Work Program and Budget Framework,

Transcription

1 November 2016 Work Program and Budget Framework, This document is being disclosed to the public in accordance with ADB s Public Communications Policy 2011.

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3 ABBREVIATIONS ADB Asian Development Bank ADF Asian Development Fund BPMSD Budget, Personnel and Management Systems Department COL concessional ordinary capital resources lending DMC developing member country DRR disaster risk reduction FCAS fragile and conflict-affected situations IT information technology NSO nonsovereign operation OCR ordinary capital resources PPP public private partnership PSOD Private Sector Operations Department RBL results-based lending SDG Sustainable Development Goal TA technical assistance TAS transaction advisory services TFP Trade Finance Program TMS time management system WPBF work program and budget framework NOTE In this report, $ refers to US dollars.

4 Directors General Directors Team Leaders Team Members I. Bhushan, Strategy and Policy Department (SPD) T. Oya, Budget, Personnel and Management Systems Department (BPMSD) S. Jarvenpaa, Operations Planning and Coordination Division, SPD V. Tan, Budget and Management Services Division, BPMSD A. Hussain, Lead Operations Planning and Coordination Specialist, SPD H. Hong, Principal Budget and Management Services Specialist, BPMSD M. de Asis, Portfolio Management Analyst, OSFMD C. de Guzman, Strategy and Policy Assistant, SPD I. de Guzman, Strategy and Policy Officer, SPD V. Dimaano, Senior Strategy and Policy Officer, SPD M. E. Khan, Advisor, BPMSD and Head, Unit for Institutional Coordination G. Ong, Senior Strategy and Policy Officer, SPD M. S. Regalado, Strategy and Policy Officer, SPD G. A. Sevilla, Associate Strategy and Policy Officer, SPD K. C. Vila, Strategy and Policy Assistant, SPD K. Wangdi, Principal Budget and Management Services Specialist, BPMSD In preparing any country program or 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 judgments as to the legal or other status of any territory or area.

5 EXECUTIVE SUMMARY CONTENTS Page I. INTRODUCTION 1 II. OPERATIONAL TRAJECTORY, : SUPPORTING AMBITIOUS DEVELOPMENT GOALS IN THE REGION 1 III. STRATEGIC PRIORITIES, A. Operational Highlights 5 B. Inclusive Economic Growth 6 C. Environmentally Sustainable Growth and Climate Change 9 D. Regional Cooperation and Integration 13 E. Private Sector Development and Operations 13 F. High-Level Technologies 16 G. Knowledge Management 17 H. External Relations and Communication 18 IV. DELIVERING A STRONGER, BETTER, AND FASTER ADB 18 A. Implementation of Midterm Review Action Plan 18 B. Portfolio Management 18 C. Strengthening Information Technology 20 D. Planned Human Resources Reforms 21 E. Organization Resilience 23 V. HUMAN RESOURCES AND BUDGET REQUIREMENT 23 A. Cost Drivers 24 B. Opportunities for Savings and Efficiency 24 C. Workforce Analysis 25 D. Staffing Requirements for E. Budget Framework: Indicative Budget Growth for 2017 and Medium-Term Outlook for APPENDIXES 1. Indicative Sovereign Operations Pipeline by Sector, Strategic Agenda, and Drivers of Change Indicative Resources Available for Approval Strengthening Cofinancing Framework Status of Midterm Review of Strategy 2020 Action Plan Portfolio Actions Proposed by ADB s Regional Departments, Update on Midterm Review Procurement Actions (10-Point Action Plan) Implementation and Procurement Reforms Workforce Analysis Opportunities for Savings and Efficiency Indicative Work Program: Summary of Selected Deliverables 63 i

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7 EXECUTIVE SUMMARY During the Work Program and Budget Framework (WPBF), , the Asian Development Bank (ADB) plans to scale up its assistance to its developing member countries (DMCs) to $58.6 billion from $47.5 billion during , an increase of 23%. This responds to strong demand from DMCs to finance development commitments for the Sustainable Development Goals and climate actions. The scale-up is also consistent with the emphasis of the international community to increase infrastructure investment to support global growth. The increased resources for approval are supported by ADB s strong financial capacity due to the combination of the Asian Development Fund (ADF) lending operations with the ordinary capital resources (OCR) balance sheet, and the 11th ADF replenishment (ADF 12). For sovereign operations, ADF grants are projected to increase by 67%, concessional lending by 33%, and regular OCR by 17%. Nonsovereign operations (NSO) will increase by 34%. In scaling up, ADB has prioritized assistance for Group A and Group B countries. Resources available for approval for Group A countries are projected to increase by 50%. For countries in fragile and conflict affected situations, the increase is 87%. The increases for Group B and Group C countries are projected to be 24% and 14%, respectively. The proposed scale-up is backed by a concrete pipeline of operations agreed with DMCs. Against the resources available for approval of $58.6 billion, the pipeline of sovereign projects stands at $60.2 billion, which includes about 20% overprogramming. Infrastructure financing will remain the major area of operations, comprising about 70% of the operations pipeline during Of this, slightly more than a third, by value, will support infrastructure development in lagging areas. ADB will promote and progressively increase the use of high-level technologies in project designs, especially for transport, power, water, urban development, and other sectors. This work will be expanded to other sectors during the WPBF period. The work program for strongly supports inclusive growth. About 55% of the operational pipeline, by value, focuses on increasing access to economic opportunities and social services including through assistance to health and education. At the same time, about 43% of the operations pipeline, by value, will support expansion of economic growth largely through infrastructure projects. About 8% supports social protection. ADB will continue to achieve the target for gender equity and mainstreaming at 45%, by number of operations, during the WPBF period. During the WPBF period, ADB is projected to achieve $6.5 billion in climate financing for mitigation and adaptation by 2019, exceeding the target of $6.0 billion by ADB will also exceed the annual targets of $2.0 billion each for food security and clean energy. ADB will seek to identify opportunities for strengthening the pipelines for assistance in health, railways and urban transport sectors. NSO will be expanded, both by number and volume. NSO will meet their target of 40% of operations (by number) in Group A and Group B countries (excluding India) during the WPBF period. In delivering NSO, ADB will make greater use of instruments such as equity investments, guarantees, and risk transfers. In addition to infrastructure financing, opportunities for NSO will be explored in agribusiness, education and health. ADB will expand its support for public private partnerships.

8 ii ADB will strengthen its credentials as a knowledge institution. DMCs expect ADB to more effectively combine advanced knowledge and ideas with finance. ADB s knowledge will be shared with DMCs through projects and programs as well as knowledge products and services. It is critical that sector and thematic groups under the leadership of their technical advisors promote sharing of knowledge, provide knowledge and expertise to operations departments, and strengthen partnerships with knowledge centers of excellence around the world. During the WPBF period, ADB will continue to provide important knowledge products and services such as technical assistance, publications, policy briefs, op-eds, forums and workshops. ADB will encourage its research and knowledge departments to produce a high quality knowledge products and services that stimulate new ideas, encourage discussions on policies and provide insight from regional perspective. ADB will deliver knowledge products and services that are operationally relevant, help build more robust project pipelines, and support designing and implementing innovative projects. ADB will also put an importance on knowledge products and services provided by nonoperations departments such as the Office of Anticorruption and Integrity, Office of the General Counsel, Office of Risk Management, Operations Services and Financial Management Department, and Treasury Department. ADB will continue to improve disbursement performance and enhance development effectiveness. This will be done by increasing project readiness, improving project management, undertaking further procurement reforms, and deploying more staff and delegating greater authority to field offices. ADB has started the process to modernize and transform its existing information technology (IT) systems in order to have integrated operations, financial and knowledge platforms, supported by cloud-based services. This will result in better reporting capability, faster analytics, and enhanced mobility support. ADB is also embarking on the organizational resilience program. This will enhance ADB s shift to a resilient organization by strengthening our emergency and crisis response, enhancing the agility of the organization, and increasing the mobility of our staff. For the budget framework , ADB projects indicative nominal increases of 3.8% in 2017, 4.4% in 2018, and 4.5% in 2019 including an indicative average 2.2% price increase. The volume increases are estimated from (i) scaling up of operations and staff increase to support this volume growth net of staff optimization measures, (ii) continuation of the midterm review actions of Strategy 2020, (iii) IT reforms, and (iv) organizational resilience. ADB estimates that IT reforms will require budget increases until around 2020, after which IT expenses are expected to decline as depreciation from capital expenditures decreases. Resource savings are expected in future years from productivity gains and cost avoidance. Regarding expenses for organizational resilience, after an initial increase in 2017, they are projected to decline in the following years. ADB estimates a net staff increase of 200 during the WPBF period, more modest than the 218 positions envisaged for , the remaining 2 years in the previous WPBF, This net increase would also include provisions for new requirements from the second generation of procurement reforms and the scale-up of transaction advisory services.

