ASIAN DEVELOPMENT BANK

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1 BUDGET OF THE ASIAN DEVELOPMENT BANK FOR 2017 NOVEMBER 2016 ASIAN DEVELOPMENT BANK

2 November 2016 Budget of the Asian Development Bank for 2017 Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public after excluding information subject to the exceptions to disclosure set forth in ADB's Public Communications Policy Asian Development Bank

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4 ABBREVIATIONS ADB Asian Development Bank ADF Asian Development Fund ATF advisory task force CPS country partnership strategy CRP Compliance Review Panel DMC developing member country ESP Early Separation Program FCAS fragile and conflict-affected situations GMIP Group Medical Insurance Plan IAE internal administrative expenses IED Independent Evaluation Department ISTS IT Information Systems and Technology Strategy information technology ITC Information Technology Committee JFPR Japan Fund for Poverty Reduction OCR ordinary capital resources OPPP Office of Public Private Partnership PPP public private partnership PRC People s Republic of China PRGMIP Post-Retirement Group Medical Insurance Plan SDCC Sustainable Development and Climate Change Department SRP Staff Retirement Plan TA technical assistance TASF Technical Assistance Special Fund US United States WPBF work program and budget framework NOTE In this report, "$" refers to US dollars. 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.

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6 CONTENTS Page EXECUTIVE SUMMARY i I. OVERVIEW 1 A. Strategic and Institutional Context 1 B. Financial Outlook and Approach to 2017 Budget 3 II. THE 2017 WORK PROGRAM DELIVERABLES 5 A. Operations 5 B. Knowledge Program 12 C. Organizational Resilience 13 D. Information Technology Reforms 14 E. Nonoperations 15 III. INDEPENDENT EVALUATION AND ACCOUNTABILITY MECHANISM 16 A. Independent Evaluation Department 16 B. Accountability Mechanism 18 IV. FINANCIAL RESOURCES 19 A. Combination of Asian Development Fund Lending Operations with Ordinary Capital Resources Balance Sheet 19 B. Asian Development Fund Replenishment 19 C. Allocation of 2015 Net Income 20 D. Borrowing Program 20 E. Technical Assistance Funding 20 F. External Funds 21 V BUDGETARY RESOURCES 21 A. Institutional Efficiency and Cost-Saving Measures 22 B. Workforce Analysis 24 C. Internal Administrative Expenses for D. Summary of Resources Provided to Resident Missions 38 E. Operational Expenses by Program Category 39 VI. CAPITAL EXPENDITURES 40 A. Annual Capital Expenditures 40 B. Ongoing Special Capital Expenditure Programs 41 VII. RECOMMENDATIONS 43

7 APPENDIXES Budget: Internal Administrative Expenses Summary of Annual Capital Expenditures Summary of Selected Operational Outputs by Departments Impacts from Information Technology Reforms and Organizational Resilience Summary of ADB Efficiency Staff Positions by Department and Office Price and Volume Growth Distribution of Operational Expenses by Department and Office Cross-Year Comparison of Internal Administrative Expenses Board of Directors Compliance Review Panel and Office of the Compliance Review Panel Independent Evaluation Department Operational Expenses Administrative Expenses Annual Capital Budget and Indicative Annual Capital Expenditure Programs Summary of Special Capital Expenditures Highlights of the Staff Retirement Plan Highlights of 2016 Annual Review of Salary and Benefits ADB Actions to Improve Institutional Gender Equality 76

8 BOXES 1. Scaling Up in the Office of Public Private Partnership 7 2. Results of 10-Point Procurement Reform Action Plan 9 3. Summary of Second Generation of Procurement Reforms Highlights of 2017 Independent Evaluation Department Work Program 17 TABLES 1. Approvals, Deliverables in Strategic Operational Priorities, Contract Award and Disbursement Ratios, Technical Assistance Program, Country Partnership Strategies and Operations Business Plans, Knowledge Products and Services, Organizational Resilience Implementation Plan, Real-Time ADB Implementation Plan, Independent Evaluation Department s Work Program, Complaints Received by the Special Project Facilitator under the 2012 Accountability Mechanism Policy, Case Load of the Compliance Review Panel, Asian Development Fund 12 Replenishment Technical Assistance Resources, Estimated Incremental Savings from Efficiency Measures, Indicative Scope for Further Optimization, Indicative Staffing Requirements, Allocation of New Positions, Allocation of New Positions by Location, Indicative New Staff Outposting to Resident Missions for Implementation of the Midterm Review of Strategy 2020, Comparative Budget Growth, Income and Expense Outlook, Budget and Overall Administrative Expenses, Board of Governors, Operational Expenses, Contribution to Staff Retirement Plan, Administrative Expenses, Resident Mission Number and Expenses, Operational Expenses by Program Category, Annual Capital Expenditure Budget 40

9 FIGURES 1. Approvals, Contract Awards, and Disbursements, Budget Volume Growth, Approvals and Projects under Administration, Approvals and Technical Assistance under Administration, Cofinancing Approvals, Useable Equity, Financing Framework for ADF XI and ADF Share of Staff Consultant Budget to Net Internal Administrative Expenses, Distribution of Staff Consultant Budget by Department, Share of Business Travel Budget to Net Internal Administrative Expenses, Distribution of Business Travel Budget by Department,

