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Bank Group Policyon Results-BasedFinancing

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AAAADB ADFAfDB AsDBBPSCESCSP CSSDLIsECE&SESWF&CFSFFMGCIIADBIFIsILIMFISSLICs M&EMICs, MTEFNDPPARPBPBAPBOsPCRPFMPRSPRSPsRBFRBLRMCsSAISDGsSESASMCCSWAPsTSFVfMWB

Accra Agenda for ActionAfrican Development BankAfrican Development FundAfrican Development Bank (Bank Group)Asian Development BankBorrower’s Procurement System Climate, Environment and Social SafeguardsCountry Strategy Paper Climate Safeguards System Disbursement-Linked IndicatorsEuropean CommissionEnvironment and Social Economic and Sector WorkFraud and CorruptionFragile States FacilityFinancial ManagementGeneral Capital IncreaseInter-American Development Bank International Finance InstitutionsInvestment LendingInternational Monetary FundIntegrated Safeguards System (ISS) Low Income CountriesMonitoring and EvaluationMiddle Income countriesMedium Term Expenditures FrameworkNational Development PlanProgram Appraisal ReportProgrammatic Budgeting Performance-Based AllocationsProgram-Based OperationsProject Completion ReportPublic Financial ManagementPoverty Reduction StrategyPoverty Reduction Strategy PaperResults-Based FinancingResults-Based LendingRegional Member CountriesSupreme Audit InstitutionSustainable Development GoalsStrategic Environmental and Social Assessment Senior Management Coordination CommitteeSector-Wide ApproachesTransition Support FacilityValue for MoneyWorld Bank

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Bank Group Policy on Results-Based Financing

1 POLICY BACKGROUND 51.1 Introduction 51.2 Rationale 6

2 COMPLEMENTARITY BETWEEN RESULTS-BASED FINANCING (RBF), INVESTMENT LENDING (IL) AND PROGRAM-BASED OPERATIONS (PBOs) 9

3 GENERAL POLICY DIRECTIVES ON RESULTS-BASED FINANCING 133.1 Definition 133.2 Vision 133.3 Objectives of RBF 143.4 Expected Results 143.5 Results Definition and Measurement 143.6 Results Verification 153.7 Program Action Plan 153.8 Bank Value Added 163.9 Performance Management 16

4 KEY GUIDING PRINCIPLES 194.1 Government Ownership 194.2 Focus on Systems and Institutional Capacity 204.3 Flexibility of Approach 214.4 Harmonisation and Coordination 21

5 PREREQUISITES AND CRITERIA FOR RESULTS-BASED FINANCING 23

5.1 General Prerequisites 235.2 Eligibility Criteria 24

6 FINANCING RBF 276.1 Categories of Countries and Financing Windows 276.2 Resource Allocation 276.3 Financing Prior Results 296.4 Advance Financing 296.5 Exclusions 29

7 RISK MANAGEMENT 317.1 Responsibility for Risk Management 31

8 ADDRESSING FIDUCIARY ISSUES 33

9 ADDRESSING CLIMATE, SOCIAL AND ENVIRONMENTAL SAFEGUARDS 37

10 COMFORMITY WITH CORPORATE COMPLIANCE MECHANISMS 41

11 CONSULTATIONS AND PARTICIPATION 43

12 POLICY IMPLEMENTATION 4512.1 Legal Basis for the Instrument and its Conformity with the Agreements

Establishing the Bank and the Fund (the “Agreements”). 4512.2 Key Elements for Policy Implementation 4512.3 Interim Guidance 4712.4 Policy Alignment 4712.5 Review of Implementation Experience 47

13 CONCLUSIONS AND RECOMMENDATIONS 49

ANNEXE Results Framework for the Implementation of RBF Policy 50

TABLE OF CONTENTS

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ACKNOWLEDGEMENTS

The Results-Based Finance Policy (RBF) Task Team Members

This document was prepared by the Strategy and Policy Department (SNSP),under the guidance of Charles BOAMAH, Senior Vice – President (SNVP).