9 iii Good progress from the ongoing staff optimization measures and further envisaged measures in has enabled and is expected to sustain the more modest projected staff growth. Specifically, ADB will expedite human resources reforms and staff optimization measures through more strategic staffing, increased mobility in staff assignments across the organization, flexible position management, and mainstreaming workforce analysis on an annual basis. ADB will continue to promote efficiency and prioritize resource allocations to meet the needs of evolving priority areas of operations. For more efficient resource management, ADB introduced the enhanced budget management flexibility measures in 2016 for a faster and effective redeployment of budgetary resources and will continue to improve its resource management during the WPBF period.

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11 I. INTRODUCTION 1. Given the large financing needs for achieving the Sustainable Development Goals (SDGs), the Asian Development Bank (ADB) has committed to scale up its operations by at least 50% by ADB seeks to use its resources more effectively to support poverty reduction and climate change efforts by improving project designs, enhancing project readiness and implementation, accelerating disbursements, and increasing responsiveness. While continuing to support high-priority infrastructure development, ADB will pay more attention to maintenance cost and sustainability, as well as the effective integration of cleaner and more advanced technologies. ADB also aims to strengthen its credentials as a knowledge institution, and deepen its private sector work, including public private partnerships (PPPs) ADB will enhance its capacity, efficiency, and effectiveness by (i) upgrading human resource management, particularly to foster an innovative culture and one ADB approach; (ii) further enhancing ADB s efficiency through measures such as streamlined procedures, greater use of country systems, and establishment of future corporate targets based on commitments rather than approvals for both sovereign and nonsovereign operations; (iii) making better use of information technology (IT) systems; and (iv) developing a new long-term strategy for ADB leading up to 2030 through a fully consultative process. 3. The Work Program and Budget Framework (WPBF), outlines the plan to achieve this vision. This paper describes the (i) operational trajectory for ; (ii) operations priorities over this period; (iii) steps for delivering a stronger, better, and faster ADB; and (iv) cost drivers for the administrative budget during this period. It also analyzes and presents the operational resource requirements for implementing the WPBF. II. OPERATIONAL TRAJECTORY, : SUPPORTING AMBITIOUS DEVELOPMENT GOALS IN THE REGION 4. Strong demand for development financing and scaling up operations. The combination of the Asian Development Fund (ADF) lending operations with the ordinary capital resources (OCR) balance sheet, coupled with the 11th ADF replenishment (ADF 12), presents an opportunity for ADB to respond positively to the strong demand from its developing member countries (DMCs) to support the SDGs and climate change efforts. ADF 12 comes with some innovative features, including a doubling of the minimum allocation for small countries, stronger support for disaster risk management, and greater assistance for regional health security (Box 1). This enhances ADB s capacity to address vital development challenges in the region, especially in the poorest countries. 5. In response to robust country demand, ADB scaled up operations in 2015: loan and grant approvals reached a record $16.3 billion, an increase of 21% over 2014 levels. The operational pipelines for demonstrate continued strong demand for ADB support, reflecting the projections under the stronger pipelines scenario of the WPBF, While earlier scenario planning was based on limited information on country demand and ADB s financial capacity, the current projections are backed by firm project pipelines and ADF 12 replenishment outcomes. 1 Closing address by ADB President Takehiko Nakao at the 49th Annual Meeting of the Board of Governors, Frankfurt, Germany, May ADB Work Program and Budget Framework, Manila.

12 2 6. Operational program. For operational planning purposes, the scenario shown in Figure 1 with a cumulative value of $58.6 billion is projected for the WPBF, The corresponding value of the operational pipeline is $69.8 billion, including overprogramming of about 20%. Table 1 shows the cumulative value of the indicative operational resources available for approval during the WPBF period. For sovereign operations, ADF grants are projected to increase by 67%, concessional OCR lending (COL) by 33%, and regular OCR lending by 17%. Nonsovereign operations (NSO) will increase by 34% (Table 2). Appendix 1 presents information on the WPBF, sovereign operational pipeline by sector, strategic agenda, and drivers of change. Appendix 2 shows resources available for approval by region and country during the WPBF period. 22,000 20,000 18,000 Figure 1: Indicative Resources Available for Approval, ($ million) 16,288 17,680 18,715 18,688 20,049 19,715 Stronger Pipeline [WPBF, ] 20,214 WPBF, ,000 16,061 16,345 16,351 16,841 14,000 14,809 14,738 Base Case [WPBF, ] 12,000 13,628 10, Average Actual WPBF Stronger Pipeline Scenario Base Case WPBF = work program and budget framework. Note: Resources available for approval in are based on firm operations pipelines. Source: Asian Development Bank estimates.

13 3 Table 1: Indicative Operational Resources Available for Approval, ($ million) Actual Approvals Indicative Resources Operations (Average) 2015 Estimate Total A. Sovereign 11,840 13,662 15,080 15,815 16,515 16,714 49,044 ADF Grant ,920 ADF Loan/COL 2,669 2,514 2,531 3,401 3,401 3,460 10,262 Regular OCR 8,525 10,790 12,166 11,754 12,454 12,654 36,862 B. Nonsovereign 1,787 2,626 2,600 2,900 3,200 3,500 9,600 Regular OCR 1,787 2,626 2,600 2,900 3,200 3,500 9,600 as % of Total OCR 17% 20% 18% 20% 20% 22% 21% C. Total ADB Resources 13,628 16,288 17,680 18,715 19,715 20,214 58,644 (C = A+B) ADF Grant ,920 ADF Loan/COL 2,669 2,514 2,531 3,401 3,401 3,460 10,262 Regular OCR 10,312 13,416 14,766 14,654 15,654 16,154 46,462 D. Project Cofinancing 7,857 10,610 12,300 14,300 16,600 18,500 49,400 Official 3,290 6,046 7,100 8,500 10,200 11,500 30,200 Commercial 4,568 4,564 5,200 5,800 6,400 7,000 19,200 E. Technical Assistance ,293 F. Total IRAA (F = C+D+E) 21,830 27,164 30,355 33,435 36,750 39, ,337 ADF = Asian Development Fund, COL = concessional OCR lending, OCR = ordinary capital resources. Note: Numbers may not sum precisely because of rounding. Source: Asian Development Bank estimates. Box 1: Asian Development Fund 12 Replenishment In May 2016, donors agreed to a $3.3 billion replenishment of the Asian Development Fund (ADF) grant window. When combined with planned concessional assistance lending during of $13.2 billion, the concessional resources of the Asian Development Bank (ADB) have increased more than 40% compared with the previous 4 years. During the replenishment period, ADB s grant support to the poorest countries will increase by 70%. Small island economies are the main beneficiaries as grant allocations will increase more than 100%. In addition, about $52.5 million was contributed to the ADF facility for regional health security and $0.5 billion to replenish the Technical Assistance Special Fund. Donors endorsed revisions to the performance-based allocation mechanism to enhance ADB s effectiveness in addressing the challenges faced by concessional assistance countries. The following are key features of ADF 12: (i) Increasing minimum allocations. A base allocation of $6 million per year to all concessional assistance countries will help to ensure small countries will have sufficient resources to implement meaningful programs. (ii) Disaster risk reduction. Contributing to the effort to increase climate finance in the poorest countries, additional allocations of concessional resources will be provided to all concessional assistance-only countries to support disaster risk reduction (DRR) operations. The DRR financing mechanism established in ADF 12 will allocate up to $200 million in ADF grants, subject to the actual donor contributions, and about an equal amount of concessional ordinary capital resources lending, over 4 years. The Disaster Response Facility will be regularized for concessional assistance-only countries, and allocations to finance DRR in those countries will be integrated into the performance-based allocation process. Donors agreed for make DRR grant financing available to all concessional assistance-only countries. (iii) Regional health security. Donors also agreed to extend the eligibility for grants to all concessional assistance countries in order to strengthen support for regional health security on a pilot basis with an allocation of $52.5 million. These grants will be used to help countries meet international standards for health security, secure broader regional cooperation, strengthen health systems for better preparedness for pandemics (including by strengthening rapid alert systems and communication on public health threats), and respond to outbreaks with the assistance of an emergency facility. Source: ADB Asian Development Fund 12 Donors Report: Scaling Up for Inclusive and Sustainable Development in Asia and the Pacific. Manila.