10 2017 BUDGET MEMORANDUM

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12 EXECUTIVE SUMMARY The combination of Asian Development Fund lending operations with the ordinary capital resources balance sheet and the replenishment of the 11th Asian Development Fund (ADF 12) have strengthened the financial capacity of the Asian Development Bank (ADB). ADB is expanding the scope and scale of its operations to meet strong demand from its developing member countries to support the Sustainable Development Goals and climate change initiatives. Scaling up ADB operations is also consistent with the international community s emphasis on increasing infrastructure investment to support global growth. ADB s 2017 budget will support the delivery of the 2017 work program of $15.8 billion (145 projects) of sovereign operations, $2.9 billion (34 projects) of nonsovereign operations, and $420 million (296 in number) of technical assistance, as well as other strategic and institutional priorities outlined in the Work Program and Budget Framework (WPBF), ADB will expand the scope and coverage of its operations in developing member countries classified as fragile and conflict-affected situations and Group A countries, accelerate nonsovereign and public private partnership operations, outpost more staff to field offices, and implement the second generation of procurement reforms. To support this expansion, a net increase of about 80 staff positions is required in In addition, ADB is expected to meet the need for about 100 positions through various optimization measures, including from positions freed up through the Early Separation Program in Regional departments, the Private Sector Operations Department, and the Office of Public Private Partnership will receive 63% of the new staff positions. ADB s field presence will be strengthened by assigning 55% of the new positions to field offices. In 2017, ADB plans to make the organization more resilient, mobile, and agile. Information technology (IT) reforms will improve efficiency and productivity, strengthen data quality, and reduce operational risks. Expenses for organizational resilience will decrease after IT reforms will require budget increases until about 2020, after which IT expenses are expected to decline as the depreciation from the associated capital expenditure decreases. ADB proposes a 3.0% budget increase comprising price growth of 2.3% and a volume growth of 0.7% in The volume increase is for (i) scaling up of operations and the requisite staff increase, (ii) continuation of the midterm review actions of Strategy 2020, (iii) organizational resilience, and (iv) IT reforms. The 2017 budget growth incorporates efficiency measures, reflecting the optimize first approach of the 2016 budget. These measures include additional staff optimization measures, and reforms in technical assistance, IT, and business travel. Flexible position management and enhanced budget flexibility measures will contribute to the efficient use of existing resources. Beginning with the 2017 budget, ADB will present budget growth based on the approved budget of the previous year rather than on the midyear estimate of the previous budget. This will ensure that budget proposals are compared to the previously approved budget, an analysis commonly undertaken in ADB's shareholder capitals, and that departments generating savings during the midyear budget review are not penalized during budget formulation for the following year. Since presenting the budget preview for 2017 in the WPBF, , all budget requests have been reviewed and efforts have been made to maximize efficiency gains. Staffing optimization estimated at 2.7% and efficiency gains of 1.7% have been identified, both of which

13 are larger than those in the 2016 budget. Consequently, the proposed 2017 volume growth is 0.7% as shown in the table below. The volume growth includes depreciation estimated from capital investments in organizational resilience and IT reforms, equivalent to 0.8%. The volume growth minus this depreciation (needed for the next 4 years) is 0.1% in Item Price Comparative Budget Growth, (%) Budget over 2015 Midyear Estimate 2016 Budget Budget over 2015 Budget 2017 Budget Preview a Budget over 2016 Budget Proposed 2017 Budget Budget over 2016 Budget Price before adjustment to SRP contribution Adjustment to SRP contribution rate L L Price Volume Scaling up of operations Midterm review actions L 0.1 Staffing optimization (1.5) (1.5) (2.7) Efficiency gains (1.4) (1.4) (1.0) (1.7) Adjustment b L (0.6) L L Subtotal (0.2) (0.8) 1.2 (0.6) Organizational resilience L L IT Reforms L L Subtotal Volume (0.2) (0.8) Depreciation of OR and IT reforms L L (0.8) (0.8) Volume less depreciation L L 2.0 (0.1) Budget growth ESP (1.2) (1.2) Volume with ESP (0.5) Budget growth after ESP L = not applicable or not calculated, ( ) negative, ESP = Early Separation Program, IT = information technology, OR = organizational resilience, SRP = Staff Retirement Plan, WPBF = work program and budget framework. Note: Numbers may not sum precisely because of rounding. a Budget preview is based on the WPBF, , circulated to the Board of Directors on 9 November b Identified savings of $3.8 million during the midyear review of the 2015 budget. The proposed internal administrative expenses budget for 2017 is $647.0 million, an increase of $18.6 million over the 2016 original budget. The salary increase proposal was circulated separately for Board approval. The budget impact of the salary proposal is $6.9 million. In addition, the proposed 2017 budget includes $9.7 million for annual capital expenditures to fund the cyclical capital requirements of headquarters and the field offices. ADB will continue to promote efficiency and focus on prudent resource planning and management to provide the appropriate budgetary support for the growing volume and increasing complexity of its operations.