The work was coordinated by Kapil KAPOOR, Director, Massamba DIENE, DivisionManager, and Namawu ALOLO ALHASSAN, Principal Strategy Officer, with the support of a Bankwideteam composed of the following members:

Awa BAMBA, Operations Advisor, SNOQ.1Mbarack DIOP, Chief Safeguard Policy Officer, SNSCUche DURU, Principal Environmental Safeguards Officer, SNSCEtienne NKOA, Chief Financial Management Expert, SNFI.0Ashraf AYAD Chief Procurement Officer, SNFI.0Olivier SHINGIRO, Chief Quality Assurance Officer, SNOQ.2Adwoa AYISI-SALAWOU, Legal Consultant, PGCL .1Al Hamndou DORSOUMA, Chief Climate Change Officer, SNSCVincent CASTEL, Chief Country Economist, COMAFabrice SERGENT, Chief Health Analyst, AHHD.2Fulbert EGNILE, Principal Disbursement Officer, FIFC.3Hassanatu Mansaray, Senior Policy Specialist, SNSPAchraf TARSIM, Senior Macroeconomist, COMAAntonio OCANA, Intern, SNSP

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1 | POLICY BACKGROUND

1.1 Introduction

1.1.1. The mandate of the African Development Bank Group (hereinafter referred to as the “BankGroup” or the “Bank”), as set out in its Agreements1, is to contribute to sustainable economicdevelopment and social progress of its Regional Member Countries (RMCs), individually andcollectively. In this regard, the Bank Group and other multilateral development banks (MDBs) are beingcalled upon to play a bigger role, to do more, and to innovate towards meeting the growing needs ofclients, within a volatile, uncertain and competitive development landscape. These calls have, in turn,increased attention to delivering measurable results from public expenditure. The Paris Declaration onAid Effectiveness (2005) and its subsequent coordination platforms, such as the Accra Agenda forAction (2008) and Busan (2011) Forum on Aid Effectiveness, all seem to converge at greater use ofresults-based financing approaches to demonstrate measurable results from aid investments. Within thecontext of limited resources and shrinking development assistance, many development partners haveresponded to the growing demand, by introducing Results-Based Financing (RBF)2 as an instrument thataligns incentives with outcomes.

1 The Agreement Establishing the African Development Bank and the Agreement Establishing the African Development Fund.2 The World Bank, AsDB, IADB and DFID have all introduced RBF modalities into their financing operations. These partnershave different names for the instrument. For instance, the World Bank calls it Program for Results (PforR) while the AsDB callsit Results-Based Lending (RBL), IADB calls it the Loan Based on Results (LBR) and DfID, Payment for Results. The AfDB isproposing to call it Results-Based Financing (RBF).

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1.1.2. The Bank has adopted a new Development and Business Delivery Model (DBDM), whichseeks to fast track the delivery of results and impact for Africa’s transformation. In order to enhanceinstitutional effectiveness, value for money (VfM) and innovative financing, necessary to achieve thisgoal, the Bank Group is committed to piloting this new and more flexible policy instrument on results-based financing for five years. RBF will be an additional instrument that will complement the two mainexisting instruments: investment lending and Program-Based Operations (PBOs). The RBF instrumentwill support government-owned sector programs and link disbursements directly to the achievement oftangible, measureable and independently verifiable program results. The Instrument will also enable theBank to increase accountability and incentives for delivering and sustaining results, as well as improve theeffectiveness and efficiency of government-owned sector programs The instrument will also enable theBank to increase accountability and incentives for delivering and sustaining results, as well as improve theeffectiveness and efficiency of government-owned sector programs, thus promoting institutionaldevelopment and enhancing overall development effectiveness.

1.2 Rationale

1.2.1. World leaders, in 2015, agreed to an ambitious set of Sustainable Development Goals (SDGs),with the objective of eliminating extreme global poverty by 2030. The Twenty Second United NationsConference on Climate Change (COP-22) also established a similarly ambitious agreement on ClimateChange. To respond to these ambitious development mandates, MDBs have been tasked by thedevelopment community, to significantly scale up their activities by leveraging and crowding in financialresources. Noting that these ambitious development goals will only be realized if they can be achieved

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in Africa, the Bank is repositioning itself and has fine-tuned its priorities3 in order to maximize focus andeffectiveness in the delivery of its operations. The Bank is also undergoing institutional restructuring,streamlining its business processes, and exploring innovative instruments that will enable it to scale upinvestments while minimizing costs. In so doing, the Bank is proposing RBF as a timely additional instrumentthat will enable greater leverage and increased flexibility for deeper collaboration with other partners, asnecessary, to meet the ambitious international commitments. RBF will enable the Bank to leverage its ownfinancing and enhance collaboration through pooling resources and collective efforts on supportinggovernment programs.