14 4 7. Greater resources for fragile and conflict-affected situations and low-income countries. During the WPBF period, Group A and Group B countries 3 (combined) will account for 43% of the sovereign resource allocation, while Group C will account for 40% (Table 2). Resources for DMCs classified as fragile and conflict-affected situations (FCAS) will increase by 87%, while resources for Group A countries will rise by 50%, for Group B countries by 24%, and for Group C countries by 14%. Allocations for emergencies will be considered on a case-bycase basis. Table 2: Indicative Operational Resources Available for Approval by Country Group, ($ million) Increase Item Total ADF COL OCR Total % of Total Amount % A. Sovereign Operations 40,352 1,920 10,262 36,862 49, , Group A 3,856 1,920 3,857 5, , Group B a 15,781 6,406 13,168 19, , Subtotal A and B 19,637 1,920 10,262 13,168 25, , Group C b 20,716 23,694 23, , B. Nonsovereign 7,144 9,600 9, , Total (A+B) 47,496 1,920 10,262 46,462 58, , Memorandum Item FCAS c 1, ,229 1,028 3, , ADF grant 1,146 1,920 1, Concessional OCR 7,731 10,262 10, , Regular OCR d 31,476 36,862 36, , ADF = Asian Development Fund, COL = concessional OCR lending, FCAS = fragile and conflict-affected situations, OCR = ordinary capital resources. Note: Numbers may not sum precisely because of rounding. a Excluding India, which does not have access to concessional resources. b Including India. c FCAS countries are Afghanistan, Kiribati, Marshall Islands, Federated States of Micronesia, Myanmar, Nauru, Papua New Guinea, Solomon Islands, and Tuvalu. d Refers to sovereign operations only. Source: Asian Development Bank estimates. 8. Financing modalities. Under the WPBF, , more than three-quarters (77%) of the sovereign pipeline (by value) will use the project modality. The multitranche financing facility modality will be used for 98 periodic financing requests under 42 new facility operations. Policy-based lending is projected at 17% (by value) and results-based lending (RBL) is estimated at 6%. 4 Policy-based loans will be closely monitored and managed given their fastdisbursing nature and the associated implications for the sustainable level of lending. 5 Based on 3 Group A countries are defined as countries having access to concessional assistance only, while Group B counties have access to both concessional and regular OCR assistance. Group C countries have access to regular OCR only. 4 ADB adopted the RBL modality in 2013 on a pilot basis covering ADB limits the resources for RBL for programs to 5% of the OCR and ADF resource allocation for the first 3 years of the 6-year pilot period. ADB is reviewing the modality s first 3 years of implementation and, based on findings, appropriate changes may be considered. 5 The sustainable level of lending is updated annually based on factors such as actual and planned levels of lending, disbursements, repayments, operating income, income transfers, and exchange rates (ADB Treasury Report: Second Quarter Manila).

15 5 country demand and the macroeconomic situation in the region, ADB will remain responsive in the use of its lending modality. 9. Greater cofinancing. By 2019, cofinancing is projected to be 92% of ADB s resources (Table 1). To meet the cofinancing target of 100% by 2020, ADB will need to improve upstream donor coordination and better synchronize its processes with those of its cofinancing partners. ADB will deepen relationships with existing partners by, for example, renewing cofinancing arrangements for a longer term and larger cofinancing portfolio. ADB will also explore cofinancing opportunities with new multilateral institutions such as the Asian Infrastructure Investment Bank and the New Development Bank. In addition, collaboration will be sought with national development funds, philanthropic entities, and corporate social responsibility arms of private entities. Measures to strengthen cofinancing framework are listed at Appendix Technical assistance. During the WPBF period, technical assistance (TA) resources of $1.3 billion are planned an annual average of $431 million. This is a 29% increase from the $1.0 billion in TA approvals during About half of the 2017 TA resource envelope is earmarked for transaction support (51%) and half for knowledge and support (49%) To increase the effectiveness and quality of TA operations, ADB is implementing TA reforms with an objective to improve the quality and alignment of TA with ADB s investment operations and streamline TA business processes to make a more effective and efficient use of the TA resources. In terms of resource allocation, the TA reform links TA resources with the future lending and grant operations and with performance, at which TA resources are used. 12. Scaling up of operations call for greater TA resources to provide direct transaction support for the preparation and implementation of investment operations as well as for focused knowledge and support services, aimed at advancing ADB as a knowledge institution and provision of broader capacity building. In view of this, ADB will replace the current four TA types with two new TA types of transaction TA, and knowledge and support TA. Given the expanded delegation of approval authority from the Board to the President, the TA reforms will strengthen the TA quality control process based on a risk and complexity associated with the TA. 7 Finally, the TA reform will enhance the capture of knowledge generated under TA in a more efficient and user-friendly manner through an application of enhanced IT solution. The impact of the reforms will be assessed in A. Operational Highlights III. STRATEGIC PRIORITIES, During the WPBF, , ADB will support its strategic agendas of inclusive economic growth, environmentally sustainable growth, and regional integration. The highlights of the sovereign operations pipelines 8 for (Figure 2) and other analyses follow: 6 Transaction TA is directly related to ADB s loan, guarantee, equity investment, or transactional advisory service operations. It is used to (i) prepare a project that ADB intends to finance under its sovereign and nonsovereign operations, (ii) deliver outputs or mitigate the risks that are both identified in the design monitoring framework of a an ongoing ADB-financed or ADB-administered project, or (iii) develop PPPs under transaction advisory services (TAS). Knowledge and support TA indirectly support ADB-financed operations. 7 ADB Enhancing Operational Efficiency of the Asian Development Bank. Manila 8 With a cutoff date of 30 June 2016.

16 6 Figure 2: Highlights of Operations Pipeline, (% of Sovereign Operations) Inclusive Economic Growth Environmentally Sustainable Growth Creating opportunities $25.6 billion (43%) Environmentally sustainable 266 projects (61%) Increasing access to opportunities $33.3 billion (55%) growth Social protection $4.7 billion (8%) Disaster risk management $9.2 billion (15%) Total infrastructure $42.2 billion (70%) Climate financing a $17.7 billion (25%) in lagging areas $15.9 billion (38%) Adaptation $4.3 billion (6%) Mitigation $13.4 billion (19%) Transport $17.3 billion (29%) Clean energy b $11.2 billion (19%) Energy $13.3 billion (22%) Water and Other Urban $8.3 billion (14%) Sustainable transport Infrastructure and Services c Railways $2.6 billion (15%) Education $3.7 billion (6%) Urban transport $3.3 billion (19%) Health $1.2 billion (2%) Agriculture $7.0 billion (12%) Regional Integration Irrigation $2.6 billion (4%) Support to RCI 126 projects (29%) Food security $8.5 billion (14%) Gender mainstreaming 195 projects (45%) Governance and capacity 349 projects (80%) development Support to FCAS $3.6 billion (6%) Nonsovereign Operations NSO (% of OCR) $9.6 billion (21%) Private sector development and $30.4 billion (43%) operations Southeast Asia 25% NSO 14% South Asia 25% Central and West Asia 23% East Asia 10% Pacific 3% FCAS = fragile and conflict-affected situations, NSO = nonsovereign operations, OCR = ordinary capital resources, RCI = regional cooperation and integration. a Includes sovereign and nonsovereign pipeline. b Clean energy includes renewable energy and energy efficiency. c Water excludes rural water policy, institutional and capacity development; rural water supply services; rural sanitation; and rural solid waste management, which are included here under Agriculture. Source: Asian Development Bank estimates. B. Inclusive Economic Growth 14. During the WPBF, , 55% of the operations pipeline, by value, will support increasing access to economic opportunities and social services. This will include support for infrastructure development in lagging areas, 9 education, and health. About 43% of the operations pipeline, by value, will support expansion of economic growth through interventions in energy, transport, and urban services. Meanwhile, 8% of the operations pipeline, by value, will support social protection. ADB is refining its inclusive economic growth framework, and the outcome will be reflected in its new corporate strategy. 9 A lagging area is defined as an area that is behind other areas when comparing socioeconomic characteristics. Specification of a lagging area requires a comparison within a DMC to determine which areas are behind others.

