November 2007

Budget of the Asian Development Bank for 2008

ABBREVIATIONS ACCSF – Asian Currency Crisis Support Facility ADB – Asian Development Bank ADC – Assessment and Development Center ADF – Asian Development Fund ADTA – advisory technical assistance ALCO – Asset and Liability Management Committee ALM – asset and liability management APCF – Asia Pacific Carbon Fund BCRC – Board Compliance Review Committee bps – basis points BPMSD – Budget, Personnel and Management Systems Department CAPE – country assistance program evaluation CAREC – Central Asia Regional Economic Cooperation CEFPF – clean energy financing partnership facility COBIT – control objectives for information and related technology COBP – country operations business plans COP – community of practice COSO – Central Operations Services Office CPI – consumer price index CPS – country partnership strategy CRP – Compliance Review Panel CSP – country strategy and program CTL – Controller’s Department CWRD – Central and West Asia Department DMC – developing member country DVA – direct value-added EARD – East Asia Department ECG – evaluation cooperation group EEI – Energy Efficiency Initiative ELR – equity-to-loan ratio ERD – Economics and Research Department ETSW – Economic and Thematic Sector Work FMS – funding management system GMS – Greater Mekong Subregion IAE – internal administrative expenses IDA – International Development Association IDC – indefinite delivery contracts IEI – innovation and efficiency initiative ISTS II – Information Systems and Technology Strategy II IT – information technology GACAP II – second governance and anticorruption action plan JBIC – Japan Bank for International Cooperation JFICT – Japan Fund for Information and Communication Technology JFPR – Japan Fund for Poverty Reduction JSF – Japan Special Fund LIBOR – London interbank offered rate L&D – learning and development LTSF – long-term strategic framework MFF – multitranche financing facility

MfDR – managing for development results MTS II – medium-term strategy II NSP – nonsovereign public sector financing OAS – Office of Administrative Services OCR – ordinary capital resources OED – Operations Evaluation Department OIST – Office of Information Systems and Technology OSPF – Office of the Special Project Facilitator PDP – performance and development plan PPER – project (or program) performance evaluation report PPTA – project preparatory technical assistance PRC – People’s Republic of China PSOD – Private Sector Operations Department RCI – regional cooperation and integration RETA – regional technical assistance RCS – regional cooperation strategy RMU – Risk Management Unit ROBP – regional operations business plan RSDD – Regional and Sustainable Development Department SAPE – sector assistance program evaluation SARD – South Asia Department SDR – special drawing rights SERD – Southeast Asia Department SES – special evaluation studies STDP – Southern Transport Development Project TA – technical assistance TASF – Technical Assistance Special Fund TD – Treasury Department WPBF – work program and budget framework WPC – weakly performing country

NOTE

In this report, “$” refers to US dollars.

CONTENTS Page

I. STRATEGIC CONTEXT 1 A. ADB’s Strategic Direction 1 B. Review and Development of Policy, Strategy, and Other Important Documents 2 C. Important Major Institutional Activities 3

II. CURRENT PERSPECTIVE 5 A. Review of 2007 Work Program 5 B. Estimated Utilization of the 2007 Internal Administrative Expenses Budget 6 C. Staffing 7 D. Compensation and Benefits 8

III. HIGHLIGHTS OF THE 2008 WORK PROGRAM 8 A. Managing the Portfolio 10 B. Country Partnership and Regional Cooperation Strategies 13 C. Preparing New Projects 14 D. Knowledge Management and Services 18 E. Operations Support 23 F. Administrative Support 28 G. Resourcing the 2008 Work Program 31

IV. OPERATIONS EVALUATION AND ACCOUNTABILITY 35 A. Operations Evaluation 35 B. Accountability Mechanism 37

V. FINANCIAL RESOURCES 38 A. Ordinary Capital Resources and Asian Development Fund 38 B. Cash Management and Cash-Flow Projection 41 C. Grant Funds Management 41

VI. 2008 BUDGETARY RESOURCES 43 A. Staff Resource Requirements and Allocation 44 B. Internal Administrative Expenses for 2008 48 C. Savings in Internal Administrative Expenses 54 D. Operational Expenses by Program Category 56 E. Budget Carryover 58

VII. CAPITAL EXPENDITURES 58 A. Annual Capital Expenditure Programs 58 B. Special Capital Expenditure Program 60

VIII. RECOMMENDATION 61

APPENDIXES

1 Internal Administrative Expenses 622 Summary of Annual Capital Expenditures 633 Private Sector Operations by Region and Type of Products, 2007 644 Summary of Selected Outputs by Departments, 2007–2008 655 Current Status of Delegation of Specific Functions to RMs 676 An Update of the Human Resources Strategy, and Learning and

Development Activities 68

7 Status of Selected Trust Funds and Financing Partnership Facilities 718 Authorized Staff Numbers by Department/Office 769 Price/Volume Growth 78

10 Distribution of Operational Expenses by Department/Office 8011 Cross-Year Comparison of Internal Administrative Expenses 8112 Board of Directors, 2004–2008 8213 Operational Expenses, 2004–2008 8314 Administrative Expenses, 2004–2008 8415 Enhanced Cost Information 8516 2008 Annual Capital Budget and 2009–2010 Indicative Annual Capital

Expenditure Programs 88

17 Summary of Special Capital Expenditures 89

BOXES 1 Managing for Development Results 42 Southeast Asia—Sustaining Portfolio Quality 123 Achieving Development Effectiveness in Weakly Performing Countries 164 Flexible Staff Deployment to Support Private Sector Development 185 Knowledge Sharing and Dissemination by Operations Departments 216 Information Resources and Services Action Plan, 2007–2009 307 Policies, Strategies, and Initiatives with Budget Implications, 2008 338 Activities Planned to Be Completed, Phased Out, or Scaled Down, 2008 349 Operations Evaluations Department, Work Program for 2008 with Indicative

Outputs 36

10 Clean Energy Financing Partnership Facility 4311 Key Highlights of 2008 Program and Initiatives 46

TABLES

1 Development and Reviews: Key Policy, Strategy, and Other Important Documents, 2007–2008

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2 2007 Current Estimate 73 Work Program and Resource Parameters 94 Portfolio Management (Loans and Non-Technical Assistance Grants) 115 Project Implementation Delegated to Resident Missions 136 Country Partnership and Regional Cooperation Strategies 137 New Projects—Public and Private Sectors 158 Project Preparatory Technical Assistance (Public and Private Sectors) 179 Direct Value-Added Cofinancing (2005–2008) 19

10 Advisory and Regional Technical Assistance 1911 Non-TA Economic, Thematic, and Sector Works 2012 Actual and Planned Financing of Technical Assistance Operations, 2006–

2009 42

13 Changes in Specialization of Professional Staff Positions 4414 Contribution of New Professional Staff Positions to Strategic/Sector

Priorities, 2008 47

15 Departmental Distribution of New Professional Staff 4816 Distribution of Professional Staff and National Officers by Job Areas 4817 Income and Expenses Outlook, 2007 and 2008 5018 2008 Budget vs. 2007 Current Estimate 5119 Operational Expenses, 2007–2008 5120 Administrative Expenses, 2007–2008 5321 Resident Mission Staffing and Expense (2006–2008) 5422 Operational Expenses by Program Category 5623 Indicative Staff Resource Distribution – Professional Staff and Consultants 5724 2008 Annual Capital Expenditure Budget 60

FIGURES

1 Public Sector Portfolio by Medium-Term Strategy II Priority Groups 102 OCR and ADF Pipeline 2008, MTS II Sector Grouping 153 OCR and ADF Pipeline 2008, Thematic Classifications 154 Sector Distribution of Advisory and Regional Technical Assistance 20

2008 BUDGET MEMORANDUM

22 November 2007

To: Board of Directors

2008 BUDGET

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 2008, as summarized in Appendixes 1 and 2.

I. STRATEGIC CONTEXT

A. ADB’s Strategic Direction

2. The strategic elements of the 2008 work program are drawn primarily from the work program and budget framework (WPBF) 2008–2010, 1 which forms the basis for the 2008 budget. 3. Pending the outcome of the review of the long-term strategic framework (LTSF), the priority of the 2008 work program is to continue executing the approach defined in the second medium-term strategy (MTS II). Correspondingly, the 2008 work program is structured around the MTS II operational model.2 In this context, ADB will continue to respond to strong demand for its financing and services, emphasizing the following areas:

(i) Sector selectivity. ADB will aim to increase development impact by focusing assistance in its areas of expertise, specifically in MTS II groups 1 and 2. Phasing out of group 3 sector operations will continue.3

(ii) Technical assistance. The technical assistance (TA) program will stress longer-term engagement with developing member countries (DMCs) for capacity development, as well as enhanced project quality and readiness. Fewer TA projects and their concentration in MTS II priority sectors, will permit greater synergies between TA and lending operations.

(iii) Financing partnerships. Growth in direct value-added (DVA) cofinancing will be pursued in both commercial and official cofinancing. An expansion of ADB’s use of credit enhancements and other risk-sharing arrangements also will be sought.

(iv) Enhancing responsiveness, flexibility, and efficiency. Consolidating the managing for development results (MfDR) agenda, and building on the results of the innovation and efficiency initiative (IEI), will be principal elements of the continued drive to meet DMCs’ developmental needs more effectively.

(v) Portfolio performance and development effectiveness. Measures to maintain the 1 ADB. 2007. Work Program and Budget Framework 2008–2010. Manila. 2 The model has five key areas: (i) selectivity and core operational sectors; (ii) use of technical assistance resources;

(iii) use of financing partnerships and cofinancing; (iv) product and process innovations to enhance responsiveness, flexibility, and efficiency; and (v) portfolio performance, development effectiveness, and results.

3 Group 1 sectors include road transport, energy, urban and rural infrastructure, education, and financial sector. Group 2 sectors include agriculture and natural resources, railways, health, trade (regional cooperation-related), law and the fiduciary, and public finance and economic management. Group 3 includes fishery, livestock, civil aviation, water transport, communications, development finance institutions, housing construction, industry, and general government administration.

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upward disbursement trend for Asian Development Fund (ADF) and ordinary capital resources (OCR) operations, and to reduce the ratio of projects at risk, will be emphasized further in 2008. The implementation of ADB’s commitments under the Paris Declaration will continue to be a priority.

(vi) Enhancing engagement in weakly performing countries. ADB will maintain operations in weakly performing countries (WPCs), progressively scaling up TA and grant assistance, especially to permit longer-term engagement for capacity development and close collaboration with other development agencies.

(vii) Capacity development. ADB will support strengthening of public finance and

economic management, and improving institutional capacity of DMCs to support good governance.

(viii) Operations in new member countries. Financing will be provided to meet the

development needs of new member countries, Armenia and Georgia, and to establish a presence in these countries.

(ix) Risk management. The development of ADB’s risk management framework will

continue, given the growth in ADB’s private sector and subsovereign operations. 4. Strategic thrusts of the 2008 work program will include greater emphasis on nonsovereign operations, a direct response to DMC demands. Such operations will be undertaken mostly in the private sector, but increasingly in the public sector as well. Efforts also will be made to reach out to more DMCs with ADB’s nonsovereign operations. 5. As intended under MTS II, ADB progressively will scale up its support for regional cooperation and integration (RCI). RCI-related lending operations will emphasize primarily multisector tourism facilities, energy, and transport infrastructure. ADB also will step up its support for pivotal regional cooperation initiatives. 6. The completion of the LTSF review and the replenishment of the ADF are expected to clarify the future direction of ADB operations. The implications of these developments might need to be addressed in the second half of 2008. The strategic outcomes will be used in the preparation of the WPBF (2009–2011), and the formulation of the 2009 budget. B. Review and Development of Policy, Strategy, and Other Important Documents

7. Over the past 3 years, ADB has updated some key operational policies, strategies, and guidelines. Most of the work has been completed. Reviews and initiatives that were continuing as of 30 September 2007 and are planned for 2008 are listed in Table 1. 8. ADB is in a transitional period. The LTSF review will be a major milestone in policy and strategy development. Following completion of the review, ADB will take stock to identify (i) new areas of concerns and possible new mandates that might warrant preparation of new policies and strategies, or revisions to existing policies/strategies; and (ii) policies and strategies that might have become redundant or obsolete, and need to be retired. Against this background, ADB’s policy and strategy development program for 2008 will be selective and focus predominantly on risk management and the development of an appropriate framework for nonsovereign operations. In this respect, ADB’s Risk Management Unit will strengthen its risk assessment capacity and start work on two important papers: (i) Reviewing ADB’s Capital

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Adequacy Policy, and (ii) Establishing ADB’s Strategic Limits.

C. Important Major Institutional Activities

9. Major activities in 2008 to be carried out at an institutional level that are significant to ADB’s operations and have potential resource implications are described in paras. 10–15. 10. Review of the Long-Term Strategic Framework. The LTSF review is underway, with a Board discussion planned for March 2008. A Governor’s seminar to discuss the LTSF review is also planned during the 2008 Annual Meeting in Madrid, Spain.

Table 1: Development and Reviews: Key Policy, Strategy, and

Other Important Documents, 2007–2008 (as of September 2007)

Documents Department Type

Ongoing (2007) Review of ADB’s 1998 Graduation Policy SPD Policy ADB Policy Statement on Environment and Social Safeguards RSDD Policy Increasing the Impact of ADB’s Technical Assistance Program SPD Policy Policy for Providing Heavily Indebted Poor Countries Relief from SPD Policy ADF Debt and Proposed Debt Relief to Afghanistan Review of the Financial Framework of the Asian Development Fund TD Policy Mainstreaming the Multitranche Financing Facility RSDD Policy Energy Strategy RSDD Strategy Review of the Long-Term Strategic Framework (LTSF) SPD Strategy Review of the Implementation of the Program Lending Policy SPD Other Review of the Resident Mission Operations SPD Other A Study of ADB’s Financial Sector Assistance and Lessons OREI Other Learned ADB’s Internal Credit Risk Rating System for Private Sector RMU Other Operations Establishing Risk-Based Pricing System for Nonsovereign RMU Other Operations SDR Conversion of Legacy ADF Loans TD Other Review of ADB’s Loan Charges TD Policy Borrowing Program for 2008 TD Other Planned Reviewing ADB’s Capital Adequacy Policy RMU Policy Establishing ADB’s Strategic Limits RMU Policy ADB = Asian Development Bank. ADF = Asian Development Fund, OREI = Office of Regional Economic Integration, RMU = Risk Management Unit, RSDD = Regional and Sustainable Development Department, SDR = special drawing rights, SPD = Strategy and Policy Department, TD = Treasury Department. 11. Asian Development Fund. A proposal to replenish the ADF with adequate funds for ADB to remain an effective development partner in ADF countries is under discussion. The volume of assistance under ADF X will have to be combined with efficient allocation of assistance, sufficient selectivity in operations, and organizational alignment to strengthen ADB’s development effectiveness. Scheduled meetings with donors will continue during 2008. 12. Work Program and Budget Framework. Following the completion of the LTSF review in the second quarter of 2008, a new WPBF cycle will be initiated. The preparation of the WPBF

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(2009–2011) is expected to be more substantive, because the directions emerging from the ADF X replenishment and the LTSF review will need to be addressed. In preparation for the WPBF (2009–2011), possible adjustments to the corporate planning process will be reviewed and identified. 13. Continued Implementation of the Managing for Development Results Action Plan. MfDR has been and will continue to be the key management framework for ADB’s institutional planning and management. The revised MfDR action plan4 remains the guiding document for the priorities and actions relating to MfDR. Selective and achievable outcomes will be emphasized for each of the three pillars of MfDR.5 In 2008, the focus will be on (i) developing country partnership strategy (CPS) quality assurance tools that address MfDR requirements; (ii) monitoring TA financed by the MfDR Cooperation Fund 6 to integrate MfDR capacity development innovations with operations; and (iii) continuing work on the MfDR community of practice (COP) to strengthen the capacity of DMCs (Box 1). ADB will continue to participate in the global knowledge-sharing process, including cosponsoring the Third High-Level Forum on Aid Effectiveness.

Box 1: Managing for Development Results

In 2008, the Results Management Unit of the Asian Development Bank (ADB) will continue to support the Asian Development Fund (ADF) X negotiations, especially through coordination of the preparation of development effectiveness briefs for developing member countries, initially in ADF-eligible countries. The unit, in conjunction with the Human Resources Division, also will continue to support the design and implementation of ADB’s managing for development results (MfDR) learning and development curriculum. The MfDR work on development effectiveness in ADB, initiated in 2007, is likely to require results management inputs and support from the Results Management Unit. The unit also will continue to facilitate discussions with Management regarding high-level results reporting in ADB. Taking stock of the new results-based country portfolio reviews will be conducted to draw lessons for developing a standardized MfDR operations framework across departments.

14. Refinement of the Performance-Based Allocation Policy and Its Implementation. The Policy on Performance-Based Allocation for Asian Development Fund Resources will be refined to enable ADB to address the needs of the WPCs, while simultaneously upholding the principle of linking assistance to performance. In addition, the portfolio performance rating methodology will be reviewed and improved. ADB will conduct capacity building workshops on performance-based allocation (PBA) for government officials of ADF-eligible DMCs to familiarize them with the PBA policy, especially the implementation of the revised ADF grants policy and framework.7 This will include debt sustainability analysis and debt relief, where applicable. 4 ADB. 2006. Revised Managing for Development Results (MfDR) Action Plan. Manila. 5 The three pillars are: (i) supporting DMC capacity to manage for development results, (ii) enhancing ADB’s results

orientation and institutional effectiveness, and (iii) maintaining effective results partnerships. 6 The objective of the Cooperation Fund, approved by the Board in April 2004, is to finance TA projects that promote

results-based management techniques within ADB and its DMCs. The fund is a multidonor umbrella facility, with an initial contribution of Can$1 million in July 2004 from the Government of Canada through the Canadian International Development Authority. The Government of Netherlands through the Ministry for Development Cooperation provided an additional contribution of €0.70 million in December 2004, and the Government of Norway through the Ministry of Foreign Affairs contributed $1.3 million in June 2005.

7 ADB. 2004. Review of the Asian Development Bank’s Policy on the Performance-Based Allocation of Asian Development Fund Resources.

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15. Conducting Debt Sustainability Assessment for ADF Recipients. With the introduction of the new grants framework, an ADF country’s risk of debt distress will be the key determinant of the volume and terms of assistance to be provided to a country (i.e., the volume of loans, grants, or combination of the two). The International Monetary Fund and the World Bank currently prepare the debt sustainability analyses for International Development Association (IDA) countries. Starting in 2008, ADB will participate in the exercise to fulfill its fiduciary responsibilities. ADB also will prepare its own debt sustainability analyses for non-IDA countries eligible for ADF borrowing.

II. CURRENT PERSPECTIVE

16. This chapter briefly summarizes the latest projections for the results of the 2007 work program, internal administrative expenses (IAE), and staffing utilization, as well as an update on compensation and benefits. A. Review of 2007 Work Program

17. Total Lending and grants for public sector projects are expected to reach about $9.8 billion for 89 projects in 2007, about 38% higher than in 2006. For the lending program, priority sectors within group I of MTS II (education, energy, finance, road transport, rural and urban infrastructure) are expected to account for about 57% of the total number of projects and 63% of the total lending amount. The balance of the lending amount will be allocated as follows: 21% for group II sectors (agriculture and natural resources, health, public finance and economic management, and railways); 8% for group III sectors (communications, general government administration, industry, and water transport); and 8% for multisector projects. For the ADF grants, about 55% will be allocated to the group I sectors; 42% to group II sectors (health, agriculture and natural resources, and public finance and economic management); and 3% to multisector projects. In 2007, ADB is expected to approve about $1.9 billion for 17 multitranche financing facility (MFF) subprojects, and $7.3 billion (15 facilities) for MFF frameworks. These trends show increasing alignment with MTS II priorities. 18. Private sector operations are expected to deliver 25 new projects, totaling about $1.8 billion in 2007, about 26% higher than in 2006. Private sector operations continue to expand geographical coverage, with loans to entities in the Maldives and Cambodia. The first private sector project in Georgia was approved in August 2007, and projects in other Central Asian republics and Viet Nam are expected to be approved in 2007. Private sector operations also started supporting project development companies in specific areas to catalyze appropriate preparation of infrastructure projects. The first such venture is in the water supply and sanitation sector of the People’s Republic of China and Viet Nam, in collaboration with the Government of Singapore and private companies in Singapore. In line with MTS II, ADB’s private sector operations continue to focus on the energy and finance sectors. Appendix 3 provides details on private sector operations in 2007 by region and type of product. 19. New TA commitments for 2007 are expected to total $295 million for 251 projects. At midyear, 77 TA projects for $78.4 million had been approved, including 22 supplementary approvals. Of this amount, $29.5 million was from ADB’s Technical Assistance Special Fund (TASF), $13.6 million from the Japan Special Fund (JSF), and $35.3 million from other sources. While 44 TA projects totaling $52.0 million involved preparatory and advisory activities, the remaining 33 were regional TA projects totaling $26.4 million.

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20. DVA cofinancing is expected to reach about $1.2 billion for 28 investment projects, comprising (i) $474.5 million for six guarantee operations, (ii) $545.0 million for six loan syndication operations,8 (iii) $67.4 million for 13 grant operations, and (iv) $137 million for six official loan cofinancing operations. Excluding the JSF contribution (paras. 148–149), TA grants from cofinancing partners are expected to total about $80 million for 70 TA projects. Supporting the financing partnership strategy to improve the alignment of cofinancing with ADB's strategic priorities and ensure better coordination, ADB established two new financing partnership facilities (FPFs)—the RCI financing partnership facility, and the clean energy financing partnership facility—as umbrella arrangements (Appendix 7). ADB also agreed with the Government of Japan on a strategic partnership for enhanced sustainable development in Asia to improve investment climates, including regional cooperation and energy efficiency in Asia. Under this framework, ADB and Japan Bank for International Cooperation (JBIC) agreed on joint cofinancing through the accelerated cofinancing scheme, whereby JBIC will provide $1 billion–$2 billion in yen-denominated loans on concessional terms over the next 5 years to cofinance ADB projects. Further, the Government of Japan will establish two trust funds linked to the new FPFs—the Asian Clean Energy Fund and the Investment Climate Facilitation Fund. 21. ADB is estimated to disburse about $7.02 billion by end of 2007, compared with $5.77 billion in 2006. The disbursements are expected comprise $5.58 billion for OCR loans and $1.44 billion for ADF loans and grants. The quality of the portfolio is expected to improve, with at-risk public sector projects dropping from 10% of the total number of loans in 2006 to 9% in 2007. The quality of the private sector portfolio9 is expected to show an even larger improvement, with impaired private sector loans and equity investments decreasing from 14% of the total in 2006 to 5% in 2007. 22. By the end of 2007, ADB is projected to approve 29 country or regional strategies and country or regional operation business plans, comprising five country partnership strategies (CPS), one regional cooperation strategy, two country or regional strategy updates or reviews, and 23 country or regional operation business plans. B. Estimated Utilization of the 2007 Internal Administrative Expenses Budget

23. The current 2007 budget estimate is $332.7 million, including a general contingency of $3.2 million. Despite the impact of the continuing appreciation of the Philippine peso against the US dollar, the overruns in certain budget items in operational and administrative budget categories are expected to be fully met through reallocations from expected savings (paras. 24, 26–27) within the same budget categories. Table 2 compares the current estimate with the original budget, by budget category. 24. An underrun of $77,000 in the Board of Governors category is expected, mainly due to savings from travel, seminars, and contractual services for the 40th Annual Meeting held in Kyoto, Japan, in May 2007. 25. An overrun of $143,800 is projected in the Board of Directors category, mainly due to (i) higher-than-anticipated staff-related costs, and (ii) the impact of the appreciation of the Philippine peso against US dollar.

8 Including fronting arrangements under ADB’s B-loan and unfunded risk participations. 9 The impaired private sector portfolio includes loans and equity investments with risk rating classified as

substandard, doubtful, and loss.

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Table 2: 2007 Current Estimate ($ ‘000)

Overrun/(Underrun) Item

Actual 2006 (A)

Budget

2007 (B)

Current Estimate

2007 (C)

Amount D = (C – B)

% (D)/(B)

Board of Governors 969 1,400 1,323 (77) (6) Board of Directors 20,614 21,499 21,643 144 1 Operational Expenses 227,892 250,509 250,473 (36) (0) Administrative Expenses 53,808 60,196 60,146 (50) (0) Total Before General Contingency 303,283 333,604 333,585 (19) – General Contingency – 3,336 3,192 (144) (4) Less: Reimbursementsa (3,907) (4,076) (4,076) – – Total 299,376 332,864 332,701 (163) (0) – = 0 or not applicable, ( ) = negative. Numbers may not sum precisely because of rounding. a Estimated recoveries of costs associated with administering single-donor and multidonor trust funds. 26. Operational expenses are estimated at $250.47 million, compared with the original budget of $250.51 million. The decrease in staff costs resulting from lower-than-projected staff years was offset by additional allocations for increases in (i) local staff-related costs due to the appreciation of the Philippine peso; (ii) staff consultants for requirements arising from new and unplanned initiatives during the year, as well as for supplementing staff vacancies in some departments; (iii) business travel for unplanned activities, as well as to respond to emergencies in DMCs (e.g., Solomon Islands); and (iv) higher-than-projected relocation and severance costs. 27. Administrative expenses are estimated at $60.15 million, compared with the original budget of $60.20 million. Anticipated underruns in expenses for communications, office supplies, equipment, maintenance, and support are a result of continuing cost savings efforts. However, the underruns are anticipated to be offset by overruns in office occupancy costs due to the appreciation of the Philippine peso, and an increase in projected depreciation expenses. 28. Overruns of $143,800 in the Board of Directors budget will have to be covered from the general contingency fund of $3.34 million. The balance of $3.20 million is projected to remain uncommitted based on current estimates, and is unlikely to be used. C. Staffing

29. By the end of 2007, ADB is expected to have five Management staff, 82510 professional staff, and 1,53311 national officers and administrative staff. Women account for 28.2% of the professional staff on board. More than half (52.0%) of the budgeted positions for professional staff and national officers are assigned to operations departments; 13.6% to knowledge management, and 34.4% to management, operations support, and service departments. The number of positions (professional staff, national officers, and administrative assistants) assigned to field offices totaled 476, or 19.1% of total authorized positions. In 2007, the majority of the new budgeted positions were assigned to operations departments, reflecting the institutional priority to enhance the development effectiveness of operations, especially to support portfolio management.

10 Includes professional staff of the Board of Directors (Director’s Advisors, Accountability Mechanism, and

Operations Evaluation Department). 11 Includes local staff of the Board of Directors, but excludes local staff occupying special positions on present-

incumbent-only status. These totaled 73 in 2007 and 74 in 2006.

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30. Human Resources Strategy. The human resources strategy is in its third year of implementation. Many of the strategy’s envisaged actions have been completed and mainstreamed as part of the ADB’s human resources management and administration. Actions completed this year include (i) the first run of the Assessment and Development Center12 with favorable results; (ii) the skills mix assessment and enhancement in which the generic job titles of professional staff levels 1–6 were completed, followed by an update of job descriptions that integrated skills requirements and competencies; and (iii) the implementation of the technical career stream. An update on the implementation of human resources strategy is in Appendix 5. 31. Strategic Recruitment. This initiative was undertaken to reduce the average hiring time of applicants for vacancies created by new positions, promotions, transfers, and resignations.13 This is being achieved through (i) extensive use of teleconferencing and videoconferencing, which has reduced the time taken in short-listing applicants; (ii) establishment of the external candidate panel process, which has accelerated decision making; and (iii) streamlined administrative processes for internal and external recruitment. This strategy is also focused on recruitment for MTS II priority sectors to achieve the necessary skills mix for ADB’s business needs. 32. Performance Management System. Based on consultations with senior staff, as well as feedback received from staff after the 2006 performance and development plan (PDP), implementation-related issues were identified and addressed, and refinements were made to improve the 2007 PDP. The results of the PDP survey conducted in the second quarter of 2007 affirmed that staff consider performance management important, and recognize PDP as a useful tool for distinguishing performance. To streamline the PDP process further, automation is planned for completion in fourth quarter 2007—in time for the 2007 PDP exercise in the first quarter of 2008. D. Compensation and Benefits

33. In 2007, the individual performance bonus was complemented by a team bonus to reward cooperation and team spirit for the 2006 performance. Feedback from a survey showed that respondents recognize the bonus as a means for rewarding excellence and teamwork, but would prefer some changes in the design of the scheme.