1.2.2. Furthermore, the development landscape is evolving rapidly, and countries are increasinglydriving their own development agenda - implementing their own programs and requesting finance andexpertise from development partners to improve the effectiveness and efficiency of those programs forthe purposes of delivering results and impact. In this regard, it is imperative for the Bank and otherdevelopment partners to broaden their range of lending modalities to meet clients’ demand.

1.2.3. RBF will allow the Bank to tie its support to the results of specific government programs ofexpenditures, thereby incentivizing governments to shift their focus from inputs to outcomes; hence re-orienting development programs towards becoming more results-focused. This is because the instrumentwill allow the Bank Group to align its support directly with government programs, focusing directly onsystems improvement, capacity building and partnership with governments. As it links disbursement topre-agreed, tangible and independently verifiable results, the Bank Group has the opportunity to buildon its track record of delivering results, and to significantly increase the sustainability of its impact. Thiswill contribute to the objectives of the aid effectiveness agenda, as it will improve efficiency, effectiveness,and governance of development programs.

1.2.4. The instrument emphasizes strengthening the institutional capacities and systems that are neededto implement programs in order to achieve their desired results. As such, the instrument will enable theBank to improve the overall governance of the program with emphasis on transparency, accountability,and participation, which will help to enhance development impact and sustainability.

3 The Bank’s current priorities are articulated in its Ten-Year Strategy (TYS), with a recent sharper focus on five priority areas(High 5s), namely: Light up and Power Africa, Feed Africa, Industrialize Africa, Integrate Africa and Improve the Quality ofLife for the People of Africa..

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2 | COMPLEMENTARITY BETWEENRESULTS-BASED FINANCING (RBF),

INVESTMENT LENDING (IL) AND PROGRAM-BASED OPERATIONS (PBOs)

2.1 RBF will be an instrument positioned betweeninvestment lending (IL) and Program-basedoperations (PBOs).

• Investment lending typically is transaction-based, and procedural in nature, financing expenditures forinputs in discrete investment projects, such as works, goods and services, and is generally subject to Bankrules. Project implementation arrangements are generally ring-fenced under parallel arrangements (e.g.through project implementation units). Risk management usually tends to focus on procuring and usinginputs to ensure that the right inputs are in place and the operation is implemented as planned. In thisregard, IL is most suitable for discrete investment operations in which the Bank monitors transactions.

• PBOs on the other hand generally support policy reforms and disburses in tranches based on fulfilmentof agreed upon policy actions. It is used to improve reforms and provide budget support to governments.The Bank typically does not track or monitor the specific transactions supported by its financing. PBOsare therefore most suitable for operations where the Bank would like to support key policy reforms thatare delivered through, inter-alia, policy dialogue.

• RBF, in turn, finances and supports a borrower’s programs of expenditures and disburses against theachievement of key program results rather than inputs or policy actions. Risk management is based on ex-ante assessments of the program and its systems, ex-post results verification, and systematic institutionaldevelopment. In so doing, RBF will be suitable for supporting the delivery of results in a governmentprogram, using and improving the program‘s institutions and systems to bring about the institutional changeswhich are necessary to deliver and sustain results. When approved, therefore, the centerpieces of theBank’s RBF will be the achievement of program results and institutional development, with disbursementbased on the results delivered.

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2.2 In this regard, RBF will complement the two mainexisting instruments with its specific emphasis onresults and systems improvement.

The instrument is well suited to be positioned between the Bank’s investment lending and PBOs, as itwill help the Bank to address sector-wide challenges more effectively, and broaden the array of instrumentsfor RMCs to select from, based on different development challenges. Both Box 1 and Figure 1 belowillustrate the complementary aspects of RBF. Table 1 shows the sharp distinctions between RBF and SectorBudget Support (SBS).