17 7 15. Infrastructure. ADB s infrastructure operations during the WPBF period will account for 70% of sovereign operations, comprising transport (29%), energy (22%), water and other urban infrastructure and services (14%), irrigation (4%), and information and communication technology and other infrastructure (1%). Of these sovereign infrastructure operations, 38% by value ($15.9 billion) 10 are projected to be in lagging areas (Figure 3). Climate risk assessments will be an integral part of project Figure 3: Infrastructure in Lagging Areas, ($ million) Infrastructure in Other Areas 26,299 (62%) Infrastructure in Lagging Areas 15,906 (38%) Total infrastructure: $42,205 million. Source: Asian Development Bank estimates. Rural 9,690 (23%) Non-rural 6,216 (15%) designs (paras ), and programmatic approaches will be considered in designing infrastructure projects, where feasible. ADB will ensure the operational sustainability of infrastructure projects by incorporating cost recovery mechanisms in project designs; other measures such as build-own-operate, build-own-transfer, and performance-based maintenance contracts will also be explored. 16. Education. During the WPBF period, ADB will further expand education operations, as envisaged by the Midterm Review of Strategy Education is projected to account for 6% of the operations pipeline, by value. ADB s assistance will focus on quality education, technical and vocational education and training, and secondary-to-higher education. ADB assistance will help beneficiaries acquire the technical skills that markets require, thus increasing access to jobs. ADB will explore the establishment of an education partnership facility as an effective and flexible funding window to support early conceptualization and scaling up of innovative education projects. 17. Health. Health is projected to account for 2% of the sovereign operations pipeline, mainly supporting health system development, health sector development and reform, and health care finance. During the WPBF period, the annual country programming missions will intensify dialogue with national authorities to further develop the health sector pipelines in order to reach the midterm review target of 3% 5% of the approval volume by As ADB s NSO explore health sector financing opportunities, the overall assistance level may exceed the projected value. Recognizing regional health security as a vital regional public good, ADB will make grants available under ADF 12 to all concessional assistance countries on a pilot basis to make improvements in this area. 18. Low-income countries and fragile and conflict-affected situations. Support to FCAS countries during the WPBF period will total $3.6 billion, an 87% increase over Infrastructure development will account for 82% of the FCAS pipeline, 12 followed by public sector management (11%), and education (3%). ADB plans to expand its NSO in low-income and FCAS countries, including Pacific DMCs (Box 2). In 2017, $21 million in TA is projected for 10 Compared with $12.5 billion in WPBF, ADB Midterm Review of Strategy 2020: Meeting the Challenges of a Transforming Asia and Pacific. Manila. 12 Includes 49% for transport, 16% for energy, and 8% for irrigation.

18 8 FCAS countries. During the WPBF, , ADB will apply an FCAS-sensitive approach in all FCAS operations to better understand the local context and thereby mitigate possible operational risks. Fragility assessments will be incorporated at the project concept stage and used continuously during project implementation. Gender mainstreaming and institutional capacity development will remain a priority in FCAS operations. Box 2: ADB s Engagement with Pacific Developing Member Countries Many Pacific developing member countries (DMCs) are small, remote, and fragile. These characteristics make achieving sustainable and inclusive growth challenging. Their small size and isolation increase the costs of providing services and doing business. Their high exposure to climate change and disasters caused by natural hazards, as well as their size and narrow economic base, make them extremely vulnerable to shocks. High costs and risks further constrain these countries from realizing their limited but unique potential for growth. Seven of the Pacific DMCs are classified as fragile, and all countries in the region exhibit multiple vulnerabilities. The Pacific Approach, outlines a three-pronged strategy to guide the Asian Development Bank s (ADB) assistance to the region, focusing on reducing costs, managing risks, and enabling value creation. a ADB will continue to support investments and provide technical assistance for (i) transport infrastructure to improve air, maritime, and land connectivity and facilitate seamless trade and logistics; (ii) renewable energy to improve access and affordability, especially in poorer underserved areas; (iii) information and communication technology connectivity; (iv) basic urban services and job creation to support livable cities and more inclusive growth; and (v) high-level policy advice for investment planning, capacity development, and institutional strengthening. Regional initiatives include support for climate change responses, disaster risk management, education, energy, urban development, gender, and institutional capacity building. The Framework for Pacific Regionalism, endorsed by the Pacific Islands Forum leaders in 2014, provides an opportunity for ADB to expand its assistance for regional cooperation and integration, and more fully integrate the region s priorities into its work. b ADB will leverage the work of the Pacific Private Sector Development Initiative to expand private sector operations, and promote public private partnerships, particularly for capital-intensive projects in information and communication technology, ports, and energy. a ADB Pacific Approach Manila. b Pacific Islands Forum Secretariat The Framework for Pacific Regionalism. Source: Asian Development Bank. 19. Food security. During the WPBF period, sovereign operations supporting food security are estimated at $8.5 billion or an annual average of $2.8 billion, exceeding the target of $2.0 billion. Figure 4 shows major areas of support, while para. 32 describes assistance for agriculture and natural resources. Figure 4: Sovereign Pipeline Supporting Food Security, by Sector ($ million) Other Sovereign Operations, $51,710 (86%) Food Security, $8,528 (14%) Agriculture, $5,426 (64%) Transport, $1,572 (18%) Energy, $698 (8%) Water, $552 (6%) Others, $280 (4%) Note: Water refers to water and other urban infrastructure and services. Source: Asian Development Bank estimates.

19 9 20. Gender equity and mainstreaming. ADB will continue to promote gender equity, both upstream in country partnership strategies and downstream in the design and implementation of programs and projects. Persisting country gender disparities and gaps will inform ADB s approach, along with the commitments set out in the gender-related SDGs. ADB will continue to rigorously monitor project implementation to ensure adequate gender equality outcomes at the project and sector levels, and will document gender equality results. ADB will disaggregate project performance indicators by gender, as feasible, to assess progress made and benefits accrued from a gender perspective. 21. During the WPBF period, 45% of the projects, by number, are projected to support gender mainstreaming, meeting the corporate results framework target. 13 ADB will seek to narrow gender gaps in secondary and tertiary education completion; vocational and technical skills training; and access to health and social protection services, financial services, and credit. In addition, gender mainstreaming will be pursued in (i) agriculture and natural resource management projects; (ii) micro, small, and medium-sized enterprise development; (iii) access to finance; and (iv) urban development projects. Rural and urban electrification, renewable energy solutions, and time-saving technologies will help to reduce women s drudgery and timepoverty, and enhance energy-based livelihoods. Assistance for strengthening national gender policies and institutions is envisaged in many countries. 22. Governance and capacity development. Operations supporting governance and capacity development during the WPBF period are expected to reach 76% of the total by volume and 80% by number exceeding the target of 57%, by number, in the ADB corporate results framework (footnote 13). Focus areas include national and state public financial management, procurement, and corruption. About 81% of sovereign TA operations, by volume, are expected to support governance and capacity development. ADB will continue to undertake governance risk assessments for all projects to identify such risks and incorporate mitigating measures in project designs. An annual high-level forum on governance and institutions will be launched in November 2016 in collaboration with the ADB Institute to identify opportunities for scaling up investments in governance and public sector management. ADB will also forge new knowledge partnerships with premier institutions in the region to support knowledge products and services in governance and capacity building, as well as in public sector management. C. Environmentally Sustainable Growth and Climate Change 23. During the WPBF period, ADB s support for environmentally sustainable growth is estimated at $35.3 billion, or 58% of sovereign operations. New TA operations promoting environmentally sustainable growth are expected to reach 46% by volume and 40% by number in Of the proposed WPBF operations, 15% by value and 17% by number will have integrated disaster risk management components. 24. ADB has committed to double its annual climate financing to $6.0 billion by 2020: $4.0 billion for mitigation and $2.0 billion for adaptation. By 2019, the last year of this WPBF period, ADB s climate finance is estimated to reach $6.5 billion, thus exceeding the overall target. As Figure 5 shows, this amount comprises $4.8 billion for mitigation (119% of the mitigation target) and $1.7 billion for adaptation (86% of the adaptation target). As climate adaptation is context-specific, more reliable estimates will be available at the project concept development stage. As such, estimates may change as detailed project information becomes available. 13 ADB ADB s Results Framework: Interim Update to Align with the Midterm Review of Strategy Manila.