14 23 November 2016 To: Board of Directors 2017 BUDGET PROPOSAL 1. Pursuant to Section 15 of the By-Laws, this memorandum presents for the Board of Directors consideration the proposed budget of the Asian Development Bank (ADB) for 2017, as summarized in Appendixes 1 and The proposed 2017 budget is strategy-driven and built on ADB s Work Program and Budget Framework, (WPBF). 1 It has been formulated through an iterative planning process. A. Strategic and Institutional Context I. OVERVIEW 3. More resources to deliver ADB s mission. Following the combination of Asian Development Fund (ADF) lending operations with the ordinary capital resources (OCR) balance sheets and the 11th replenishment of the ADF (ADF 12), 2 the available resources for new projects and programs in is expected to increase by 23% to about $58.6 billion. ADB is committed to using its enhanced financial capacity to expand operations for poverty reduction and sustainable development in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. This expansion will include support for the commitments of developing member countries (DMCs) under the Sustainable Development Goals and climate change initiatives. Scaling up ADB s operations is consistent with the international community s emphasis on increasing infrastructure investment to support global growth. 4. Strong demand for ADB financing. As described in the WPBF, , DMC demand for ADB financing remains strong. ADB has a $69.8 billion cumulative operations pipeline for the WPBF, , compared with $58.6 billion in resources available for approval during the same period. ADB s strategic priorities are highly relevant and its allocation of resources is aligned with DMC needs. 5. Through the ADF OCR combination, more resources will be available for approval for poorer DMCs. In May 2016, donors agreed to a $3.3 billion replenishment of the ADF grant window. When combined with ADB s planned concessional assistance lending of $13.2 billion during , ADB s concessional resources will increase more than 40% compared with the previous 4 years. During , ADB s grant support to the poorest countries will increase by 70%; grant allocations to small island economies will more than double. About $52.5 million will be contributed to the ADF facility for regional health security and $500 million to replenish the Technical Assistance Special Fund (TASF). As a result, ADB s assistance to 1 ADB Work Program and Budget Framework, Manila. 2 ADB Eleventh Replenishment of the Asian Development Fund and Sixth Regularized Replenishment of the Technical Assistance Special Fund. Manila.

15 2 Group A countries 3 is projected to rise by 50%, while the increase for countries classified as fragile and conflict-affected situations 4 (FCAS) will be 87% during WPBF, Knowledge transfer underpins all ADB operations. DMCs expect ADB to combine advanced knowledge and ideas effectively including the use of high-level technologies in projects and programs with finance. As such, ADB is working to substantially improve its ability to provide knowledge solutions to its DMCs. DMCs will have better access to ADB s knowledge through projects and programs as well as knowledge products and services. 7. ADB will also step up support for infrastructure development in lagging areas, 5 education, and health. In 2017, ADB plans to meet or exceed the annual targets for food security ($2 billion) and clean energy ($2 billion). ADB s own climate financing for 2017 is estimated to be $5.5 billion. ADB plans to issue long-term climate change strategic directions in 2017 to build resilience and strengthen climate action across the region. ADB will continue to meet the 45% target, by number of operations, for gender equity and mainstreaming. 8. ADB is committed to increasing its nonsovereign and public private partnership (PPP) operations, targeting frontier markets and countries where ADB has yet to support nonsovereign and PPP operations. ADB will also respond to the calls by many middle- and upper middleincome countries for more PPPs and private sector participation, as well as a greater role for ADB in supporting new or high-level technologies, exploring new sectors, and supporting new business models. More details on ADB s strategic nonsovereign and PPP priorities are in the WPBF, New long-term strategy. ADB is preparing a new long-term strategy leading to ADB will consult with relevant stakeholders throughout ADB plans to prepare a zero draft of the strategy by the end of This draft will provide the basis for convening a series of roundtable workshops with independent experts, policy think tanks, and other professionals to obtain their feedback on the proposals. A first draft of the strategy will be ready in mid-2017, and formal Board consideration of the strategy will be in The strategy will help align ADB s support with the Sustainable Development Goals and the climate agreement of the Conference of the Parties. It will take into account the fast-transforming development landscape of Asia and the Pacific, the changing expectations of ADB clients, and the increased diversity of financing resources available to them. 10. Policy reviews. ADB has been reviewing a number of financial and operations-related policies to enhance operations growth and to manage the risks in scaling up operations from the ADF OCR combination. ADB initiated reviews of its financing products and business processes 6 to meet the growing complexity of the operating environment and the diverse needs of DMCs in different stages of development from direct poverty interventions in FCAS and Group A countries to inclusive growth support and knowledge solutions in some of the larger 3 Group A countries are defined as countries having access to concessional assistance only, while Group B countries have access to both concessional and regular OCR assistance. Group C countries have access to regular OCR only. 4 The nine DMCs classified as FCAS in 2016 are Afghanistan, Kiribati, Marshall Islands, Federated States of Micronesia, Myanmar, Nauru, Papua New Guinea, Solomon Islands, and Tuvalu. 5 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. 6 Business processes under review include loan processing under sovereign operations, additional financing, and technical assistance.

