Asian Development Fund

A. Asian Development Fund

The ADF was established as ADB’s concessional financing window for DMCs with per capita gross national income below the ADB operational cutoff and limited or low creditworthiness. It provided a multilateral source of concessional assistance dedicated exclusively to reducing poverty and improving the quality of life in Asia and the Pacific. The ADF had received contributions from 34 donors (regional and nonregional). Cofinancing with bilateral and multilateral development partners complements ADF resources.

With the termination of the ADF lending operations and its transfer to OCR on 1 January 2017, the ADF became a grant-only operation. This significantly changed the primary economic environment of ADF, which warranted a change in its functional currency to the US dollar, being the currency adopted for the ADF grant operations. Accordingly, the ADF commitment authority and liquidity were determined and managed in US dollars to mitigate commitment and disbursement risks. Previously, the SDR and the SDR basket of currencies were the functional currencies of the ADF. For the year ended 31 December 2016, the ADF’s financial statements were prepared under the special purpose basis of accounting. Effective 1 January 2017, the ADF’s financial statements are prepared in accordance with the US GAAP.

TASF. The ADF 12 became effective on 30 May 2017. The replenishment will provide grant financing to eligible recipients from 2017 to 2020. As of 31 December 2017, the total replenishment size was $3,797 million, of which $2,579 million (representing 68%) comes from

the new donor contributions. 17 Of the new donor contributions, ADB received instruments of

contributions (IOCs) from 29 donors totaling $2,389 million. 18

Contributed resources. Based on the IOCs received as of 31 December 2017, the ADF’s share (net of TASF allocation) in the IOCs received for the ADF 12 amounted to $2,064 million, of which $513 million was already made available for operational commitments following receipt of the first installment payments. Moreover, donor contributions and discounts due to accelerated notes encashments (ANE) from previous replenishments ($98 million – ADF XI; $9 million – ADF X and ADF IX), and $259 million of OCR’s 2016 allocable net income have also been made available for operational commitments during the period.

The contributions not yet available totaling $1,896 million comprise: (i) unpaid qualified contributions; (ii) received contributions from donors who exercised pro-rata rights based on unpaid qualified contributions; (iii) contributions received in advance and (iv) unamortized discounts on ANE.

Liquidity management. ADF manages its liquidity assets under two tranches to enable the optimal use of financial resources. The main objective of the first tranche is to ensure adequate liquidity is available to meet expected cash requirements. The second tranche comprises the prudential minimum liquidity the ADF should hold to meet unexpected demands and liquidity for future commitments. This approach ensures that liquidity is managed transparently and efficiently.

Commitment authority. The commitment authority available for future commitments comprises the resources available to the ADF for its future activities in the form of grants. These resources are derived principally from donor contributions, and internal resources. The balance of the commitment authority available for commitment as of 31 December 2017 was $517 million

equivalent (Table 27). 19

17 Includes funds of $461 million which will be allocated to the Technical Assistance Special Fund during ADF 12 period. 18 US dollar equivalent based on the Board of Governors’ Resolution No. 382 exchange rates.

($ million)

Item Amount

Carryover of ADF XI Commitment Authority 63 ADF 12 contribution 498 ADF XI contribution b

96 ADF IX contribution c

1 Grant savings and cancellations 193 Income from liquidity investment 45 OCR net income transfer

Total ADF Commitment Authority 1,154

Grants Committed (595) Administrative Expense

ADF 12 Commitment Authority Available 503

Regional Health Security 14

ADF Commitment Authority Available for Future Commitments 517

ADF = Asian Development Fund, OCR = ordinary capital resources Notes: Amounts may not sum precisely because of rounding.

a Valued at exchange rates as of 31 December 2017. b Represents payment from the United States.

c Represents the accelerated note encashment credit of the United States including the corresponding pro rated amounts released by Germany and Turkey.

In May 2017, the Board of Governors approved the transfer of $259 million to the ADF as part of the net income allocation for OCR ($120 million – 2016). In addition, $193 million from grant savings and cancellations were included in the commitment authority. This resulted from Management’s continued assessment of opportunities to free committed resources through cancellations of unused grant balances.

During 2017, deposited installments under ADF 12 amounted to $739 million, and ADF 12 promissory notes encashed totaled $284 million. About $105 million was transferred to the

TASF. 20 Investment portfolio position. The ADF investment portfolio totaled $2,945 million at the end of

2017 compared with $5,739 million at the end of 2016. 21 About 16% of the portfolio was invested in bank deposits, and 84% in fixed-income securities. The annualized rate of return on ADF investments, including unrealized gains and losses, was 1.1% (1.1% - 2016).

Grants. Grants are recognized in the financial statements upon effectivity, i.e., when the agreements are signed and all conditions to effectiveness of the grant are satisfied. During 2017, there were 27 grants totaling $595 million (23 grants totaling $482 million – 2016). In 2017, ADB approved 21 grants (27 – 2016) totaling $551 million ($518 million – 2016) while net grants expensed amounted to $323 million ($376 million – 2016), consisting of 30 grants (18 – 2016) totaling $516 million ($380 million – 2016) became effective, and $193 million ($4 million – 2016) of undisbursed grants were written-back as savings on financially closed and/or cancelled projects.

20 US dollar equivalent based on exchange rates as of 31 December 2017.

$77 million. Also in 2017, a total of $58 million in official loan and grant cofinancing was committed for 10 ADF-financed projects totaling $91 million.