20 10 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Total: 5,570 Total: 5,673 Total: 6,482 Target: 6,000 by ,420 4,247 4,769 4,000 1,150 Figure 5: ADB's Climate Financing, ($ million) 1,426 1, Mitigation (M) Adaptation (A) M 2,000 A Note: Numbers may not sum precisely because of rounding Source: Asian Development Bank staff estimates. 25. Building on the commitments made at the 2015 Conference of the Parties on Climate Change, ADB completed a working paper on the intended nationally determined contributions of its DMCs. The paper focuses on three elements: (i) contributions to greenhouse gas emission reduction; (ii) sectoral climate actions and priorities; and (iii) support requirements, including financing. ADB will develop a long-term climate change strategic framework and directions by 2017 that will feed into ADB s Strategy 2030, aiming to build resilience and strengthen climate actions across the region Disaster risk management. Under the ADF 12 framework, a financing mechanism for disaster risk reduction (DRR) has been established that will provide assistance to concessional assistance countries. Grant-eligible countries will receive this funding in the form of grants, while other concessional assistance countries will receive additional COL. 15 In addition, ADB intends to develop a disaster risk financing approach paper to guide its work in strengthening the fiscal management of disaster risk, including through the identification of new instruments to finance early recovery and reconstruction. In 2017, ADB will update its Disaster and Emergency Assistance Policy 16 to include stronger integration of disaster risk management and climate adaptation. 27. Leveraging climate financing. To leverage climate financing from other sources, ADB will facilitate and support climate change-related funds such as the Clean Energy Financing Partnership Facility and Urban Financing Partnership Facility. Further, ADB will facilitate DMC access to climate finance by supporting (i) the identification of projects and preparation of 14 A formal guidance note for climate finance tracking, anchored on the joint multilateral development banks methodology, is being developed to provide staff guidance on the subject. This will be accompanied by detailed guidance notes for key sectors, including energy, transport, urban and water, and agriculture. 15 For ADF 12, $200 million in grant financing for DRR is allocated across all concessional assistance-only countries in accordance with their pro-rata shares in the performance-based allocation for concessional assistance-only countries (including base allocations), subject to a 50% portion of their pro-rata share in the performance-based allocation for countries at low risk of debt distress and a cap of $20 million per country. The balance in grant resources is redistributed to grant-eligible countries. Additional COL is made available to COL-eligible countries solely for DRR. Countries at medium risk of debt distress would receive matching amounts in grant and COL resources, while countries at low risk of debt distress would receive twice as much in COL allocations as they receive in grant allocations. 16 ADB Disaster and Emergency Assistance Policy. Manila

21 11 funding requests for financing from the Green Climate Fund, Climate Investment Funds, and Global Environment Facility; (ii) the use of new carbon market mechanisms; (iii) the leveraging of external finance from public and private sources, including blending of concessional resources with private sector operations; and (iii) the enhancement of support for innovative instruments such as green bonds. In 2017, ADB will launch the Asia Climate Finance Facility with the Government of Germany. The facility will leverage public and private investment in climate change mitigation and adaptation in support of the Paris Agreement outcomes. 28. Mitigation and adaptation. During the WPBF, , climate financing is estimated at $17.7 billion, a 127% increase over ADB s climate change strategic priorities include (i) increasing the use of clean energy; (ii) expanding sustainable transport and urban development; (iii) managing land use and forests; (iv) integrating climate change and disaster risk considerations; and (v) strengthening policies, governance, and capacities. 29. Clean energy. During the WPBF period, clean energy investments in sovereign operations are projected to reach $11.2 billion or annual approvals of about $3.7 billion, 17 exceeding the midterm review target of $2.0 billion (Figure 6). ADB will continue to finance renewable energy (solar, hydro, wind, and biomass) and energy efficiency projects. In addition, power distribution enhancement programs are envisioned to increase energy access. Planned power transmission and distribution sector projects will also support climate change mitigation through the reduction of technical losses. The existing metering system will be replaced with a smart metering system that will encourage energy efficiency and conservation. 5,000 Figure 6: Clean Energy Investments in Sovereign Operations by Volume, ($ million) 4,443 4,000 3,638 3,000 2,000 1,000 1, ,132 1,185 1,280 1,532 1,397 1,686 2,664 3, Note: Clean energy investment is the portion of Asian Development Bank (ADB) assistance used to fund projects or project components 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 investment may be calculated as: Clean Energy 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. Source: Asian Development Bank estimates. 17 Clean energy includes renewable energy and energy efficiency.

22 Sustainable transport. ADB financing of transport investments is estimated at $17.3 billion during the WPBF period. About 19% will be for urban transport, while 15% will be for railways (non-urban) compared with the midterm review targets of 30% for urban transport and 25% for railways by Financing of road projects (non-urban) is estimated at 57% of total transport financing, down from 90% in 2010 at the start of the Sustainable Transport Initiative Operational Plan, Under a new partnership with the Japan International Cooperation Agency, ADB will seek to identify additional opportunities for supporting urban transport (metro and bus rapid transit systems) and railways in order to meet the 2020 targets. All transport investments will incorporate climate risk screening to promote climate proofing of infrastructure. In addition, about $53 million (13%) of TA operations during 2017 are expected to support transport. 31. Urban development. In addition to the $3.3 billion that will be invested in urban transport during the WPBF period, ADB will invest about $8.3 billion in urban flood protection, water supply, sanitation, sewerage, solid and hazardous waste management, housing and slum development, and other services. Most urban sector projects will contribute directly to urban environmental improvement. Smart city, city cluster, and water supply management projects will integrate elements of disaster risk management and contribute to natural resource conservation and eco-efficiency. Regional economic centers will integrate urban roads, wastewater treatment, sanitation, drainage, and solid waste management as part of a holistic approach. This will help cities become more resilient to climate change impacts. About $48 million (11%) of TA operations during 2017 will support water and other urban infrastructure and services. 32. Agriculture and natural resources management. The operations pipeline supporting agriculture is projected to be $7.0 billion during the WPBF period. 19 Of this amount, 29% will support land-based and water-based natural resource management programs. Investments in the agriculture, natural resources, and rural development sector will improve water use efficiency and food security, while also facilitating community participation. ADB will promote river basin planning and development of large irrigation schemes to ensure integrated water resources management and increased agricultural productivity. For areas that are flood prone and vulnerable to climate change, ADB will continue to focus on flood control, erosion management, and coastal protection, while integrating disaster risk management components into projects. About $48 million (11%) of TA operations during 2017 are expected to support agriculture and natural resources. 33. Integrating climate change and disaster risk consideration. ADB will continue to use its Climate Risk Management Framework to (i) screen all relevant projects for climate risks, starting from the project concept development stage; and (ii) identify viable adaptation options that can be incorporated into project designs. 20 ADB also plans to conduct learning and capacity building events to strengthen the capacity of DMCs to address climate change and increase disaster resilience. 34. Environmental governance. ADB will promote the use of market-based and other voluntary approaches to environmental management that promote technology development and adaption, and are cost effective. The development of green businesses that mobilize private financing for environmental management will be supported. ADB will help DMCs integrate the new environment-related SDGs into national strategies, policies, and programs. ADB will also 18 ADB Sustainable Transport Initiative Operational Plan. Manila. 19 Including irrigation projects amounting to $2.6 billion, and rural water supply, sanitation, waste management, and market infrastructure totaling $3.2 billion. 20 ADB Climate Risk Management in ADB Projects. Manila

23 13 continue to strengthen country safeguard systems in DMCs, and will use country safeguard systems on selected sectors or agencies where equivalence and acceptability are mostly achieved and remaining minor gaps can be easily filled through action plans. D. Regional Cooperation and Integration 35. During the WPBF period, operations supporting regional cooperation and integration are projected to reach $16.1 billion for 126 projects, or 29% of the total by number, compared with the midterm review target of 30%. New TA operations supporting regional integration are expected to reach 24% by value and 21% by number in ADB will continue to lead in the promotion of regional cooperation through three priority interventions Transport connectivity. Multimodal transport corridor networks are envisaged through investments in new roads, inland waterways, logistic hubs, and railway networks, as well as upgrading of existing networks and developing links to gateway ports. Assistance for economic corridors will include urban areas and growth centers to better integrate national and regional value chains, promote employment, and improve competitiveness and efficiencies throughout the value chain. 37. Energy connectivity. ADB s assistance will improve cross-border electricity and gas transmission, boost power and natural gas trades, and facilitate energy efficiency and clean power, such as cross-border natural gas transmission and trade in liquefied natural gas. This will facilitate the use of cleaner fuel in power generation and transport. 38. Trade facilitation. Assistance is likely to alleviate constraints to trade among ADB DMCs by addressing high tariffs and inefficiencies in customs, border procedures, port operations, and logistics performance. Systematically addressing these issues will result in higher trade volumes and improved competitiveness. Planned investments will help DMCs improve border crossing services through customs modernization and integrated border management. 39. ADB will remain the secretariat for three regional cooperation groups: Greater Mekong Subregion, Central Asia Regional Economic Cooperation, and South Asia Subregional Economic Cooperation. ADB will also continue as an observer to the Pacific Islands Forum and maintain its partnerships with the Association of Southeast Nations (ASEAN); Indonesia Malaysia Thailand Growth Triangle; and Brunei Darussalam, Indonesia, Malaysia, the Philippines East ASEAN Growth Area. In addition to providing capacity development support to these groups, ADB will continue to provide assistance for policy development in priority areas. During the WPBF period, concessional and nonconcessional set-aside resources for regional projects will continue. E. Private Sector Development and Operations 1. Private Sector Development 40. During the WPBF period, projects supporting private sector development and operations are projected to be 43% by value and 47% by number, 22 compared with the midterm review 21 ADB will also provide assistance for regional public goods in terms of regional health operations and disaster risk finance. 22 This comprises about 145 sovereign operations totaling $20.8 billion and 111 nonsovereign operations totaling $9.6 billion.