16 3 middle-income countries. ADB will accelerate the policy reviews and substantially complete them by the end of 2017 in order to support the scale up in operations. 11. Institutional priorities. ADB has been preparing for a higher and more efficient level of operations. The Midterm Review of Strategy 2020 Action Plan, 7 launched in July 2014, is an institutional reform agenda to make ADB stronger, better, and faster. At the end of September 2016, 71% of 192 actions had been fully implemented, 14% largely implemented, 12% partially implemented, and 3% not yet implemented. 8 ADB will continue working on the remaining actions in 2017, including (i) strengthening field offices, (ii) improving portfolio management, and (iii) investing in ADB s information technology (IT) systems. Organizational resilience 9 is another institutional priority of 2017 that was not covered by the midterm review. These areas will account for an increasing share of ADB s internal administrative expenses (IAE) budget from The key features of the planned human resources reforms in 2017 will include strengthening performance management, more strategic staffing, strengthening recruitment, increased mobility across the organization, flexible position management, and career and talent management. To support institutional gender equality, ADB will implement new actions in 2017, including increased gender targets to be achieved by Reforms to the Staff Retirement Plan (SRP) and Group Medical Insurance Plan (GMIP) will be implemented in ADB continues to explore opportunities to streamline operations and adjust organizational units to operate more effectively. Efficiency and productivity gains are expected to offset volume growth in the 2017 budget. Additional staff optimization measures will support scaling up and expanding the scope of ADB operations. 14. To ensure the timely availability of budgetary resources for priority areas and to optimize resources, ADB introduced enhanced budget management flexibility measures in mid These measures will facilitate the timely redeployment of resources within the approved budget envelope. B. Financial Outlook and Approach to 2017 Budget 15. ADB has much stronger financial capacity to enhance its lending and grant operations because of the ADF OCR combination taking effect in January 2017 and the latest ADF replenishment. ADB s 2017 operations work program is robust and financially sustainable. 16. In support of solid growth in operations (Figure 1), ADB has been prudent in formulating budgets, delivering more with fewer resources and optimizing through efficiency measures (Figure 2). ADB expanded the scope of its activities, while keeping its volume growth of the budget (excluding price adjustment) and additional staff increases modest. During , staff growth (in number) averaged 0.8% annually and budget volume growth 0.6%. 7 ADB Midterm Review of Strategy 2020 Action Plan. Manila. 8 Actions not implemented are IT systems improvement such as cofinanced operations, cloud collaboration, and shared file space for collaborative work. These will be included in ADB s planned IT reforms. 9 ADB Organizational Resilience. Manila.

17 4 $ billion Figure 1: Approvals, Contract Awards, and Disbursements, ($ billion) Note: Amounts include funds from regular and concessional OCR lending, ADF grants, and other grant funds midyear estimate 2017 program Contract Awards Disbursement Approval Figure 2: Budget Volume Growth, (%) % (1.0) year average ( ) = 2.7% (0.1) Notes: 1. Nominal budget growth comprises a price increase and volume growth. The 0.4% volume growth in 2016 is after the Early Separation Program. 2. Budget growth is from budget to prior year s budget. 17. Over the same period, ADB s approvals 10 grew on average by 11% per year and projects under administration (in number) grew on average 4% per year (Figure 3). Meanwhile, disbursements rose 13% per year and contract awards (in value) rose 14% per year. These growth trends in operations and budget indicate substantial productivity gains achieved by ADB over this period. number of approvals Figure 3: Approvals and Projects under Administration, (number) midyear estimate Approval program Project under administration Note. Project number includes projects funded by regular and concessional OCR lending, ADF grants and other grant funds. The 2017 program is from WPBF, ADB took an optimize first approach in seeking additional resources for the 2016 budget. 11 As a result, ADB s budget volume growth decreased by 0.8% from the 2015 budget or by 0.2% from the 2015 midyear estimate, before the Early Separation Program (ESP). The cost of operations from scaling up and reforms, excluding the ESP, were fully offset by ADB s internal efficiencies by streamlining operations, improving productivity, and generating efficiencies. 19. The 2017 budget is anchored on the 2017 work program, consistent with the strategic and institutional priorities outlined in the WPBF, Key considerations for the 2017 budget are scaling up operations with more emphasis on (i) expanding the scope and coverage of its operations to number of projects under administration ADB project approvals are in the form of investment projects, policy- and results-based lending, sector development program, project design advance and technical assistance loans. ADB Budget of the Asian Development Bank for Manila.