III. HIGHLIGHTS OF THE 2008 WORK PROGRAM

34. In line with the strategic directions outlined in chapter I, the work plan for 2008 will focus on completing the implementation of MTS II and preparing for possible adjustments in operational priorities resulting from the LTSF review and the ongoing ADF X negotiations. Section A covers portfolio management. Section B summarizes the formulation of new country and regional strategies. Section C describes planned activities for project processing, including project preparatory TAs to design projects for approvals beyond 2008. Section D covers knowledge management. An overview of programmed activities for the operations support and administrative support departments are in Sections E and F, respectively. Section G provides an overview of the resource framework for these activities. 12 The Assessment and Development Center is a systematic talent management process for identifying high potential

leadership talent, and managing their development and succession. 13 ADB has been working to reduce average hiring time. Average hiring time for internal recruitment has been

shortened from 65 working days in 2004 to 42 working days in 2006; average hiring time for external recruitment has been reduced from 250 working days in 2004 to 112 working days in 2006.

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Table 3: Work Program and Resource Parameters

Average Actual Estimate Program Item 2004-2006 2006 2007 1 2008 1 I. Key Outputs

A. Investment OperationsPortfolio Management

Public Sector Projects (number)a 432 446 454 468 Private Sector Operations (number)b 109 122 132 134 OCR + ADF Disbursements ($ million) 4,747 5,774 7,018 7,183

Project Preparation and Processing2

Public Sector Operationsc+d

Number of Approvals 63 67 89 105 Regular program 56 53 62 71 ADF stand-alone grants 5 8 10 6 MFF subprojects 2 6 17 28

MFF Framework 3 8 15 14 Other grants projects (JFICT and JFPR)d+e 21 18 18 30

Amount of Approvals ($ million) 5,846 7,096 9,788 10,033 Regular program 5,244 5,934 7,746 7,330 ADF stand-alone grants 121 201 104 237 MFF subprojects 481 961 1,938 2,466

MFF Framework 1,777 3,810 7,261 5,140 Other grants projects (JFICT and JFPR)d+e 46 71 35 68

Private Sector Operationsb

Number of Approvals 18 21 25 25 Amount ($ million) 1,015 1,415 1,784 2,000

B. TA Programf

Total Ongoing TAs (number) 983 957 881 875 Total New TA Approvals (number) 293 260 251 265 Total New TA Approvals ($ million)3 212 241.6 294.7 260-300

C. Operations Evaluationg

Project Performance Evaluation Reports 19 19 13 13 Special Studies, CAPE, other studies 19 21 28 23

D. Country and Regional Strategiesc

Country Partnership Strategy 5 5 5 18 Regional Partnership Strategy 1 1 1 2 Country Strategy Reviews 18 9 - 6 Country/Regional Operation Business Plan - - 23 21

II. [ Confidential information from this table has been removed in accordance with paragraph 126 of ADB's Public Communications Policy]III. Resources

Authorized Staff Resources 4Professional Staff 825 834 846 858 Local Staff 1,478 1,516 1,545 1,565

Internal Administrative Expenses ($ million) 288.5 299.4 332.7 357.2 IV. [ Confidential information from this table has been removed in accordance with paragraph 126 of ADB's Public Communications Policy]

- = 0, ADF = Asian Development Fund, CAPE = Country Assistance Program Evaluation, JFICT = Japan Fund for Information and Communication Technology, JFPR = Japan Fund for Poverty Reduction, MFF -= multitranche financing facility, OCR = ordinary capital resources, TA = technical assistance. Numbers may not sum precisely because of rounding. 1Estimates as of October 2007. 2Some 2007 projects may be shifted to 2008. 3Figure for 2008 may be understated since not all financing sources fo TAs have been identified at present. 4Excludes staff of the Office of the Compliance Review Panel (2), Operations Evaluation Department (25), Director Advisors (24), and support staff of the Board of Directors (36). Sources: aCentral Operations Services Office; bPrivate Sector Operations Department; cAs projected in the Work Program and Budget Framework (2008–2010); dRegional departments; eOffice of Cofinancing Operations; fStrategy and Policy Department; gOperations Evaluation Department.

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35. Table 3 provides the broad parameters of the 2008 work program and available internal resources. Appendix 4 shows the detailed breakdown by regional departments, Private Sector Operations Department (PSOD), and selected knowledge departments. A. Managing the Portfolio

36. The 2008 work program and resource allocation will continue to prioritize portfolio management, including implementation of the existing action plan to improve loan and TA portfolio performance. The number of projects under administration in the public and private sectors is expected to rise in 2008 compared with 2007. By the end of 2008, the public sector portfolio is estimated to comprise 468 projects, including 51 MFF subprojects. An additional 134 projects would be in the private sector portfolio (Table 4). As of September 2007, about 69% of the portfolio was in MTS II group I priority sectors, while 25% was in group II and 6% was in group III (Figure 1).14 The comparable figures as of September 2006 were 67% for group I, 24% for group II, and 9% for group III. The trend, along with the prioritization of groups I and II among the new projects (Figure 2), shows ADB projects have become increasingly more aligned with MTS II priorities during the strategy’s implementation period of 2006–2008.

Figure 1: Public Sector Portfolio by Medium-Term Strategy II Priority Groups

Group III6%

Group I69%

Group II

25%

Source: ADB project processing information system and loan financial information system, September 2007. 37. In 2008, departments will closely monitor the achievement of contract awards and disbursement targets to ensure that financial and physical progress are achieved. Due attention will be given to projects that are to be completed in 2008 to ensure prompt closure and possible realization of loan savings. Loan cancellation and portfolio administration will be actively pursued to improve portfolio quality and reduce projects at risk. 38. In 2008, disbursement of OCR and ADF resources is projected to be $7.2 billion for the public and private sector—above the 2007 estimate and 51.3% higher than the 2004–2006 average. With an increase in the annual approvals, disbursements for private sector operations will reach $600 million annually in 2007 and 2008, compared to an average of $282 million in 2004–2006. In terms of portfolio quality, regional departments foresee the percentage of at-risk projects to decline from 9% estimated for the end of 2007 to 8% in 2008.15 Likewise, PSOD

14 ADB. 2006. Medium-Term Strategy II 2006–2008. Manila (Table 1, page 17). 15 The number of projects risk-rated substandard, marginal, or loss divided by total number of projects under

administration.

11

expects at-risk projects to drop from 5% in 2007 to 4% of the portfolio by the end of 2008.

Table 4: Portfolio Management (Loans and Non-Technical Assistance Grants)1

CurrentItem Average Programa Estimate Program

2004-2006 2007 2007 2008Ongoing-Projects (number)2

Public Sector Projectsb 432 436 454 468 of which MFF Subprojects 6 28 23 51JFPR/JFICT Grant Projectsc 74 122 83 71Public Sector Project Completion Reportsb 71 64 67 64Private Sector Operations3 109 135 132 134

Annual Disbursements ($ '000)d 4,747 5,929 7,018 7,183Ordinary Capital Resources 3,534 4,203 5,583 5,585 Public Sector Loan Projects 3,251 3,882 4,983 4,985 Private Sector Operations 282 321 600 600Asian Development Fund (loans and grants) 1,213 1,726 1,435 1,598

Project at Risk (% of loan/grant number)d

Public Sector 11.8% 12.0% 9.0% 8.0%Private Sector4 15.6% 12.0% 5.0% 4.0%

Seminars to Support Portfolio Management (number)b

Project Implementation and Administration 10 10 9 9Business Opportunities 14 8 13 15Use of Consulting Services 5 - - - Development of National Consultants 7 10 6 6Project Disbursements 5 16 6 7 Total Seminars 41 44 34 37

- = 0; JFICT = Japan Fund for Information and Communication Technology; JFPR = Japan Fund for Poverty Reduction, MFF = multitranche financing facility. Notes: 1Portfolio of technical assistance is discussed in the section on project preparatory TA and knowledge services. 2Projects financed by two loans or a combination of loan and grant are counted as one project. 3Includes projects fully divested and/or fully paid but administered during the year. 4 Includes loans and equity investments with risk rating classified as substandard, doubtful, and loss. Sources: a Budget of the Asian Development Bank for 2007; bCentral Operations Services Office, Controller’s Department, Strategy and Policy Department; cOffice of Cofinancing Operations; dRegional Departments and Private Sector Operations Department. 39. Operations departments will continue to improve portfolio quality. During 2008, portfolio cleanup exercises will be carried out in various DMCs. Departments will continue to employ actions that have helped improve portfolio quality. These include (i) keeping project design simple, and upgrading the design and monitoring frameworks of projects; (ii) employing readiness filters in project processing; (iii) applying a results framework to the portfolio review; (iv) targeting capacity building at executing agencies and improving their familiarity with ADB operations; and (v) enhancing the capacity of local private sectors (suppliers and contractors), especially in WPCs. Coordination with cofinanciers also needs to be improved during the project processing to prevent bottlenecks in the release of funds. Box 2 outlines efforts made by the Southeast Asia Department (SERD) to secure the gains made in portfolio management.

12 12

Box 2: Southeast Asia—Sustaining Portfolio Quality

After improving its project portfolio in 2000–2004, particularly in Indonesia and the Philippines, the Southeast Asia Department (SERD) expects to see more favorable trends in its portfolio quality in 2008 as a result of key measures introduced in 2007 to strengthen the accountability of administering units and quality control mechanisms. While accountability for portfolio monitoring rests primarily with the sector divisions and resident missions, a management-driven monitoring system has been put in place to raise the profile of portfolio management work and enhance quality. The department head continues to chair all portfolio performance review meetings. Aside from country portfolio review missions to be led by resident missions, SERD will continue to conduct joint portfolio reviews with development partners in 2008. To complement the field-based monitoring, resident missions will continue to prepare monthly country portfolio performance reports to present a snapshot of their portfolio and proposed actions. While SERD has maintained single-digit projects-at-risk ratio since 2005, efforts to avoid backsliding include: (i) Divisions and resident missions are monitoring each project using two leading indicators,

elapsed time and project progress. This approach enables SERD to identify potentially at-risk projects.

(ii) A small team has been created in the office of the director general to work closely with the divisions to ensure that the number of at-risk projects is minimized.

(iii) More attention has been given to broader structural issues affecting project performance. Annual project work plans are being synchronized with the government budget cycles to reduce the risk of a shortfall in counterpart funds, which has impeded project progress.

(iv) In countries where project implementation is slow, SERD is working with governments and development partners to address systemic risks. This has yielded good results in, for example, Viet Nam, where project issues are discussed at the level of Prime Minister, resulting in closer project monitoring.

The lessons from project implementation are continually being incorporated back into the design of projects and technical assistance being prepared in the region. 40. To strengthen project management skills at the field offices, more portfolio management units (PMUs) are being established in smaller resident missions, such as in Mongolia. Existing PMUs in the field will be strengthened to allow more delegation of projects and better management of country portfolios. For more effective project supervision, stronger joint ventures between headquarters and resident mission staff will be pursued, but with clear delineation of tasks that optimize the mix between sector expertise and country knowledge. As appropriate and advantageous, ADB will continue to delegate tasks and authority to the field offices in 2008 as a means of (i) providing field-based supervision of projects, (ii) facilitating interaction with clients, and (iii) shortening response time. The number of projects administered by the resident missions has increased steadily from 159 in 2005 to 210 as of October 2007 (39% of total). The target by the end of 2008 is 222, or about 41% of the active projects (Table 5 and Appendix 5). Commensurate with the delegation, more resources are being provided to the resident missions, as clearly demonstrated by the allocation of all new 2008 national officer and administrative staff positions and additional budgetary resources to resident missions. In the proposed 2008 budget, 16.4% of the operational expense budget is allocated to support resident mission activities.

13

Table 5: Project Implementation Delegated to Resident Missions (number of projects)

Regional Departments 2006 2007 2008Central and West Asia 37 40 45 South Asia 67 71 74 East Asia 23 30 34 Pacific 15 19 22 Southeast Asia 41 50 47

Total 183 210 222 Source: Regional Departments.

B. Country Partnership and Regional Cooperation Strategies

41. During 2008, 18 CPSs and two regional cooperation strategies (RCS) are planned for circulation, and six CPS reviews will be undertaken (Table 6). These documents will guide ADB’s operations beyond 2008 to meet the specific needs of the regions and countries, while taking into account ADB’s inherent strengths and the context of broader regional initiatives.

Table 6: Country Partnership and Regional Cooperation Strategies

CurrentActual Programa Estimateb Programb

Item 2006 2007 2007 2008Country Partnership Strategy 5 15 5 18 260

Regional Cooperation Strategy 1 2 1 2 100CSP/RCSP Updates or CPS/RCS Reviews1 9 4 - 6 -

Country/Regional Op. Business Plans - - 23 21 (9)

% Increase (Decrease) 2008/2007 Estimate

- = not applicable, CPS = country partnership strategy, CSP = country strategy and program, RCS = regional cooperation strategy, RCSP = regional cooperation strategy and program. Note: 1Starting from 2007 CSP and RCSP updates were discontinued. Sources: a Budget of the Asian Development Bank for 2007. b Regional departments.

42. CPSs for Sri Lanka and India, which are in an advanced stage of preparation, will be finalized in early 2008. Consistent with the ongoing discussion, and based on the CPS/Country Operational Business Plans (COBPs), operations in South Asia in 2008 will continue to foster inclusive economic growth and social development. Public–private partnerships for infrastructure investment and mainstreamed use of new financing instruments will be emphasized. 43. In the Central and West Asia region, the CPS for Tajikistan will be developed in 2008. It will be aligned with the national poverty reduction strategy with a focus on results. A regional cooperation strategy also will be developed for further policy and financing assistance in the region to sustain regional growth. Public–private partnerships in infrastructure will be explored to address clients’ needs, and multitranche financing will be applied where appropriate to make use of its flexible arrangement and financing efficiency. 44. For the East Asia operations, priorities in PRC will be guided by the CPS for 2008–2010, which has been substantially completed and is scheduled for Board consideration in early 2008. The project pipeline will gradually shift from highways to urban and rural development, water

14 14

supply and sanitation, and agriculture and natural resource management, with dispersion to the poor and inland areas. Knowledge management and the delivery of knowledge products will be emphasized. In Mongolia, East Asia Department (EARD) will continue to pursue the two-pronged strategy to promote private sector-led economic growth and inclusive social development. The next CPS for Mongolia is planned for completion in 2008. In both countries, the department will endeavor to expand regional cooperation to regional public goods and other new initiatives in line with ADB's Central Asia Regional Economic Cooperation (CAREC) and Greater Mekong Subregion (GMS) programs. 45. In Southeast Asia, CPSs will be prepared in 2008 for the Philippines and Malaysia. A CPS midterm review will be undertaken for Viet Nam later in 2008 following its country strategy and program (CSP) in 2006. COBPs will be prepared for Cambodia, Indonesia, Lao People’s Democratic Republic, and Thailand. An regional cooperation strategy (RCS) for the archipelago Southeast Asia and the ROBP for the GMS will be completed in 2008. 46. In the Pacific, CPSs will be prepared for Cook Islands, Federated States of Micronesia, Fiji Islands, Kiribati, Palau, Samoa, Timor-Leste, and Tuvalu. These strategies will be in line with the Pacific DMC strategy. Pacific Department (PARD) will also prepare five COBPs for Papua New Guinea, Marshall Islands, Solomon Islands, Tonga, and Vanuatu; and one CPS midterm review for Papua New Guinea. A new Pacific regional operations business plan (ROBP) 2007–2010, which is being prepared in 2007, will succeed the 2004–2006 regional cooperation strategy and program. The ROBP is guided by the ADB's RCI strategy and the Pacific strategy. C. Preparing New Projects

1. Public Sector Operations

47. In 2008, about 105 new public sector projects are planned for approval, and these will be financed through $7.8 billion in OCR loans, $2.3 billion in ADF loans and grants, and other trust fund grants (Table 7). These include approval of MFF subprojects and projects funded entirely by ADF grants. Total approvals for 2008 are significantly higher than the 89 approvals estimated for 2007, mainly because of the expected increase in approvals of subprojects under the MFF. As of October 2007, some planned board approvals for 2007 seemed likely to slip to 2008 to ease the bunching of project considerations scheduled in the fourth quarter of 2007. Such slippage will raise the approval number for 2008. However, as these projects have been substantially processed, they will have little or no resource implications on the 2008 budget. 48. As for strategic alignment, the proportion of new projects in MTS II group I sectors is projected to increase to 76% during 2008, from 62% in 2007 (Figure 2), by volume the shares are 74% and 69%, respectively. Among the thematic areas (Figure 3), sustainable economic growth will be supported by the highest number of projects in 2008 (91), followed by inclusive social development (28), environment (23), governance (17), capacity development (16), and regional cooperation (13).16 16 18 projects specifically address issues in private sector and gender and development. The thematic figures usually

increase as project processing progresses because additional themes are identified (each project can have up to three themes).

15

Table 7: New Projects—Public and Private Sectors

CurrentItem Actual Program a Estimate Program

2006 2007 2007 2008 Public Sector Operationsb

OCR and ADF Projects Approval (number)1 67 100 89 105 18 OCR Loans 26 57 45 70 56 ADF Loans and Grants2 61 50 53 54 2 Loans and blended grants 53 47 43 48 12 ADF Grants (stand alone projects) 8 3 10 6 (40) OCR and ADF Projects Approval ($ million) 7,096 3 8,066 9,788 10,034 3 OCR Loans consisting of: 5,542 6,262 7,643 7,765 2 Regular Operation 4,611 4,508 5,725 5,474 (4) MFF Subprojects 931 1,269 1,898 2,291 21 Sub-and Nonsovereign - 485 20 - - ADF Loans and Grants 1,554 1,804 2,146 2,269 6 Regular Operation 1,323 1,502 2,002 1,857 (7) MFF Subprojects 30 275 40 175 338 ADF Grants (stand alone projects)4 201 27 104 237 128 JFICT, JFPR Grant Projects ($ million) 71 39 35 68 94 MFF Framework ($ million) 3,810 5,500 7,261 5,140 (29)

Private Sector Department Operations c

Private Sector (number) 19 25 24 25 8 Public Sector Nonsovereign (number)5 2 - 1 - - Private Sector Department ($ million) 1,415 1,500 1,784 2,000 12

2008 Programover 2007 Estimate

(%)

- = 0 or not applicable or data not available, () = negative, ADF = Asian Development Fund, JFICT = Japan Fund for Information and Communication Technology, JFPR = Japan Fund for Poverty Reduction, MFF = multitranche financing facility; OCR = ordinary capital resources. Notes: 1 A project financed by both OCR and ADF is counted as one; 2 Includes ADF grants blended with OCR and ADF loans; 3 Total figure for 2006 included emergency assistance to Pakistan ($595 million); 4 Approvals include ADF grant projects that are not prepared by operations departments; 5 2008 projection is not available. Sources: aBudget of the Asian Development Bank for 2007. bProject processing information system and regional departments. cPrivate Sector Operations Department.

4

19

71

0

10

20

30

40

50

60

70

80

Group I Group II Group IIIMTS II SECTOR GROUP

Num

ber o

f Pro

ject

s

1623

617

28

12 13

91

0102030405060708090

100

Capac

ity D

evelop

ment

Enviro

nmen

tal S

ustaina

bility

Gende

r and

Dev

elopm

ent

Govern

ance

Inclus

ive Soc

ial D

evelop

ment

Private

Sec

tor D

evelo

pment

Region

al Coop

eratio

n

Sustai

nable

Econo

mic Grow

th

PROJECT THEME

No.

of P

roje

cts

Notes: Sector distribution total is less than 105 since some projects are classified as multisector. Thematic distribution is more than 105 since a project can have up to three themes. Source: Project processing information system and regional departments.

Figure 2: OCR and ADF Pipeline 2008 MTS II Sector Grouping

Figure 3: OCR and ADF Pipeline 2008 Thematic Classifications

16 16

49. In line with ADB’s approach to achieving development effectiveness in WPCs,17 ADB will apply selectivity and focus in its programs to assist WPCs, with ADB generally supporting a limited number of major reforms. ADB also will form strategic partnerships to avoid duplication and to provide each institution the opportunity to focus on its comparative advantages. For instance, ADB’s program in the Pacific region will focus on capacity development through the use of grants and TAs (Box 3).

Box 3: Achieving Development Effectiveness in Weakly Performing Countries

The Asian Development Bank (ADB) strategy for achieving development effectiveness in weakly performing countries (WPCs) establishes a distinct approach that emphasizes capacity development as central to engagement with the WPCs. It recognizes the considerable variation among WPCs in terms of the political economy, development needs, capacity constraints, and reform orientation. In so doing, the strategy acknowledges that no single or standard approach for engaging with WPCs will apply. ADB’s approach aims to achieve increased flexibility and responsiveness in addressing issues facing WPCs through improved existing modes and instruments as well as developing new ones, relaxation of business processes, and increased resources. In Pacific WPCs, more funding is being made available for ADB’s nonlending products, notably grants and technical assistance. Higher levels of cofinancing are also providing more assistance to WPCs. State building is a key area of intervention, with good governance being one of the strategic objectives of the ADB’s Pacific strategy 2005–2009. In addition, improved control on quality at entry and evaluation systems for technical assistance, developed through a region-wide review of capacity building, are being piloted in WPCs to raise the standard of assistance. More attention is being paid to engaging civil society and the private sector in country programming, with annual reviews of country programs by civil society and businesses to be piloted in some Pacific WPCs. Finally, additional efforts are being made to coordinate assistance to WPCs to improve targeting of assistance and avoid overloading of absorptive capacity.

2. Projects Preparation

50. To prepare projects for approval in 2008 and beyond, ADB will need to manage the portfolio of the project preparatory technical assistance (PPTA), which is expected to grow from 194 TA projects in 2007 to 212 in 2008 (Table 8). During 2008, 94 new PPTA projects will be prepared, mainly to prepare loan projects for approval in 2009 and beyond. Another 56 projects in the pipeline are to be prepared without PPTA. About 68% of the PPTA projects will focus on energy, road transport, rural and urban infrastructure, education, and finance. New PPTA projects are expected to account for 35.5% of the total 265 TA projects to be processed in 2008.

3. Private Sector Operations

51. For 2008, PSOD estimates that 25 projects with a total financing of $2.0 billion will be processed,18 compared to 25 projects for $1.8 billion in 2007 (Table 7). These are mainly in energy, water supply, transport, and capital market and finance. Lending and equity investments will continue to be accompanied by credit enhancements (partial credit, political risk guarantees, and swaps), as well as complementary financing loans and guarantees. The number of countries covered by PSOD’s projects portfolio has increased from 15 countries in 2005 to 18 in

17 ADB 2007. Achieving Development Effectiveness in Weakly Performing Countries. Manila. 18 Because of the nature of private sector operations, projected breakdown by country or by product is not available

for future operations.

17

2007, with the approval of the first private sector projects in Cambodia, Georgia, and Maldives. Efforts will be made in 2008 to further diversify country coverage and intensify activities in Central Asia and the Caucasus (Box 4).

Table 8: Project Preparatory Technical Assistance (Public and Private Sectors) (number)

Item2008

Ongoing PPTAsa 197 194 212 9PPTAs for Processinga 73 78 94 21Preparation without PPTAb - 39 56 44 Public Sector 12 14 31 121 Private Sector 21 25 25 0

Actual2006 2007

CurrentEstimate Program

2008 Programover 2007 Estimate

(%)

- = not applicable or data not available, PPTA = project preparatory technical assistance. Sources: aProject processing information system and technical assistance information system as of October 2007; bRegional departments and Private Sector Operations Department.

4. Use of New Financing Modalities

52. To ensure that ADB’s public sector operations remain relevant and responsive to DMCs’ needs, particularly middle-income countries, ADB launched IEI in 2003. One of the outcomes of IEI has been the introduction of new project financing modalities. Key examples of these modalities are the MFF, nonsovereign public sector financing (NSP), refinancing, and local currency financing. 53. Multitranche Financing Facility. Between December 2005 and September 2007, 14 facilities with an aggregate amount of $7.68 billion were approved, and 13 MFF subprojects for $1.3 billion were declared effective. The demand for ADB lending through the MFF is robust, even though the facility is still being tested. In 2007, 17 MFF subprojects are expected to be approved for $1.9 billion. These figures are forecast to rise to 28 subprojects for $2.5 billion in 2008.19 54. Nonsovereign Public Sector Financing and Other Modalities. PSOD has processed three NSPs with an aggregate amount of $800 million. The regional departments and PSOD are preparing an additional 10 for approval in 2007. Three NSPs have been identified for processing by regional departments during 2008. One refinancing transaction is being planned for a proposed MFF energy project in Lao People’s Democratic Republic. Local currency loans have been made available to five countries: People’s Republic of China, India, Indonesia, Kazakhstan, and Philippines. These are attractive for projects whose financial viability are adversely affected by fluctuations in currency exchange rates. 19 Figures for MFF subproject approvals are part of the total project approvals.

18 18

Box 4: Flexible Staff Deployment to Support Private Sector Development

The Private Sector Operations Department (PSOD) has continually expanded cooperation with the regional departments for joint delivery of programs and projects. PSOD extensively participates in country partnership strategies for Afghanistan, the People’s Republic of China (PRC), India, Indonesia, Kazakhstan, Pakistan, Sri Lanka, and Viet Nam. PSOD is developing public–private partnership (PPP) projects and subregional projects in energy, water, renewable energy, and energy efficiency, and with the Pacific Department on the support for small and medium-sized enterprises. To effectively develop a collaborative work environment, PSOD has posted its staff in the resident missions in PRC, Indonesia, India, and Thailand to liaise proactively with the governments. PSOD is to post one additional staff in the PRC resident mission. On the part of the regional departments, in 2007 the Southeast Asia Department redeployed an advisor on PPP to Indonesia to provide on-the-ground support to the Government. The resident mission in Kazakhstan, as part of the Central and West Asia Department, is helping to identify projects that satisfy the credit tests and development impact criteria of the Asian Development Bank (ADB). When necessary, the resident mission must carry upstream project development before passing projects off to mission leaders from headquarters. In Pakistan, PSOD-resident mission collaboration includes (i) identification of projects that complement ADB’s ongoing public sector policy dialogue, as well as investments in key sectors, such as energy, power (including renewables), infrastructure (communication), and water; (ii) joint processing of investment opportunities; and (iii) implementation (and eventual divestiture) of PSOD investments or loans.

5. Mobilizing Resources through Financing Partnership

55. During 2008, an estimated $1.4 billion to 1.8 billion in DVA 20 21 cofinancing will be mobilized for 37–49 projects. The number of cofinanced projects might increase as operations departments confirm project financing arrangements for sovereign and nonsovereign operations. For the TA program, $60 million–$80 million in cofinancing will be mobilized through grants to support 50–70 TA projects (Table 9).22

D. Knowledge Management and Services

56. Knowledge management encompasses cross-sector and thematic activities. ADB’s key instruments to deliver knowledge products and services are advisory technical assistance (ADTA) and regional technical assistance (RETA), as well as staff-performed economic, thematic, and sector works.