24 14 target of 50% by number by About 30% of TA by value is expected to support private sector development in ADB will continue to support policy, regulatory, and governance reforms to strengthen public management systems and promote the role of the private sector, particularly in infrastructure development. This will include support for PPPs. Further, support for cross-border regional cooperation projects will be considered, including possible support for the ASEAN Secretariat s interest in regional harmonization of common PPP regulatory frameworks. During the WPBF period, about 61% of planned sovereign operations for the finance sector, by value, will support projects for inclusive finance, insurance and contractual savings, small and medium enterprises, and capital market development. A review of the Financial Sector Operational Plan has been undertaken in 2016 with three broad areas of focus, namely, finance sector development, inclusive finance, and infrastructure finance. It is expected to be finalized by year-end. 2. Nonsovereign Operations a. Future Directions 41. During the WPBF period, ADB will expand the number and value of its NSO with the objective of reaching 25% of regular OCR approvals by value by To meet this objective, ADB will continue to make sufficient financial resources available to its Private Sector Operations Department (PSOD) based on the economic capital planning model, multiyear planning flexibility, and use of such instruments as risk transfers and reinsurance, which free up a portion of committed headroom. During the WPBF period, NSO are projected to grow from 19.8% of regular OCR approvals in 2017 to 22% by NSO funding can be increased, as necessary, to have a smoother trajectory to meet its 2020 target. 42. To deepen NSO, ADB is also committed to (i) increasing the number of transactions from 25 in 2015 to 40 or more by 2019; (ii) converting approvals to commitments; 23 and (iii) reducing cancellations 24 and droppages, 25 which have been high over the past 6 7 years. 26 While the absolute level of droppages and cancelations will vary year to year, ADB expects annual NSO droppages and cancellations of no more than 15% of approvals on average by the end of this WPBF period. 43. During the WPBF period, NSO will meet their annual targets of 40% of operations by number in Group A and Group B countries (excluding India) and 25% by number for renewable energy financing. Further, through the Trade Finance Program (TFP), ADB will continue to support regional cooperation by focusing its operations in lower-income countries and providing greater access by expanding the reach of TFP to Pacific DMCs. In undertaking NSO, ADB will continue to prioritize gender equity and gender mainstreaming, as well as climate resilience. b. Operational Priorities 44. During the WPBF period, ADB will pursue the following operational priorities. 23 The 2017 Statement of ADB Operations and the Annual Report will use 2016 ADB approvals as well as commitments. 24 Refers to undisbursed, committed balance of an equity investment, loan, or guarantee cancelled by the mutual consent of ADB and an investee company. 25 Refers to projects approved by ADB s Board of Directors but failed to become a signed agreement. 26 This has been caused by unforeseen events at the project level as well as aggressive review of the portfolio.

25 Infrastructure financing. ADB will continue to build on its successes in financing infrastructure and financial institution operations. During the WPBF period, power generation will remain at the core with clean and renewable energy and clean technologies as a pillar of ADB s nonsovereign work. 27 In addition, greater emphasis will be placed on funding other core infrastructure areas, including water, waste and sanitation, and transportation infrastructure, using PPPs and other financing modes. 46. Financial institutions. ADB s focus on financial institutions will continue with a broad spectrum of interventions in banks and nonbanks, including supporting rural finance, microfinance, housing finance, small and medium-sized enterprise finance, climate finance, inclusive business, gender mainstreaming, and other core development mandates through the finance sector in a wide range of DMCs. The TFP will expand into new markets as it has just started to do in the Pacific. Further, the Microfinance Program will grow both geographically and in absolute terms. In both the infrastructure and financial institutions areas, ADB will seek more opportunities to finance state-owned enterprises and to work with other public nonsovereign borrowers. 47. Deeper engagement with the Asian Development Fund and middle-income economies. During the WPBF period, ADB will undertake more deals in frontier markets and in countries where it has yet to operate maintaining the annual target of at least 40% of deal approvals in such markets. This will contribute to the increase in the number of NSO. ADB will consider establishing a fund to blend grant resources for NSO in FCAS countries. In addition, ADB plans to dedicate additional resources to sourcing and processing deals in its poorest DMCs, including Afghanistan, Myanmar, parts of Central Asia, and the Pacific. Concurrently, ADB will respond to the call by many middle-income countries and upper middle-income countries for greater private sector participation and a greater role for PSOD, particularly in supporting new technologies, new sectors, and new business models. 48. Agribusiness, education, and health. ADB will expand its operations beyond core infrastructure, financial institutions, and private equity funds to address private sector needs in its DMCs. This will include building up ADB s nascent agribusiness focus across Asia, with a strong emphasis on underserved markets, food security, productivity upgrades, and farmer support. ADB also plans to increase financing for health and education projects. 49. Equity investments. During the WPBF period, ADB plans to substantially increase its direct equity investments to build up a solid book that can be profitably divested in the years ahead. The level of annual equity investment will depend on market opportunities, but the amount is expected to grow to about 10% of annual approvals or commitments by Private equity funds. ADB will seek out proven managers with demonstrated track records in funds that have scale, reach, and strong commercial prospects, as well as good development alignment. A new strategy is being rolled out that will lead to an increase, by value, in overall private equity fund investments. 51. Credit enhancement instruments. During the WPBF period, ADB also plans to structure and deploy newer financing modalities. Building up an Asian project bond market is one such option. Following the success in credit enhancing project bonds in India and the Philippines over the past 12 months, ADB sees considerable scope for leading this new market 27 PSOD expects to be one of the largest contributors to ADB s overall renewable energy commitments.

26 16 for Asia. Further, ADB plans to make greater use of guarantees and credit enhancement instruments, as well as risk-transfer arrangements, across its NSO. 52. Management of third-party funds. Another new area of business for ADB is the management of third-party funds for deployment on a concessional or commercial basis into qualifying infrastructure largely along with its own financing. This started modestly but successfully with facilities related to climate change, but has grown significantly in 2016 with the addition of $1.5 billion from the Japan International Cooperation Agency s Leading Asia s Private Sector Infrastructure Fund. 28 This fund will be deployed during Negotiations are also being conducted with other third parties to manage funds on their behalf. This could be replicated with other pools of capital in the future, making the asset management model an increasingly important area for NSO during the WPBF period. 53. Other areas. During the WPBF period, ADB also plans to expand its sector coverage and explore possible interventions in manufacturing and tourism. Further, ADB will seek to increase gender mainstreaming and emphasize inclusive business. 3. Public Private Partnerships 54. During the WPBF period, ADB will continue to provide transaction advisory services (TAS) and project preparation support to clients. These services will complement ADB sovereign operations support for capacity development and improving the enabling environment for PPPs in DMCs. ADB s Office of Public Private Partnership will continue to provide TAS to assist DMC clients in structuring their projects and successfully attracting private sector participation and financing. During the WPBF period, ADB will broaden its provision of TAS to private sector sponsors, on a pilot basis, with the objective of increasing the number of PPP transactions in the region. Nine new TAS mandates are projected during the WPBF period. The Asia Pacific Project Preparation Facility will provide assistance to DMCs for the preparation and structuring of projects, capacity development and policy reform, and project monitoring and restructuring. 29 F. High-Level Technologies 55. Adoption of high-level technologies. ADB will pursue the use of advanced technologies to promote efficiency and minimize environmental impacts. To improve sector policy and governance, policy and regulatory advice is envisaged, as well as promoting the role of the private sector. Where feasible, use of PPPs will be explored and encouraged. Through climate-resilient infrastructure interventions, ADB will seek to provide continued support to urban and rural communities, ensuring access to jobs, markets, and social services (Box 3). Box 3: Mainstreaming the Use of High-Level Technology in ADB Operations Apart from scaling up its operations, the Asian Development Bank (ADB) plans to integrate high-level technology in its projects and programs to help its developing member countries (DMCs) achieve their Sustainable Development Goals and tackle climate change. Ongoing or recently approved projects using advanced technology include Sri Lanka s Jaffna Kilinochchi Water Supply and Sanitation Project, which will install a desalination plant to treat seawater for a potable water supply using semipermeable membranes to separate salts from the water. The Green Energy 28 ADB Establishment of the Leading Asia s Private Sector Infrastructure Fund. Manila. 29 ADB Establishment of the Asia Pacific Project Preparation Facility. Manila.