18 5 FCAS and Group A countries, (ii) accelerating nonsovereign and PPP operations, (iii) outposting more staff to field offices, and (iv) implementing the second generation of procurement reforms. 20. ADB will seek to adequately resource the scaling up of operations with due attention to project quality and portfolio management. ADB will focus more on portfolio management to prepare and implement an expanded operational work program effectively. Through IT and human resources reforms, as well as the organizational resilience program, ADB expects to improve service quality and productivity, and strengthen institutional support for the expansion of operations. II. THE 2017 WORK PROGRAM DELIVERABLES A. Operations 1. Operations Program 21. Consistent with the WPBF, , ADB expects to deliver 179 approvals 145 sovereign and 34 nonsovereign projects with a total value of $18.7 billion in 2017 (Figure 1, Table 1 and Appendix 3). The 2017 operations work program is fully supported by a pipeline of operations that ADB has agreed upon with its DMCs. Table 1: Approvals, Average 2015 Actual 2016 Program 2016 Midyear Estimate 2017 Program Item New Projects Amount ($ billion) No. of Approvals Public Sector Operations Amount ($ billion) No. of Approvals Private Sector Operations Amount ($ billion) No. of Approvals a New Projects, of which: Policy-Based Lending Amount ($ billion) No. of Approvals Results-Based Lending Amount ($ billion) No. of Approvals Multitranche Financing Facilities Amount ($ billion) No. of Approvals No. = number. Notes: 1. Numbers may not sum precisely because of rounding. 2. Policy- and results-based lending form part of project approvals. a Private sector operations approvals may consist of multiple transactions. 22. Key deliverables by strategic operational priorities. In 2017, deliverables in thematic and sectoral areas of operations are expected to be on track to meet the 2020 targets (Table 2).

19 6 Table 2: Deliverables in Strategic Operational Priorities, 2017 Priority Area Target 2017 Pipeline Education 6% 10% by % (SO) Health 3% 5% by % (SO) Gender mainstreaming (number of operations) 45% by % (SO) Climate financing $6.0 billion by 2020 $5.5 billion Food security $2.0 billion annually $2.8 billion (SO) Clean energy $2.0 billion annually $3.1 billion (SO) Railway (% of transport operations) 25% by % (SO) Urban transport (% of transport operations) 30% by % (SO) Regional integration (number of operations) 30% by % (SO) Private sector operations in ADF DMCs (number) 40% annually 40% ADF = Asian Development Fund, DMC = developing member country, SO = sovereign operations. 23. Sovereign operations. During 2017, ADB plans to approve 145 public sector projects, compared with the 2016 midyear estimate of 127 projects or a 14% increase in number and 5% in value. The new projects will be financed by $11.8 billion in regular OCR, $3.4 billion in concessional OCR, and $659 million in ADF grants. About 72% of sovereign approvals (in value) are projected to support infrastructure development, 7% finance sector development, and 6% education. Knowledge solutions will be underscored in ADB s operations work. 24. In addition to the 145 projects expected for approval in 2017, the sovereign operations work program maintains a standby pipeline of 55 projects valued at about $8 billion. This translates into increased requirements for resources (staff, missions, and consultants) to support project processing activities as well as for due diligence in safeguards, financial management, and other actions to improve quality-at-entry. Most consultant resources are intended to support high project readiness with specialized knowledge to complement staff skills. They will also augment staff resources and complement skills while recruitment of new staff is in process. 25. ADB has taken further steps to align business units and functions to strategic priorities. In 2016, ADB set up a new Social Sector Division in the Central and West Asia Department to cover social sectors such as education, health, and social protection not related to finance. 26. Nonsovereign operations. ADB will deepen its private sector work in Private sector development and operations are forecast to account for 52% (by value) of total ADB operations in Approvals for nonsovereign operations are projected at $2.9 billion for 34 projects in 2017, an increase of 12% in value and 10% in number. Private sector financing in 2017 is estimated at 20% of regular OCR operations, on track to reach the corporate target of 25% by year The 2016 midyear estimate of nonsovereign operations share of total operations was 20% by number of approvals and 15% by value of approvals. 27. In 2017, ADB will dedicate additional resources to expand its nonsovereign operations in frontier markets 12 and in poorer DMCs, including Afghanistan, Myanmar, parts of Central Asia, and the Pacific. At the same time, ADB s nonsovereign operations will respond to a range of demands of middle- and upper middle-income countries. Its nonsovereign operations will expand further beyond infrastructure, financial institutions, and private equity funds into other 12 Refers to Group A and B countries excluding India.