20 ADB. 2006. ADB’s Financing Partnership Strategy. Manila. 21 Cofinancing with explicit support and value addition by ADB where financing mobilization or administration services

were often provided in exchange for a fee. 22 Cofinancing amounts of TA projects is estimated to rise to $115 million–$145 million as more projects receive

support from the trust funds.

19

Table 9: Direct Value-Added Cofinancing (2005–2008) ($ million)

AmountNo. of

Projects AmountNo. of

Projects AmountNo. of

Projects AmountNo. of

Projects

A. Investment Projects Guarantees 68 2 125 3 474 6 300-400 5-7 Syndications a 0 0 530 5 545 6 500-650 4-5 Grants 224 13 166 12 67 13 200-300 18-24 Official Loans 31 4 569 11 137 6 350-450 10-13

Subtotal b 323 16 1,390 29 1,223 28 1,350-1,800 37-49 B. TA Projects

Grants 78 95 93 74 80 70 60-80 50-70 Total 401 1,483 1,303 1,410-1,880

TA = technical assistance Numbers may not sum precisely because of rounding.a Including B-Loans, b Total does not add up as some projects have more than one direct value-added cofinancing operation.Source: Office of Cofinancing Operations.

2008Projection

2005 2007Current Estimate

Products

Actual2006

1. Advisory and Regional Technical Assistance

57. In 2008, ADB will implement 477 ADTA projects and approve 83 new ones (Table 10). ADTA projects will focus on supporting operations where ADB is engaged in policy dialogue, and will build capacities of public institutions. For 2008, about 70% of ADB’s estimated $260 million–$300 million TA resources is for ADTA and RETA projects. To make ADTA more effective and relevant to DMCs, the number of such projects in the portfolio is being reduced. However, the number of TA projects under administration is expected to stabilize over the next 3 years. Figure 4 shows the envisaged sector distribution of the new ADTA projects in 2008. In terms of volume, the ADTA program will focus on road transport, financial sector, rural and urban infrastructure, energy and education.

Table 10: Advisory and Regional Technical Assistance

Item

Actual 2006

Current Program

2008

Increase/Decrease 2008 Program/ Estimate

2007 2007 Estimate (%) Ongoing ADTA projects (number) 498 489 477 (2) ADTA projects for processing (number) 98 89 83 (7) Ongoing RETA projects (number) 262 198 186 (6) RETA projects for processing (number) 89 84 88 5 () = negative, ADTA = advisory technical assistance, RETA = regional technical assistance. Sources: Project processing information system and technical assistance information system. 58. RETA is provided to meet common requirements across DMCs, and to address issues at the regional or subregional level (Table 10).23 The number of RETA projects in the portfolio is to be kept at about 180–190 per year in the medium term. During 2008, ADB plans to implement 186 RETA projects and provide 88 new ones. Figure 4 provides the sector distribution of

23 Aside from providing knowledge services, RETA facilitates and funds the inter-country conferences and high-level

meetings to mobilize support for regional/subregional cooperation and economic integration.

20 20

planned RETA projects in 2008, which is in line with the ADB’s RCI strategy and MTS II.24

Figure 4: Sector Distribution of Advisory and Regional Technical Assistance

2008 ADTAs by Sector

Group III, 10%

Group II, 33%

Urban Infrastructure,

5%

Rural Infrastructure,

12%

Road Transport, 15%

Financial Sector, 13%

Energy, 8%

Education, 4%

2008 RETAs by Sector

Group III, 6%

Group II, 29%

Urban Infrastructure,

4% Rural

Infrastructure, 3%

Road Transport, 30%

Financial Sector, 13%

Energy, 9%

Education, 6%

Source: Project processing information system.

2. Economic, Thematic, and Sector Works

59. ADB will carry out more than 200 non-TA economic, thematic and sector works in 2008. Table 11 and Appendix 4 show that a large portion of these works are being done by the operations departments. These take the form of country or regional economic and institutional diagnostics, as well as sector and thematic studies. Studies to be performed by operations departments will focus on a variety of topics, including analysis of economic growth, decentralization reforms, debt sustainability, efficiency of public services delivery, management and monitoring of development results, governance, gender, environment, and private sector development. Many studies are undertaken as preparatory inputs for developing the results-based CPS and RCS, and project designs. Knowledge sharing and dissemination by operations departments are highlighted in Box 5.

Table 11: Non-TA Economic, Thematic, and Sector Works

CurrentItem Estimate

2007

Departments/Offices Operations 215 143 Knowledge and Non-Operations 115 96 Total 330 239

Program20081

TA = technical assistance. Note: 1 Figures for 2008 for operations departments do not fully account for studies that may be required to finalize country or regional strategy formulation, particularly policy research and thematic assessments on social issues (poverty and gender), private sector development, and others. Source: Staff estimates.

24 ADB. 2006. Regional Cooperation and Integration. Manila. The four pillars of RCI are (i) cross-border infrastructure

and related software, (ii) trade and investment cooperation and integration, (iii) monetary and financial cooperation and integration, and (iv) cooperation in regional public goods.

21

60. In 2008, ADB's knowledge departments (Regional and Sustainable Development Department [RSDD], Economics and Research Department [ERD], Office of Regional Economic Integration [OREI]) and ADB Institute (ADBI) will continue to coordinate measures to improve information sharing and coordination of their future work programs. Regular meetings among the heads of the four knowledge departments also will continue. As members of the reconstituted Publications Committee, the heads of the four knowledge departments will provide guidance on the overall direction of ADB's publications, and will oversee quality control in its premium publications. Two joint flagship publications on Economics of Climate Change in South-East Asia (led by ERD), and Infrastructure and Regional Cooperation (led by ADBI) will be prepared. The knowledge departments also will collaborate on other knowledge products, many of them bilaterally, through joint work or by undertaking complementary activities.

Box 5: Knowledge Sharing and Dissemination by Operations Departments

Operations departments increasingly have adopted a more strategic and holistic approach to knowledge sharing and dissemination. In 2008, for example, the Pacific Department will finalize and implement a communication plan that will help strategic dissemination of policies, programs, and achievements, as well as all project- and grant-related reports and publications, of the Asian Development Bank (ADB). The department will give special attention to enhancing public communication through international and local channels, and through the participation of civil society. The Central and West Asia Department (CWRD) and the South Asia Department will continue to organize regional seminar series and the annual economists’ conference to provide knowledge sharing opportunities on a wide variety of research topics. Other regional departments will focus on more effective dissemination of knowledge products through workshops, seminars, and publishing in local languages to reach a wider audience. CWRD will continue to publish its (i) semiannual statistical bulletin (CWRD Countries at a Glance), which serves as the main source of data for ADB on CWRD countries; (ii) Economic and Thematic Sector Work quarterly (ETSW) e-bulletin, which showcases and disseminates the flagship ETSWs and recent events; and (iii) Pakistan Resident Mission policy note series which provides concise nontechnical accounts of major policy issues in Pakistan. East Asia Department (EARD) is systematically mainstreaming the knowledge products and services in the People’s Republic of China (PRC) and Mongolia. In 2007, ADB and PRC agreed to make knowledge and innovation one of the core thrusts in the country partnership strategy. Knowledge Products and Services (KPS) for 2008 will be identified during the upcoming country programming exercise. The department is processing regional technical assistance on supporting strategic knowledge products and research networking, which will serve as a facility for ADB to respond quickly to knowledge services requests from PRC and Mongolia, as well as to proactively provide inputs to decision makers on emerging policy issues and widen dissemination of research findings. For effective internal information sharing, the Central and West Asia, South Asia, and Pacific departments in 2008 will continue to upgrade their intranet sites, where multiple users regularly update economic and social statistics, regional results indicators, ETSW database, and other information. This effort greatly enhances the exchange of knowledge in the departments. Working with the Operations Evaluation Department, operations departments will improve the system through which lessons learned from country, regional, project, sector, and thematic operations can be retrieved and analyzed more effectively to help improve the designs of new projects, as well as country, regional, or sector strategies.

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61. Economic Research. ERD’s work program for 2008 includes further research on inclusive growth in conjunction with the LTSF review. Major activities include (i) preparing and implementing a RETA on Policy Options for Inclusive Growth in Asia—Delivery of Public Services, (ii) publication of a volume on Inclusive Growth toward Prosperous Asia: Policy Implications, and (iii) publication of studies on the analysis of binding development constraints in selected DMCs. Key publications planned for release are the special issue of the Asian Development Outlook marking its 20th anniversary, and Key Indicators, which will be enhanced to be more responsive to the data needs in the region. In addition, poverty estimates for Asia will be updated and studies on economic growth diagnostics undertaken to underpin CPSs. In terms of direct involvement in operations, ERD will continue to review project-level economic analyses, participate in project processing missions when necessary, and build the capacity of ADB staff on economic analysis, including preparing the annual retrospective review of economic analysis.

3. Support for Knowledge and Special Initiatives

62. Based on the outcome of the LTSF review, RSDD will initiate actions in 2008 to align ADB’s knowledge management framework with LTSF objectives. 63. Communities of Practice. 25 Following the activities in 2006–2007 focusing on evaluating the strategic directions of the respective sectors and themes, the COPs in 2008 will play more active roles in providing (i) advice on the strategic direction of their respective sectors and themes, (ii) inputs to Budget, Personnel, and Management Systems Department (BPMSD) on the skills requirements of those sectors and themes, and (iii) top-down direction in prioritizing regional or ADB-wide TA projects. RSDD will continue to assist ADB’s 11 COPs. 64. Knowledge Sharing and Dissemination. ADB will continue to invite experts to the Eminent Speakers Forum to discuss issues relevant to ADB’s work. It will strengthen relations with the centers of excellence and further develop requisite information technology (IT) tools to improve the collection, organization, and access to the institution’s knowledge and minimize distribution costs of knowledge products. In support of this program, the Information Resources Services Unit of OAS will provide advice and guidance on information gathering and packaging during the entire project cycle and become the knowledge management center. As an information services broker, Information Resources Services Unit will leverage knowledge center expertise using modern technology to better support the operational focus of ADB. 65. Special Initiatives. RSDD will continue to work on key initiatives in 2008 as follows:

(i) Energy efficiency initiative. Support of the operations departments in implementing the energy efficiency investment and action plans under phase III (2007–2010).

(ii) Carbon market initiative. Fully implement the Asia Pacific Carbon Fund and the credit marketing facility, and explore options for a post-Kyoto carbon financing mechanism.

(iii) Water financing program. Expand cofinancing under the water financing partnership facility.

25 COPs cover 11 sectors and themes: education, energy, environment, finance and trade, gender and social

development, governance, health, regional cooperation and integration, transport, urban, and water.

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(iv) Sustainable transport initiative. Prepare and implement a framework for sustainable transport at the regional level resulting in specific projects concepts.

(v) Rural e-development initiative. Scale up pilot investments and establish partnerships under the initiative.

(vi) Community-driven development initiative. Develop and support pilot activities.

As some of these initiatives are supported by multidonor trust funds, they are generating growing administrative, supervisory, and reporting requirements. 66. Aside from the activities outlined in paras. 52–54, IEI in 2008 will focus on promoting awareness and supporting project teams in the use of its instruments and new innovations, and assisting regional departments in establishing cost-sharing and financing parameters for each DMC. Considering the number of MFFs already approved, this instrument is being proposed for mainstreaming into ADB’s operational toolkit. E. Operations Support

67. The thrust of institutional support and services departments for 2008 will be to increase ADB’s responsiveness to meet the demands of DMCs, and to provide requisite support to the operations departments. ADB will address the complexities associated with product diversification (e.g., nonsovereign loans, equity investments, guarantees, TA, grants, and MFFs) and fund mobilization, while maintaining/improving cost efficiencies. IT will be increasingly utilized as a tool to (i) increase efficiency; (ii) integrate processing activities where feasible (e.g., business travel processing system, internal audit); and (iii) improve the control environment.

1. Risk Management and Safeguards Compliance

68. ADB will seek to strengthen its credit risk management, especially in light of the growth in the number of nonsovereign projects. During 2008, ADB will (i) prepare a strategic limit policy to determine how much of its capital will be allocated to nonsovereign operations, as well as the average credit quality of the nonsovereign portfolio that ADB should maintain; (ii) initiate a review on ADB’s comprehensive credit risk policy; (iii) improve portfolio management systems; and (iv) continue to promote risk awareness throughout the organization. 69. As a follow-up to the completion of the internal risk rating system for private sector transactions, the Risk Management Unit (RMU) will facilitate staff training to ensure that the system will be validated and recalibrated continually. In 2008, the RMU also will enhance its credit risk model to capture risks more accurately. Another initiative to be undertaken in 2008 is a review of ADB’s capital adequacy policy based on current risk exposure, as well as in keeping with best practice. 70. As part of the second governance and anticorruption action plan (GACAP II), project design and implementation will be subject to the review of financial governance and procurement audits, among others. Further, support will continue to be necessary to help project teams plan and comply with ADB’s environmental and social safeguard policies. These encompass reviews of safeguard provisions with regard to the environment, resettlement plans and frameworks, and indigenous peoples’ plans. Regular training and orientation will continue. An update of ADB’s safeguard policies on involuntary resettlement, indigenous peoples, and environment is expected to be completed in late 2008.

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2. Capacity Development

71. ADB's action plan on capacity development focuses on two key outcomes: (i) institutionalizing a capacity development focus in country programs and operations, and (ii) establishing internal support systems for capacity development. Implementation of the action plan began in 2007 with an emphasis on dialogue with DMCs on capacity development concepts (focusing on the Pacific and Pakistan); CPS preparation; tool development; and human resource initiatives, such as training and capacity development competency framework. The emphasis in 2008 will be on piloting new approaches to be mainstreamed in country programs and operations in the medium term, and on analyzing and disseminating initial pilot experiences within and outside ADB. This will include (i) operational support measures for country programs, such as continuous dialogue with DMC stakeholders on capacity development concepts in the context of CPS preparation; (ii) operational support to pilot sector operations; (iii) knowledge management measures, such as preparation of a biannual report and a capacity development website; (iv) human resource initiatives, such as dissemination of a capacity development toolkit for mainstreaming capacity development into sector operations, including training and use of capacity development competency framework. This work is being mainstreamed in the operations departments and will be supported primarily through TAs.

3. Regional Cooperation and Integration

72. In 2008, RCI activities will be pursued across the four pillars of the RCI strategy. For pillar 1 (cross-border infrastructure), investments in multisector tourism facilities, energy, and transport infrastructure will form the RCI-related lending and grant assistance, which is estimated at $446 million. These projects will help harmonize cross-border regulations in the relevant sectors, covering the regions of South, Southeast, Central and West, and East Asia. 73. The cooperation and integration program for pillar 2 (trade and investment), pillar 3 (monetary and finance), and pillar 4 (regional public goods) in 2008 will be largely nonlending projects and RETAs, with volume estimated at $93 million. These will focus on improving regional economic competitiveness, resiliency of the monetary system and the finance sector; sector-focused policy development, knowledge building, and capacity building of institutions. For pillars 2 and 3, ADB will expand operations in Central and South Asia. For example, the Central and West Asia Department (CWRD) will allocate about $2 million for the remittances study and regional pension and insurance study. 74. For pillar 4, ADB will support initiatives covering global and common issues for Asia and the Pacific to address climate change, environment degradation, preparedness against natural disasters, communicable diseases (HIV/AIDS), and human trafficking. 75. In 2008, ADB will continue to strengthen the subregional cooperation programs it has supported.26 Formulation of the RCS and RCS reviews will contribute to sharpening the visions for the cooperation programs. Departments also will continue to mobilize financing for RCI projects, including the use of the recently established RCI fund. As of October 2007, about $11 million of the $40 million fund has been committed (para. 151). 26 These programs are the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation; South

Asian Association for Regional Cooperation; South Asia Subregional Economic Cooperation; Central Asia Regional Economic Cooperation; Greater Mekong Subregion; Brunei Darussalam, Indonesia, Malaysia, the Philippines–East ASEAN Growth Area; Indonesia, Malaysia, Thailand Growth Triangle; and the Pacific Islands Forum.

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4. Gender and Development

76. In 2008, ADB will work toward the implementation of its bank-wide gender action plan (2007–2010). The plan translates ADB’s commitment to gender equality and women's empowerment, as expressed in the Policy on Gender and Development (1998), into concrete actions. It proposes a renewed commitment to gender mainstreaming, and identifies a balanced set of activities through which ADB operations will continue to lead to tangible gender equality results. The principal proposal is to continue to ensure that gender equality issues are addressed in all ADB projects. The current project pipeline shows that 37% of projects in 2007 have either a gender and development theme classification or effective gender mainstreaming. This was also the average for 2004–2006. Tentative forecasts suggest that much needs to be done to maintain the current momentum. Departments, in coordination with RSDD, will continue to mainstream gender and development in projects to ensure that current movement is maintained and/or exceeded.

5. Consulting Services and Procurement

77. In 2005–2007, in coordination with the development and approval of new consulting and procurement guidelines, the Central Operations Services Office (COSO) has introduced streamlining measures aimed at rationalizing and expediting procurement and consulting services decision making. These measures include the introduction of (i) higher contract approval thresholds for regional departments, (ii) an automated recruitment system for individual consultants, (iii) delegated approval authority for small contract variations, and (iv) an activity monitoring system for awarding consulting contracts. These have contributed to improved contract award and disbursement performance in recent years. 78. In 2008, additional streamlining measures will be introduced. The number of mandatory meetings of the Consultants Selection Committee will be reduced, and greater emphasis will be placed on shifting decisions, when appropriate, to no-objection document reviews. Indefinite delivery contracts (IDC) will be introduced to preselect and engage individual consultants for more routine “on-call” work. This selection method is most appropriate when a consulting service is required frequently and fairly quickly, and each assignment is relatively short. In 2008, a pilot IDC is planned to engage consultants for involuntary resettlement assessments. A revised handbook on the use of consultants, a web-based project implementation handbook, and updated project administration instructions for consulting services will be issued. 79. In line with GACAP II, COSO will continue to assist capacity building of project agencies by conducting assessments of procurement compliance risks, as well as facilitating training on procurement planning and other subjects to mitigate procurement risks. The remuneration rates for consultants will be updated. As part of Information Systems and Technology Strategy (ISTS) II, COSO will develop a consultant management system, and will assist in developing project processing and administration systems. 80. COSO has revised substantially three of its key outreach programs—the project implementation and administration (PIA) seminars, development of national consultants (DNC) seminars, and business opportunities seminars (BOS) aimed at familiarizing prospective consultants, suppliers, and contractors with ADB procedures. In 2008, COSO plans to hold about nine PIA seminars, six DNC seminars, and 15 BOS seminars.

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6. Institutional Governance and Audit

81. Integrity Program. ADB will continue to enhance governance, institute anticorruption measures, and increase accountability in its operations. It also will ensure appropriate use of resources. During 2008, ADB will continue to (i) investigate allegations; (ii) perform procurement-related audits on six projects in selected DMCs; (iii) hold anticorruption seminars to strengthen key institutions; (iv) upgrade auditing capabilities of supreme audit institutions in selected DMCs by involving them in project procurement-related audits; and (v) conduct fraud and corruption awareness training for ADB staff, including those in the resident missions, and executing agencies. ADB also will strengthen its advisory efforts to help operational departments deter or detect fraud or corruption on project-related procurement. 82. Internal Audit. ADB’s audits will be based on its new risk assessment methodology. In recognition of the growth in resident mission operations, comprehensive reviews of more regional/resident missions and representative offices, covering operational, financial, and administrative aspects, will continue. TA grant funds will be audited, so that the required internal audit certifications can be issued for submission to funding agencies. Six to eight selected consultant contracts will be audited to confirm the authenticity of documentation on salaries submitted during contract negotiations and the duration of services rendered. The Office of the Auditor General will continue its periodic reviews of the implementation of ISTS II project. It will continue to participate in an advisory capacity in the fallback tests of Society for Worldwide Interbank Financial Telecommunications (SWIFT), mainframe computer facilities, and Oracle systems, at offshore and local backup sites. 83. Audit Management System. Given the increasing need to conduct audits more efficiently, ADB will consider selecting, purchasing, and implementing a dedicated and specialized IT solution/audit management system to (i) undertake risk assessments; (ii) facilitate structured audit planning; (iii) generate audit reports with clear version controls; (iv) follow-up on audit recommendations; and (v) maintain comprehensive audit repository with easy access.

7. Financial Planning, Policies, Accountability, and Control

84. In 2008, focus will be on supporting the ADF replenishment exercise and optimizing the use of ADF resources; and streamlining business processes and integrating systems platforms to generate efficiencies and improve financial reporting. ADB’s asset and liability management (ALM) will continue to maintain the optimal attribution of the balance sheet for cost-effective operations, and for generating steady allocable income and healthy financial ratios. 85. Treasury Policy and Operations. In 2008, the Treasury Department (TD) will continue to support the ADF replenishment exercise through projections and analysis to determine the size and composition of the replenishment, as well as the impact of increased grant and debt relief. TD will complete an update of the ADF financial policy framework to optimize the ADF resources available for lending. The ADF model also will be modified to factor in the proposed updated financial policy framework. By the second half of 2008, TD will complete the optional conversion of legacy loans under ADF into special drawing rights (SDR). Borrower seminars and workshops will be conducted in all major ADF borrower countries. 86. In 2008, TD also will work closely with relevant departments on reviewing and monitoring the OCR resource position carefully, in recognition of possible resource constraints in the near future. The Board and Management will receive timely reports and updates on the status of financial resources and other related issues through the Asset Liability Management Committee

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(ALCO) mechanism. In relation to this, the OCR financial projection model will be updated to accommodate various analyses, including local currency features, and ADB’s capital adequacy framework will be updated. 87. A new funding management system (FMS) will be fully operational in 2008, after which extension to cover broader TD functions will be considered. This system will replace the legacy borrowing portfolio system, and will allow processing of complex borrowing structures available in financial markets. With the enhancement of loan and debt management products,27 borrower training and service will be emphasized. In 2008, TD will focus on (i) conducting borrower outreach, including providing a toolkit on loans based on the London interbank offered rate (LIBOR); (ii) building capacity to enable ADB borrowers to access ADB’s hedging products; (iii) customizing application of ADB financial products; and (iv) soliciting regular client feedback and developing new financial products. 88. Financial Accountability. Efforts begun in previous years will be continued, specifically related to (i) ensuring an adequate internal control mechanism, (ii) streamlining business processes, and (iii) providing management tools to strengthen accountability and optimize resource management. The priority deliverables for 2008 include the following:

(i) Integrated internal control risk framework. The Controller’s Department (CTL) will continue to implement an integrated internal control framework to enable ADB to provide (a) Management’s assertion on the adequacy of internal controls over external financial reporting, and (b) a basis for introducing an external auditor’s attestation. This will include the facilitation of the risks and controls self-assessments by concerned business units and compliance testing of key controls.

(ii) Implementation of the new FMS. CTL will participate in the implementation of

the new FMS by Treasury. Accounting transactions on borrowing activities eventually will be processed on a single system platform, thereby increasing the effectiveness and efficiency of controls for risk management and reporting.

(iii) Business process reengineering and information system integration. CTL

will undertake initiatives on systems integration, including (a) deployment of a new financial system for resident missions and representative offices; (b) centralization of payroll processing for resident missions and representative offices in headquarters to enhance the controls and compliance with ADB policies; and (c) migration of the staff consultant system to Oracle, thereby providing an integrated system that will reduce the workload of COSO, CTL, and BPMSD staff. A preparation for a comprehensive review of the business processes and related IT systems, specifically for those financial applications in which legacy systems are still being used and for those that are maintained manually, will be undertaken in 2008. This review will lead to a synchronized and integrated system, while reducing the risk of errors in financial reporting. As envisaged, the ADB-wide integrated review and streamlining of business processes will significantly reduce costs and improve efficiency.

27 ADB. 2006. Enhancements for the Asian Development Bank's Loan and Debt Management Products. Manila.

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8. Legal Support

89. Legal support will be augmented to (i) conduct the due diligence work and risk mitigation required to process nonsovereign loans; and (ii) handle the increase in volume of transactions processed by PSOD, as well as the nonsovereign loans to public sector entities that are processed by regional departments. Extensive involvement from the Office of the General Counsel is also warranted to support the increase in bond issuance as part of ADB’s borrowing program, promote standardization of bond regulations in the region, and process proposals for regional bond issues for infrastructure finance.

9. External Relations and Public Communications

90. For 2008, the Department of External Relations will continue to support Management in defining external relations priority areas; strengthening media and relationship building with key opinion makers; raising staff awareness and capacity building through training and better internal communications; improving information dissemination and knowledge products; and ensuring compliance with the Public Communications Policy (2005) disclosure requirements. Its 2008 work program prioritizes (i) strengthening coordination and support for resident mission/representative offices in developing and implementing effective external relations and communications plans, and building relations with target audiences; (ii) rationalizing and enhancing the publishing program; (iii) completing an information dissemination review for field offices, including the role of public information centers; and (iv) continuing enhancements to the ADB website, including development of a content management system. F. Administrative Support

91. ADB will continue to implement the human resources strategy and expedite recruitment. In the area of administrative and IT services, ADB will explore and implement measures that will maintain/improve quality and service levels in a cost-efficient manner.

1. Human Resources Management, Benefits, and Compensation

92. Recruitment. In 2008, ADB will expedite the filling of vacant positions, particularly those aligned with the MTS II priority sectors and themes, in partnership with user departments/offices. ADB also will recruit the 12 new professional staff positions, as well as the new national officer and administrative staff positions, primarily for institutional priorities and the new resident missions, as provided in the 2008 budget (para. 159). Efforts to reduce the hiring time for internal and external recruitment will continue. 93. Human Resources Strategy. After the conclusion of the third year of implementation of the human resources strategy, a comprehensive review will be undertaken with the assistance of external experts. The review also will reflect the findings of the staff engagement survey in 2008 and staff feedback. The results of the strategy review will be shared and discussed with the Board. Based on the outcome of the review, further revisions may be made as needed. 94. ADB plans to increase the number of participants in the Assessment and Development Center (ADC), a systematic talent management process to identify and develop staff with leadership potential. Three sessions are scheduled in 2008, after which about 84% of the target group (i.e., level 6 professional staff who are not close to retirement) would have participated. A 360-degree feedback exercise is conducted and used as input for the development of the participant. The ADC will be supplemented by various in-house training programs targeted at

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professional staff in the pipeline levels (levels 5 and 6) and senior staff (levels 7 to 10) to further develop managerial leadership in ADB. 95. The Learning & Development (L&D) unit will continue to implement staff development strategy action items. L&D programs based on needs analysis will use the curriculum approach, and support skills development in identified key roles. Management of external training will be improved and development database will be updated. Internal specialist resources will support the design and delivery of L&D programs. This approach enables the L&D unit to offer a wide range of operational programs, and sharing of institutional knowledge and experience. Core programs will continue to provide staff with the tools to support personal development in communication, IT capability, and institutional awareness. The program will cost $4.03 million in 2008 ($4.01 million in 2007). Details of L&D activities are highlighted in Appendix 6. 96. Staff Engagement Survey. A staff engagement survey is planned for the first quarter of 2008. An independent consulting firm will develop the survey to measure the level of engagement of ADB staff, as well as their satisfaction levels on important, relevant, and appropriate factors. A cross-section of staff will be consulted in developing appropriate questions and measurement approach. Results of the survey will be available by the second quarter of 2008, and the results of the survey will be a major input for the review of the human resource strategy, aligned to priority areas under ADB’s LTSF. 97. Compensation and Benefits. Key actions planned for 2008 include the following:

(i) a review of the compensation and benefit framework based on the outcome of the review of the human resources strategy;

(ii) completion of the review of the compensation methodology for headquarters national officers and administrative staff, which began in the latter part of 2007;

(iii) full implementation of the leave management system at headquarters and in field offices;

(iv) annual reviews of salaries and benefits for professional staff, national officers, and administrative staff; and

(v) continuation of the review of staff benefit systems and processes to ensure adequacy, responsiveness, and cost-effectiveness of benefits, as well as greater efficiency and better service delivery to clients.