27 17 Corridor and Grid Strengthening Project in India will adopt high-voltage direct current transmission technology to improve efficiency and reduce transmission losses as well as carbon emissions. Metro projects in Hanoi and Ho Chi Minh City in Viet Nam will result in cleaner, more efficient, and integrated urban transport systems. Bus rapid transit projects in cities in the People's Republic of China, Lao People s Democratic Republic, and Mongolia will deliver quality mass transit, while also introducing highlevel technology elements of clean vehicles, automated fare systems, intelligent transportation systems, and energy-efficient street lighting. In the pipeline are projects such as the Solar Rooftop Investment Program (multitranche financing facility), which will establish a credit facility at a national bank in India to provide dedicated long-term financing at reasonable rates for solar rooftop systems. The Information Technology Parks for Employment and Innovation Project in Bangladesh will enhance knowledge in new technologies in infrastructure development by involving selected universities in research and development and business incubation, including information communication and technology, teaching curriculum, and course development. Building on this progress, ADB will further mainstream the use of advanced technology in its operations. Actions may include the following: (i) Strengthening project design. ADB s early stage discussions with DMCs, including policy dialogue, consultations on country partnership strategy, and sector-level policy dialogue, will cover opportunities for the use of high-level technology. Projects with advanced technology or green content will be prioritized for ADB financing. This will entail balancing cost, quality, and sustainability considerations over the life cycle of infrastructure assets. (ii) Emphasizing quality in procurement. ADB will place greater emphasis on the quality of consultants to ensure countries get access to the best expertise in the latest advanced technologies. Increased use of single contractor arrangements, such as turnkey contracts, will be encouraged to make it easier to maintain a consistent focus on quality during project implementation. (iii) Mobilizing expert resources. ADB s strengthened sector groups (e.g., energy, transport, water, and urban) and thematic groups (e.g., climate change and public private partnership) will provide leadership in knowledge work, advise countries, drive innovation in projects, and build partnerships with centers of excellence and other institutions. ADB has also started an experts pool system to recruit highly specialized talent in such areas as smart grids, railways, and water utility management. Source: Asian Development Bank. G. Knowledge Management 56. ADB will strengthen its credentials as a knowledge institution. DMCs expect ADB to more effectively combine advanced knowledge and ideas with finance. ADB s knowledge will be shared with DMCs through projects and programs as well as knowledge products and services. ADB s knowledge is in two general forms. Tacit knowledge comprises ADB s collective experience including knowledge developed through day-to-day interactions with its DMCs. It is critical that sector and thematic groups under the leadership of their technical advisors promote sharing of knowledge, provide knowledge and expertise to operations departments, and strengthen partnerships with knowledge centers of excellence around the world. 57. There is also explicit knowledge that ADB systematically transfers through its high quality knowledge products and services. During the WPBF period, ADB will continue to provide important knowledge products and services such as TAs, publications, policy briefs, op-eds, forums and workshops. ADB will encourage its research and knowledge departments to produce a high quality knowledge products and services that stimulate new ideas, encourage discussions on policies and provide insight from regional perspective. ADB will deliver

28 18 knowledge products and services that are operationally relevant, help build more robust project pipelines, and support designing and implementing innovative projects. ADB will also put an importance on knowledge products and services provided by its nonoperations departments such as the Office of Anticorruption and Integrity, Office of the General Counsel, Office of Risk Management, Operations Services and Financial Management Department, and Treasury Department. 58. ADB will continue to embed its knowledge products and services in country partnership strategies, operations business plans, and knowledge plans. Country directors will coordinate the design and implementation of country knowledge plans in their role as knowledge custodians. 59. ADB will revitalize the Knowledge Sharing and Services Center to improve knowledge management across ADB. As its Office of Information Systems and Technology implements the new IT platform, ADB will establish new robust knowledge governance standards to strengthen our knowledge flow. For the purpose of monitoring and managing ADB s knowledge products and services, ADB introduced reporting guidelines for several specific types of knowledge products and services in April H. External Relations and Communication 60. As operational and knowledge outputs expand, ADB will increase external relations and communication activities to ensure shareholders and stakeholders are well informed of ADB priorities and results, and have easy access to ADB information, knowledge, and expertise. ADB will use new technologies and communication channels such as multimedia features, social media such as Facebook and Twitter, Flickr, op-eds, and blogs to increase the organization s visibility and transparency. This will help expand awareness, understanding, and support for ADB's mission among a broad spectrum of stakeholders. ADB is reviewing the Public Communications Policy 2011 to assess how the overall policy objectives are being achieved and to identify lessons. The review is expected to be completed by March IV. DELIVERING A STRONGER, BETTER, AND FASTER ADB A. Implementation of Midterm Review Action Plan 61. The Midterm Review of Strategy 2020 Action Plan was approved in July 2014 to implement the outcomes of the midterm review through a set of well-defined, concrete, and time-bound actions. 30 It sets out a detailed operational and organizational reform agenda to help make ADB stronger, better, and faster. The plan includes 192 actions, which collectively aim to (i) strengthen operational efficiency and effectiveness, (ii) improve internal capacity, (iii) respond to the challenging business environment, and (iv) sharpen ADB s operational and strategic focus. Overall, the implementation of the action plan is progressing well, although some important actions are pending completion (Appendix 4). B. Portfolio Management 62. Portfolio status. As reported in the 2015 Annual Portfolio Performance Report, ADB s project approvals increased considerably, but contract awards and disbursements declined. 31 While the contract award ratio decreased by 1 percentage point to 22.9% in 2015 and the 30 ADB Midterm Review of Strategy 2020 Action Plan. Manila. 31 ADB Annual Portfolio Performance Report. Manila.

29 19 disbursement ratio dropped by 1 percentage point to 17.2%, the midterm review actions and the 10-point procurement reform action plan are beginning to have an impact. Despite rising new approvals, ADB has been narrowing the gap between approvals and disbursements. In 2015, the total approvals were $16.3 billion and disbursements were $12.3 billion compared with approvals of $14.2 billion and disbursements of $8.7 billion in The same trend has continued for first half of 2016 with total sovereign and nonsovereign disbursements increasing by 60% over the same period in In the first 6 months of 2016, project contract awards have increased by 8% and project disbursements by 18% over the same period in However, more work needs to be done to enhance project readiness. To improve project implementation and disbursement, ADB is rolling out all the midterm review reforms and formulating the second phase of procurement reforms to reduce procurement time, improve quality, and strengthen the delivery system by increasing executing agency capacity and decentralization. 63. Strengthening portfolio performance. To address shortcomings and effectively prepare for scaling up of operations during the WPBF period, ADB is undertaking major portfolio reforms, including formulating a new procurement policy, procedures, and guidelines. The reforms also include an action plan with concrete measures such as (i) reducing total procurement time, (ii) improving the quality of procurement transactions, (iii) strengthening delivery systems in DMCs as well as within ADB, and (iv) introducing measures such as lifecycle costing of benefits. Box 4 summarizes some of the major focus areas. Subject to the planned Board consideration of the new procurement policy, these measures may be rolled out starting in July Box 4: Strengthening Procurement to Improve Contract Awards The Asian Development Bank (ADB) is undertaking procurement reforms to improve portfolio performance and contract awards. The following reforms aim to reduce the end-to-end procurement time, enhance the value ADB adds to procurement processes, provide timely expertise and capacity building to reduce governance risks, and reduce manual procurement transactions in ADB and expedite procurement processes both within ADB and among the executing agencies: (i) adopting a more principles-based procurement approach; (ii) introducing a risk-based and trust-and-verify procurement oversight system, aimed at reducing end-to-end procurement time; (iii) introducing an agency procurement accreditation processes; (iv) mainstreaming post-review sampling; (v) establishing a policy unit at headquarters and outposting of more international staff to resident missions; (vi) rolling out the procurement review system to enable electronic submissions and online approvals by ADB of executing agency submissions; and (vii) undertaking an internal business process reengineering review to streamline procurement documentation. Source: Asian Development Bank. 64. In implementing the portfolio reforms, ADB will adopt an improved model for supporting procurement transactions. It will provide (i) more upfront engagement on procurement in the project design, and greater support to regional departments in handling and resolving contract management issues to identify appropriate procurement modalities; (ii) greater fiduciary oversight over procurement transactions and consultant recruitment to mitigate governance risks in procurement; (iii) technical advice to user departments on procurement, contract management, consultant recruitment, and administration of consultant contracts to ensure appropriate contracting mechanisms and facilitate timely engagement of consulting services;