20 7 areas of private sector need in DMCs. This includes building the agribusiness focus across Asia with a strong emphasis on (i) underserved markets, (ii) food security and safety, (iii) productivity upgrades, and (iv) farmer support, as well as health and education. ADB will substantially increase its direct equity investments, estimated to grow to some 10% of annual nonsovereign commitments by the end of Substantial additional costs and challenges of doing nonsovereign operations are expected, such as (i) working on smaller and riskier deals in frontier countries, (ii) undertaking more equity investments, (iii) exercising heightened integrity due diligence, and (iv) monitoring more complex and riskier deals. 29. Public private partnerships. In 2016, ADB realigned the Office of Public Private Partnership (OPPP) to provide more focus on each business function and to scale up operations to respond to client needs (Box 1). Staff instructions on transaction advisory services (TAS) are being developed to clarify the governing rules and procedures. The instructions are expected to be finalized in early From May 2015 to July 2016, four TAS mandates were secured from DMC clients, each having started implementation with OPPP advisory teams; the 2016 year-end target is five mandates. By the end of 2017, ADB aims to secure four additional TAS mandates, increasing to nine the number of mandates being implemented by OPPP. 31. The Asia Pacific Project Preparation Facility began operations in January 2016 after donors approved the implementation guidelines. As of September 2016, two applications had been approved and 28 applications and expressions of interest were being pursued. In 2017, ADB is targeting approval of at least six applications, which doubles the target set for Box 1: Scaling Up in the Office of Public Private Partnership Transaction advisory services team. In addition to ramping up of transaction advisory services (TAS) serving public sector clients, the Office of Public Private Partnership established a second TAS team in May 2016 to serve private sector sponsors on a pilot basis. The private sector TAS team immediately began marketing efforts by reaching out to key sponsors active in the region. Public private partnership operations and resources team. This team was created in January 2016 to manage and oversee the pan-regional Asia Pacific Project Preparation Facility, conduct market research on public private partnerships, and coordinate with external project preparation facilities such as the Global Infrastructure Facility. 32. To successfully scale up the TAS function and ensure timely and effective delivery of services in response to growing DMC demand, more staff and consultant resources are needed. To secure new mandates, ADB normally pursues three times the number of targeted mandates. Implementation of a mandate is resource intensive and can span several years. As the business stabilizes in the medium-term, ADB expects to recover its internal administrative costs through fees. Strong follow-up activity with DMC clients and targeted hands-on assistance is also necessary to expand DMCs utilization of the Asia Pacific Project Preparation Facility. 33. Efficiency in operations. To meet the expanded operations work program, ADB rolled out the enhancing operational efficiency initiative 13 and reforms in country partnership strategy 13 ADB Enhancing Operational Efficiency of the Asian Development Bank. Manila.

21 8 (CPS) 14 preparations in 2015 all with elements of simplified and streamlined business processes, procedures, and delegated decision making. Although the savings from these efficiency measures helped to contain volume growth in the 2016 budget, the work is ongoing and further efficiencies are expected. ADB s Operations Manual and related staff instructions dealing with business processes for sovereign and nonsovereign operations are still being updated. 34. To further improve operational efficiency and ensure project quality, ADB is working on alleviating the concentration of matters requiring Board approval in the fourth quarter. The task force has finalized its recommendations, which will be implemented in Portfolio Management 35. ADB will enhance project readiness, procurement speed, and disbursement to support the scaling up of operations, and will ensure effective use of resources. ADB will continue to provide support to DMCs to help them strengthen their portfolio management capabilities. 36. With more emphasis on project readiness and implementation, ADB will introduce new corporate targets that measure operational performance based on commitments (signings) rather than Board approvals, effective 1 January 2017, for both sovereign and nonsovereign operations. The President s planning directions on WPBF, will introduce commitment-based targets for operations, which are expected to be incorporated into the departmental, divisional, and staff work plans. The change will be reflected in corporate documents as they come due and the results framework when it is reviewed in the context of the preparation of the new long-term strategy. 37. Contract awards and disbursements. Annual contract awards for 2017 are forecasted at $10.4 billion for sovereign operations. Disbursements are projected at $12.8 billion (Figure 1 and Appendix 3). The 2017 contract award ratio target is 25% and the disbursement ratio target is 22%, compared with the actual contract award ratio 16 of 20% and disbursement ratio 17 of 18% in The estimated 2016 targets are 26% for the contract award ratio and 22% for the disbursement ratio (Table 3). Table 3: Contract Award and Disbursement Ratios, (%) 2013 Actual 2014 Actual 2015 Actual 2016 Target 2017 Program Contract award ratio Disbursement ratio Note: Disbursement ratio covers sovereign loans and grants, excluding policy-based and externally funded by cofinancing. 14 ADB Reforming the Country Partnership Strategy. Manila. 15 ADB (Office of the President) Addressing Bunching. Memorandum. 4 October (internal). 16 The ratio of total contracts awarded during the year to the total value for contract awards available at the beginning of the year plus newly approved projects (loans and grants) during the year. 17 The ratio of total disbursements during the year (including disbursement from newly approved operations during the year) to the undisbursed balance at the beginning of the year (based on approvals as of the previous year).