2. Administrative Services

98. During 2008, administrative services will focus on (i) improving business processes through enhanced use of technology to improve the efficiency in service delivery; (ii) exploring further outsourcing opportunities for efficiency gains and cost savings; (iii) modifying information services systems towards e-resources to address the needs of operations departments (Box 6); (iv) supporting the development of a one-stop customer relations management system for administrative services (e.g., facility requests, service maintenance requests) to respond better to client requests for administrative services; (v) improving travel services by introducing competition under a dual agency travel concept; (vi) rehabilitating the aging headquarters building, while maintaining an environmentally friendly work environment; and (vii) maintaining the security and safety programs. In addition, OAS will continue development of an integrated travel processing system, launch the Events Management Unit, and complete the business continuity facility, which is expected to be operational in the second half of 2008. 99. Since 2004, the International Organization for Standardization (ISO) conservation

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program has been in place, generating savings in electricity, water, and paper consumption. In 2007, savings from this program totaled $100,000, which was offset by price increase of utilities. This was in addition to the $117,000 savings achieved in 2006. Conservation measures are expected to continue in 2008. 100. OAS also will continue to apply the Six Sigma28 method to improve the efficiency of its work processes and reduce costs. In 2008, a series of projects that were started in 2007 are expected to generate considerable savings as a result of applying the Six Sigma method. In addition, the completion of the rationalization of transmittal of project files from headquarters to field offices and vice versa, if fully implemented, could result in a significant savings in storage space, freight, and scanning/microfilming processes. The Six Sigma method generates savings for ADB, as well as motivates staff at all levels to continually improve and review business processes, seek efficiency gains across business units, and work in teams to achieve results. A list of some of Six Sigma projects undertaken by OAS with the corresponding amount of savings generated is provided in para. 189, as savings in IAE.

Box 6: Information Resources and Services Action Plan: 2007–2009

In July 2007, the Asian Development Bank (ADB) approved an action plan to reposition the library by aligning and integrating its services to increase its operational focus, and to shift toward electronic resources to ensure information equity. This is expected to significantly increase information and value-added services, as well as the capability to self-serve the information needs of staff and clients with greater responsiveness and relevance. The library also will be used as a collaborative space to feature book launches, thematic exhibits, and other events that support ADB’s knowledge management initiatives. The action plan will promote a shift from print-based materials to a resource base that is 75% electronic by 2009, thereby reducing the requirement for physical storage, inventory, shipping, and subsequent disposal. Substantial savings can be achieved by (i) leveraging technology to transfer project files to resident missions electronically instead of physically, and (ii) assessing the storage needs after disposing of records that have passed retention periods. The latter exercise alone will eliminate the need for offsite storage, immediately saving $20,000 per year once the project is completed. During implementation, eight administrative staff positions are expected to be released for redeployment. In addition, the shift toward electronic resources and records management will save considerable space that can be used for other purposes. This is most apparent with the library’s 2007 consolidation into the west atrium of the bank, which freed up 1,000 square meters of space. An additional 400 square meters will be released following the disposal of thousands of cubic feet of retired records. This freed up space is estimated to generate indirect savings of $336,000 per year in rental costs. Direct savings will be realized by reducing the need to rent offsite space for training, as many of the Human Resources Division’s learning and development activities can be conducted in the space formerly used by the library.

3. Information Services and Technology

101. Improvements of IT Standards and Governance. Priorities in 2008 will continue to be the improvement of IT standards and governance, which will include best practices such as (i) control objectives for information and related technology (COBIT),29 (ii) IT infrastructure library

28 Six Sigma is a business improvement concept that focuses on meeting precise business/client requirements and

eliminating defects from existing processes. 29 COBIT is a set of best practices for information management created by the Information Systems Audit and Control

Association, and the IT Governance Institute. COBIT provides managers, auditors, and IT users with a set of generally accepted measures, indicators, processes, and best practices to assist them in maximizing the benefits derived through the use of IT and developing appropriate IT governance and control in an organization.

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(ITIL)30, (iii) information technology information and data security management31, and (iv) IT project and portfolio management. 102. Office of Information Systems and Technology (OIST) will continue to monitor and review the IT trends and employ the necessary technology to modernize the IT capability of ADB. The areas that will need to be enhanced include accessibility in multimedia, multi-channel modes, mobility, and collaboration technologies. 103. OIST’s operational practices, contracts, and technology architecture will be reviewed to improve efficiency and effectiveness, while avoiding the increase of expenditure even with rising demand and expanding scope of IT services. Efforts to upgrade the ability of OIST staff will continue to fill the skills gap, and to ensure the effective implementation of new technologies and operational best practices for higher IT standards. Optimization of staff resources will continue to be explored in the form of consolidation of positions, as well as resource reallocation, redeployment, and outsourcing, where possible. G. Resourcing the 2008 Work Program

104. The formulation of the proposed staff and internal administrative expense budget was based on the work programs for 2008, as summarized in the WPBF (2008–2010) and discussed with the Board of Directors on 27 September 2007. To the extent feasible, the guidance provided by the Board during that meeting was incorporated into the preparation of the 2008 budget. The 2008 work program was prepared in the context of a transition year as 2008 marks the end of MTS II, and prepares for the outcomes of the LTSF review and ADF X negotiations. Establishing priorities for the work program was a challenge due to the diverse requirements of DMCs, with several undergoing dynamic changes and robust economic growth, which has resulted in a shift in the requirements for assistance. 105. In developing the internal resource framework, the following factors were taken into account: (i) incremental and new cost drivers arising from the work program, (ii) new and ongoing policies and strategies, and (iii) expected activities to be discontinued and efficiency measures to be taken to minimize demand for resources.

1. Incremental and New Cost Drivers

106. The incremental and new cost drivers in 2008 are discussed in paras. 107–114. 107. Portfolio Management. The emphasis will be on reducing at-risk projects, closely monitoring project implementation for prompt disbursements, and optimizing the division of labor for project administration between headquarters and resident missions. The number of ongoing projects in public and private sector will increase in 2008. 108. Lending. ADF and OCR resources will be deployed to address the needs of diverse regions through tailored assistance programs. Policy and financing assistance will be provided to meet DMCs’ demands for investment and advisory support. ADB will explore ways to meet the demand for infrastructure financing, including nonsovereign lending and public–private 30 ITIL is a framework of best practice approaches intended to facilitate the delivery of high-quality IT services. ITIL

outlines an extensive set of management procedures that are intended to support businesses in achieving quality and value for money in IT operations.

31 Implementation of the ADB-wide information and data security program will start, focusing on balancing the need for information protection and knowledge sharing.

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partnerships, where feasible. 109. Growth in Private Sector and Nonsovereign Public Sector Operations, and Increased Use of Credit Enhancements. Projects with new and innovative designs and financing modalities will require more attention in preparation and implementation. Aside from direct requirements, these products also require increased staff and budgetary resources for risk management oversight and legal due diligence. The diversification of private sector operations will have an impact on its demand for budgetary resources. 110. Support to Weakly Performing Countries. Support to WPCs will be enhanced in recognition of the need for effective governance and increased capacity of key agencies in WPCs. Approved approaches to WPCs, as outlined in Achieving Developing Effectiveness in Weakly Performing Countries,32 will be implemented. 111. Capacity Development. Public finance and economic management will be strengthened, and the institutional capacity of DMCs will be improved to support good governance. This activity will be funded primarily through TAs. 112. Risk Management. ADB’s risk management framework will be developed given the growth in ADB’s private sector and subsovereign lending. ADB’s capital adequacy policy will be reviewed, strategic limits for nonsovereign operations will be established, and an automated portfolio management system will be implemented. 113. Operations in New Member Countries. Timely provision of financing to meet the development needs of new member countries (e.g., Armenia, Georgia, and Palau) and the emerging needs for assistance to Turkmenistan will generate demand for budgetary resources, especially for staff travel and administrative expenses to maintain presence in the countries. 114. Review of LTSF and ADF X. The review of LTSF and ADF X negotiations will continue to require a number of time-bound tasks to be completed, including prioritization and implementation of follow-up activities.

2. New and Ongoing Policies and Strategies

115. Most of the policies and strategies developed by ADB over the past few years are being implemented in phases, requiring an incremental amount of staff and budgetary resources in each year of implementation. In some cases, initial implementation was funded through the use of TAs, as some of the work involved and is intended to benefit the DMCs. A sample of these recently approved policies, strategies, and special capital expenditure projects adopted before or during 2007 are presented in Box 7. The list is not intended to be exhaustive, but is being presented to provide some indication on policies, strategies, and initiatives that have had budget implications beginning from its year of approval.

32 ADB. 2007. Achieving Development Effectiveness in Weakly Performing Countries (The Asian Development

Bank’s Approach to Engaging with Weakly Performing Countries). Manila.

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Box 7: Policies, Strategies, and Initiatives with Budget Implications, 2008

Policies:

Integrating Capacity Development into Country Program and Operations, Medium-Term Framework and Action Plan (2007)

Regional Cooperation and Integration Strategy (2006) Review of ADB’s Credit Enhancement Operations (2006) Second Governance Anticorruption Action Plan (GACAP II) (2006) Achieving Development Effectiveness in Weakly Performing Countries (ADB’s Approach to

Engaging with Weakly Performing Countries (2007) Strategies:

Medium-Term Strategy II (2006) Financing Partnership Strategy (2006) Enhancing ADB Support to Middle-Income Countries and Borrowers from Ordinary Capital

Resources (2006) Private Sector Development: A Revised Strategic Framework (2006)

Capital Expenditure Projects:

Business Continuity Facility (2005) Information Systems and Technology Strategy II (2004) Loan Accounting System and Asset Liability Management System (2002) Rehabilitation of ADB’s Headquarters Building and Enhancement of Security (2004)

3. Phase-Out of Select Activities and Introduction of Efficiency and Productivity Measures

116. To help mitigate the impact of cost pressures arising from cost drivers and implementation of recently approved policies, strategies, and initiatives, ADB has attempted to introduce efficiency and productivity measures (paras. 184–193), while phasing out select activities. These encompass the following:

(i) Upfront and early involvement in improving quality through project design is expected to reduce project administration costs substantially.

(ii) Spring cleaning (portfolio cleanup) exercises can free up some resources, which

then can be diverted towards project administration requirements arising from an expanding portfolio.

(iii) Streamlining procedures proposed under the TA reforms will result in savings, but

this will be partly offset by increased resource requirements to improve TA quality and implementation.

(iv) Collaboration among development agencies to jointly prepare economic, sector, and

thematic studies at the country or regional level also will reduce the staff time and budget needed to prepare the resource-intensive country or regional strategies.

(v) Some programs will be completed, phased out, or scaled down in 2008 (Box 8).

34 34

117. In addition, resource savings are expected from (i) IT automation; (ii) review of business processes under ISTS II, which will reduce duplication and repetitive steps; (iii) greater use of the much-improved audio- and videoconferencing facilities to help address the rising cost of business travel; and (iv) additional opportunities to outsource administrative and non-core logistic activities, when appropriate and cost effective. IT system improvements will help ADB deploy more staff to operations relative to non-operational areas. Complementing the efficiency improvement efforts, staff capacities will be improved through the ongoing skills assessment exercise, as well as better tailoring and targeting of staff learning and development modules. Chapter 6 describes in more detail the resource framework for 2008, including estimated savings from discontinuation of activities and efficiency/productivity measures. 118. The budgetary implications arising from the LTSF review will be better understood towards the middle of 2008, as its impact on the 2008 budget period and beyond becomes clear. To mitigate the impact on the budget, various options will be considered, which may include organizational changes and staffing alignment.

Box 8: Activities Planned to Be Completed, Phased Out, or Scaled Down, 2008

Activities Completed or Phased Out Knowledge Management

• Review of Transport Sector Policy will be completed • Closure of National Poverty Reduction Strategy Fund and Poverty Reduction Cooperation Fund • Study/research on participation and preparation of country profiles of nongovernmental

organizations • Preparation of the 3-year knowledge products and services (KPS) work program discontinued

Planning and Policies

• TA operations review • Negotiations for ADF X • Discontinuation of centralized support for results-based management to prepare CPS and RCS

Activities Downscaled Operations

• Discontinuation of the annual updates of country/regional strategies and programs to be traded off with less frequent midterm reviews of the country/regional strategies and brief annual country/regional operations business plans

Operations Support

• Operations departments and COSO streamline and lower the number of meetings to select and recruit consultants. COSO and Operational Departments will reduce the time required to engage consultants with the introduction of the indefinite delivery contract (IDC)

Knowledge Management

• Department of External Relations and Office of the Secretary reduce the circulation of paper documents for the Annual Meeting

• Research work on international comparison program will be completed, but will be continued with follow-up diagnostics

• Scaled down support by the knowledge management help desk. Its functions to be consolidated with the library’s work program.

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IV. OPERATIONS EVALUATION AND ACCOUNTABILITY

A. Operations Evaluation

119. The Operations Evaluation Department (OED) will continue to emphasize its developmental role and make development impact a more explicit consideration for operational decisions. OED has made efforts to ensure that topics included in its work program are strategically relevant to ADB and its DMCs and sequenced properly so that findings and recommendations are provided in a timely manner. The 2008 indicative outputs designed to meet the twin objectives of accountability for results and performance improvement are in Box 9. Of the 39 evaluation reports included in the work program, 30 will be completed in 2008 and 9 will be carried over to 2009. Combined with the evaluation reports that were initiated in 2007, 44 reports will be delivered in 2008. In addition to the evaluation reports and studies, OED will continue validation of all project/program completion reports and selected CPS completion reports. Moreover, OED continues to provide feedback to operations departments through comments on operational documents and participation in management review meetings. 120. With the establishment of its own knowledge management unit in 2007, OED has improved significantly the promotion and dissemination of its evaluation products. It also has developed measurable indicators for monitoring progress toward ADB becoming a learning organization. In 2008, OED will continue the knowledge products and services introduced in 2007: (i) evaluation information system, a database of evaluation lessons, recommendations, and actions, with Management responses to recommendations of evaluation reports, providing users with an easily accessible source of searchable evaluation information, employing various parameters to refine a search; (ii) Success Rate brochures dedicated to raising awareness of highly successful projects and programs; (iii) Learning Curve series aimed at disseminating findings and recommendations of operations evaluation at ADB; and (iv) OED’s Inquiry Desk, which responds to internal and external queries about evaluation products and services. OED will also introduce a sector summation series that will synthesize evaluation by sector in a clear, concise manner. Initially, the focus will be on the transport, energy, education, and irrigation/drainage. 121. OED will continue participating in the activities of the Evaluation Cooperation Group (ECG), which include (i) harmonization, benchmarking, and good practice standards for evaluation of public and private sector operations, country strategies, and TA; (ii) joint evaluations; (iii) meta-evaluations; (iv) peer reviews of evaluation functions of ECG members; and (v) ECG website. OED is leading the preparation of good practice standards for country assistance evaluation, and is also responsible for maintaining the ECG website.

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Box 9: Operations Evaluation Department Work Program for 2008 with Indicative Outputs

Independent Evaluation for Maximizing Development Effectiveness Annual Reports – flagship publications of the Operations Evaluation Department (OED).

• Annual Evaluation Review • Annual Report on Actions Taken on Recommendations • Annual Report on Portfolio Performance

Country Assistance Program Evaluations (CAPEs) – evaluate all operations of the Asian Development Bank (ADB) in a country or region. Generally timed to feed into the preparation of country partnership strategy (CPS). Validations of CSP completion reports are carried out for small programs where a CAPE is not justified.

• CAPEs for Mongolia, Nepala, Philippines, Tajikistan, and Viet Nama • CPS completion report validations for Cook Islands, Fiji Islands, Federated States of Micronesia, Samoa,

Tajikistan, and Timor Leste Evaluation of Regional Cooperation and Integration Strategies – new product to be introduced in 2008.

• Regional Cooperation in Greater Mekong Subregion Sector Assistance Program Evaluations (SAPEs) – evaluate ADB operations in one sector in one country.

• ADB’s Operations in Support of Urban Services in Viet Nam • ADB’s Agriculture and Natural Resources Sector Operations in Nepal • Urban Services in Bangladesh

Special Evaluation Studies (SES) – look at operations from a cross-country perspective by sector or theme, as well as evaluate the impact of operations policies, modes, and business processes on the performance of operations.

• ADB’s Support for Public Financial Management and Public Sector Reform in the Pacific • Effectiveness of ADB Assistance to Rural Infrastructure and Inclusive Development • Effectiveness of TA in Support of Environmental Management • Special Evaluation Studies of Operations Policies, Modalities, and Business Processes • Effectiveness of Selected Well-Established ADB Knowledge Products and Services

Rigorous Impact Evaluation – deploys rigorous impact evaluation techniques. • Pakistan Community Water Supply and Sanitation Projecta

Evaluation Updates and Briefs – draw on earlier OED studies and update these to meet specific needs for current information on the topic.

• Update: Evaluation of the Mid-Term Review Process (1998 SES) • Update: Success Factors in Financial Intermediation Operations • Update: Gender and Developmenta • Brief: Issues and Lessons from Transport Sector Assessments • Brief: Issues and Lessons from Middle Income Country Evaluationsa

Real-Time Evaluations – designed to look at ongoing operations in a country or sector. • Assessment of Design and Monitoring Framework Quality • ADB’s Multitranche Financing Facility: A Preliminary Assessment • Evaluation Case Studies of Procurement and Consultant Recruitment

Project/Program Performance Evaluation Reports (PPERs) for Sovereign Operations • Purposeful sample of 10 PPERs in various sectors and countries

Evaluation of Nonsovereign Operations • Public/Private Partnership for Infrastructurea

• Purposeful sample of 3 PPERsa

Knowledge Products – Continuation of Learning Curve and Success Rate series, and introduction of Sector Summation series (with focus on transport, energy, education, and irrigation/drainage sector) Others Activities include:

• Completion of 14 evaluation reports that began in 2007, comprising 1 SAPE, 5 SESs,1 evaluation update, 3 PPERs, and 4 evaluations of nonsovereign operations

• Validation of 60 project/program completion reports • Revisions and development of new guidelines • Evaluation capacity development • International networking and joint evaluations

--------------------------------- a For completion in 2009.

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B. Accountability Mechanism

122. The core problem-solving activities of the Office of the Special Project Facilitator (OSPF) in 2007 included: (i) review and assessment, stakeholder consultation, and monitoring of remaining issues on the National Highway Development Sector Investment Program 33 in Pakistan; (ii) complaint on GMS Mekong Tourism Development Project34 in Vietnam, which was declared ineligible after an eligibility check in the field; (iii) complaint on Urban and Environmental Improvement Project35 in Nepal, which was considered premature and ineligible after a field visit; and (iv) a recently received complaint on GMS Phnom Penh to Ho Chi Minh City Highway Project36 in Cambodia. OSPF conducted outreach activities in Viet Nam, Lao People’s Democratic Republic, and Bangladesh. In the interest of synergy and cost effectiveness, sessions on complaint management were conducted in Thailand and Sri Lanka jointly with COSO. OSPF’s field guide for nongovernment organizations and project-affected people has been translated into 12 languages. OSPF published its 2006 Annual Report in March 2007. 123. In 2008, OSPF plans to conduct outreach in two or three countries, as well as continue with its headquarters-based orientation sessions with BPMSD and COSO. As the work of OSPF is driven by external demand, it cannot be precisely predicted or resourced. However, based on experience and existing staff resources, OSPF may be expected to cope with two or three full complaints. Other activities related to disseminating lessons learned and generic advice to operations departments would continue along the same lines as in 2007. In 2008, OSPF also plans to undertake staff development activities in conflict resolution and management of complaints. 124. In 2007, the Compliance Review Panel (CRP) continued to monitor the implementation of Board-approved remedial actions on the Southern Transport Development Project (STDP)37 in Sri Lanka and the Chashma Right Bank Irrigation Project Stage III (Chashma Project)38 in Pakistan. The CRP, after consulting with the Board Compliance Review Committee (BCRC), will issue to the Board its annual monitoring reports on ADB Management's implementation of the Board-approved remedial actions on the STDP and the Chashma Project. The CRP conducted outreach activities outside and within ADB on the accountability mechanism with Board members, ADB personnel, governments, civil society, and the private sector. The CRP also engaged civil society groups on the operation of the accountability mechanism. The CRP also made presentations at the 4th meeting of Accountability Mechanisms of the International Financial Institutions. Materials such as information brochures and CRP operating procedures have been translated in 20 national/official languages of ADB member countries. 33 ADB. 2005. Report and Recommendation of the President to the Board of Directors on a Proposed Multitranche

Financing Facility and Proposed Loan to the Islamic Republic of Pakistan for the National Highway Development Sector Investment Program. Manila.

34 ADB. 2002. Report and Recommendations of the President on Proposed Loans to the Socialist Republic of Viet Nam for the Greater Mekong Subregion: Mekong Tourism Development Project. Manila

35 ADB. 2002. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Nepal for the Urban and Environment Improvement Project. Manila.

36 ADB. 1998. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Cambodia for the Ho Chi Minh City-Phnom Penh Highway Improvement Project. Manila.

37 ADB. 1999. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Democratic Socialist Republic of Sri Lanka for the Southern Transport Development Project. Manila.

38 ADB. 1991. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and Technical Assistance to the Islamic Republic of Pakistan for the Chashma Right Bank Irrigation Project (Stage III). Manila.

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125. In 2008, the CRP will carry out its monitoring mandate under the STDP and the Chashma Project inspection request. The CRP’s work program for requests and for monitoring responds mainly to external demands. In addition to new requests for compliance review, the Office of the Compliance Review Panel (i) disseminates information and conducts public outreach regarding the ADB accountability mechanism and the functions of OSPF and CRP, both within ADB and in member countries; (ii) provides advice and guidance to potential requesters; (iii) provides secretarial assistance to BCRC; and (iv) produces annual reports for CRP and BCRC.

V. FINANCIAL RESOURCES

A. Ordinary Capital Resources and Asian Development Fund

1. Financial Policy Initiatives

126. The focus in 2007 was on the operational implementation of the ADB’s updated financial policy framework, including the Asset and Liability Management Policy, 39 Liquidity Policy, 40 Investment Strategy and Authority,41 and enhancements to LIBOR-based loan products.42 The Treasury Department (TD) continues to develop and refine the new ADF currency projection and SDR rebalancing model to provide analytical input to the ADF X replenishment exercise, as well as to manage the new ADF SDR currency regime approved by the Board in 2005.43 The conversion of legacy pool-based single currency loan to LIBOR-based loans is ongoing. 127. ADB has reported to the Board of Directors that, based on WPBF (2008–2010) lending projections, resources under OCR may face constraints in the near future. Therefore, TD will need to work closely with all relevant departments and monitor the resource position carefully. TD will provide the Board and Management with timely reports and updates regarding the status of financial resources and other related issues through the ALCO mechanism. TD also will work with RMU in updating ADB’s capital adequacy framework in early 2008. 128. The ALCO played an important supervisory role in 2007, meeting regularly to discuss and review financial performances and ALM policies and operations. Asset and liability classes in the balance sheet have been updated and adjusted, as appropriate. The most critical change was the implementation of preferential allocation of least-cost funding to loan pools to benefit borrowers. ALM attribution and analysis continued to focus on managing key financial ratios and limits. Closer monitoring of private sector portfolios resulted in better projections on divestment income. 129. In March 2007, a review of ADB’s loan charges and allocation of 2006 net income44 recommended (i) allocating $286.2 million to ordinary reserve, (ii) allocating $286.2 million to surplus, (iii) transferring $40 million to ADF, and (iv) transferring $40 million to the Regional Cooperation and Integration Fund. All OCR borrowers in good standing under ADB’s sovereign operations were granted the following waivers: (i) 20 basis points (bps) of the lending spread on loans outstanding that carry a spread of 60 bps, applicable to all interest periods starting 1 July

39 ADB. 2006. Asset and Liability Management Policy of the Asian Development Bank. Manila. 40 ADB. 2006. Review of the Asian Development Bank’s Liquidity Policy. Manila. 41 ADB. 2006. Review of the Asian Development Bank’s Investment Strategy and Authority. Manila. 42 ADB. 2006. Enhancement for Asian Development Bank’s Loan and Debt Management Products. Manila. 43 ADB. 2005. Asian Development Fund Currency Management Proposal. Manila. 44 ADB. 2007. Review of the Asian Development Bank’s Loan Charges and Allocation of 2006 Net Income. Manila.

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2007 up to and including 30 June 2008; (ii) the entire 1% front-end fee on all new loans approved from 1 July 2007 up to and including 30 June 2008; (iii) 10 bps of the commitment charge on the undisbursed loan balances of project loans negotiated after 1 January 2007, applicable to all interest periods starting 1 January 2007 up to and including 30 June 2008; and (iv) 50 bps of the commitment charge on the undisbursed loan balances of program loans, applicable to all interest periods starting 1 January 2007 up to and including 30 June 2008.

2. Funding, Financial Products, and Client Service

130. [This information was deemed confidential according to paragraph 126 of ADB’s Public Communication Policy].45

131. Of the total long-term borrowings, $2 billion was raised through two global US dollar bond issues, $2.80 billion through 40 issues targeting the Japanese retail market, $1.32 billion through 35 callable structured notes targeted at institutional investors in Japan, $654.24 million through five local currency issues, and $1.75 billion through six public bond issues. Based on projections for net cash requirements during the remainder of 2007, and subject to market conditions, it is expected that ADB will undertake additional borrowings totaling about $100 million–$500 million. 132. In August 2007, ADB inaugurated its first Kazakhstan tenge bond issue with a 5-year maturity and a coupon of 6.80% per year, with a principal amount of T6 billion (equivalent to $48.6 million). Proceeds of the bond issue were used to fund an ADB private sector project in Kazakhstan. This transaction was a first for the Kazakhstan tenge market in several aspects: (i) first issue by a supranational, (ii) first issue rated triple-A by Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s, and (iii) first tenge issue in the international capital markets. 133. Of the 2007 borrowing proceeds, $4.70 billion was designated for US dollar LIBOR-based loans, $3.20 billion for US dollar pool-based single currency loans, ¥261,038 million for yen-denominated pool-based single currency loans, $787.1 million to the discretionary liquidity portfolio, T6 billion for a private sector project in Kazakhstan, and $615.67 million for short-term market presence. 134. [This information was deemed confidential according to paragraph 126 of ADB’s Public Communications Policy].

3. Investment Operations

135. While the OCR portfolio totaled $15.9 billion as of 30 September 2007, the discretionary liquidity portfolio decreased to $2.4 billion in 2007 from $3.8 billion at the end of 2006.

45 [This information was deemed confidential according to paragraph 126 of ADB’s Public Communication Policy].

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136. As of 30 September 2007, OCR prudential liquidity portfolio investments, which are denominated in 19 currencies, totaled $9.0 billion with an average duration of 2.05 years. The largest concentration of the portfolio was in US dollars (59%), followed by euro (7%). The size of the cash cushion portfolio was $3.4 billion (duration of 0.07 years), and the size of the operational cash portfolio was $ 0.4 billion (duration of 0.01 years).

137. In 2008, ADB’s liquidity will continue to be managed effectively with the view to (i) maximizing the return across all portfolios for the designated authorized level of risk, (ii) maximizing the utilization rate of the existing portfolio holdings for securities lending operations, and (iii) outperforming the return on investments compared to relevant benchmarks while maintaining the value of the principal.