Box 1

Results-Based Financing (RBF) will complement the two existing instruments: investmentlending and PBOs. For instance, improving infrastructure development (e.g., good roadnetwork) may require both policy actions (e.g., a road sector strategy) and some discreteinvestment activity (e.g., constructing new roads or contracting works for road maintenance).But in many cases, these are not sufficient for the achievement of results. Roads can bebuilt, but may remain un-maintained due to lack of sustained financing, mismanagement orcorruption. Addressing such bottlenecks will entail improvements in systems that includecapacity building and behavior changes at all levels. This is where RBF comes in,complements the existing instruments, to better address such development challenges, andimprove the quality of government programs and their accompanying systems. The instrumentis flexible to enable tailoring according to country needs and requires sharpening results-orientation in public sector management; improving the governance of program institutionsand systems; and changing incentives and behavior of the government, service providers,and users.

The key features of the Bank’s lending instruments are outlined in Figure 1 below.

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The key distinctions between RBF and Sector Budget Support are highlighted in Table 1 below:

RBF SBS

A financing instrument (loan or grant) to support eitherphysical or non-physical investments within a governmentprogram, with disbursements based primarily on theachievement of pre-agreed results related to the RBF-supported program. The program could be an entire sector,sub sector, thematic, sub-national or multi-sectoral program.

A financing instrument (loan or grant) that supports discretepolicy and institutional reforms in a particular sector, withdisbursements based on the achievement of prior resultsrelated to policy reforms.

RBF focuses on the achievement of the program results, andsystematically strengthening the program’s institutions andsystems.

SBS focuses on high level policy, institutional and/orregulatory reforms within a particular sector.

RBF funds are used to cover specific expenditures andtransactions of a government program.

SBS resources support the national budget through non ear-marked funds transferred into the treasury.

The Bank can attribute its financial support to theachievement of specific results in an RBF program.

The Bank cannot attribute its financial support to theachievement of specific results since funds are mixed in thetreasury account and cannot be easily traced to specificexpenditures.

Disbursements are effected upon achievement of results andperformance linked to the program.

Disbursements are made based on evidence that sectorreforms have been adopted.

Results are independently verified by independentverification agency.

Results not independently verified.

Table 1 Key Distinction Between RBF and Sector Budget Support (SBS)

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3 | GENERAL POLICY DIRECTIVESON RESULTS-BASED FINANCING

3.1 Definition

RBF is a financing instrument, to support physical or non-physical priority programs of government, whichthe Bank Group shall extend to borrowers or recipients, in the form of loans or grants, upon theachievement of, pre-agreed results with the borrower or recipient as the case may be, within thegovernment program, using and improving the program’s institutions and systems. RBF payments shall bemade based on the results that are delivered (called Disbursement-Linked Indicators), as opposed toevidence of expenses incurred. Thus, the achievement of results is directly financed, rather than theinputs, by an implementing entity. RBF programs can be new, on-going, sectoral, multi-sector, sub-sector,national or sub-national.

3.2 Vision

It is the vision of the Bank to enhance development impact and sustainability in its Regional MemberCountries by creating an enabling environment for improved partnerships aimed towards povertyreduction, inclusive growth and transition to green growth. The Bank will therefore use RBF, whereappropriate, as part of a variety of instruments tailored to country circumstances to strengthen institutionsand systems, as well as deliver on results of government programs, thereby contributing to povertyreduction, inclusive growth and transition to green growth.

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3.3 Objectives of RBF

Depending on the country needs and specific country context, RBF will be used to achieve results throughimproved efficiency and effectiveness of government expenditures; the purpose of which will be alignedwith the following:

√ To support and sustain development programs (be they economy-wide, sectoral, multi-sec-tor, or institutional, regional) that seek to address social spending priorities and develop-ment challenges, including maximization of job creation opportunities.

To strengthen program/country systems that are critical to achieving the results of the RBF-supported program, including fiduciary, climate, environmental and social safeguard systems.

3.4 Expected Results

RBF operations will have expected results measured and tracked at various levels (see RBF resultsframework in Annex 1 and RBF Guidelines for details). However, in the longer term, RBF is expectedto have the following impact: (i) enhanced inclusiveness and transition to green growth, (ii) reducedpoverty and increased living standards, and (iii) specific targets on SDGs attained. These will be achievedthrough outcomes/interim outcomes, such as: (a) delivery on country or regional development programs,(b) credible, comprehensive, transparent, accountable and effective program systems, (c) enhancedsector level performance, and (d) enhanced institutional capacity to implement development programs.