30 20 (iv) technical support to user departments in using the consultant management system and procurement review system to automate and expedite engagement and recording of consulting services; and (v) contract administration support for ADB-administered consultants to enhance the quality of consultant s services and outputs. In addition, ADB will step up procurement assessments, update project administration instructions, provide capacity development for executing agencies, and lead engagement with multilateral development banks in procurement. 65. Continually improving portfolio management. ADB is working to strengthen portfolio performance, particularly disbursements; improve project readiness at entry; and decentralize more to resident missions. During the WPBF period, the following actions will be undertaken to further improve portfolio performance of sovereign operations: (i) (ii) (iii) (iv) (v) (vi) provide appropriate resources, incentives, and staff skill mix for project design and implementation to regional and operations support departments; apply procurement readiness and design readiness criteria strictly before approval to all projects, and encourage the use of the project design advance and provide more project preparatory TA resources to ensure higher project readiness; resolve contracting and disbursement issues, provide capacity building support to executing agencies and implementing agencies, and strengthen contract management; review projects older than 6 years and above to reduce implementation problems; limit the number of TA projects, close old TA projects, and limit extensions and supplementary approvals; and reduce the procurement time for contracts exceeding $20 million. 66. Department-specific actions. Each regional department has also identified specific actions (Appendix 5). An update of the midterm review 10-point procurement reform action plan is in Appendix 6. C. Strengthening Information Technology 67. IT is central to ADB s efforts to become stronger, better, and faster. ADB is planning to modernize and integrate its IT systems through a transformation program named Real-Time ADB. It will cover (i) integrated systems and databases, (ii) knowledge management, (iii) analytics and reporting, (iv) mobility, (v) cloud services, and (vi) IT services. An initial set of projects will start in the second half of 2016 with the following objectives: (i) (ii) (iii) Portfolio management for private sector operations. By 2020, this will cover (a) credit origination and client relationship management, (b) NSO financial transaction processing, and (c) an integrated data repository and portfolio reporting. Integrated application for operations. ADB will implement a new platform for the future eoperations system, including an accounting and disbursement system for loans, grants, and TA projects integrated with eoperations. This will reduce the end-to-end process of projects. Treasury operations improvement. This initiative will (a) simplify and automate manual data acquisition and cash management, and (b) increase the visibility of

31 21 the cash position, resulting in cash managers efficiently allocating cash surplus and exploring more asset classes. (iv) (v) (vi) (vii) (viii) (ix) Institutional procurement. The focus will be on including procurement planning and budgeting, sourcing, and contract management, procuring to pay and integrating services in headquarter and subsequently in resident missions. Knowledge management. This work will establish the foundation for all relevant initiatives that will use collaboration, document and content management, workflows, and search capabilities. This cloud-based collaboration and productivity suite will also improve ADB s operational resilience. Mobility. This initiative will (a) improve user collaboration and mobility, (b) promote knowledge sharing, (c) increase productivity, (d) enhance organizational resilience, and (e) promote paperless workspace for a greener ADB. Establishment of the organizational resilience active data center. In January 2016, the President endorsed immediate actions to maintain the key financial processes of the Controller s Department, Office of Risk Management, and Treasury Department in the event of a prolonged disruption. Human resource systems. This will assist in (a) implementing a centralized facility for filing, tracking, managing, and reporting on requests for human resources services; (b) providing a robust human resources technology architecture, improving efficiency and operational responsiveness; (c) increasing the visibility of ADB s internal talent and skills inventory; and (d) allowing better collaboration on human resources information and content. Information technology security. The growing business demand for automation and integration of processes increases the complexity of securing ADB information on various platforms and devices. As ADB s information systems become more sophisticated, security threats and risks also become more complex. The IT security program identified three areas to manage security risks effectively: (a) adaptive security awareness, (b) simplifying access management and authentication, and (c) strengthening security systems and tools. 68. Future measures. The following measures are planned for 2018 and beyond: (i) donor fund management system, (ii) risk management operations systems improvement, (iii) analytics and reporting, and (iv) progressive migration and integration of IT systems to cloud services. D. Planned Human Resources Reforms 69. To support a stronger, better, and faster ADB, human resources reforms are planned (paras ). 70. More strategic staffing based on centralized decision making. To address new challenges of ADB and its clients, staffing decisions should be more strategic and centralized. ADB s Budget, Personnel and Management Systems Department (BPMSD), in close

32 22 consultation with relevant departments, will identify, recruit, and assign talented staff fit for each position. To support and implement this reform, BPMSD will work on the following: (i) (ii) (iii) New mobility framework. Staff will be assigned strategically and flexibly across departments, as well as between headquarters and resident missions. BPMSD will develop a new mobility framework, including a rotation policy. Flexible position management. The current position management system based on a fixed headcount will be reviewed. A more flexible system that allows for the conversion of positions between categories, advance and batch recruitments (one job advertisement for multiple recruitments or positions), overlaps for outgoing and incoming staff, and more efficient utilization of budgetary allocations for staffing will be considered (Appendix 7). Mainstreaming workforce analysis. The workforce analysis provides crucial inputs for the strategic staffing. It is now mainstreamed as an annual exercise to accompany and inform the WPBF process. ADB is rolling out 3-year strategic departmental workforce plans that will incorporate the analysis of a department s major deliverables and findings of the workforce analysis. 32 The workforce analysis will identify current and emerging staffing surpluses and gaps, measures for staff optimization, and room for staff mobility. 71. More efficient, transparent, and accountable recruitment and assignments. BPMSD will continue to improve the operational efficiency, transparency, and accountability of the recruitment and assignment process. For example, BPMSD will be more involved in the early stage of recruitments and assignments, guided by the 2016 internal audit recommendations on the staff recruitment process. BPMSD will also review and revise the relevant administrative orders. 72. New recruitment initiatives. New recruitment initiatives have been launched. These include (i) increasing outreach to institutions and graduate schools providing a good pool of young professionals, and (ii) expanding hiring for a pool of experts with cutting-edge knowledge and/or in specialized fields. Other initiatives to be pursued include bulk recruitment, where pools of specialists are sourced in advance; and proactive talent sourcing, using social media to support strategic staffing, diversity, and succession planning. 73. Career and talent management. During the WPBF period, the career management framework and talent management will continue to be the basis for facilitating strategic and more mobile staffing in line with business needs and better career development. The leadership development program and executive coaching initiatives will continue. 74. Diversity and inclusion. ADB will further promote an inclusive work environment that is respectful, flexible, and diverse with more emphasis on gender representation. The Respectful Workplace Unit is being established. 75. Reforms of the Staff Retirement and Group Medical Insurance Plans. Following the work of the two advisory task forces in , ADB will implement reforms to the Staff Retirement and the Group Medical Insurance Plans. These reforms will strengthen the financial 32 A 3-year strategic departmental workforce plans are currently being piloted with six departments (2 operations departments, 2 direct operations support departments and 2 indirect operations support department), and will be rolled out bank-wide in 2017.

33 23 sustainability of both plans while also ensuring they contribute to an overall remuneration package for staff which is competitive to attract and retain staff, consistent with ADB s mission, and in line with international trends. E. Organization Resilience 76. To maintain continuity of operations and protect shareholder value in the event of a disaster, and to ensure long-term viability, Management approved the Organizational Resilience paper in July The framework, which outlines a set of actions from 2016 to 2021, is to be implemented in phases. The organizational resilience program will transform ADB into a more agile, sustainable organization with the ability to continue operations throughout any type of disruptive incident. Key changes will be implemented to establish an effective crisis management structure and ensure appropriate policies and guidelines are in place to support the safety and well-being of staff and dependents. ADB's data and business operations will be strengthened through improvements to ADB s IT infrastructure, rationalizing and digitizing processes to facilitate remote access and leading a culture change within ADB to adopt efficient, resilient work modalities. V. HUMAN RESOURCES AND BUDGET REQUIREMENT 77. Since 2013, ADB has maintained budget growth at a moderate level (Figure 7) despite a significant growth in operations, i.e., more approvals and administration of a larger portfolio coupled with a commensurate increase in the size, complexity, and resource requirements per operation. It is crucial to maintain the momentum for efficiency, while providing adequate resources to support scaled-up operations and cost drivers listed in para. 78. Figure 7: ADB Budget Growth for (%) ADB = Asian Development Bank. Source: Asian Development Bank estimates. 4.2 Volume (%) Price (%) 33 ADB Organizational Resilience. Manila