4. OCR Income Projection

138. [This information was deemed confidential according to paragraph 126 of ADB’s Public Communications Policy]. 46

139. [This information was deemed confidential according to paragraph 126 of ADB’s Public Communications Policy].

5. ADF Resources and ADF Replenishment

140. ADF IX commitment authority47 for 2005–2008 was estimated at SDR5.3 billion as of 30 September 2007. The sources are (i) reflows-based resources or the expanded advance commitment authority (SDR2.5 billion), (ii) donor contributions (SDR2.1 billion), (iii) carryover of unused commitment authority from the previous replenishment (SDR80.4 million), (iv) transfers from OCR net income (SDR102.8 million), and (v) direct use of resources from loan savings and cancellations (SDR516.5 million).48 A commitment authority for 2007 is estimated at SDR1.8 billion, subject to annual loan savings and cancellations reaching SDR268 million. 141. In preparing for the ongoing ADF replenishment negotiation, ADB will update the ADF financial policy framework 49 to optimize the ADF resources available for lending, while preserving financial prudence and integrity. TD will also continue to refine SDR currency and liquidity management practices for ADF, offering borrowers the option to convert legacy loans to SDR 50 currencies. This will be done through seminars and workshops in ADF borrowing

46 [This information was deemed confidential according to paragraph 126 of ADB’s Public Communication Policy]. 47 Commitment authority means funds available for commitment. 48 To ensure that the currency mismatch between ADF resources and commitments will not impede the

disbursements, the current financial framework sets aside 6.5% from all of these sources, except for reflows-based resources, as a provision for disbursement risk. With the new SDR-based currency management framework, the provision for disbursement risk is subject to revision as part of the ADF financial framework review during 2007–2008.

49 The new ADF financial policy framework is expected to be approved in December 2007. 50 ADB. 2007. Special Drawing Rights Conversion Option for Legacy Asian Development Fund Loans. Manila.

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member countries, which will be conducted in 2007 and 2008. 6. ADF Income Projection

142. [This information was deemed confidential according to paragraph 126 of ADB’s Public Communications Policy]. 51

B. Cash Management and Cash-Flow Projection

143. Cash management is an important function involving forecasting a reliable cash flow and maintaining timely and adequate funds to meet loan disbursements, debt service payments, and administrative expenses. This is also essential in planning for effective funding and investment operations, and asset and liability management. In the absence of an enterprise-wide computer system, forecasting cash inflows and outflows continues to remain a challenge. However, through close coordination with operational departments, best estimates are being made to meet funding requirements. C. Grant Funds Management

1. Technical Assistance Special Fund

144. As of 30 September 2007, cumulative TASF resources totaled $1,357.4 million, comprising (i) direct voluntary contributions ($88.8 million); (ii) TASF portions of contributions from ADF V ($72.3 million), ADF VI ($140.8 million), and ADF IX ($212.6 million); (iii) allocation from OCR net income ($683.0 million); (iv) income from loan recoveries and TASF investments ($163.4 million); and (v) transfers out of TASF to ADF ($3.5 million). TASF resources utilized as of 30 September 2007 totaled $1,146.8 million, leaving an unutilized balance of $210.6 million. 145. The size of the TA program for 2008–2009 is planned between $260.0 million and $300.0 million (Table 12). The major sources of TA funding are from the TASF, JSF, and other fund sources, primarily comprising thematic or country-specific bilateral trust funds. During replenishment of ADF IX, it was agreed between the donors and ADB that 7% of ADF contributions will be transferred to TASF when payments are made. In 2009, TASF from donor contributions will depend on the results of donor discussions in connection with ADF X. 146. The resource surplus is estimated to be $6.0 million for 2007, and resources are sufficient for 2008 to cover the TA program for 2008–2009.52 Proposals to transfer OCR income to TASF are presented to the Board yearly, subject to annual availability. The JSF program is subject to annual confirmation by the Government of Japan. 147. TASF and JSF resources will total $152 million for 2008, financing 54% of TA program in that year. For 2009, TASF and JSF resources will total $162 million, financing 56% of the total TA program in that year. The rest of the resource requirements will be funded from TA savings and cancellations, and other bilateral sources.

51 [This information was deemed confidential according to paragraph 126 of ADB’s Public Communication Policy]. 52 TA program estimated is $280 million for 2008 and $290 million for 2009, which are within the $260 million–$300

million range.

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Table 12: Actual and Planned Financing of Technical Assistance Operations, 2006–2009 ($ million)

Total

Item 2006 2007 2008 2009 2008-2009

A. TA Program 242 295 280 290 570B. Financing Sources 1. Existing Resources in TASF 12 41 41 41 82 2. New Contributions 61 51 47 56 103 3. OCR Net Income Transfer 20 0 0 0 0 4. Reuse of Core Resources a 9 9 9 9 19 5. Total TASF (1+2+3+4) 103 101 97 107 204 6. JSF 57 80 55 55 110 7. Other Sources 93 120 128 128 256 8. Total TA Resources (5+6+7) 252 301 280 290 570C. Resource Funding Gap (B-A)b 10 6 0 0 0Numbers may not sum precisely because of rounding.JSF = Japan Special Fund, OCR = Ordinary Capital Resources, TA = Technical Assistance, TASF = Technical Assistance Special Funda Savings/cancellations from TASF. b Funding surplus will be used to fund future operations. Source: Asian Development Bank's Treasury Department.

Actual Planned

2. Japan Special Fund

148. As of 30 September 2007, the Government of Japan had contributed ¥138.5 billion ($1,137.8 million) to the JSF since the fund was established on 10 March 1988. This includes regular contributions of ¥92.9 billion ($772.3 million), supplementary contributions of ¥18.1 billion ($150.8 million), and the Asian Currency Crisis Support Facility (ACCSF) of ¥27.5 billion ($214.7 million). With the fulfillment of its purpose, the Government of Japan and ADB agreed to terminate ACCSF on 22 March 2002. At the request of Government of Japan, ¥11.6 billion (about $90 million) was transferred from ACCSF to the Japan Fund for Poverty Reduction and with this transfer, the balance contribution in ACCSF is $124.7 million. In addition, $1.0 million was transferred from JSF investment income to the Cooperation Fund for Regional Trade and Financial Security Initiative in July 2004. 149. Of the total JSF contributions of $923.1 million, $920.1 million had been utilized for TA as of 30 September 2007. Of the total ACCSF contribution of $124.7 million, $55.7 million had been utilized for interest payment assistance and $40.0 million for TA.

3. Trust Funds

150. The mobilization of external grant resources continues to play an important role in complementing ADB’s own resources to fund TA and investment programs. As of 30 September 2007, ADB is administering about 38 active trust funds. ADB uses these funds for TA in areas such as poverty reduction, governance, gender and development, MfDR, HIV/AIDS, water, energy, education, information and communications technology, trade and finance, and emergency assistance. Some of these trust funds also provide grants to complement ADB’s assistance to projects. Appendix 7 summarizes the status of some of these funds.

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151. In line with ADB’s Financing Partnership Strategy, 53 ADB established a number of partnership arrangements. These partnerships combine financing sources to offer solutions to clients, enabling cofinancing in a coordinated, sustained, and predictable manner, to achieve an agreed set of objectives. In 2007, ADB established the clean energy financing partnership facility (Box 10), and the regional cooperation and integration financing partnership facility. Appendix 7 summarizes the status of established financing partnership arrangements.

Box 10: Clean Energy Financing Partnership Facility

The objective of the clean energy financing partnership facility (CEFPF) is to improve energy security in developing member countries and slow climate change through increased use of clean energy. CEFPF will supplement the resources of the Asian Development Bank (ADB), including its Asian Development Fund, ordinary capital resources, and Technical Assistance Special Fund, to catalyze and facilitate greater investments in clean energy, and to meet the Energy Efficiency Initiative (EEI) target of $1 billion a year for 2008–2010. CEFPF consists of a multidonor trust fund, a series of bilateral trust funds,54 and framework agreements with other development partners for cofinancing, knowledge sharing and risk sharing.

CEFPF funds will also be used for grants and technical assistance to support business/financial advisory and engineering services to develop clean energy projects for financing, and commercialize, and to replicate new clean energy finance instruments. Support for other nonlending measures (i.e., policies, regulations, standards, and institutional capacity building) may be undertaken selectively. CEFPF partners will directly help to improve the lives of millions of people, as well as make a significant contribution to achieving the Millennium Development Goal targets, through support for pro-poor project design, sub- and nonsovereign financing, and greater use of clean energy. Additional support from development partners will help catalyze investments with high development impact, innovation, and demonstration value, while advancing reforms and capacity development in clean energy. At the same time, CEFPF provides an opportunity for development partners to increase donor harmonization, realize efficiency gains and joint impact, and improve transparency in the preparation and implementation of clean energy activities. Having received contribution pledges from the governments of Australia and Japan, ADB will continue discussions with other interested donors and implement CEFPF through 2008.

VI. 2008 BUDGETARY RESOURCES

152. The 2008 budget provides the staff, operational, administrative, and capital expenditure resources required to deliver the work program for FY2008. 153. Section A summarizes staff resource requirements and allocation. Section B provides an overview of the budget and highlights the proposed 2008 internal administrative expense budget by expense categories, including a variance analysis of major line items. Section C highlights the savings anticipated to be generated in 2008. Section D presents the expenditures by program category, and Section E summarizes the implementation arrangements of the budget carryover, beginning in 2008. 53 ADB. 2006. ADB’s Financing Partnership Strategy. Manila. 54 In line with ADB’s Financing Partnership Strategy, approved by the Board on 18 July 2006, to decrease the

proliferation of funds, ADB is encouraging donors to put their resources in the multidonor trust fund for increased efficiency and efficacy.

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154. The 2008 budget was formulated taking into consideration the strategic context (paras. 2–6) and the work programs submitted by departments and offices, which are elaborated upon in the WPBF (2008–2010). The emphasis is on the 2008 programs, as provided in chapters III and IV. A summary on resourcing the work program is presented in paras. 104–118. A. Staff Resource Requirements and Allocation

155. The MTS II (2006–2008) has been a transitional strategy to pave a way for alignment of ADB’s approach to the rapidly developing Asia and Pacific region, pending a review of the LTSF against the emerging regional trends. In this strategic context, ADB has managed to contain increases in budgetary and staff resources despite steady operational growth. This has been achieved through a combination of selectivity, streamlining and accelerating business processes, and the organizational realignment in 2006. Over the past 2 years, ADB has focused on consolidation and redeployment of resources to MTS II priorities, and this approach will continue in 2008. 156. 2006: Interdepartmental Redeployment with No Staff Addition. At the beginning of MTS II implementation, ADB undertook three major staff position redeployment measures: (i) sequestration, (ii) enhanced separation program (ESP), and (iii) realignment of regional departments. The sequestration redistributed 30 vacant positions across ADB to the priority areas (i.e., private sector development, and regional cooperation and economic integration). The ESP enabled intradepartment redeployment and/or reprioritization of 28 professional staff and 55 local staff positions and their specializations. The realignment improved the work load balance and economies of scale across regional departments.

157. 2007: Intradepartmental Redeployment with Modest Staff Additions. The redeployment measures in 2006 created a better basis to plan and manage staff positions to support the subsequent MTS II implementation. In 2007, ADB prioritized strengthening of the operations departments, focusing on three key MTS II thrusts: catalyzing investment, supporting WPCs, and maximizing results on the ground through enhanced portfolio management. To support these priorities, ADB (i) redeployed/outposted four additional professional staff positions from headquarters to resident missions; (ii) added 12 professional staff positions to MTS II priority sectors and 30 local staff positions to resident missions; and (iii) adjusted the skills mix through changes in specializations of 49 positions (Table 13), permitting a net increase of 14 positions supporting the MTS II group I sectors.

Table 13: Changes in Specialization of Professional Staff Positions (January–October 2007)

Group Group Group Thematic Other Total1 2 3

Changedfrom (13) (13) (1) (4) (18) (49)

Converted to 27 7 0 4 11 49Net Change 14 (6) (1) 0 (7) 0

MTS II Sector Group

( ) = negative, MTS II = medium term strategy II.

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158. 2008: Key Tasks and Approaches. ADB has improved markedly in the areas where resource allocations have been prioritized during the first 2 years of MTS II—i.e., the performance of ongoing portfolio (as measured by disbursement and at-risk project ratio), and ADB’s new commitments in the infrastructure and private sector operations. In 2008, ADB has a challenging task to sustain and build on these achievements, and to place the organization on a strong foundation capable of implementing the updated LTSF. Box 11 summarizes the key work program content against which the 2008 budget was formulated. Staff planning for 2008 considered the following factors:

(i) Staffing requirements. Operations departments tasked with higher-level and more complex programs indicated high level of requests for additional staffing. At the same time, operations support departments absorbing increased disbursement and contract management activities as a result of operational growth also requested additional staff inputs. Staff gap analysis, based on staff coefficients, was carried out to validate departmental requirements.

(ii) Priorities. Pending the conclusion of the LTSF review, ADB will continue to

maintain a moderate staffing increase for 2008 by prioritizing support to operational requirements in three areas: (a) coordination of approaches to WPCs whose needs are unique and require customized assistance; (b) infrastructure operations, which require expanded and technically advanced staff; and (c) new member countries, as well as to absorb greater portfolio management responsibilities.

(iii) Shared requirements of policies and operational needs. In planning

resources for these priorities, ADB has taken a holistic view to ascertain that the net incremental resources simultaneously meet the needs of the respective departments/offices and a number of important policies and initiatives. Several of the ongoing policies and initiatives, such as the expected increase in investment in infrastructure and promotion of private sector participation, nonsovereign products, MFF, and other financing partnership mechanisms, are interrelated and share common skills and specialization requirements. This interrelation and complementarity have been maximized in resource allocation. Instead of separately resourcing each policy/initiative, resources are aggregated around cross-cutting areas (Table 14).

46 46

Box 11: Highlights of 2008 Program and Initiatives Central Asia: • Start of operations in new member countries; projected higher lending program, primarily in Pakistan; and active

use of the multitranche financing facility (MFF). • Projected increase in disbursement, and integrated portfolio clean-up through stronger headquarters–resident

mission joint efforts. • Increased activities in Central Asia Regional Economic Cooperation (CAREC). • Resident missions established in Georgia, Armenia, and Turkmenistan. South Asia: • Managed growth in infrastructure operations to meet high level of demand from client countries. • Anticipated substantial increase in disbursement through continued strengthening of resident mission capacity. • Prioritization of staff strengthening in infrastructure operations, nonsovereign operations, and public–private

partnership. East Asia: • Stable program level with progressive diversification of operations away from basic infrastructure and into rural

development, natural resources management, energy efficiency, and water supply and sanitation. • Increased emphasis on knowledge management and knowledge product delivery. • Active cross-regional work with CAREC and the Greater Mekong Subregion (GMS). • Strengthening of the resident mission capacity to support operations in inland areas. Pacific: • Spearheading and proactively linking ADB’s overall support to weakly performing countries and specific needs of

the island countries, by hosting the WPC coordinator. • Strengthened support to public finance management and capacity building. • Extensive partnerships with other external funding agencies, and innovative use of nonlending products and

services. Southeast Asia: • Strong growth in ordinary capital resources lending due to demand in Viet Nam, as well as renewed lending in

Indonesia and the Philippines. • Extensive portfolio management to maintain single-digit percentage of at-risk projects. • Continuing regional cooperation program through the GMS and Archipelagic Southeast Asia programs. ADB-Wide Operational and Knowledge Support • Support for quality and compliance in ADB operations by updating the safeguard policy and implementing key

sector/thematic strategies (energy, governance, natural disaster and emergencies, social services, etc.). • Enhanced knowledge management framework, effectiveness of the communities of practices, and thematic/sector

reports and outlooks. • Implementation of special initiatives, such as energy efficiency, carbon fund, water financing, urban infrastructure

financing, etc. • Generation and dissemination of knowledge products on long-term economic growth and inclusiveness, short- and

medium-term prospects and policies, bond market developments, etc.

(iv) [This information was deemed confidential according to paragraph 126 of ADB’s Public Communications Policy].

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Table 14: Contribution of New Professional Staff Positions to Strategic/Sector Priorities, 2008

Environment IEI/MFF

Sub sovereign/

Private sector

Debt sustainability 2 x xCredit risk management 1 xFinance specialist 1 x

Transport specialist 1 x

Infrastructure investment finance 2 xWeakly performing country focal point 1 x xPublic financial management 1 x x xClimate change economist 1 xResettlement specialist 1 x x xCounsel (for private sector operations) 1 x

Total 12

IEI = Innovation and efficiency initiative, MFF = multitranche financing facility, MTS II = Medium Term Strategy II,

Departmental Needs Contribution to MTS II Strategic and Sector Priorities

Position Scope NumberWeakly

Performing Countries

Governance & Capacity

Buidling Action Plan

InfrastructureResults/ Portfolio

Management

x x

x xx x

xx x

159. Allocation of New Staff Positions. The 12 new PS positions will be distributed to departments (Table 15) in 2008. ADB will also add 20 local staff positions for resident missions. Appendix 8 provides the overall number of authorized staff positions by department and office. 160. Expected Results of the Staff Resource Management Under MTS II. The results framework of the WPBF has specified a set of four indicators for staff and budget planning and management. The target has been to increase the percentage of the budgeted professional staff and national officer positions in operations departments and resident missions. Through consolidation and redeployment during 2006–2008, ADB has made progress (Table 16) on those performance indicators, despite limited staff position and budgetary increases. During 2008 and after the LTSF review, ADB will continue to identify other suitable indicators, establish performance benchmarks, and monitor progress in subsequent years. Pragmatic and achievable targets will be set and achievement measured against such targets. 161. [This information was deemed confidential according to paragraph 126 of ADB’s Public Communications Policy].

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Table 15: Departmental Distribution of New Professional Staff

New Professional Staff Positions Department Number

A. President GroupEconomists – debt sustainability SPD 2Credit risk management specialist RMU 1

B. Operations 1Finance specialist SARD 1Transport specialist SARD 1Infrastructure investment finance PSOD 2

C. Operations 2Weakly performing countries coordinator PARD 1Public finance management specialist PARD 1Climate change economist SERD 1Resettlement specialist SERD 1

D. Finance and AdministrationCounsel – private sector operations OGC 1

Total 12OGC = Office of the General Counsel, PARD = Pacific Department, PSOD = Private Sector Operations Department, RMU = Risk Management Unit, SARD = South Asia Department, SERD = Southeast Asia Department, SPD = Strategy and Policy Department B. Internal Administrative Expenses for 2008

1. Process

162. Before requesting their 2008 budget allocation, all departments were required to exercise prudence and judiciousness in the formulation of their respective budgets. In systematically prioritizing work programs and activities, and aligning resources for maximum effectiveness, all departments/offices were requested to look initially for internal reallocation. Requests for any incremental resources were considered, taking into account work program priorities and after exhausting all possible internal reallocation and trade-off possibilities. This was necessary to ensure that work programs and expanding DMC demands can be supported with modest budget growth.

Table 16: Distribution of Professional Staff and National Officers1 by Job Areas

Job Areas Unit 2006 2007 2008

Operations Ratio (%) 51.4% 51.6% 52.0% 52.5% 1.1%Positions 675 687 710 733 58

Resident Missions Ratio (%) 20.5% 20.7% 22.1% 23.1% 2.5%Positions 270 276 302 322 52

Knowledge Ratio (%) 13.5% 13.6% 13.6% 13.5% 0.0%Positions 177 181 186 188 11Ratio (%) 35.2% 34.8% 34.4% 34.0% (1.1%)Positions 462 464 469 475 13

1 Ratio based on all budgeted professional staff and national officers positions except young professionals.

Management, operations support, services

Net Change2005 to 2008

2005Baseline

49

163. The proposed budget is the minimum amount necessary to support ADB’s work program. For 2008, the key cost drivers are presented in paras. 106-114. Price drivers that will affect the budget are (i) the rapid appreciation of the Philippine peso; and (ii) increased travel and accommodation costs caused by economic growth in the region and rising fuel costs. 164. This budget is net of savings realized from streamlining measures and cost-saving initiatives by departments. These savings are part of an effort that begun in 2006 to undertake measures in selected areas to help contain price and volume growth in internal administrative expenses. 165. Apart from initiatives that will generate further savings in internal administrative expenses, budgets will be monitored during the year to facilitate prompt reallocation of resources, where feasible and appropriate. The midyear budget review will continue to be a major ADB-wide exercise for identifying opportunities to reallocate budgets to areas requiring additional support. In addition, the IAE will be monitored closely during the fourth quarter of the year to enable further reallocation of unutilized budgets to prioritized programs that would benefit from additional funding. The newly initiated budget carryover mechanism should be a source of additional funding to support unplanned activities, as well as to absorb the initial impact of changes and incremental activities arising from the completion of the LTSF review and ADF replenishment.

2. Overview

166. For 2008, the proposed net IAE budget is $357.2 million, an increase of $24.4 million or 7.3% over the 2007 estimate of $332.7 million. The budget increase comprises a price increase of 6.1% and a volume increase of 1.2%. A summary of the price increase and volume growth components is in Appendix 9. 167. The price increase is driven mainly by the need to absorb the rapid appreciation of the Philippine peso over the past 12 months. Based on the amount of peso-denominated expenses, an appreciation of P1 per US dollar will increase the IAE by $1.2 million–$1.4 million. Given the fluctuation and general weakening of the US dollar, the Philippine peso–US dollar exchange rate assumption used for the 2008 budget is P43.0 to $1.0. ADB will monitor the Philippine peso and consider measures to absorb the impact on the 2008 budget, if any, through the use of general contingency or the 2007 budget carryover. 168. The 2008 budget proposal incorporates a general contingency of 1%, as well as $5.2 million in reimbursements from trust funds, which represent recovery of costs for administering and supervising activities funded through single-donor and multidonor trust funds. The reimbursement amount is netted off to arrive at the proposed net internal administrative expense budget. 169. [This information was deemed confidential according to paragraph 126 of ADB’s Public Communication Policy]. 55

55 [This information was deemed confidential according to paragraph 126 of ADB’s Public Communication Policy].

50 50

Table 17: Income and Expenses Outlook, 2007 and 2008 ($ million)

[Information on this table was deemed confidential according to paragraph 126 of ADB’s Public Communications Policy].

3. 2008 Budget

170. This section summarizes the proposed IAE budget for 2008, and presents the proposed budget by category, as well as major expense items under each budget category. The 2008 budget includes a general contingency provision of 1%. 171. Table 18 summarizes the 2008 budget by category, compared with the current 2007 budget estimate, detailed in Appendix 1. A summary of the allocation of operational expenses by department and office for 2007 and 2008 is in Appendix 10. A cross-year comparison (2004–2008) of ADB’s IAE is in Appendix 11.

a. Board of Governors

172. The 41st Annual Meeting of ADB is scheduled to be held in Madrid, Spain. The budget for the 2008 Annual Meeting is projected to increase by $0.3 million from the 2007 budget, generating a variance of 25% from the 2007 current estimate. Annual meeting costs are higher on account of the distant location of the venue compared to Kyoto and affected by rising travel costs. Increase in travel costs primarily accounts for most of the Annual Meeting budget variance.

b. Board of Directors

173. The budget of $23.2 million for the Board of Directors category includes (i) offices of the directors, (ii) the accountability mechanism, and (iii) OED. The details of the budget by major expense items and sub-items are in Appendix 12. The proposed increase of $1.5 million in the 2008 budget against the 2007 current estimate is due primarily to (i) projected annual salary increases, (ii) additional staff years in OED, and (iii) cost increases on peso-denominated expenses due to the appreciation of the Philippine peso and increase in rental rates. These increases are partially offset by a decrease in relocation expenses.

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Table 18: 2008 Budget vs. 2007 Current Estimate ($’000)

CurrentItem Estimate Preview Budget

2007 2008a 2008 (%)

Board of Governors 1,323 1,600 1,656 333 25.2Board of Directors 21,643 22,825 23,184 1,541 7.1Operational Expenses 250,473 271,345 270,384 19,911 7.9Administrative Expenses 60,146 62,655 63,503 3,357 5.6

Total Regular Programs 333,585 358,425 358,727 25,142 7.5

General Contingency 3,192 3,584 3,587 395 0.1

Total IAE 336,777 362,009 362,314 25,537 7.6

Less: Reimbursementsb (4,076) (4,076) (5,164) (1,088) (0.3) Net IAE 332,701 357,933 357,150 24,449 7.3( ) = negative, IAE = internal administrative expensesNumbers may not sum precisely because of rounding.a ADB. 2007. Work Program and Budget Framework, 2008 –2010 . b Estimated recoveries of costs associated with administering single-donor and multidonor trust funds.

2007 Estimate Amount

Increase/(Decrease)2008 Budget/

c. Operational Expenses

174. Table 19 summarizes the Operational Expenses by major expense category. Appendix 13 provides details of expense line items under each major category.

Table 19: Operational Expenses, 2007–2008 ($’000)

Percent

Expense Item Increase/(Decrease)Amount % Amount % over 2007 Estimate

Salaries 127,248 50.8 141,021 52.2 10.8Benefits 71,649 28.6 77,304 28.6 7.9Staff Development 3,760 1.5 4,028 1.5 7.1Relocation 5,857 2.3 5,986 2.2 2.2Consultants 20,426 8.2 20,144 7.5 (1.4)Business Travel 21,203 8.5 21,570 8.0 1.7Representation 329 0.1 331 0.1 0.5

Total 250,473 100 270,384 100 7.9Numbers may not sum precisely because of rounding.

2007 2008Current Estimate Budget

i. Salaries and Benefits

175. [This information was deemed confidential according to paragraph 126 of ADB’s Public Communications Policy].

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ii. Staff Development

176. In line with the strategy to continue to develop staff and support skills development at headquarters, resident missions, and other field offices, staff development costs in 2008 are projected to increase by $0.3 million, or 7.1%, from the current 2007 estimate.

iii. Business Travel and Staff Consultant

177. Business travel costs are expected to increase by about $0.4 million, or 1.7%, primarily due to projected price increases in airfares. This will be partially offset by the anticipated reduction in volume due to rationalization efforts, increased use of videoconferencing, and continued delegation of activities to field offices. Staff consultancy is expected to decrease by 1.4%, or about $0.3 million. The anticipated 2.5% price increase in engaging consultants will be offset by a 3.9% reduction in volume as higher staff years are anticipated. As a matter of practice, budgets for staff consultant and business travel are formulated by each department or office based on their work programs. The budgets are discretionary with each department/office fully empowered to use their allocation fungibly.

iv. Representation

178. Representation expenses are projected at $0.3 million, a nominal increase from the current 2007 estimate.

d. Administrative Expenses

179. The 2008 administrative expenses budget is projected at $63.5 million, an increase of $3.4 million, or 5.6%, over the current 2007 estimate. While efforts to contain administrative expenses continue, the prices of most items in this category are expected to rise, mainly from the appreciation of the Philippine peso. The bulk of the increases are in office occupancy and contractual services (Table 20). Details are in Appendix 14. 180. Costs of office occupancy reflect the expansion of field offices, such as in India and the People’s Republic of China, and increased rental rates in several field offices, such as in Afghanistan, Indonesia, Pakistan, South Pacific Subregional Office, Sri Lanka, Thailand, and Uzbekistan. Contractual services are projected to increase because of (i) the engagement of outside auditors to perform the attestation on internal controls, which is required for implementing the integrated internal control framework (COSO framework); (ii) increased translation requirements of field offices, as part of the translation framework under the Public Communications Policy 56 ; and (iii) outsourcing initiatives in selected administrative support services areas. Volume decreases in communications, office supplies, library, equipment/maintenance and support have helped offset the price increases in these expense items.

