding of projects ranging from micro-finance banking to sewage systems. Compared with other multilateral financial institutions, such as the World Bank and the Japan Bank for International Cooperation, the ADB gives the smallest funding share for projects. "The new ruling will now narrow the difference between ADB and the other multilateral financial institutions in terms of percentage of project share funding," Quon said. In devising the change, the ADB also considered the tighter fiscal situation in the region and the "lingering" effects of the Asian financial crisis in 1997/8 and the subsequent Russian financial crisis, she added. Last year, ADB lent a total of 5.7 billion dollars by taking stakes in 76 projects, mostly in Asia, including in Afghanistan where it resumed operations for the first time in 23 years. ADB's loan value is expected to increase substantially in 2003 with its higher share in project funding. The ADB's project cost-sharing limits are based largely on a country's per capita gross national product (GNP) and external debt repayment capacity, officials said. Under the new criteria, Quon said, ADB would shoulder 65 percent of project costs -- from 40 percent previously -- in the Philippines, Fiji, Kazakhstan, Malaysia, Thailand, Turkmenistan and Uzbekistan. In China, India, Indonesia and Papua New Guinea, ADB's stake in projects would increase from 60 percent to 70 percent. The bank's funding limit would be raised to 75 percent from 70 percent in Azerbaijan, Bangladesh, Marshall islands, Federated States of Micronesia, Pakistan, Sri Lanka, Tonga and Vietnam. ADB would however maintain its 80 percent funding limit in Afghanistan, Bhutan, Cambodia, Kiribati, Kyrgyzstan, Laos, Maldives, Mongolia, Myanmar, Nepal, Samoa, Solomon Islands, Tajikistan and Vanuatu. The bank's largest borrowers last year were India at about 1.2 bilion dollars, Pakistan at 1.1 billion dollars, China at 900 million dollars and Indonesia at 800 million dollars. The ADB has 61 member economies as its shareholders, of which Japan and the United States are the largest. Thomas Crouch, ADB's Philippine country director, said the bank's new ruling on project cost-sharing limits was in line with its emphasis on social development. In the Philippines, for example, projects might not necessarily generate income but contributed to poverty eradication -- the bank's key goal, he told AFP. Crouch said the ADB was considering financing several projects in the agriculture, social and finance sectors in the Philippines this year, including in the troubled and poverty-stricken southern Mindanao area. "The projects we are hoping for in the Philippines include a non-bank financial governance programme, like involving bond trading and micro-finance, as well as in education and water resources," he said. Last year, the bank allocated 40 million dollars in project loans in the Philippines and supported reforms in the country's key power sector through a partial credit guarantee for a 500-million-dollar bond issue.