3.5 Results Definition and Measurement

RBF operations will make results the basis for disbursements through a set of indicators called Disbursement-Linked Indicators (DLIs) (see Box 2 below). Measuring results will be the primary driver of Bank Groupfinancing. In this regard, the Bank Group will ensure that RBF operations have strong built-in incentivesfor both the Government and the Bank to focus attention on defining, achieving and measuring results.The Bank and the Government will therefore identify and select specific set of results for the program,which will be defined vis-à-vis the specific objectives of the program and the expected timelines forachieving those objectives.

3.5.1. The Bank Group will assess the overall results framework of the government program that definesprogram outputs, intermediate outcomes, outcomes, and goals. While disbursements will be based ona selection of key milestones from the indicators in the results framework (the DLIs), the Bank will ensurea clear understanding of the whole results chain, which is essential to ascertain that the right incentivesare in place for program improvement and strengthening.

3.5.2. The Bank Group will ensure that outcome-based DLIs comprise at least half of DLIs in an RBFoperation. It should however be noted that RBF may support new programs for which it may not bepractical/feasible to select outcome-based DLIs, particularly in the initial years of operation. In this regard,such operations will combine the right mix of DLIs (including outputs, financing, processes, intermediateoutcomes, etc.) to ensure that the program outcomes will be achieved by the end of the Bank supportedprogram. Additionally, the Bank Group will strive to ensure additionality in the selection of DLIs byfocusing on results that would not have been achieved without the RBF.

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Box 2

A combination of DLIs at different levels of measurement will be selected in RBF in other tomaximize the possibilities of achieving the overall program objectives. For instance, dependingon the nature, status of implementation and overall objectives of the government program, theBank and the government could choose and agree upon:

√ Outcome-related DLIs (e.g. adequacy or reliability of power supply, infant morta-lity rate, literacy rates, etc.);

Intermediate outcomes (e.g. number of teachers using new teaching methods, in-crease in school enrollment, etc.);

Outputs (e.g., number of high voltage transmission lines, immunization rates, etc.);

Financing indicators (e.g. share of certain activities/projects in total expenditures);

Process indicators (e.g. confirmation of substantive participation in decision-ma-king by specified communities);

Other indicators: DLIs that represent key actions aimed at addressing specific risksor constraints to achieving the results (e.g. actions to improve fiduciary, environ-ment and social management, and/or monitoring and evaluation).

3.6 Results Verification

DLIs will be underpinned by a credible independent verification protocol that is acceptable to the Bank.Verification mechanisms will depend on the nature of the indicator at hand. Results verification can bedone by independent audit institutions, other parts of government (e.g., Central Bureau of Statistics) orthird party agencies. DLIs and their verification, as well as updates on their progress, will be made availablein the public domain as consistent with the Bank’s disclosure Policy. The Bank Group will use RBF tostrengthen or institute systems for data collection on indicators to facilitate timely and accurate reporting.

3.7 Program Action Plan

Bank Group RBF Operations will have a Program-Action Plan (PAP) which will comprise a set of keypriority actions for strengthening institutions and improving systems performance. PAP actions will bedrawn from the three key assessments that will underpin each RBF operation, namely, technical, fiduciary,climate, environment and social. PAP actions may include: (i) actions to improve the technical dimensionsof the program, including rules and procedures that will govern the organization and management ofprogram systems; (ii) actions to enhance the capacity and performance of the agencies involved; and(iii) risk-mitigating measures to increase the potential for the Program to achieve its results and to addressfiduciary, climate, social, and environmental concerns.

3.7.1. PAP actions may require additional technical assistance, in which case the Bank will chose any ofthe following measures, as necessary: (i) PAP actions to be financed as an integral part of the RBFProgram; (ii) technical assistance activities can be financed as a hybrid RBF/investment lending operation;(iii) a stand-alone IL operation; or (iv) financed by other development partners, including Bank-administered Trust Funds.

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3.7.2. The Bank Group will ensure that critical PAP actions are included in the loan/grant agreement toensure continuous government commitment to their implementation. This will be monitored closely bythe Bank Group during implementation as part of RBF supervision.