56 ADB. 2005. Public Communications Policy. Manila.

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Table 20: Administrative Expenses, 2007–2008 ($‘000)

Percent

Expense Item Increase/(Decrease)Amount % Amount % over 2007 Estimate

Communications 6,168 10.3 6,244 9.8 1.2Office Occupancy 14,078 23.4 15,318 24.1 8.8Library 935 1.6 965 1.5 3.2Office Supplies 1,736 2.9 1,805 2.8 4.0Equipment/Maintenance & Support 5,535 9.2 5,725 9.0 3.4Contractual Services 11,841 19.7 13,890 21.9 17.3Insurance 3,036 5.0 2,790 4.4 (8.1)Depreciation 16,171 26.9 16,109 25.4 (0.4)Miscellaneous 646 1.1 657 1.0 1.7

Total 60,146 100.0 63,503 100.0 5.6Numbers may not sum precisely because of rounding.

2007Current Estimate Budget

2008

e. General Contingency

181. A general contingency provision of 1%, or $3.6 million, is included in the 2008 IAE budget.

f. Reimbursements from Trust Funds

182. Costs associated with administering trust funds are included in the gross IAE. Such costs reimbursements are estimated at $5.2 million based on the expected fee income from trust funds. Fee income is recognized and claimed upon disbursement of such funds during TA/project implementation. Depending on the implementation progress of these TA and loan projects, the fee realized could be higher or lower than the estimated amount during the year.

4. Resident Missions

183. Resident missions are expected to spend about $52.5 million of the total IAE of $357.2 million. This amount is $3.9 million, or 8.0%, higher than the current 2007 estimate. The increase reflects the addition of two professional staff and 20 local staff positions in field offices, as delegation of portfolio management activities continues. Pending the completion of the LTSF review, resident mission expense levels are expected to increase, but as a percentage of total IAE are likely to remain relatively flat. Table 21 summarizes staffing and internal administrative expenses of resident missions.

54 54

Table 21: Resident Mission Staffing and Expense (2006–2008)

CurrentEstimate

2000 2006 2007 2008A. Number of Resident Missionsb 13 23 23 26 d

Number of Extended Missions 0 4 4 3 B. Staffing (Authorized Positions)

Professional Staff 38 85 97 99 National Officer 53 171 186 201 e

Administrative Staff 70 181 193 200 C. Professional Staff (Outposted)c 0 11 15 22 f

D. Expenses ($'000) 17,190 42,763 48,625 52,493 Operational Expenses 12,862 35,255 40,232 44,328 Administrative Expenses 4,328 7,508 8,394 8,166

E. % to Net Total IAE 8% 15% 15% 15%

ItemActual BudgetActuala

IAE = internal administrative expenses. Numbers may not sum precisely because of rounding. a The Resident Mission Policy has been implemented since February 2000. b Data in this table exclude those for the representative offices. c Outposted positions are authorized long-term assignments in the field but carrying functions that report to both the

headquarters and country directors. d Includes 3 new resident missions in Armenia, Georgia, and Turkmenistan whose establishments are subject to

approval by the Board of Directors. e The increase from 2007 (15) comprises 13 new positions through the 2008 budget process and 2 positions to be

redeployed from the headquarters. f Planned for 2008, as of November 2007, subject to final assessment. C. Savings in Internal Administrative Expenses

184. ADB has continued to identify ways to contain budget growth. Initiatives undertaken in 2006 and 2007 have saved at least 1% of total net administrative expenses. To continue to achieve modest budget growth in 2008, ADB has identified further IAE savings. Key initiatives that are anticipated to generate IAE savings in 2008 are summarized in paras. 185–193.

1. Savings from Operations

185. Reduction in TA Projects Administered. An effort has been made to limit the number of TA projects processed each year. COSO also has introduced new procedures to help financially close TA projects no later than 90 days after physical completion. In 2007, the number of TA projects under administration is expected to drop by 76 from 2006 levels, resulting in estimated savings of at least $1.63 million in TA administration costs. ADB expects to maintain the savings in 2008. 186. Discontinuation of Country Strategy Program Update. In 2006, the country strategy program update was discontinued and replaced by rolling annual COBPs and CPS midterm reviews. Based on the projected 2008 work program, about $450,000 in staff time can be saved through this initiative.

2. Information Technology-Related Savings (OIST)

187. Information Technology Services. Activities undertaken in 2007 are expected to generate $940,000 in savings in 2008. The activities include (i) rebidding of contracts for

55

communication services and IT for the offshore backup facility ($530,000), (ii) reduction in maintenance cost of the new mainframe software licenses ($60,000), (iii) bundled purchase and multiyear maintenance contracts of hardware and software ($230,000); and (iv) lease expiration of server supporting the financial management and human resources management information system ($120,000).

3. Administrative Services-Related Savings

188. Consolidation of IT Printer Services. The replacement of network printers with multifunction digital copiers initially will cost up to $160,000, but is expected to save up to $350,000 in operating costs by reducing the need for toners and consumables. 189. Six Sigma Projects. OAS has successfully used the Six Sigma method to improve the efficiency of its work processes and reduce cost. In 2008, the projected financial savings are estimated at $100,000.

(i) Postage and freight. Use of digitized document transfer from the headquarters to resident missions is expected to generate annual savings of $35,000 in postage and freight.

(ii) Enhanced inventory management in engineering supplies and equipment.

Close monitoring and utilization of inventory is expected to generate savings of $34,000.

(iii) Reduction in fuel consumption. Use of its most fuel efficient vehicles and other

fuel saving measures are expected to reduce fuel consumption by up to $16,000 based on current prices.

(iv) [This information was deemed confidential according to paragraph 126 of ADB’s

Public Communications Policy]. 190. Systematized Records Disposal and Space Availability. By disposing and electronically storing TA project documents, OAS has cleared about 15 square meters of office space in ADB headquarters, valued at $41,000 per year at market price for office lease in the Ortigas area of Manila. The elimination of an offsite storage facility contributed to savings of about $5,000 annually. 191. Environmental Initiatives. While maintaining a safe and healthy environment, the implementation of the conservation measures in 2007 has resulted in savings in the following areas: paper (6.5%), water (2.5%), electricity (0.9%), and solid waste (11.0%). ADB expects to maintain the $100,000 savings in 2008. 192. [This information was deemed confidential according to paragraph 126 of ADB’s Public Communications Policy].

4. Consulting Services-Related Savings

193. Consulting Services. A streamlining measure will reduce the number of mandatory meetings of the Consultants Selection Committee, generating savings in staff time valued at

56 56

about $400,000. COSO will introduce indefinite delivery contracts (IDCs) to engage individual consultants for more routine work, saving staff time in COSO and operational departments. Savings will be determined by the rate of implementation of the IDCs. D. Operational Expenses by Program Category

194. Table 22 presents the projected allocation of the 2007 and 2008 operational expenses by activity or program category. Of the $270.4 million operational budget in 2008, portfolio management has the largest share at 23.4% by dollar amount, accounting for 21.7% of the staff years available in 2008. These percentages are higher than 2007, reflecting departments’ intent to devote more time to improving project performance and responding to the demands of a growing portfolio.

Table 22: Operational Expenses by Program Categorya

Change 2007-2008

Program Category ($ '000) Share (%) ($ '000) Share (%) (%)

Portfolio Management 55,581 22.2 63,172 23.4 13.7 Project Processing 43,775 17.5 46,639 17.2 6.5 Country/Regional Strategy and Programming 22,243 8.9 23,081 8.5 3.8 Direct Operational Support 17,136 6.8 19,117 7.1 11.6 Operations Overhead 45,410 18.1 48,272 17.9 6.3 Knowledge Management 30,114 12.0 31,316 11.6 4.0 Support Services 36,214 14.5 38,787 14.3 7.1

TOTAL 250,472 100.0 270,384 100.0 7.9

2007 Estimate 2008 Budget

Numbers may not sum precisely because of rounding. a Indicative estimates. 195. The share of project, TA, and grants processing costs is estimated to decline from 17.5% of total operational expenses in 2007 to 17.2% in 2008. The modest decline is due to (i) the already high level of resources and work devoted to project preparation during 2007, (ii) the relatively modest increase in lending volume in 2008, and (iii) the increased use of the periodic financing requests under the MFF. 196. Country and regional strategy and programming costs are expected to decline from 8.9% of the total in 2007 to 8.5% in 2008. Combined with the relatively stable work load,57 the streamlining of country or regional strategy formulation and review, as well the introduction of the COBPs in 2006, have generated some efficiencies that save staff time. 197. Direct operational support,58 which is undertaken by non-operations departments and comprises activities identified with portfolio management, project processing, and country or regional strategies, is estimated to increase from 6.8% of total operational expenses in 2007 to 7.1% in 2008. This reflects the need for additional staff time and consulting resources to support the growth in the portfolio and the complexities associated with private sector and nonsovereign

57 The number of CPS/RCS programmed for completion is typically high (at 17 for 2007 and 20 for 2008), but actual

completions are lower at 6–9. 58 Direct operations support entails activities performed by select departments (CTL, COSO, ERD, OGC, RMU,

RSDD, OCO, and SPD) to help other departments process and administer projects, TA, and grants.

57

operations, including the use of credit enhancements. Operations overhead 59 accounts for 17.9% in 2008, slightly lower than 18.1% in 2007. 198. Complementing operations activities, knowledge management accounts for 11.6% of the total operational expenses in 2008, slightly lower than 12.0% in 2007. The percentages exclude the processing and administration of advisory and regional TA projects, which are included under portfolio management and processing. Although the share has decreased slightly, the staff years are estimated to rise by 3.2%. 199. Support services60 accounts for 14.3% of total operational expenses in 2008, lower than its 14.5% share in 2007. Efficiency gains and outsourcing of select administrative support services generated opportunities for redeployment of staff positions/time to operations departments. Table 23 summarizes the staff resource distribution for professional staff and consultants.

Table 23: Indicative Staff Resource Distribution — Professional Staffa and Consultants

Change 2007-2008Program Category Staff Year Share (%) Staff Year Share (%) (%)

Portfolio Management 184.5 21.0 196.6 21.7 6.6 Project Processing 177.2 20.2 180.6 19.9 1.9 Country/Regional Strategy and Programming 78.1 8.9 78.9 8.7 1.0 Direct Operational Support 75.1 8.6 79.3 8.7 5.5 Operations Overhead 162.9 18.6 166.1 18.3 2.0 Knowledge Management 108.4 12.4 111.9 12.3 3.2 Support Services 91.3 10.4 93.9 10.3 2.8

TOTAL 877.6 100.0 907.4 100.0 3.4

2008 Budget2007 Estimate

Numbers may not sum precisely because of rounding. a Excludes young professionals. 200. The same trends are demonstrated in indicative staff resource distribution by category. Total staff-years in 2008 are expected to increase by 3.4%, mainly because of the addition of new professional staff positions. However, staff consultants will be reduced with the estimated staff consultant person-years expected to drop from 115.4 for 2007 to 110.9 for 2008. This is in line with the continuing effort to encourage departments to reduce reliance on consultants in anticipation of expedited staff recruitment and improved skills mix. The use of staff consultants in 2008 is expected to be decline in most activities, but particularly in areas where in-house capacities are being improved, such as (i) country assessments and sector/thematic studies (country and regional strategy and programming), (ii) knowledge management, and (iii) support services. In addition to the analysis of program categories, average costs also were estimated for selected key activities of ADB. Observations from the analysis are in Appendix 15.

59 Operations overhead comprises 3 main components: (i) formulation, review and implementation of ADB-wide

policies/strategies (e.g., MTS II, LTSF review, sector/thematic policies) and broad initiatives (IEI, reform agenda, MfDR, ADF negotiations, gender action plan, design of new products), (ii) ADB-wide management/operations (office of Management, office of the Secretary, internal/external audit, preparation of WPBF, dissemination of ADB policies and procedures), and (iii) internal management of departments (coordination meetings, partner/client relations management, work and resource planning).

60 Support services are primarily performed by BPMSD, CTL, OAS, OIST, and Treasury.

58 58

E. Budget Carryover

201. In 2006, the Board approved the introduction of a budget carryover into the following fiscal year of up to 2% of net IAE, beginning with the 2007 budget. The purpose of the budget carryover is to ensure funding for urgent and unplanned programs or special initiatives, delayed projects, and unfinished activities from the prior year, without distorting the funding for the regular work program and without placing pressure on the general contingency, which is primarily intended to cover cost overruns related to budgeted work programs for the year.

202. Following the Board’s approval, guidelines for the utilization and reporting of the budget carryover were prepared and approved by the President on 18 September 2007. In early January 2008, the underutilized amount of the budget will be determined, and a fixed amount will be set as a budget carryover. The budget carryover will be reported through the budget utilization report, as part of the annual Report to the Board for Internal Administrative Expenses and Annual Capital Expenditures. The budget carryover amount must be utilized within the subsequent year; any unused portion will lapse at the end of that year.

VII. CAPITAL EXPENDITURES

A. Annual Capital Expenditure Programs

203. This section reports on the implementation status of the 2006 and 2007 annual capital expenditure programs and summarizes the proposed 2008 budget for headquarters facilities, technology and automation systems, and field offices. Funds under the annual capital expenditure program are for cyclical expenditures that have an economic life of more than 1 year. Depreciation of these assets is provided for in the IAE budget (Table 20).

1. Status of 2006 and 2007 Capital Expenditure Programs 204. The 2006 annual capital budget of $4.14 million recorded a close to 100% utilization by the end of its implementation period. Through reallocation of savings, it supported additional requirements, such as the (i) establishment of the extended mission in Azzad Jammu and Kashmir, (ii) relocation of the Azerbaijan resident mission, (iii) visual improvement project in headquarters, and (iv) configuration of the learning resources centers 1 and 2 in headquarters. 205. The approved 2007 annual capital budget of $3.74 million comprises $0.38 million for headquarters facilities, $1.98 million for technology and automation systems, and $1.38 million for field offices. As in previous years, the budget utilization rate is low at 7% during the first 6 months of the implementation period. However, the procurement process is underway and the utilization rate is expected to pick up. It is envisaged that the 2007 annual capital budget will be fully utilized within the 18-month implementation period ending June 2008. Details of the budget and estimated annual depreciation are shown in Appendix 2.

a. Headquarters Facilities

206. The 2007 annual capital budget was intended for the replacement of (i) water treatment facility, (ii) photocopying equipment, (iii) vehicle, and (iv) dental chairs.

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b. Technology and Automation Systems

207. The 2007 annual capital budget covered the (i) replacement of obsolete servers, and network and storage equipment; (ii) implementation of internal network controls to improve security; (iii) enhancement of the private automatic branch exchange and videoconferencing equipment; and (iv) replacement of outdated routers and switches. Information communications technology initiatives for field offices included activation and enhancement of backup links for VSAT 61 and VPN 62 connections. As in previous years, the replacement and upgrading of computers and peripherals are on schedule.

c. Field Offices

208. [This information was deemed confidential according to paragraph 126 of ADB’s Public Communications Policy].

2. 2008 Capital Expenditure Program

209. [Paras. 209-212 were deemed confidential according to paragraph 126 of ADB’s Public Communications Policy]. 210. 211. 212.

61 VSAT refers to very small aperture terminals used for data, video, or voice transmission through satellite. 62 VPN refers to virtual private network, which provides field offices with access to ADB’s network.

60 60

B. Special Capital Expenditure Program

213. [Paras. 213-222 were deemed confidential according to paragraph 126 of ADB’s Public Communications Policy]. 214. 215.

216. 217. 218. 219.

220. 221. 222.

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VIII. RECOMMENDATION

223. I hereby recommend that the Board approve the 2008 Budget consisting of:

(i) net internal administrative expenses amounting to $357,150,000; and (ii) capital expenditure amounting to $4,121,000. Haruhiko Kuroda President

2008 BUDGET APPENDIXES

Appendix 1 62

2008 BUDGET INTERNAL ADMINISTRATIVE EXPENSES

($’000)

Percent Increase (Decrease)Item (C/A) (C/B) (D/B) (D/C)

A. Board of Governors a 969 1,400 1,323 1,656 37 (6) 18 25

Travel 667 775 600 944 (10) (23) 22 57 Representation 144 214 225 235 57 5 10 4 Administrative Expenses 55 191 303 165 446 59 (14) (46) Seminars 97 195 170 195 76 (13) - 15 Resource Mobilization 67Compensation-Related Study 6 25 25 50 307 - 100 100

B. Board of Directors 20,614 21,499 21,643 23,184 5 1 8 7

Offices of the Directors 12,478 12,647 13,051 13,672 5 3 8 5 Accountability Mechanism 1,648 2,022 1,988 2,107 21 (2) 4 6 Operations Evaluation 6,488 6,830 6,604 7,405 2 (3) 8 12

C. Operational Expenses 227,892 250,509 250,473 270,384 10 - 8 8

Salaries 119,739 129,796 127,248 141,021 6 (2) 9 11 Benefits 64,380 71,773 71,649 77,304 11 (0) 8 8 Staff Development 3,270 4,016 3,760 4,028 15 (6) 0 7 Relocation 3,834 5,242 5,857 5,986 53 12 14 - Consultants 19,454 19,370 20,426 20,144 5 5 - (1) Business Travel 16,901 19,930 21,203 21,570 25 6 8 2 Representation 315 382 329 331 5 - (13) 1

D. Administrative Expenses 53,808 60,196 60,146 63,503 12 (0) 5 6

Communications 6,227 6,549 6,168 6,244 (1) - - - Office Occupancy 12,451 13,690 14,078 15,318 13 3 12 9 Library 916 950 935 965 2 (2) 2 3 Office Supplies 1,767 1,840 1,736 1,805 (2) (6) (2) 4 Equipment/Maintenance and Support 4,892 5,694 5,535 5,725 13 (3) 1 3 Contractual Services 9,555 11,831 11,841 13,890 24 0 17 17

Insurance b 3,193 3,054 3,036 2,790 (5) (1) (9) (8) Depreciation 14,273 15,973 16,171 16,109 13 1 1 (0) Miscellaneous 533 615 646 657 21 5 7 2

Total Regular Programs 303,283 333,604 333,585 358,727 10 - 8 8

E. General Contingency 3,336 3,192 3,587

F. Less: Reimbursements d (3,907) (4,076) (4,076) (5,164) 4 - 27 27

Net IAE 299,376 332,864 332,701 357,150 11 - 7 7

- = 0 or not available/applicable, ( ) = negative, IAE = internal administrative expenses, ADB = Asian Development Bank.Numbers may not sum precisely because of rounding.a

b

c Net of reallocation made during midyear 2007.d Estimated recoveries of costs associated with administering single-donor and multidonor trust funds.

Beginning 2006, the subsidized premium of the post retirement Group Medical Insurance Plan was moved from Operational Expensesto the Administrative Expenses category.

Beginning 2006, all ADB-wide expenses related to the ADB Annual Meeting are included under the Board of Governors category.

Actual2006(A)

Budget2007(B)

Budget2008(D)

CurrentEstimate

2007(C)

c

63 Appendix 2

2008 BUDGET SUMMARY OF ANNUAL CAPITAL EXPENDITURES

($’000) [This information was deemed confidential according to paragraph 126 of ADB’s Public Communications Policy].

Appendix 3 64

PRIVATE SECTOR OPERATIONS BY REGION AND TYPE OF PRODUCTS, 2007

Central South East South CrossWest Asia Asia East Regions Total

LoansNumber 6 6 2 6 1 21Amount ($ million) 180.0 300.0 150.0 296.0 15 941.0

Equity OperationsNumber 1 2 2 - - 5Amount ($ million) 8.0 20.0 50.0 - - 78.0

Political Risk GuaranteeNumber - - - - - - Amount ($ million) - - - - - -

Partial Credit Guarantee Number 2 1 1 - - 4Amount ($ million) 200.0 40.0 100.0 - - 340.0

Complementary Financing SchemeNumber - 1 1 - - 2Amount ($ million) - 225.0 200.0 - - 425.0

Total Private Sector ApprovalsApprovals (number) a 7 7 4 6 1Amount ($ million) 388.0 585.0 500.0 296.0 15.0 1,784.0

- = 0 or not available/applicable.Numbers may not sum precisely because of rounding.

a A project that benefited from two or more instruments is counted as one.

Item

25

65 Appendix 4

Summary of Selected Operational Outputs by Departments, 2007–2008

Selected Deliverables SERD Total RD PSODLending and Financial Partnership OperationsA. Portfolio Management (Number of Ongoing Projects - year end )

ADF + OCR Operations (number) a - 2007 Current Estimate 105 132 67 30 120 454 132 - 2008 Program 114 131 68 29 126 468 134 Other Grants Operations (JFPR/JFICT) (number)b

- 2007 Current Estimate 24 15 6 1 37 83 - - 2008 Program 19 18 8 2 24 71 - Regional Operations (number) c - 2007 Current Estimate 1 1 - 2 9 13 23 - 2008 Program 3 2 - 2 9 16 23 Project at Risk (%, by number of loans) - 2007 Current Estimate 10.0 11.3 4.2 11.0 3.0 9.0 5.0 - 2008 Program 8.0 10.8 4.1 8.0 2.9 8.0 4.0Disbursement (amount) c - 2007 Current Estimate OCR 564 1,418 1,101 26 1,875 4,984 600 ADF 454 437 24 38 482 1,435 - - 2008 Program OCR 780 1,630 1,075 31 1,469 4,985 600 ADF 500 502 33 36 527 1,598 - Loan Contract Award ($ million) - 2007 Current Estimate 1,271 1,678 1,227 46 1,260 5,482 - - 2008 ProgramProjects for Closure (number) c

- 2007 Current Estimate 13 23 9 2 33 80 5 - 2008 Program 19 33 18 6 44 120 - Project Completion Reports (number) c - 2007 Current Estimate 15 18 3 5 26 67 4 - 2008 Program 15 18 10 3 18 64 1

B . Processing for New Approvals c+d

Public and Private Sector Operations Number of New Approvals - 2007 Current Estimate 19 24 14 8 24 89 25 - 2008 Program 26 32 14 3 30 105 25 Amount of New Approvals ($ million) - 2007 Current Estimate Consisting of 2,492 2,400 1,516 159 3,221 9,788 1,784 Regular Program 1,592 1,420 1,444 137 3,153 7,746 1,784 MFF Subprojects 880 972 58 - 28 1,938 - IEI Sub- and Non-sovereign - - - - - - - ADF Standalone Grant 20 8 14 22 40 104 -

Other Grants Operations (JFPR) 10 6 6 2 11 35 - MFF Framework 1,700 3,543 100 - 1,918 7,261

- 2008 Program 2,532 3,116 1,517 89 2,780 10,033 2,000 Regular Program 1,206 2,044 1,435 80 2,566 7,331 2,000 MFF Subprojects 1,126 1,072 70 - 197 2,465 - IEI Sub- and Non-sovereign - - - - - - - ADF Standalone Grant 200 - 12 9 17 237 -

Other Grants Operations (JFPR) 32 14 6 1 15 68 - MFF Framework 1,720 1,750 - - 1,670 5,140 - Cofinancing Operationsb

Number of Projects - 2007 Current Estimate DVA for Loan Project 4 2 2 4 7 19 9 TA Grant Cofinancing

- 2008 Program DVA for Loan Project Departmental breakdown not available. Total program in 2008 is about 37-49 TA Grant Cofinancing loan projects and 50-70 TA projects. Amount of Project ($ million) - 2007 Current Estimates DVA 21.8 11.5 8.5 48.8 113.8 204.4 1,019 TA Grant Cofinancing

- 2008 Program DVA

TA Grant Cofinancing

Departmental breakdown not available. Total program in 2007 is about 70 TA projects

Departmental breakdown not available. Total program in 2007 is about $80 million for TA projects

Departmental breakdown not available. Total program in 2008 is $1,350 million - $1,800 million for projects and $60.0 million - $80.0 million for TAs. Including all trust fund cofinancing, the TA figure may increase to $115 million-$145 million.

-Contract Award Projections not available until early 2008 -

SARD EARDCWRD PARD

Appendix 4 66

Summary of Selected Operational Outputs by Departments, 2007–2008 (continued)

C . Preparation of New Projects c+d+e

PPTAs Ongoing (number) - 2007 Current Estimate 39 57 37 14 43 190 4 - 2008 Program 44 57 34 15 52 202 10 PPTAs for Approval (number) - 2007 Current Estimate 12 21 17 3 22 75 3 - 2008 Program 20 16 18 5 27 86 8 Number of Projects without PPTAs - 2007 Current Estimate 9 1 - - 4 14 25 - 2008 Program 21 3 - - 7 31 25

Regional and Country Partnership Strategies (RCS/CPS) cA. RCS/CPS

Number Circulated for Endorsement - 2007 Current Estimate 2 1 - 1 2 6 - - 2008 Program 4 2 2 9 3 20 -

B. C/ROBP - 2007 Current Estimate 2 6 1 8 6 23 - - 2008 Program 7 2 - 6 6 21 -

Knowledge Management and Services c+d+e

A. Country/Regional Operations (Number of Projects)Country ADTAs/RETAs Ongoing - 2007 Current Estimate 134 112 74 77 160 557 9 - 2008 Program 113 110 73 90 134 520 9 Country ADTAs/RETAs for Approval - 2007 Current Estimate 28 29 24 16 32 129 2 - 2008 Program 21 28 16 22 28 115 2 ETSW (Number) - 2007 Current Estimate 46 73 15 15 66 215 - - 2008 Program 22 30 26 14 51 143 -

- - = 0 or not available/applicable.

Knowledge Management and Services c+d+e

(Number of Projects)ADTAs ongoing - 2007 Current Estimate - 4 - - 2008 Program - 1 -

RETAs ongoing - 2007 Current Estimate 32 4 18 - 2008 Program 39 8 23 RETAs for approval - 2007 Current Estimate 14 4 15 - 2008 Program 23 6 14 ETSW (Number) - 2007 Current Estimate 35 52 28 - 2008 Program 28 43 25

ERD = Economics and Research Department, OREI = Office of Regional Economic Integration, RSDD = Regional and Sustainable Development Department.

PSODSelected Deliverables CWRD SARD

Selected Deliverables

Sources: a Central Operations Services Office; b Office of Cofinancing Operations; c Regional Departments and/or Private Sector Operations Department;d Project Processing Information System; e Technical Assistance Information System.

RSDD ERD OREI

ADF = Asian Development Fund, ADTA = Advisory Technical Assistance, C/ROBP = Country/Regional Operations Business Plan, CPS = Country Partnership Strategy, CWRD = Central and West Asia Department, DVA = direct value-added, EARD = East Asia Department, ETSW = economic thematic and sector work, IEI = Innovation and efficiency initiative, JFICT = Japan Fund for Information and Communications Technology, JFPR = Japan Fund for Poverty Reduction, MFF = multitranche financing facility, OCR = ordinary capital resources, PARD = Pacific Department, PPTA = project preparatory technical assistance, PSOD = Private Sector Operations Department, RCS = Regional Country Strategy, RETA = regional technical assistance, SARD = South Asia Department, SERD = Southeast Asia Department, TA = technical assistance.

EARD Total RDPARD SERD

Note: (1) The work program numbers are based on the ‘firm-medium’ planning scenario as of October 2007, which includes only those projects that have a high degree of confidence for approval. The programs are constantly being updated to reflect the latest status of agreements with borrowers and take into account other external factors (change in loan size or scope, cofinancing, status of environmental assessments). As a result, the ‘firm-medium’ scenario view—taken at a particular point in time—may not correspond exactly with the programs agreed between ADB and the DMCs during the country programming missions. However, ADB will endeavor to deliver work programs as agreed with DMCs.(2) ADTA/RETA numbers for approval in 2007 include small scale and supplementary TAs.

