The Asian Development Bank (ADB) has approved an allocation of US$3.4bn in additional funds to help developing member countries (DMC) respond to the global economic crisis.
ADB has established a US$3bn countercyclical support facility (CSF) that will provide faster and cheaper short-term loans than the bank’s existing special programme loan facilities.
It will support DMCs aiming to ramp up fiscal spending to counter the crisis, but who lack the financial means to do so amid tight global credit conditions and a sharp increase in funding costs.
The CSF, which will be available to DMCs who qualify for loans from ADB’s ordinary capital resources (OCR), will be capped at US$500mn per country.
ADB will also make available a further US$400mn to the Asian Development Fund (ADF). This will benefit countries with no access to OCR. ADF resources are provided in the form of concessional loans and grants to low-income DMCs with limited debt repayment capacity.
The additional ADF resources will be used to provide funds to finance key development investments in low-income countries that are among the most fiscally constrained in responding to the crisis.
Conditions for accessing the CSF include a significant slowdown in growth, exports and remittances; fiscal constraints; and difficulty in sourcing finance from international capital markets on favourable terms. DMCs will also need to put in place a specific countercyclical development programme, to be supported by CSF, which includes investment in public infrastructure, or a social safety net scheme targeting the poor and vulnerable.
Loans under the new facility will have a five-year tenor, with a three-year grace period, and will cost around 200 basis points over ADB’s financing cost. This is lower than the pricing on its special programme loans facility set up to help the region in the wake of the 1997-1998 Asian financial crisis.
ADB plans to increase its lending assistance by more than US$10bn in 2009-2010, bringing total ADB assistance for these two years to approximately US$3bn. This compares with about US$22bn in 2007-2008. Of the proposed US$10bn increase in lending, US$1bn is committed to support trade finance, US$3bn to the CSF and US$6bn to extending loans such as those for infrastructure investment. ADB will also expand its crisis-related support through grants for policy analysis and capacity building.
Export-dependent Asia has been hard hit by the slumping demand for its goods in major global economies, such as the US and Europe.
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