3.8 Bank Value Added

The Bank will add value by: (i) improving the program design and implementation of RBF operations,thereby strengthening the delivery of government programs and enhancing aid effectiveness; (ii)strengthening incentives and increasing the likelihood of achieving program results; (iii) supportinginstitutional and capacity development; (iv) assisting in risk identification, mitigation, and management;and (vi) sharing knowledge and good practice based on international experience. The key features ofRBF that will enable the Bank to maximize value addition are highlighted in Box 3.

3.9 Performance Management

A key underlying objective of RBF is to improve performance of government programs by, inter-alia,focusing on behavioral and institutional changes required to achieve program results and manage associatedrisks. In this regard, the Bank Group will ensure that RBF operations are underpinned by performancemanagement principles in order to achieve program results in an effective and efficient manner. This willinclude the required processes, tools and incentives for effective management of program staff performanceat all levels, focusing on results delivery, competencies and development. Internally, it will also includeclear delineation of roles and responsibilities for relevant Bank staff and management, as well asaccountability structures in the design and implementation of RBF operations.

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Box 3 Key Features of RBF Instrument

√ Supports government sector programs and promotes country ownership. RBF shallbe used to support government-owned sector programs and to finance the pro-gram’s expenditure framework. These programs could be new or already under im-plementation. Their scope could be national, subnational, multi-sectoral, sectoral,sub-sectoral or cross-sectoral themes (e.g. gender equity, private sector develop-ment, financial management, energy and climate change, etc.).

Disburses directly against results. Disbursements shall be linked directly to theachievements of program results, as measured by disbursement linked indicators(DLIs) that would have been pre-selected and agreed upon between the Bankand the client at the time of appraisal. In this regard, disbursements will finance de-fined borrower expenditure programs designed to achieve specific results.

Supports institutional development. An important objective of RBF will be institu-tional development to strengthen key program systems, including fiduciary (finan-cial management, procurement, and anticorruption measures), safeguards, andmonitoring and evaluation. This will, in turn, strengthen accountability and incen-tives for results. It will also enhance development impact and sustainability.

Manages risk adequately: Adequate risk management will be a defining feature ofRBF. It will include rigorous assessments of the systems to implement the program,follow-up capacity development measures, and implementation support.

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4 | KEY GUIDING PRINCIPLES

4.1 Government Ownership

RBF will be demand driven and as such, will reflect strong country ownership and commitment to resultsand improving country systems. Government ownership will be demonstrated through the existence ofa government sector program, resource allocation, and/or willingness to improve overall systems byengaging with development partners4. RBF will therefore support government owned programs that areconsistent with the Bank’s operational priorities and aligned with the country’s sector priorities, withspecial emphasis on systems strengthening and sustainability of the program. The RBF supported programwill be integrated into national budgets, and where possible, will be used as a mechanism for bettercoordination with other development partners.

4 Examples of government commitment and ownership include: (i) budgetary allocations towards the implementation of theentire program which RBF will be supporting. (ii) Specific references made to the program in the country’s national or relevantsectoral development plan or similar document. (ii) Articulation of commitments of key policymakers to the program. (iii)Engagement of relevant interest groups in dialogue with the government about the program. (iv) Good government trackrecord in implementing the program or similar programs. (v) Steps already taken by government to address key issues underthe program, including budgets and payments.

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4.2 Focus on Systems and Institutional Capacity

RBF will seek to strengthen the institutional capacity needed for an RBF-supported program to achieve itsdesired results. The RBF operation will therefore identify the key institutional/system weaknesses thatcould undermine the achievement of results. On the basis of this, the program will include capacitybuilding to strengthen the program’s institutions and systems, where required.

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4.3 Flexibility of Approach

In response to increasing RMCs’ demand for financing and expertise to improve programs, the Bank willexercise flexibility in the use of RBF to support different capacity environments to enhance effectivenessand efficiency in achieving results. Flexibility will be enhanced through, inter-alia, the use of the program’sown systems which will be assessed and improved based on internationally accepted good practicesand principles.

4.4 Harmonisation and Coordination

The Bank Group will enhance harmonization and coordination in-country by streamlining its overallapproach to RBF with those of other development partners, as deemed appropriate. In particular, theBank’s RBF will share - with other development partners where available and appropriate - a commongovernment-owned results framework, using common systems, and financing a common programexpenditure framework.