22 9 38. Projects under administration. The size of the portfolio continues to grow. By the end of 2017, ADB estimates an active portfolio of 947 projects under administration (Figure 3 and Appendix 3). The sovereign portfolio (or public sector projects under administration), financed from ADF and OCR, is expected to increase by 7% to 731 projects in 2017 from 684 in The nonsovereign portfolio is expected to increase by 11% to 216 projects in 2017 from 194 in As part of technical assistance (TA) reforms, ADB plans to reduce the number of TAs under administration by 4% from 901 in 2016 to 861 in 2017 (Figure 4). 39. Operations departments will dedicate more resources to advancing portfolio management actions, including enhancing project readiness, intensifying portfolio oversight, and promoting timely procurement and disbursement. More staff will be outposted to the field to provide more direct client service and development impact. Some field offices will review space planning to accommodate outposted staff. In 2017, three procurement specialists are expected to be outposted to field offices and about nine will be placed in key sector divisions in headquarters to provide support for the second generation of procurement reforms. 40. Procurement efficiency. Box 2 summarizes the results of the 10-point procurement reform action plan instituted in Box 2: Results of 10-Point Procurement Reform Action Plan The 10-point procurement reform action plan under the Midterm Review of Strategy 2020 Action Plan has achieved the following results: (i) 12 country risk assessments have been completed. (ii) 26 developing member countries have adopted the revised thresholds for international competitive bidding. (iii) All regional departments have implemented new Procurement Committee and regional department decision authorities. (iv) A procurement review system based on information technology has been mainstreamed and 272 transactions have used it in (v) Risk-based post review (sampling) has been adopted in five projects in four countries. (vi) 47 projects were classified as category A a for hands-on support by procurement specialists. (vii) 32 projects have adopted master bidding documents. (viii) Recruitment time for technical assistance consulting firms has been reduced from 263 days in 2014 to 237 days in (ix) Overall time for procurement decision has reduced by 16% in the first 6 months of 2016, and time taken by the Asian Development Bank has been reduced by 28%. (x) Contract awards and disbursements have increased year-on-year in the first half of 2016, on track to meet the targets. a Category A refers to a project that is likely to have significant adverse environmental impacts that are irreversible, diverse, or unprecedented; or, significant involuntary resettlement impacts; or, significant impacts on indigenous peoples. 41. The second generation of procurement reforms is planned for approval in the first quarter of 2017 and implementation in the second half of 2017 to reduce end-to-end procurement time, enhance quality, and improve delivery systems (Box 3).

23 10 Box 3: Summary of Second Generation of Procurement Reforms The second generation of procurement reforms will focus on further reducing end-to-end procurement time, improving quality, and enhancing delivery systems. Key focus areas include: (i) Adopting a less prescriptive principles-based procurement policy including addition of value for money and quality as principles. (ii) Simplifying procurement procedures. (iii) Responding to emerging needs, offering new procurement methods and modalities. (iv) Focusing on quality and engaging better contractors and consultants. (v) Reducing end-to-end procurement time, including time taken by executing agencies. (vi) Decentralizing procurement functions. (vii) Enabling procurement of high-value technologies. (viii) Developing stronger fiduciary measures. These changes will help in better project design and implementation. 3. Technical Assistance Program 42. ADB introduced TA reforms in 2016 to enhance TA business processes and to reduce the types of TA to two: (i) transaction TA; 18 and (ii) knowledge and support TA With the reforms, a consolidation of multiple transaction TA proposals of a similar nature into larger 250 TA proposals will be encouraged to 200 reduce repetition of administrative tasks. The authority to approve 150 transaction TA has been delegated to the concerned vice-presidents and 100 heads of the departments, depending on the risk category of the related ADBfinanced project. Meanwhile, quality control will be enhanced for knowledge and support TA, involving the sector and thematic groups at concept and TA report preparation. Figure 4: Approvals and Technical Assistance under Administration, (number) , number of TA approvals 300 1,069 1, ,100 1, Midyear Program estimate TA Approvals TA under administration TA = technical assistance. 44. While the number of TA approvals and the TAs under administration are in decline (Figure 4), the total value of TA approvals is increasing (Table 4 and Appendix 3). Based on the revised TA types, 296 TAs 143 transaction TAs and 153 knowledge and support TAs totaling $420 million are planned for approval in This is a 12% increase in value, but a 5% decrease in number from the 2016 midyear estimate. Of the 143 transaction TAs, 105 (73%) are number of TA under administration 18 Transaction TA directly benefits a project through project preparation, capacity building of executing agencies, and policy advice. 19 Knowledge and support TA covers general institutional capacity building, policy advice, research and development, and long-term business development.

24 11 for project preparation. The number of project preparatory TA approvals will grow from an average of 24% of total TA approvals during to about 35% in Table 4: Technical Assistance Program, Item Average 2015 Actual 2016 Program 2016 Midyear Estimate 2017 Program New TA approvals (number) Transaction Knowledge and support New TA approvals ($ million) Transaction Knowledge and support TAs under administration (number) 1, Transaction Knowledge and support TA = technical assistance. Notes: 1. Numbers may not sum precisely because of rounding. 2. TA approvals before the 2017 program were restated based on the two new types of TAs: transaction TA and knowledge and support TA. The restatement may not be accurate as transaction TA approvals include project preparatory TA only, while knowledge and support TA approvals include policy advisory, capacity building, and research and development TA. 45. By thematic and sectoral areas of operations, TA operations promoting environmentally sustainable growth are expected to reach 46% in value and 40% in number. TA operations supporting regional integration are expected to reach 24% in value and 21% in number. About 81% of sovereign TA operations in value and 77% in number are expected to support governance and capacity development. 4. Country Strategies and Business Plans 46. ADB on average processes about 50 country partnerships and business plans annually. In 2017, ADB will prepare 11 CPSs, 38 country operations business plans, and one regional operations business plan a total of 50 (Table 5 and Appendix 3). Table 5: Country Partnership Strategies and Operations Business Plans, (number) Midyear Average Actual Program Estimate 2017 Program Item Country Partnership Strategy Regional Cooperation Strategy Country and Regional Operations Business Plans Efficiency in country partnership strategies. Streamlined CPS business processes, which took effect in 2016, are expected to strengthen the quality of CPSs and make them more useful through improved content and a stronger analytical foundation. Sector assessments, road maps, and other studies and assessments will continue to support the preparation of CPSs. ADB anticipates that efficiency gains (reduced time and cost associated with CPS processing) will continue throughout 2017.

