Transcript Debt Sustainability and Lending at the Asian

Debt Sustainability and Lending at the
Asian Development Bank
Operational Developments in 2013 and 2014
Sirpa Jarvenpaa
Director
Operational Planning and Coordination Division
Strategy and Policy Department
6 May, 2014
Funding from the
Asian Development Bank
• ADB finances activities in its developing member
countries (DMCs) from two key sources:
– Ordinary Capital Resources (OCR), offered at near-market
terms to lower- and middle-income countries.
– Special Funds, including Trust Funds, typically offered as
concessional loans or grants to lower-income countries.
• The Asian Development Fund (ADF) is the largest
Special Fund, aiming to help reduce poverty in ADB's
poorest borrowing countries.
Current Classification of DMCs - 2014
100% grant
(9)
DMC (45)
ADF-only
(17)
50% grant,
50% loan (3)
Blend (13)
100% loan
(5)
OCR-only
(10)
Graduate (4)
Unclassified
(1)
Eligibility for Access to the
Asian Development Fund
• Borrowers' eligibility for ADF is based on:
– 1. per capita gross national income (GNI) below USD 1,205
at 2012 prices; and
– 2. insufficient creditworthiness for ordinary capital or
market-based resources.
• Exceptions to the per capita income criteria are
allowed for countries that are not considered
creditworthy.
Borrowing from the
Asian Development Fund
• ADF resources are allocated among eligible countries
using Performance-Based Allocation (PBA)
mechanism.
• ADF resources allocated for a country can be provided
as grants or concessional loans.
• 20% volume discount is applied to grant portion of a
country's PBA allocation.
• Current the 17 ADF-only countries are eligible for ADF
grants, based on their debt distress conditions.
Importance of Debt Data as a Determinant
of Lending Terms
• Debt data are used to assess creditworthiness, as
input into eligibility for ADF / OCR resources.
• For ADF countries, grant shares are determined
exclusively by a country’s risk of debt distress, using
the International Monetary Fund and the World Bank
framework.
Risk of Debt Distress
ADF Grant Share
High
Medium
Low
100%
50%
0%
Use of Debt Distress Classifications to
Determine ADF Grant Shares
• As per ADB’s Policy, debt-distress classifications for ADF-only
countries are reviewed annually.
• Available IMF-WB Debt Sustainability Analyses (often done in
consultation with ADB) or available debt data form the basis for
the review.
• If the debt distress classification changes after the first year of
any biennial allocation period:
– The country retains the original grant share, if the debt
distress classification improves.
– The country moves to a higher grant share, if the debt
distress classification deteriorates.
Differences between ADF and IDA in 2013
Access to Concessional Finance (ADF / IDA)
Asian Development Bank
Blend
Blend
World
Bank
IDA only
ADF only
Armenia, Georgia,
Mongolia, Timor Leste,
Pakistan, Papua New
Guinea, Sri Lanka,
Uzbekistan, Vietnam
Micronesia,
Bangladesh
Afghanistan, Bhutan, Cambodia,
Kiribati, Kyrgyz, Lao PDR,
Maldives, Marshall Islands,
Myanmar, Nepal, Samoa,
Solomon Islands, Tajikistan,
Tonga, Tuvalu, Vanuatu
o Palau is ADB blend, but IBRD only.
o Nauru is ADF only, but unclassified under IDA.
o India is eligible for ADB blend status, but has never had access to ADF. Whereas,
India is a blend country for the WB.
o India, Armenia, and Georgia are expected to become IBRD-only effective July 2014.
Differences with IDA in 2013
Among the17 ADF-only Countries
• Debt distress thresholds used by ADB are based on
ADB’s own Country Performance Assessment ratings.
• ADB and IDA debt distress assessments differ with
variations in policy and institutional performance.
IDA Classifications
ADF Classifications
Country
CPIA
Debt Distress
(2013)
Grant Share
(2014)
CPA
Debt Distress
(2013)
Grant Share
(2014)
Lao PDR
Medium
Moderate
50%
Strong
Low
0%
Nepal
Medium
Moderate
50%
Strong
Low
0%
Kyrgyz
Medium
Moderate
50%
Strong
Low
50%
Tonga
Medium
Moderate
50%
Medium
High
100%
Bhutan
Strong
Moderate
0%
Strong
Moderate
50%
Changes in Debt Distress Ratings in 2013
• For the ADB, debt distress ratings changed for four
countries in 2013.
Country
Risk of Debt
Risk of Debt
Distress (2013) Distress (2012)
ADF Grant Share
(2014)
ADF Grant Share
(2013)
Kyrgyz
Low Risk
Moderate Risk
50%
50%
Marshall Islands
High Risk
-
100%
-
Samoa
High Risk
Moderate Risk
100%
50%
Moderate Risk
High Risk
100%
100%
Tajikistan
Developments in 2013 and 2014
• Brunei Darussalam became a DMC (without access to lending
resources). It is currently unclassified.
• Marshall Islands was reclassified from blend to ADF-only, due to
high risk of debt distress, with ADF access as 100% grant.
• Samoa was reclassified from 50% grant to 100% grant (within the
category of ADF-only) due to risk of debt distress deteriorating
from moderate to high, after Cyclone Evan.
• Azerbaijan was reclassified from ADB blend to OCR-only.
• Armenia and Georgia are expected to be reclassified from ADB
blend to OCR-only in 2014, effective 1 January 2017, coinciding
with the start of ADF XII replenishment period.
Issues for Discussion
• Is the current framework of using DSA / CPA the
best way to determine grant shares?
 Issues with country relations can arise, especially if
changes in CPA lead to abrupt changes in grant shares.
 In small countries where ADB / WB are major
development partners, this can potentially lead to
endogeneity problems (i.e., grant terms of our lending can
affect the debt distress risk).
Issues for Discussion
• Is there scope to formally improve information flows
between IMF/WB and regional development banks
on DSA work?
 Broad timetables on country-specific DSAs can be shared
institutionally at the beginning of the year.
 DSA team leaders can be encouraged to share data and
results with regional banks (on a confidential basis), even
prior to Board approval.
Other Issues for the Near Term
• What are the near term plans for reclassification of
countries, for countries that are also ADB DMCs?
 Sri Lanka, Mongolia and Viet Nam from IDA?
 Kazakhstan and Malaysia from IBRD?
 Bhutan from IDA-only to blend?
 Any other?
Three Issues / Questions
• Is the current framework of using DSA / CPA the best
way to determine grant shares?
• Is there scope to formally improve information flows
between IMF/WB and regional development banks on
DSA work?
• What are the near term plans for reclassification of
countries, for countries that are also ADB DMCs?
For More Information
Sirpa Jarvenpaa
[email protected]
or
Ananya Basu
[email protected]
Web site: www.adb.org