67 Appendix 5

2008 BUDGET CURRENT STATUS OF DELEGATION OF SPECIFIC FUNCTIONS TO RMsa

2006 2007 2008 2006 2007 2008RM % RM % RM % RM % RM % RM %

CWRD 37 34 40 39 45 42 46 23 46 25 58 29 AFRM 2002 2007 2 18 3 27 3 23 15 42 15 38 14 41 AZRM 2004 2007 - - - - - - 2 20 2 25 3 33 KARM 1998 2003 1 33 1 50 1 100 1 14 1 25 2 33 KYRM 2000 2003 3 30 5 45 5 56 2 13 2 12 3 17

PRM 1989 2001 21 44 21 43 25 56 18 28 18 33 25 42 TJRM 2003 2006 3 27 2 17 3 25 3 19 3 16 5 22 URM 1998 2007 7 47 8 57 8 53 5 31 5 31 6 33

SARD 67 46 71 48 74 49 40 22 37 21 36 21 BRM 1982 2001 22 16 26 18 27 18 10 6 9 5 9 5

INRM 1992 2002 17 12 18 12 20 13 14 8 12 7 12 7 NRM 1989 2004 13 9 13 9 13 9 13 7 12 7 12 7

SLRM 1998 2004 15 11 14 9 14 9 3 2 4 2 3 2 EARD 23 35 30 42 34 46 15 15 14 15 14 15

MNRM 2001 2005 3 17 4 20 4 20 2 2 4 4 4 4 PRCM 2000 2001 20 43 26 51 30 57 13 14 10 11 10 11

PARD 15 45 19 53 22 55 26 30 24 30 33 36 SOTL 2000 2007 - - 2 6 3 8 5 6 6 7 5 6

PNRM 2003 2004 8 24 9 25 6 15 1 1 - - - -SPSO 2004 2005 6 18 6 17 9 23 11 13 10 12 16 18 PLCO 2004 - 1 3 2 6 4 10 9 10 8 9 12 13

SERD 41 28 50 30 47 28 35 13 40 18 36 19 CARM 1997 2004 5 24 7 25 8 29 3 9 1 7 1 6

IRM 1987 2000 18 51 21 51 15 38 10 21 11 28 8 26 LRM 2001 2005 7 28 8 29 9 32 2 6 1 5 - -

PhCO 2000 2000 - - - - - - 3 9 7 30 6 32 TRM 2005 2006 - - - - - - 4 36 3 33 4 57 VRM 1997 2000 11 30 14 28 15 28 15 23 17 28 17 30

Total 183 37 210 39 222 41 162 19 161 21 177 24 - = 0 or not available/applicable, % = as a percentage to total number of projects in the country or in the department.

a Includes all RMs that are operational as of September 2007.Sources: Project administration system, project processing information system, technical assistance information systems, and regional departments.

AFRM = Afghanistan Resident Mission, AZRM = Azerbaijan Resident Mission, BRM = Bangladesh Resident Mission, CARM =Cambodia Resident Mission, CPS = country partnership strategy, CWRD = Central and West Asia Department, EARD = East AsiaDepartment, INRM = India Resident Mission, IRM = Indonesia Resident Mission, KARM = Kazakhtan Resident Mission, KYRM =Kyrgyz Resident Mission, LRM = Lao PDR Resident Mission, MNRM = Mongolia Resident Mission, NRM = Nepal Resident Mission,PARD = Pacific Department, PhCO = Philippines Country Office, PLCO = Pacific Liaison and Coordination Office, PNRM = PNGResident Mission, PRM = Pakistan Resident Mission, PRCM = People's Republic of China Resident Mission, RD = regionaldepartment, RM = resident mission, SARD = South Asia Department, SERD = Southeast Asia Department, SLRM = Sri LankaResident Mission, SOTL = Special Liaison Office in Timor-Leste, SPSO = Pacific Subregional Office, TJRM = Tajikistan ResidentMission, TRM = Thailand Resident Mission, URM = Uzbekistan Resident Mission, VRM = Viet Nam Resident Mission.

Technical AssistanceLoan Project Project Implementation

RD/RMs Year Established

CPS Led by RMs

Appendix 6 68

AN UPDATE OF THE HUMAN RESOURCES STRATEGY AND LEARNING AND DEVELOPMENT ACTIVITIES

A. Human Resource Strategy 1. With 2007 being the third year of implementation of the human resources strategy, key actions have been completed and have become integral parts of the human resources management and administration systems of the Asian Development Bank (ADB). The actions include the following:

(i) establishment of a competency framework and implementation of professional staff generic job titles and job descriptions, leading to proper assessment of skills gaps and alignment to organizational needs;

(ii) implementation of a new performance management system, including its core component,

the performance and development plan (PDP), for which further refinements were made in 2007;

(iii) improvements in recruitment processes, including reduction in hiring time through the use of

video and teleconferencing; transparency in the selection process through the use of panels; and strategic recruitment aligned to the second medium-term strategy (MTS II) priority areas;

(iv) establishment of a new Learning and Development Unit; alignment of learning and

development programs with ADB’s strategic direction; strengthening of leadership and managerial skills through learning and development programs; implementation of a curriculum-based learning approach and a planned proactive learning environment providing focused learning and development programs to enhance organizational capability;

(v) engagement of spouses as consultants initially introduced on a 2-year trial basis in 2005,

and becoming a regular feature from 2007;

(vi) review of the gender action program (GAP) II and development of GAP III, focusing on the key actions of increasing representation of and leadership by women professional staff, enhancing work environment, and increasing accountability of managers for gender results;

(vii) a comprehensive review of the salary and benefits system and incentive system;

(viii) establishment of a technical career stream and implementation of the competency-based

Assessment and Development Center (ADC) to strengthen the managerial and leadership skills of future senior level staff;

(ix) pilot of extended discretionary time off, and changing of occasional absence rules and rest

time for business travel;

(x) revisions of key administrative orders and personnel guidelines to support the human resources strategy;

(xi) conduct of several staff surveys to solicit feedback on staff welfare services (e.g.,

69 Appendix 6

counselor, external legal services).

2. Table A6.1 provides the implementation costs of the human resources strategy.

Table A6.1: Implementation Costs of Human Resources Strategy, 2004–2007 ($’000)

Currenta

EstimateItem Cost 2004 2005 2006 2007

Enhanced Technical Stream and 157 0 0 7 15 Complement S

0ystem Costs

Roll-out of New Performance 4 0 2 0 Management System and Other Outreach Activities

Development of Program and 1,277 235 576 147 319 Implementation Costs

Support Services 126 0 13 53 6

Skills Trainin

2

0

g and Staff 6,187 680 860 1,936 2,711 Development

Total Cost 7,751 915 1,451 2,143 3,242

Actual Overall

Numbers may not sum precisely because of rounding. a Based on updated current estimate. B. Learning and Development 3. A curriculum-based approach to learning continues to be adopted for 2008, following piloting and testing in 2006. The learning and development framework developed in early 2006 and subsequently revised is the basis for the design of the programs in 2008. The core programs will equip staff with knowledge, tools, and approaches to help them perform tasks and activities efficiently, and to address basic skills and knowledge gaps to achieve results. Further, specialized courses will strengthen and update expertise in specific areas. All programs from 2008 are considered part of the core program for learning and development. The program, carefully designed to support the needs analysis and the curriculum approach for 2008, include the following:

(i) Executive development strategy ($0.30 million). This program intends to strengthen strategic leadership and innovative thinking, and share proven practices for strategy development and implementation.

(ii) Development for role preparation ($1.32 million). This program will support strengthening

and updating of expertise and provide specialized hands-on tools and techniques for new and more challenging tasks. It will also emphasize building the capability of team membership and leadership in technical, operational, and financial analysis.

(iii) Development of future leaders ($0.80 million). The programs will provide staff with tools,

strategies, and insights for effectively managing people, time, and resources leading to the development of effective leadership competencies.

Appendix 6 70

(iv) Development to refine and close skills gap ($0.66 million). This program will address fundamental skills and knowledge gaps with continued emphasis on analyzing gaps in skills and capability, and working to close those gaps. Refining and improving skills in project design and management, and country partnership strategy formulation are priorities.

(v) Basic skills ($0.20 million). This is a continuing program to keep improving computer

proficiency and initiating solutions/practices to increase work efficiency.

(vi) Strengthening field office capability ($0.4 million). This program will continue to build capacity of the field offices to take up increased functions in line with the continuing delegation to the field offices.

4. Learning and development will continue to utilize internal resources to support the design and delivery of these programs. This approach enables a wide range of operational programs and sharing of institutional knowledge and experience. 5. The allocation of two dedicated learning and development rooms, Learning Resource Center I and II in headquarters, will reduce the need for external premises, and provide cost savings and improved staff efficiency. 6. Table A6.2 provides actual costs for 2004–2006, current estimate for 2007 and projection for 2008.

Table A6.2: Cost of Staff Development Function, 2004–2008

($’000)

Currenta

Estimate Projection2004 2005 2006 2007 2008

Skills Training and Staff Development Incremental HRS Programs 387 922 1,301 0 Replaced by HRS Programs 680 474 1,014 1,410 0 Total Expenses included in HRS 680 861 1,936 2,711 0

Core Staff Development Activities not Included in HRS 1,545 1,034 1,334 1,050 4,028

Total Staff Development 2,225 1,895 3,270 3,761 4,028

ItemActual

HRS = Human Resource Strategy. Numbers may not sum precisely because of rounding. a Based on updated current estimate.

71 Appendix 7

STATUS OF SELECTED TRUST FUNDS AND FINANCING PARTNERSHIP FACILITIES

I. Trust Funds

1. Trust funds provided by bilateral and multilateral donors to finance the technical assistance (TA) operations of the Asian Development Bank (ADB) have continued to complement ADB’s resources to meet capacity development and other specific demands of the development member countries (DMCs). These funds continue supporting ADB’s poverty reduction strategy63 and cover a wide range of other thematic and sector areas. The status of some of the selected trust funds is provided below in sections A, B and C. A. Standalone Trust Funds 2. Japan Fund for Poverty Reduction. The Government of Japan established the fund in May 2000. It supports poverty reduction and related social development activities that can add substantive value to projects financed by the Asian Development Bank (ADB). The fund has received total grant funding of $360.4 million. The Government of Japan has approved 103 grant proposals equivalent to $267.2 million. 3. Cooperation Fund for National Poverty Reduction Strategies. Established in November 2001 as a trust fund with the Government of the Netherlands as the initial contributor, the fund supports technical assistance (TA) for poverty reduction strategy formulation, implementation, and monitoring; regional capacity building and training; and participatory advisory activities. As of 30 September 2007, the fund had a total grant funding commitment of about $6.0 million for 19 projects; 11 projects were completed, while eight are being implemented. The programs under this fund is expected to be completed in 2008. 4. Poverty Reduction Cooperation Fund. Established in July 2002 with an initial contribution from the Government of the United Kingdom, the fund is to complement national poverty reduction strategies, capacity building studies, and surveys on poverty reduction, and participatory poverty assessments. In 2005, the fund also started supporting project preparatory TA. As of 30 September 2007, the fund had a total grant funding commitment of about $55.8 million for 106 TA projects; 29 projects were completed, while 77 are being implemented. Completion of the program under this fund is expected in 2008. 5. United Kingdom Cooperation Fund for Technical Assistance. The fund was established in 2001 with the Government of the UK’s initial contribution of £20 million ($27.8 million). In 2005, the Government of the UK made an additional contribution of £30 million ($56.6 million). As of 30 September 2007, about $50 million had been utilized to cofinance 48 projects. 6. People’s Republic of China Regional Cooperation and Poverty Reduction Fund. Established in March 2005 with a contribution of $20 million from the People’s Republic of China, the fund will be available for 5 years until 2009. The objective is to strengthen the capacity of developing member countries (DMCs) to reduce poverty through regional cooperation. The fund encourages (i) innovation and learning in support of research and analytical work; (ii) piloting of innovative approaches; (iii) capacity building and institutional development in DMCs; and (iv) dissemination, networking, and cross-learning. All DMCs are 63 ADB. 1999. Fighting Poverty in Asia and the Pacific – The Poverty Reduction Strategy of the ADB. Manila

Appendix 7 72

eligible for grants supporting regional cooperation; however, countries that are part of the Greater Mekong Subregion and Central Asia Regional Economic Cooperation will be prioritized. As of 30 September 2007, 20 projects had been financed totaling about $8.1 million. Two projects have been completed, while remaining 18 are still being implemented. Review of projects seeking cofinancing from the fund is continuing. 7. Poverty and Environment Fund. Established in July 2003, the fund is intended to finance efforts to identify, pilot test, and demonstrate potentially replicable approaches that reduce poverty and improve the capacity of the poor to contribute to environmental management. As of 30 September 2007, the fund had total funding of about $6.9 million contributed by the governments of Norway and Sweden. The fund allocated $3.4 million for a regional TA for Poverty and Environment Program. 8. Canadian Cooperation Fund on Climate Change. The fund was established in March 2001 with Canada’s initial contribution of Can$5.0 million ($3.2 million). The fund aims to assist DMCs at the programming and policy level in the management and abatement of climate change to reduce the growth of greenhouse gas emissions. Additional contribution of Can$236,563 ($.02 million) was made in 2006 and had financed eight projects as of 30 September 2007. 9. Danish Cooperation Fund for Renewable Energy and Energy Efficiency in Rural Areas. The fund was established in 2001 with a contribution of DKr30 million ($3.6 million) by Denmark. The fund’s objective is to reduce poverty though support for sustainable development, and to slow the rate of climate change in DMCs through increased use of sustainable energy. In 2006, Denmark entered into another agreement with ADB for its DKr20 million ($3.5 million) contributions to the energy sector. Eight projects received funding under the first contribution, while one project received funding under the second contribution. 10. Dutch Cooperation Fund for Promotion of Renewable Energy and Energy Efficiency. The fund was established in 2001. The main objective is to promote investments in renewable energy and energy efficiency. The Government of the Netherlands made an initial commitment to contribute $6.0 million to the fund. One regional TA project received funding for $4.5 million and was completed in August 2007. Discussions on utilization of the remaining funds under this trust fund are ongoing. B. Other Trust Funds on Thematic and Sectoral Areas 11. Japan Fund for Information and Communication Technology. The fund was established in July 2001 by the Government of Japan for a 3-year period with a contribution of ¥1,273.3 million (equivalent to about $10.7 million) to harness the potential of information and communications technology, and to bridge the digital divide in Asia and the Pacific. The Government of Japan has approved 13 grant proposals for a total of $10.4 million. Ten projects are still being implemented with administrative support of the Office of Cofinancing Operations. 12. Japan Fund for Public Policy Training. The fund was established in March 2004 to enhance capacity building for public policy management in DMCs focusing on regional economies in transition. Initially, the Asian Development Bank Institute administered the fund, and Viet Nam was selected for pilot activities. In late 2005, administration of the fund was transferred to ADB. Since its inception, Japan has contributed about $22.0 million to the fund, of which $20.9 million was spent on program support including two regional TA projects totaling $18.7 million to continue the public policy program.

73 Appendix 7

13. Governance Cooperation Fund. Established in November 2001 as a multidonor umbrella facility, the fund was to support government-led governance reform activities. In 2001, the Government of Canada provided a contribution equivalent to $1.6 million and the Government of Norway provided the equivalent of $2.0 million in 2002. In 2003, Denmark contributed $1.5 million equivalent. As of 30 September 2007, 22 projects have received funding of about $4.8 million from the fund. In 2006, the Government of Ireland contributed €800,000 ($1.0 million) while agreement with Ireland for contribution to the fund is yet to be signed. 14. Cooperation Fund for the Water Sector. Established in December 2001 as a multidonor umbrella facility, the fund promotes effective regional, subregional, and country water management policies and practices. The fund aims to catalyze implementation of ADB’s water policy in Asia and the Pacific by providing assistance in three priority areas: (i) undertaking water sector analysis, preparing water action agendas, and carrying out sector reforms in DMCs; (ii) providing more holistic water sector operational support to ADB’s DMC partners; and (iii) strengthening regional cooperation and awareness about water sector issues and suitable responses, including investments, policies, and reforms. The governments of the Netherlands and Norway have completed their contributions, totaling about $21 million. Within this framework, the fund finances a coherent program of activities implemented through a series of regional TA projects entitled Promoting Effective Water Management Policies and Practices,64 (phases 1–5), with total support of $18.8 million. The fund also provided direct operations assistance to the regional departments through cofinancing of several TA projects. 15. Gender and Development Fund. Established in May 2003 with a total contribution of $8.6 million for an initial period of 3 years, contributors included the governments of Canada (Can$1.2 million, or the equivalent of $0.8 million), Norway (NKr40 million, or the equivalent of $6.3 million), and Denmark (DKr9.3 million, or the equivalent of $1.5 million). In 2006, the Government of Ireland contributed €800,000 to the fund. The fund is intended to support a coherent program of activities to strengthen the capacity of ADB and the DMCs to mainstream gender considerations in their policies, programs, and projects to help reduce gender disparities, promote empowerment, and make progress in meeting the Millennium Development Goals. As of 30 September 2007, six projects had received funding of about $4.7 million. 16. Cooperation Fund in Support of Managing for Development Results. Established in April 2004, the fund has a total contribution of $3.0 million, comprising contributions from the governments of Canada ($742,000), Netherlands ($926,000), and Norway ($1,354,000). The purpose of the fund is to finance TA projects that promote results-based management techniques within ADB and its DMCs. As of 30 September 2007, seven projects received a total of about $2.5 million. 17. Cooperation Fund for Regional Trade and Financial Security Initiative. Established in June 2004, the fund has received a total of $3.0 million contributions from the governments of Australia, Japan, and the United States. As of 30 September 2007, five projects had received funding of about $2.1 million. Of these five, one project has been completed, while the rest are still being implemented. The fund allows ADB to take a more active role in regional anti-money-laundering and countering the financing of terrorism capacity building activities, and to support port security enhancement and customs modernization efforts of its DMCs.

64 ADB. 2002-2006. Technical Assistances for Promoting Effective Water Management Policies and Practices

(Phases 1 to 5). Manila.

Appendix 7 74

18. Cooperation Fund for Fighting the HIV/AIDS in Asia and the Pacific (Sida Trust Fund). Established in 2005, the fund received a contribution equivalent to about $14 million from the Government of Sweden. The fund will finance HIV/AIDS interventions falling into three major categories: (i) pilot demonstration projects; (ii) leadership strengthening and evidence-based capacity building; and (iii) program coordination, technical support, and monitoring. As of 30 September 2007, $8.67 million had been allocated to a regional TA entitled Fighting HIV/AIDS in Asia and the Pacific65. 19. E-Asia and Knowledge Partnership Fund. The fund was established in June 2006 with a contribution of $20 million from the Government of the Republic of Korea. The fund aims to contribute to poverty reduction and foster economic and social development process in ADB’s DMCs through its two windows: (i) the e-Asia program and (ii) the knowledge partnership program. As of 30 September 2007, the Government of the Republic of Korea had approved six projects totaling $3 million. Review of projects seeking funding from the fund is continuing. 20. Financial Sector Development Partnership Fund. Established as a multidonor umbrella facility, with the Government of Luxembourg as the initial donor contributing about $2.0 million as of 30 September 2007. The fund will primarily strengthen regional, subregional, or national financial systems. Eligible activities for financing include (i) fostering integration of regional markets; (ii) improving the policy, legal, regulatory, and supervisory frameworks; (iii) strengthening and modernizing local financial institutions; and (iv) improving access to financial services by the poor. The full amount of the fund has been committed to four projects, two of which have been approved and are being implemented, while the two other projects are in process. 21. Asia Pacific Carbon Fund. Established in December 2006, the fund aims to acquire future flows of certified emission reduction credits on behalf of participants in return for upfront cofinancing payments. The fund is open to participation by governments of ADB member countries that have ratified the Kyoto Protocol. As of 30 September 2007, about $151.8 million in contributions had been mobilized for the fund. C. Emergency Trust Funds 22. The Asian Tsunami Fund and Pakistan Earthquake Fund are special trust funds that were established in 2005 to support activities that require immediate reconstruction, urgent rehabilitation, and development activities associated with calamities and disasters. As of 30 September 2007, resources totaled $611.7 million for the tsunami fund (of which $36.1 million is uncommitted) and $126.5 million for the earthquake fund (of which $16.5 million is uncommitted).

II. Financing Partnership Facilities

23. In line with its new financing partnership strategy 66 , ADB is taking an innovative approach to further enhance its catalytic role by establishing financing partnership facilities with development partners to mobilize resources. The status of these facilities is provided below.

65 ADB. 2006. Fighting HIV/AIDS in Asia and the Pacific. Manila. (R86-06) 66 ADB. 2006. ADB’s Financing Partnership Strategy. Manila

75 Appendix 7

24. Water Financing Partnership Facility. The facility was established in December 2006 and will accept grants from bilateral, multilateral, and individual sources, such as companies and foundations, to boost ADB’s water financing program in its DMCs. The program aims to provide safe drinking water and improved sanitation, better irrigation and drainage services, and reduced flood risk. The program also will help introduce integrated water resource management in river basins across the Asia and Pacific region. As of 30 June 2007, the governments of the Netherlands and Australia have committed to contribute about $49.2 million to the facility. 25. Clean Energy Financing Partnership Facility. The facility, established in April 2007, is an umbrella operational arrangement to enhance administrative coordination and efficiency, and is not a legal entity or structure. The facility will be a key mechanism to coordinate existing and new resources that are granted to ADB to promote clean energy through (i) pooled grants; (ii) bilateral grants; (iii) project specific loans, grants, or guarantees; (iv) knowledge provision and exchange; and (v) other forms of assistance. Negotiations with bilateral donors for contributions to the facility are ongoing. 26. Regional Cooperation and Integration Financing Partnership Facility. The facility, established in February 2007, aims to enhance regional cooperation and integration in Asia and the Pacific by facilitating the pooling and provision of additional financial and knowledge resources to support regional cooperation and integration activities. The facility will aim to (i) improve cross-border physical connectivity; (ii) increase trade and investment flows in DMCs from regional and nonregional economies; (iii) preserve macroeconomic and financial stability in the region; and (iv) improve regional environmental, health, and social conditions.

Appendix 8 76

2008 BUDGET AUTHORIZED STAFF NUMBERS BY DEPARTMENT AND OFFICE

Department/OfficeSenior a Other Total NO b AS Total Senior a Other Total NO b AS Total

A. President 22 74 96 42 76 118 22 77 99 42 78 120Offices of Management 6 8 14 1 13 14 6 8 14 1 13 14Risk Management Unit 1 9 10 7 8 15 1 10 11 7 8 15Office of the Special Project Facilitator 1 1 2 1 1 2 1 1 2 1 1 2Office of Regional Economic Integration 2 11 13 3 5 8 2 11 13 3 5 8Department of External Relations 2 17 19 10 18 28 2 17 19 10 18 28

European Representative Office 1 1 2 1 2 3 1 1 2 1 2 3Japanese Representative Office 1 1 2 1 2 3 1 1 2 1 2 3North American Representative Office 1 1 2 1 2 3 1 1 2 1 2 3

Office of the Auditor General 3 12 15 10 13 23 3 12 15 10 14 24Strategy and Policy Department 4 13 17 7 12 19 4 15 19 7 13 20

B.14 73 87 41 69 110 14 73 87 43 69 112

7 e 42 49 17 37 54 7 e 42 49 18 37 55Economics and Research Department 5 21 26 17 19 36 5 21 26 17 19 36Office of Cofinancing Operations 2 10 12 7 13 20 2 10 12 8 13 21

C. Operations 1 31 227 258 133 245 378 31 231 262 142 251 393South Asia Department 12 102 114 65 123 188 12 104 116 69 125 194

South Asia Department (HQ) 8 85 93 8 62 70 8 85 93 8 62 70Bangladesh Resident Mission 1 6 7 15 21 36 1 6 7 16 21 37India Resident Mission 1 6 7 19 23 42 1 8 9 21 d 24 45Nepal Resident Mission 1 2 3 11 11 22 1 2 3 12 11 23Sri Lanka Resident Mission 1 3 4 12 6 18 1 3 4 12 7 19

Central and West Asia Department 14 90 104 57 99 156 14 90 104 62 102 164Central and West Asia Department (HQ) 7 75 82 9 52 61 7 75 82 9 52 61Afghanistan Resident Mission 1 4 5 7 5 12 1 4 5 7 5 12Azerbaijan Resident Mission 1 1 2 3 1 4 1 1 2 3 1 4Kazakhstan Resident Mission 1 - 1 5 6 11 1 - 1 5 6 11Kyrgyz Resident Mission 1 1 2 5 3 8 1 1 2 5 3 8Extended Mission in Azzad Jammu and Kashmir

- - - 1 1 2 - - - 1 1 2

Pakistan Resident Mission 1 6 7 16 19 35 1 6 7 16 19 35Tajikistan Resident Mission 1 1 2 6 5 11 1 1 2 6 5 11Uzbekistan Resident Mission 1 2 3 5 7 12 1 2 3 5 7 12Armenia Resident Mission - - - - - - - - - 2 1 3Georgia Resident Mission - - - - - - - - - 2 1 3Turkmenistan Resident - - - - - - - - - 1 1 2

Private Sector Operations Department 5 35 40 11 23 34 5 37 42 11 24 35

D. Operations 2 32 212 244 109 244 353 32 216 248 115 246 361East Asia Department 9 64 73 30 59 89 9 64 73 32 59 91

East Asia Department (HQ) 7 56 63 8 35 43 7 56 63 8 35 43PRC Resident Mission 1 6 7 17 21 38 1 6 7 18 21 39Mongolia Resident Mission 1 2 3 5 3 8 1 2 3 6 3 9

Southeast Asia Department 13 98 111 56 102 158 13 100 113 59 103 162Southeast Asia Department (HQ) 7 71 78 9 60 69 7 73 80 9 60 69

Cambodia Resident Mission 1 3 4 7 6 13 1 3 4 8 6 14

Indonesia Resident Mission 1 9 10 15 16 31 1 9 10 15 16 31

Extended Mission to Sumatra - 1 1 - - - - 1 1 - - -

Lao Resident Mission 1 4 5 6 5 11 1 4 5 6 5 11

Philippines Country Office 1 2 3 3 4 7 1 2 3 3 4 7

Thailand Resident Mission 1 3 4 6 3 9 1 3 4 6 3 9Viet Nam Resident Mission 1 5 6 10 8 18 1 5 6 12 d 9 21

Knowledge Management and Sustainable Development

2008 BudgetProfessional Staff NO / AS

2007 BudgetProfessional Staff NO / AS

Regional and Sustainable Development Department

77 Appendix 8

Department/OfficeSenior a Other Total NO b AS Total Senior a Other Total NO b AS Total

Pacific Department 7 25 32 17 33 50 7 27 34 18 34 52Pacific Department (HQ) 3 18 21 3 17 20 3 20 23 3 17 20Pacific Liaison and Coordination Office 1 2 3 4 4 8 1 2 3 4 4 8Pacific Subregional Office 1 4 5 4 8 12 1 4 5 4 8 12PNG Resident Mission 1 1 2 4 3 7 1 1 2 5 4 9Special Liaison Office in Timor-Leste 1 - 1 2 1 3 1 - 1 2 1 3

Central Operations Services Office 3 25 28 6 50 56 3 25 28 6 50 56

E. Finance and Administration 27 124 151 143 432 575 27 125 152 145 411 556Office of the Secretary 2 8 10 3 18 21 2 8 10 3 18 21Office of the General Counsel 6 30 36 2 23 25 6 31 37 2 24 26

5 21 26 19 62 81 5 21 26 19 62 81Office of Administrative Services 3 13 16 35 136 171 3 13 16 35 113 148Controller's Department 3 17 20 25 107 132 3 17 20 26 108 134Treasury Department 6 20 26 17 45 62 6 20 26 18 45 63

2 15 17 42 41 83 2 15 17 42 41 83

F. Unassigned Positions - - - - 11 11 - - - - 23 23 c

Subtotal 126 710 836 468 1,077 1,545 126 722 848 487 1,078 1,565

G. Young Professional Program - 10 10 - - - 10 10 - - -

Subtotal 126 720 846 468 1,077 1,545 126 732 858 487 1,078 1,565H. Board of Directors

Office of the Compliance Review Panel 1 1 2 1 2 3 1 1 2 1 2 3Operations Evaluation Department 3 22 25 9 10 19 3 22 25 9 10 19Director's Advisors - 24 24 - - - - 24 24 - - -Staff Services - - - - 36 36 - - - - 36 36

Total 130 767 897 478 1,125 1,603 130 779 909 497 1,126 1,623- = 0 or not available/applicable, PS = professional staff, NO = national officer, AS = administrative staff, SQT = sequestration and allocation.