25 12 5. Cofinancing and Credit Enhancement Operations 48. In 2017, about $14.3 billion in cofinancing is expected for investment projects or 76% of the total value of ADB s stand-alone project financing; TA cofinancing of $240.0 million is estimated for about 55 TAs (Figure 5 and Appendix 3). ADB expects an increase in cofinancing activities in Central and West Asia and the Pacific. 49. In 2016, ADB signed a number of institutional memorandums of understanding and partnership frameworks with development organizations such as the Asian Infrastructure Investment Bank, Eurasian Development Bank, and Australian Department of Foreign Affairs and Trade. Under these arrangements, ADB will strengthen complementary strategic and technical cooperation with cofinanciers. ADB will continue to seek new cofinancing partnerships and expand existing ones, both in the public and private sector. ADB will continue exploring new instruments for leveraging cofinancing. 50. Requirements and demands from cofinancing partners are getting more stringent and complicated, especially in reporting and monitoring. ADB will continue the enhancements of the cofinancing management system for automatic report generation of trust funds to comply with cofinanciers reporting requirements. In early 2017, ADB will commence the assessment of the design and development of a donor fund management system an integrated database of financing partner data, fund commitments, allocation, investment and usage, and cofinancing portfolio reporting. B. Knowledge Program Figure 5: Cofinancing Approvals, ($ billion) TA = technical assistance. 51. In 2016, the Sustainable Development and Climate Change Department (SDCC) was realigned into three clusters: (i) the Sector Advisory Service Cluster; (ii) the Thematic Advisory Service Cluster; and (iii) the Environment and Safeguards Cluster. This created a unified platform for coordinated thematic service delivery and facilitated integrated cross-sector and thematic solution delivery. Technical advisors of the sector and thematic groups in SDCC, the Economic Research and Regional Cooperation Department, and OPPP will continue to promote knowledge sharing, provide knowledge and expertise to operations departments, and strengthen partnerships with knowledge centers of excellence around the world. 52. In 2017, the Knowledge Sharing and Services Center will be revitalized to improve knowledge management across ADB. ADB will establish new governance standards for knowledge to promote orderly classification and storage of content, and to facilitate the search for, and sharing of, such content. Online knowledge platforms, such as k-portal and k-nexus dabatase, will be appropriately funded to ensure ease of access is strengthened and operationally relevant content, both current and historic, is expanded in Midyear Estimate 2017 Program TA Official and Other Concessional Commercial

26 Knowledge underpins all of ADB s operations. Knowledge products and services and explicit knowledge outputs are expected to meet the 2016 midyear estimate, based on the specific types of knowledge products and services introduced in April ADB will produce high-quality knowledge products and services that are operationally relevant, help build more robust project pipelines, and support the design and implementation of innovative projects. ADB will improve its web presence, access, and transparency. Knowledge products and services will also continue to be embedded in CPSs, country operations business plans, and country knowledge plans. Nonoperations departments will also generate high-quality knowledge products and services in their areas of expertise. 54. In 2017, ADB plans to prepare 455 knowledge products and services, of which 242 (53%) will be funded using ADB s 2017 IAE budget (Table 6 and Appendix 3). The 30% decrease from the 2016 midyear estimate is consistent with ADB s focus on quality over quantity. To build on this momentum, a digital first 21 approach to sharing knowledge is being promoted to make it easier to create, find and use content. Table 6: Knowledge Products and Services, (non-ta funded, number) Midyear Actual a Estimate 2017 Program Department or Office Operations Nonoperations Total Knowledge Products and Services TA = technical assistance. a 2015 actual number of knowledge products and services were restated to reflect the new typology introduced in April C. Organizational Resilience 55. To maintain continuity of operations, protect shareholder value in the event of a disaster, and to ensure long-term viability, Management approved the organizational resilience program in July The program will transform ADB into a more agile and sustainable organization with the ability to continue operations throughout any type of disruptive incident. Actions already under way (Table 7) include steps to enhance business continuity capabilities for key financial processes to protect them from disruption-related risks, as identified through the 2015 business impact analysis and risk assessment. 56. Key changes will include establishing an effective crisis management structure and ensuring policies and guidelines are in place to support the safety and well-being of staff and dependents. ADB's data will be protected and business operations will be strengthened through improvements to ADB s IT infrastructure, rationalizing and automating processes to facilitate remote access, and leading a culture change within ADB to adopt efficient, resilient work modalities. 20 ADB identified five types of knowledge products and services that will be reported to Management and the Board of Directors: flagship, technical studies, working papers, policy briefs, and op-ed articles. 21 Digital-first is a term for short-form, online content that can easily be distributed across platforms, such as mobile, social media, and websites, and is not in PDFs. 22 ADB Organizational Resilience. Manila.