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The Performance-Based Allocation (PBA) system continues to form the bedrock for allocating the ADF’s resources to its beneficiaries. It has proven effective for directing more resources to stronger performing countries since its adoption in 1999.
During the consultations on the ADF-13 replenishment, participants affirmed that country performance and needs will continue to drive resource allocation decisions and that the PBA system will remain the anchor for the ADF’s resource allocation mechanism to allocate UA 3.1 billion. Approximately 92% of ADF-13 resources will be allocated based on country performance through direct PBAs (representing 62% of available resources) and PBA-linked set-asides (30% of resources): the Fragile States Facility and cost-shared regional operations.
Share of ADF-13 Country Allocations Linked to the Performance-Based Allocation (PBA) System:
The PBA framework allocates resources to countries on the basis of performance and need. Performance is measured by the Country Performance Assessment (CPA) , while need is measured by per capita income (an indicator of a country’s poverty level), population size and quality of infrastructure through the Africa Infrastructure Development Index . The CPA is a weighted average of Clusters A, B, C of the Country Policy and Institutional Assessment (CPIA) (macroeconomic, structural and social policies) ; at 20%; Cluster D of the CPIA (Governance Rating, GR) at 58%; Cluster E of the CPIA (infrastructure and regional integration) at 6%; and the country Portfolio Performance Assessment (PPA) at 16%. The CPIA scores are determined using the CPIA Questionnaire (check out historical CPIA scores for all ADF countries). In addition, the system provides all countries with a minimum allocation of UA 5 million per year (UA 15 million for the whole 3-year cycle).
The Performance-Based Allocation Formula:
In addition to their performance-based country allocations, eligible countries in a situation of fragility are entitled to receive supplementary financing under the Fragile States Facility (FSF) in support of their recovery and in recognition of their status of exceptional need.
A second separate envelope of resources under ADF-13 is available for regional operations to promote regional integration in Africa.
Finally, a new Private Sector Credit Enhancement Facility has been created in ADF-13.
The allocation of ADF resources to ADF-eligible RMCs is a four-step process, which takes place every calendar year:
At the end of the process, a floor of UA 5 million per year is applied to all final allocations.
For more detailed information on the resource allocation process under ADF-13 please visit Allocating ADF-13 Resources
ADF-13 resources are used for three different purposes:
In addition, the ADF Governors endorsed the proposal of creating a Private Sector Credit Enhancement Facility (PSF) with a seed contribution of UA 165 million for the ADF-13 cycle. The PSF has been established to offer credit enhancements to a portfolio of African Development Bank (AfDB) transactions selected to support transformational private investments in ADF-only low-income countries. It is intended to stretch the AfDB’s risk capital to support more projects in ADF countries including fragile states, beyond what it could otherwise finance on its own.
Shares of Resources Available for Allocations under ADF-13 (UA million):
ADF country allocations are calculated based on:
Following the allocation of resources to the agreed set-asides (Regional Operations envelope, Fragile States Facility and PSF), the annual allocation of PBA resources to ADF-eligible RMCs is a three-step process led by the Resource Mobilization and External Finance Department (FRMB). First, resources are allocated to eligible countries using the PBA formula. Second, the country-specific financing mix (loan, grant, or loan/grant combination) is determined using the agreed Joint World Bank-IMF Debt Sustainability Framework (DSF). Third, the MDRI debt relief provided to eligible RMCs is netted out of those countries’ allocations and donor replacement funds to compensate ADF for foregone reflows will be reallocated to all ADF-only RMCs on the basis of the PBA.
First Step: Applying the PBA Formula
The PBA formula aims to provide a transparent means of allocating concessional ADF funds to ADF-eligible countries. The two main determinants of the PBA formula are: (i) Country needs, given by the gross national income per capita (GNI pc), country population (P or Pop) and the Africa Infrastructure Development Index (AIDI) ; and (ii) country performance, using the country performance assessment score (CPA) .
It entails the calculation of a basic allocation for each country following a three step process: i) calculation of initial allocations; ii) individual country initial allocations are capped at 10% of total available resources and the excess is reallocated to all other countries; iii) reallocation of a 50% discount for blend countries and discounts for graduating countries whose ADF allocations are being gradually phased out.
The PBA formula has been adjusted in ADF-13 in order to better align the PBA system with the ADF’s operational priorities and the Bank Group’s mandate as set out in its Strategy 2013-2022 . The Africa Infrastructure Development Index (AIDI) , which measures the level of a country’s infrastructure, was included in the formula’s needs component with a negative exponent of -0.25, so that countries with a greater infrastructure deficit benefit more. On the performance side, a new group of questions focused on infrastructure and regional integration (cluster E) has been added to the Country Policy and Institutional Assessment (CPIA) with a weight of 0.06.
To maintain the balance between performance and needs, the exponent of the performance component in the formula was increased by 0.125 points from 4 to 4.125. The effective weight of the CPIA cluster D for governance and the Portfolio Performance Assessment (PPA) remain unchanged, i.e. 58% and 16%, respectively. In the absence of a Bank Group portfolio of operations in a country, the weight of the PPA is added to the one of the CPIAABC.
A moving average of the Gross National Income per capita (GNI pc) for the last three years (updated annually) is used as an indicator of the country poverty level. The latest available data on the size of the population (P) is held constant during the entire ADF cycle of three years. Like for the GNI pc, the rolling average of countries’ scores on the AIDI over the last three years (updated annually) is also used.
The Country Performance Assessment (CPA ) captures country performance in terms of:
Second Step: Using the Debt Sustainability Framework and the Modified Volume Approach
The IMF/World Bank DSF is used to determine each country’s risk of debt distress. For each country, a Debt Sustainability Analysis (DSA) is undertaken based on two criteria: the institutional strength and quality of a country’s policies to withstand debt distress, and country-specific debt burden indicators (namely, the net present value of debt/gross domestic product ratio, the net present value of debt/exports ratio, and the debt service/exports ratio). Countries are classified by three “traffic lights,” where red indicates a high risk of debt distress, yellow indicates a moderate risk, and green indicates a low risk. Countries in the red category qualify for 100% grants, countries in the green category qualify for 100% loans, and countries in the yellow category qualify for a 50/50 loan/grant combination. Gap countries, Blend countries, and graduating countries are not eligible for grants, regardless of their DSA status.
Like in ADF-12, a modified volume approach is applied to PBA allocations under ADF-13. The primary purpose of the approach is to cover ADF forgone income and administrative charges for grant allocations up front and to strengthen the incentive structure of the PBA system. The approach applies a 20% volume discount to all grants. The discount is sub-divided into two parts: a 15% charges-related portion to cover ADF forgone income and administrative charges for grant allocations; and a 5% incentives-related portion to strengthen the incentive structure in the PBA system. The incentive related discount is reallocated to all ADF-only and gap countries using the basic PBA allocation shares. In the case of fragile states, only the charges-related discount is applied, and they are not eligible for the reallocation of the incentives-related portion.
Third Step: Multilateral Debt Relief Initiative Netting Out and Topping-up to the Minimum Allocation
The foregone debt service payments of countries qualifying for debt relief under the MDRI are deducted from these countries’ allocations through the MDRI netting-out mechanism. Resources from donors to compensate the ADF for the MDRI are reallocated to all ADF-only countries (including gap countries), using the basic allocation shares resulting from the first step of the allocation process.
After this step in the process, any country whose allocation is below the minimum allocation of UA 5 million per year will see its allocation topped up to the minimum level. This provision does not apply to countries in transition to blend or AfDB-only status.