Ratios: 2007 2008A. Other Professional Staff (excluding Young Professionals):Senior Professional Staff 5.63 : 1 5.73 : 1B. National Officers and Administrative Staff: Professional Staff (excluding Young Professionals) 1.85 : 1 1.85 : 1

a Staff at managerial level and above including country directors as well as heads of regional and representative offices.b Authorized staff numbers for national officers are based on personal level.c Of 23 'unassigned' positions, 7 are readily deployable in 2008; the remaining 16 have incumbents and will become available when positions

become vacant.d Includes one Private Sector Operations Department national officer to be assigned in India Resident Mission and one external relations officer

to be assigned in Viet Nam Resident Mission.e Includes a Practice Leader.

Office of Information Systems and Technology

2007 Budget 2008 BudgetProfessional Staff NO / AS Professional Staff NO / AS

Budget, Personnel and Management Systems Department

Appendix 9 78

2008 BUDGET: PRICE/VOLUME GROWTH 1. For 2008, the budget is projected to grow by $24.4 million over the current 2007 estimate, comprising a price increase of 6.1% and volume growth of 1.2%.67 An overview of the price and volume changes by budget categories is in Table A9.

Table A9: Price/Volume Analysis ($‘000)

CurrentEstimate Budget

2007 2008 Total Price Volume

A. Board of Governors 1,323 1,656 333 25.2 25.2 0.0B. Board of Directors 21,643 23,184 1,541 7.1 5.5 1.6C. Operational Expenses 250,473 270,384 19,911 7.9 6.8 1.2 D. Administrative Expenses 60,146 63,503 3,357 5.6 4.1 1.5 E. General Contingency 3,192 3,587 395 0.1 0.1 0.0 F. Less: Reimbursementsa (4,076) (5,164) (1,088) (0.3) (0.3) (0.1)

Total 332,701 357,150 24,449 7.3 6.1 1.2

Percentage Change Increase/ %

(Decrease)Item

( ) = negative Numbers may not sum precisely because of rounding. a Estimated recoveries of costs associated with administering single-donor and multidonor trust funds. A. Price Increase

2. The overall price increase is $20.4 million (6.1%). The overall price factor of the Asian Development Bank (ADB) is the weighted average of the salary-related price adjustment for professional and local staff, salary-related benefits, a few known or assumed increases (e.g., group medical insurance, staff retirement plan, education costs, rental prices, and business travel ), and consumer price index (CPI)-based increases for all other costs. The price factor is primarily based on the following items:

(i) Salaries and benefits. This includes the overall pay increase of professional staff approved by the Board on 25 October 2007, the projected increase in local staff salaries, price changes in ADB benefit plans, and the impact of the appreciation of the Philippine peso for peso-denominated expenses.

67 The work program and budget framework (2008–2010) indicated a price increase of 6.2% and volume growth of

1.4%. The 0.2% reduction in volume growth is attributable primarily to reductions projected in business travel and staff consultants.

79 Appendix 9

(ii) Discretionary expenses and staff development. A price increase of 2.5% based on the United States (US) CPI is used to compute the price changes for staff consultants, staff development, and representation. For travel costs, a price escalation of 7.5% between 2007 and 2008 has been assumed.

. (ii) Administrative expenses. Overall, the weighted average price increase for

administrative expenses is 4.1%, based on (i) expenses incurred in Philippine pesos (weight = 32%), and (ii) expenses incurred in US dollars and other currencies (weight = 68%). The US CPI of 2.5% is applied for expenses incurred in US dollars and other currencies, and the Philippine CPI of 4.0% is applied for expenses denominated in Philippine pesos. 68 However, the impact of the Philippine peso appreciation on CPI-adjusted, peso-denominated expenses has driven the overall weighted average price increase to 4.1%.

B. Volume Growth 3. Volume growth of $4.1 million (1.2%) is primarily due to (i) additional staff years due to a projected reduction in vacancies and new positions in 2008 ($4.8 million), which is partially offset by lower staff consultancy (a decline of $0.8 million); and (ii) an increase in contractual services due to additional requirements to engage external legal counsels and outside auditors, increased translation requirements of field offices, and outsourcing initiatives in selected support services areas. Business travel is projected to decrease by $1.2 million, due to rationalization efforts, increased use of videoconferencing, and continued delegation of activities to resident missions.

68 Consumer Price Indexes for U.S. and Philippines are based on the International Monetary Fund. 2007. World

Economic Outlook. Washington, DC (October 2007).

Appendix 10 80

2008 BUDGET DISTRIBUTION OF OPERATIONAL EXPENSES BY DEPARTMENT/OFFICE

($’000)

Current PercentActual Estimate Budget Increase/2006 2007 2008 (Decrease)

(A) (B) (C) (D) (C/B)

A. President 26,383 30,115 31,284 11.6 3.9

Offices of Management 4,527 4,622 4,536 1.7 (1.9)Risk Management Unit 2,101 3,018 3,576 1.3 18.5Office of Regional Economic Integration 2,983 3,930 3,640 1.3 (7.4)Department of External Relations 5,196 4,635 4,414 1.6 (4.8)

European Representative Office 941 888 1,054 0.3 18.7Japanese Representative Office 726 1,049 775 0.5 (26.1)North American Representative Office 723 1,041 1,257 0.3 20.7

Office of the Auditor General 3,451 4,400 4,431 1.6 0.7Strategy and Policy Department 5,736 6,533 7,601 2.8 16.3

B. Knowledge Management and Sustainable Development 22,226 23,435 26,263 9.7 12.1 Regional and Sustainable Development Department 13,625 14,519 15,519 5.7 6.9Economics and Research Department 5,809 5,816 7,339 2.7 26.2Office of Cofinancing Operations 2,793 3,101 3,404 1.3 9.8

C. Operations 1 64,984 72,765 78,353 29.0 7.7

South Asia Department 30,240 33,352 35,418 13.1 6.2Central and West Asia Department 26,634 30,485 32,635 12.1 7.1Private Sector Operations Department 8,109 8,928 10,300 3.8 15.4

D. Operations 2 66,817 71,547 75,192 27.8 5.1

East Asia Department 15,906 18,672 19,511 7.2 4.5Southeast Asia Department 34,715 35,886 36,847 13.6 2.7Pacific Department 9,333 10,435 11,477 4.2 10.0Central Operations Services Office 6,864 6,554 7,357 2.7 12.3

E. Finance and Administration 46,590 50,031 55,724 20.6 11.4

Office of the Secretary 3,430 3,168 3,573 1.3 12.8Office of the General Counsel 7,076 6,982 7,643 2.8 9.5Budget, Personnel and Management Systems Department 8,510 9,102 10,450 3.9 14.8Office of Administrative Services 7,658 8,547 9,239 3.4 8.1Controller's Department 7,099 7,036 7,986 3.0 13.5Treasury Department 6,713 7,537 7,603 2.8 0.9Office of Information Systems and Technology 6,103 7,661 9,230 3.4 20.5

F. Unassigned 292 1,932 2,573 1.0 33.2

Sub-total 227,291 249,825 269,389 99.6 7.8

G. Young Professionals Program 601 648 994 0.4 53.5

Total 227,892 250,473 270,384 100.0 7.9- = 0 or not available/applicable.Numbers may not sum precisely because of rounding.

Note: Realignment of regional departments took place in May 2006.

Department/Office % of Total

81 Appendix 11

2008 BUDGET CROSS-YEAR COMPARISON OF INTERNAL ADMINISTRATIVE EXPENSES

($’000)

CurrentActual Budget Estimate Budget Percent

2004 2005 2006 2007 2007 2008 Increase (Decrease)

Item (A) (B) (C) (D) (E) (F) (F/D) (F/E)

A. Board of Governors 594 920 969 1,400 1,323 1,656 18 25

Travel 262 510 667 775 600 944 22 57Representation 122 139 144 214 225 235 10 4Administrative Expenses 90 124 55 191 303 165 (14) (46)Seminars 103 138 97 195 170 195 - 15 Resource Mobilization - - - - - 67 - - Compensation Related Study 17 8 6 25 25 50 100 100

B. Board of Directors 18,503 20,030 20,614 21,499 21,643 23,184 8 7

Offices of the Directors 10,666 11,543 12,478 12,647 13,051 13,672 8 5Accountability Mechanism 1,606 1,743 1,648 2,022 1,988 2,107 4 6Operations Evaluation 6,231 6,744 6,488 6,830 6,604 7,405 8 12

C. Operational Expenses 206,423 221,916 227,892 250,509 250,473 270,384 8 8

Salaries 107,418 113,729 119,739 129,796 127,248 141,021 9 11Benefits 56,694 63,919 64,380 71,773 71,649 77,304 8 8Staff Development 2,225 1,894 3,270 4,016 3,760 4,028 0 7Relocation 4,168 3,997 3,834 5,242 5,857 5,986 14 2Consultants 17,986 20,303 19,454 19,370 20,426 20,144 4 (1)Business Travel 17,608 17,735 16,901 19,930 21,203 21,570 8 2Representation 324 340 315 382 329 331 (13) 1

D. Administrative Expenses 49,516 51,397 53,808 60,196 60,146 63,503 5 6

Communications 7,112 7,053 6,227 6,549 6,168 6,244 (5) 1 Office Occupancy 10,985 12,281 12,451 13,690 14,078 15,318 12 9 Library 964 937 916 950 935 965 2 3 Office Supplies 1,755 1,825 1,767 1,840 1,736 1,805 (2) 4Equipment/Maintenance and Support 5,101 5,518 4,892 5,694 5,535 5,725 1 3Contractual Services 9,133 9,536 9,555 11,831 11,841 13,890 17 17Insurance 709 747 3,193 3,054 3,036 2,790 (9) (8)Depreciation 13,312 13,019 14,273 15,973 16,171 16,109 1 (0)Miscellaneous 445 482 533 615 646 657 7 2

Total Regular Programs 275,036 294,263 303,283 333,604 333,585 358,727 8 8

E. General Contingency - - 3,336 3,192 3,587 8 12

F. Less: Reimbursementsa - (3,160) (3,907) (4,076) (4,076) (5,164) 27 27

Net IAE 275,036 291,103 299,376 332,864 332,701 357,150 7 7

- = 0 or not available/applicable, ( ) = negative, IAE = internal administrative expenses.Numbers may not sum precisely because of rounding. a Estimated recoveries of costs associated with administering single-donor and multidonor trust funds.

Appendix 12 82

2008 BUDGET BOARD OF DIRECTORS

(2004–2008) ($’000)

Current Actual Budget Estimate Budget Percent

2004 2005 2006 2007 2007 2008 Increase (Decrease)Item (A) (B) (C) (D) (E) (F) (F/D) (F/E)

A. Offices of the Directors 10,666 11,543 12,478 12,647 13,051 13,672 8 5 Salaries 6,189 6,457 6,988 7,209 7,197 7,510 4 4 Benefits 2,649 3,034 3,513 3,267 3,618 3,746 15 4 Relocation 528 740 653 718 714 623 (13) (13) Business Travel 519 532 432 550 550 597 9 9

Country Consultation 205 195 222 236 236 283 20 20 Group Travel 153 150 101 125 125 133 6 6 Accompanying the President 21 33 14 25 25 15 (40) (40) Board Retreat 10 9 - 18 18 18 - - Special Travel 71 68 76 96 96 96 - - Director's Advisors (Annual Meeting) 29 60 - - - - - - Director's Advisors (Operational Missions) 30 18 19 50 50 52 4 4

Staff Services 770 781 891 903 972 1,197 32 23 Inspection Function 11 - - - - - - -

B. Accountability Mechanism 1,606 1,743 1,648 2,022 1,988 2,107 4 6 Office of Compliance Review Panel 920 1,135 1,045 1,352 1,336 1,456 8 9

Salaries 421 387 396 411 382 432 5 13 Benefits 142 154 95 134 127 136 1 7 Relocation 15 (2) 12 50 45 - - - Consultants - 47 - 70 16 54 (23) 240 Business Travel 37 35 54 96 67 88 (8) 31 Representation - 1 1 2 2 2 - - Compliance Review Panel 305 513 487 589 697 745 26 7

Office of the Special Project Facilitator 686 608 602 670 652 651 (3) (0) Salaries 319 345 363 383 349 392 3 13 Benefits 139 112 128 167 130 143 (14) 10 Relocation 18 - 2 5 38 - - (100) Consultants 163 84 42 70 90 70 - (22) Business Travel 47 66 67 45 45 45 - -

C. Operations Evaluation 6,231 6,744 6,488 6,830 6,604 7,405 8 12 Salaries 3,337 3,435 3,179 3,490 3,275 3,901 12 19 Benefits 1,620 1,804 1,846 1,845 1,827 1,985 8 9 Relocation 58 160 140 154 171 177 15 3 Consultants 896 998 904 903 928 932 3 0 Business Travel 319 345 415 437 401 408 (7) 2 Representation 1 2 4 2 2 2 - -

Total 18,503 20,030 20,614 21,499 21,643 23,184 8 7

- = 0 or not available/applicable, ( ) = negative.Numbers may not sum precisely because of rounding.

83 Appendix 13

2008 BUDGET OPERATIONAL EXPENSES

(2004–2008) ($’000)

CurrentActual Budget Estimate Budget Percent

2004 2005 2006 2007 2007 2008 Increase (Decrease)(A) (B) (C) (D) (E) (F) (F/D) (F/E)

A. Salaries 107,418 113,729 119,739 129,796 127,248 141,021 9 11

Professional Staff 85,516 89,061 91,502 98,473 94,437 101,620 3 8 Supporting Staff 21,716 24,463 28,076 31,128 32,612 39,201 26 20 Temporary Staff 186 205 161 196 199 200 2 1

B. Benefits 56,694 63,919 64,380 71,773 71,649 77,304 8 8

Dependency Allowance 3,362 3,372 3,444 3,736 3,591 3,870 4 8 Special Allowances 2,375 2,830 3,599 4,201 4,323 4,502 7 4 Special Travel 85 76 116 229 217 215 (6) (1) Retirement Contribution 15,481 17,512 18,394 19,553 19,404 21,697 11 12 Medical Insurance 5,056 5,062 3,198 3,480 3,266 3,555 2 9 Group Life Insurance 169 114 7 234 234 254 9 9 Accidental Death and Dismemberment Insurance 172 186 203 222 221 239 8 8 Workmen's Compensation Insurance 45 49 54 63 63 67 6 6 Death Grant 1 7 14 - - - - - Education Grants 9,105 9,909 9,378 11,820 11,869 12,464 5 5 Rental Subsidy 11,936 13,787 14,179 16,868 16,705 19,767 17 18 Severance Pay 3,004 4,953 5,227 4,609 4,889 3,630 (21) (26) Home Country Travel 4,238 4,307 4,968 4,630 4,758 4,812 4 1 Welfare and Recreation 708 720 645 845 865 924 9 7 Health Services 957 1,035 954 1,284 1,244 1,308 2 5

C. Staff Development 2,225 1,894 3,270 4,016 3,760 4,028 0 7

D. Relocation 4,168 3,997 3,834 5,242 5,857 5,986 14 2

Appointment 1,546 1,634 1,218 2,271 2,372 2,679 18 13 Termination 1,075 972 1,489 1,391 2,278 1,646 18 (28) Inter-Office Relocation 1,547 1,391 1,126 1,580 1,206 1,661 5 38

E. Consultants 17,986 20,303 19,454 19,370 20,426 20,144 4 (1)

F. Business Travel 17,608 17,735 16,901 19,930 21,203 21,570 8 2

G. Representation 324 340 315 382 329 331 (13) 1

Total 206,423 221,916 227,892 250,509 250,473 270,384 8 8

- = 0 or not available/applicable, ( ) = negative.

Numbers may not sum precisely because of rounding.

Item

Appendix 14 84

2008 BUDGET ADMINISTRATIVE EXPENSES

(2004–2008) ($’000)

Current Actual Budget Estimate Budget Percent

2004 2005 2006 2007 2007 2008 Increase (Decrease) Item (A) (B) (C) (D) (E) (F) (F/D) (F/E)

A. Communications 7,112 7,053 6,227 6,549 6,168 6,244 (5) 1

Telephone 1,102 1,207 1,082 1,139 1,108 1,272 12 15 Postage and Freight 1,003 1,291 787 787 772 739 (6) (4) Telecommunications Network 5,007 4,555 4,359 4,623 4,288 4,234 (8) (1)

B. Office Occupancy 10,985 12,281 12,451 13,690 14,078 15,318 12 9

Rental and Association Dues 3,450 3,884 4,029 4,546 4,490 5,311 17 18 Building Maintenance Services 1,632 1,616 1,990 2,020 2,222 2,423 20 9 Building Maintenance Supplies 608 647 534 478 544 487 2 (10) Building Equipment and Spare Parts 538 355 360 306 263 283 (8) 8 Alterations and Improvements 512 675 567 768 936 536 (30) (43) Utilities 2,279 2,736 2,653 3,002 2,960 3,377 12 14 Security and Food Services Supplies 1,793 2,143 2,185 2,435 2,562 2,797 15 9 Furniture 70 157 86 87 65 68 (22) -Furnishings 103 69 49 49 36 37 (25) 1

C. Library 964 937 916 950 935 965 2 3

D. Office Supplies 1,755 1,825 1,767 1,840 1,736 1,805 (2) 4

Expendable Supplies 1,640 1,712 1,642 1,711 1,602 1,668 (3) 4 Semi-Expendable Supplies 115 113 124 129 135 138 7 2

E. Equipment/Maintenance and Support 5,101 5,518 4,892 5,694 5,535 5,725 1 3

Office Equipment/Maintenance 307 333 323 333 327 328 (2) 0 Vehicle Maintenance 236 260 337 330 412 421 28 2 IT Equipment Support 4,558 4,924 4,233 5,031 4,797 4,976 (1) 4

F. Contractual Services 9,133 9,536 9,555 11,831 11,841 13,890 17 17

Legal Services 1,003 1,411 1,220 1,303 1,304 1,392 7 7 Financial Retainer Servicesa - - - - 50 50 Fiscal Services 1,672 1,706 1,727 2,049 2,131 2,217 8 4 Information Services 1,291 630 878 1,074 971 1,125 5 16 Administrative and Other Services 5,167 5,789 5,731 7,405 7,386 9,107 23 23

G. Insurance 709 747 3,193 3,054 3,036 2,790 b (9) (8)

H. Depreciation 13,312 13,019 14,273 15,973 16,171 16,109 1 (0)

I. Miscellaneous 445 482 533 615 646 657 7 2

Total 49,516 51,397 53,808 60,196 60,146 63,503 5 6

- = 0 or not available/applicable, ( ) = negative.

Numbers may not sum precisely because of rounding.a Financial retainer services or financial risk services is for enhancement of the Asian Development Bank's capabilities in the provision of financial risk insurances and guarantees to support private and public sector developments in developing member countries.b Includes $2.108 million for Post Retirement Group Medical Insurance

85 Appendix 15

ENHANCED COST INFORMATION A. Introduction 1. This appendix summarizes the observations/insights based on the review of estimated average expenses for key activities and outputs for 2003–2007. The purpose of the exercise is to track trends in expenses of the Asian Development Bank (ADB), and to identify potential areas where efficiency gains can be achieved. The estimation of historical average expenses also helps to strengthen and validate the basis on which resources are allocated during the budget formulation, as well as reallocation during budget reviews. 2. Key activities covered are the administration and processing of projects, grants, and technical assistance (TA), as well as the preparation and midterm reviews of the country partnership strategy (CPS) and regional cooperation strategies (RCS). The cost averages are derived from the ratios between estimated expenses incurred and output accomplishments of a particular activity over a 3-year period.69 The full-year expenses and accomplishment figures for 2007 used in this exercise are still projections.70 B. Analysis of Cost Information 3. Table A15.1 summarizes results of the assessment on portfolio administration and observations are provided below.

(i) Estimated expense of projects being administered in the public sector is $58,000 per year per project for 2004–2006, which is 4.0% lower than the figure for 2003–2005. The decline reflects the administration of a growing portfolio with the same level of resources in the recent years. Initial indication for 2005–2007 suggests that the level will be about $57,000.

(ii) For public sector, the percentage of at-risk projects is expected to decline from

10% in 2006 to 9% by the end of 2007. However, considering the increase in the at–risk percentage from 2005 to 2006, the realized percentage at the end of 2007 will provide an indicator whether the current resource level and attention given to portfolio management is optimum. As an indicator of portfolio quality, disbursements have improved in 2004–2006, and this positive trend is expected to continue in 2007.

(iii) For private sector operations the average portfolio management cost is $32,000

per year per project during 2004–2006, a figure that is expected rise to about $33,000 for 2005–2007. The rising allocation of resources is probably attributed to more complex projects. The continuing workout/restructuring of poorly performing projects is expected to lower the proportion of at-risk projects from 14%–15% in 2004–2006 to 5% at the end of 2007.

69 Average costs are presented and discussed in terms of 3-year moving averages. This is to enhance the accuracy

of the average costs because the number of projects, grants, and TA projects, particularly their approval figures, can fluctuate substantially from year to year, while the resources level spent on them (e.g., staff time) are relatively stable. This relates to the nature of operations where the timing of project approvals and completion are not solely determined by the amount of internal resources devoted to them.

70 The analysis encompasses only operational expenses (e.g.,staff costs, benefits, staff consultants, business travel, and representation) and excludes other administrative expenses and expenses incurred by the Board of Directors.

Appendix 15 86

(iv) TA administration cost is estimated to remain fairly stable at $21,000 to $22,000 per TA per year with a possible uptrend in 2007 and beyond. This is consistent with the ongoing effort across ADB to reduce size of the portfolio, enhance TA quality, and focus on the sector/thematic coverage of TA projects.

Table A15.1: Portfolio Management and Expenses

2007

Item Current2003 2004 2005 2006 Estimate

Project Administration (year-end)Public Sector Projects (number) 435 415 436 446 454 Disbursement ($ million) 3,703 3,453 4,542 5,415 6,418 Project At Risk, by Loan Number (%) 14.5 14.1 8.6 10.0 9.0 Private Sector Projects (number) 89 97 109 132 134 Disbursement ($ million) 143 152 336 359 600 Impaired Portfolio, by Loan Number (%) 19.0 14.0 15.0 13.9 5.0

TA Administered (year-end number) 878 1,020 977 957 881

Expense ($'000)Public Sector Project Administration 29,265 25,218 23,564 26,772 26,064 Private Sector Project Administration 2,192 3,198 2,239 5,273 5,017 TA Administration 19,506 19,072 23,012 19,297 19,766

Estimated Average Cost ($ '000 per project) 2002–2004Average 2003–2005 2004–2006 2005–2007

Project Administration (public sector) 63 60.7 58.3 57.2

Project Adminstration (private sector) 26 25.9 31.7 33.4

TA Administration 21.5 21.4 20.8 22.1

Average

Actual

TA = technical assistance. Source: Staff estimates. 4. Table A15.2 presents the expense analysis for processing of projects and TA, as well as the formulation and midterm reviews of country and regional strategies.

(i) Between 58 and 67 projects in the public sector were approved annually during 2003–2006. For 2007, 89 projects are expected to be approved, including 17 subprojects being prepared under the multitranche financing facility (MFF).71 The estimated cost to process a project during 2004–2006 was $372,000, while the average for 2005–2007 is estimated to drop to $341,000.

(ii) Approvals of private sector projects have risen from seven projects in 2003 to 21

in 2006; the number is expected to reach 25 in 2007. The average cost of processing a private sector project was $335,000 for 2004–2006, or 12.1% lower than the 2003–2005 average. This figure is estimated to decline further for 2005–2007 due to the continuing increase in expected approvals. As in the public sector, quality indicators such as number of loans canceled before signing and rating of the design and monitoring frameworks might be understood better to assess the intrinsic quality of project processing as an activity. These will complement the average costs.

71 To avoid bunching of project considerations at the end of 2007, some approvals may be shifted to 2008.

87 Appendix 15

(iii) In line with the effort to improve TA quality, the number of TA approvals has

declined in recent years. Conversely, the estimated cost for TA processing is steadily rising from about $47,000 per TA for 2003–2005 to the projected $50,000 for 2005–2007. This is expected to translate into higher quality TA projects.

(iv) The estimated cost of a CPS/RCS preparation over the period observed varied

widely between $846,000 and $1,383,000. This is attributed to the different workload and resources required to prepare background sector/thematic studies and broad-based dialogue required for different countries/regions. The data nonetheless show that this is one of the most expensive processes for ADB. The streamlining of the business process in 2006, as well as the benefit of a learning curve in preparing the CPS/RCS, might have contributed to the lowering of average cost for 2005–2007 compared to the 2004–2006. A continuing cost analysis needs to be carried out to ascertain the efficiency gains.

(v) The midterm reviews of CPS and RCS implementation were introduced in 2006.

Average expenses based on actual expenses for 2006 and projected data for 2007 suggest that their costs ranged widely from $380,000 to $523,000 per review. Over the long term, this should bring down the cost of engagement in a country. Expense monitoring over a longer period will improve the accuracy of these estimates.

Table A15.2: Processing Outputs and Expenses

2007

Item Current2003 2004 2005 2006 Estimate

Outputs (number)Public Sector Projects Approval 62 58 66 67 89Private Sector Approval 7 16 17 21 25 TA Approval 315 323 299 260 245 CSP and RCSP or CPS/RCS 7 3 6 6 9 CSPU and RCSPU / CPS and RCS Review 20 26 18 9 2

Operating Expense ($'000)Public Sector Project Processing 20,352 20,746 26,349 23,996 25,292 Private Sector Project Processing 3,811 5,133 6,292 6,668 7,045

TA Processing 15,358 14,134 14,955 13,379 11,802 CSP and RCSP or CPS/RCS − 7,475 6,984 6,281 4,508 CSPU and RCSPU or CPS and RCS Review − 3,727 3,153 3,423 2,331 Country/Regional Business Plans − − − − 1,428

Estimated Average Cost ($ '000 per project)2003–2005 2004–2006 2005–2007

Project Processing (public sector) 363 372 341Project Processing (private sector) 381 335 318

TA Processing 47.4 48.2 49.9CPS/RCS Preparation - 903.7 1,382.7 846.4CPS/RCS Reviews - − 380.4 523.1

Average

Actual

– = not available, CPS = country partnership strategy, CSP = country strategy and program, CSPU = CSP update, RCS = regional cooperation strategy, RCSP = regional cooperation strategy and program, TA = technical assistance, Source: Staff estimates.

Appendix 16 88

2008 ANNUAL CAPITAL BUDGET AND 2009–2010 INDICATIVE ANNUAL CAPITAL EXPENDITURE PROGRAMS

($’000) [This information was deemed confidential according to paragraph 126 of ADB’s Public Communications Policy].

2008 BUDGET SUMMARY OF SPECIAL CAPITAL EXPENDITURES

($’000) [This information was deemed confidential according to paragraph 126 of ADB’s Public Communications Policy].