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5 | PREREQUISITES AND CRITERIA FOR RESULTS-BASED

`FINANCING

5.1 General Prerequisites

RBF will be underpinned by three robust assessments (technical, fiduciary and climate, environment andsocial) of program systems which will allow adaptation to specific country contexts. Based on theseassessments, an RBF supported program will have the following prerequisites - also illustrated in Figure 3:

√ Justifications vis-à-vis the strength of the program. This will be assessed based on the program’srelevance, adequacy and appropriateness of its implementation arrangements.

An expenditure framework and a financing plan to be assessed based on the efficiency, ef-fectiveness, adequacy, and sustainability of the program‘s expenditure framework and financing.

Expected results and links with disbursements will be assessed based on the appropriatenessof the results framework and the relevance of the selected results to be achieved.

Implementing institutions and applicable systems will be assessed based on the monitoringand evaluation (M&E) systems, the fiduciary systems, the climate, environmental and socialsystems (CES), and other institutional and system aspects, as relevant and appropriate to theprogram.

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5.2 Eligibility Criteria

An RBF operation will be demand driven and only considered by the Bank at the request of agovernment. A program will be eligible for financing under the RBF instrument when its objective is toimprove the performance of a government program. RBF will be most suitable when achievingdevelopment results requires specific investments, changing government practices to improve performance,improving countries’ systems and building institutions. In this regard, RBF will be extended based on theBank’s overall assessment of the country’s program to be supported, the institutional capacity to achieveexpected results, the government’s commitment to improving the systems and institutions, and the risksassociated with the program. The Bank Group will use an adaptive approach in managing risk andenhancing robustness of RBF operations. Therefore the decision to use RBF will be based on:

a) Relative benefits and risks of an RBF operation:

√ Government preferences for RBF and the objectives of the program to be supported usingthe program’s own systems. The operation should be aligned with the prevailing Bank Groupoperational priorities.

Potential benefits of using RBF on a sector or other development program.

Potential risks of RBF, including fiduciary, political, development and reputational.

(b) Meeting the specific eligibility criteria (below).

5.2.1. Specific eligibility criteria: Eligibility will be determined based on the institutional andoperational strength of the borrower or recipient as the case may be. An analysis of the strengths andweaknesses of the systems will be undertaken in a participatory manner drawing on existing or new datagenerated by the Bank, the government, development partners, civil society, and other sources. Riskassessment and mitigation will be a dynamic process that will be updated throughout program preparationand implementation. Where weaknesses are identified, the Bank and the RMC will agree upon robustcapacity development and risk mitigating measures. Implementation of the risk mitigating measures willrequire sustained government commitment. The Bank Group will therefore monitor the implementationof these measures in addition to the program‘s own M&E. Key factors to be considered are:

Figure 2 RBF PREREQUISITES

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√ Government commitment to delivering results and improving systems towards poverty re-duction, inclusive growth and transition to green growth, as demonstrated by the existence ofa sector/development program with an expenditure framework and effective implementationmechanisms (see Footnote 4 for specific examples), as well as firm commitments to pursuethe development outcomes of the RBF intervention.

Satisfactory fiduciary systems assessment by the Bank to affirm either the adequacy or im-proving program systems to allow for results-based financing. This includes the borrower’s re-gulatory framework and fiduciary management capacity to implement the program. A satisfactoryassessment of the program’s fiduciary systems, or at least improving, with firm commitmentfrom government to improve the systems, will assure Management that the program’s systemsare sufficiently strong (or, where there are weaknesses, these are being addressed) to safeguardBank resources (see further details in Section 8 below).

Satisfactory safeguard systems assessments to determine the degree to which the programsystems will manage and mitigate climate, environmental and social (CES) impacts and benefitsof the RBF program. The Bank will, in collaboration with the government, assess the applicabilityof national, agency or program-level safeguard system and draw up a mandatory mitigationand management action plan for the government to implement where relevant. In order tofoster the strengthening of country CES safeguards systems, the Bank will look for a positivetrajectory of change indicating effective RMC commitment to improving those systems byagreeing with Government on a robust and realistic capacity development action plan and aset of appropriate risk mitigating measures that can be refined in the course of program imple-mentation.The Bank recognizes that it is important to address weaknesses in the systems andinstitutional capacity which form the enabling environment for practical realization of positiveoutcomes. In this regard, the RBF instrument will rely on the Strategic Environmental and SocialAssessment (SESA) tool to emphasize system and capacity diagnosis and improvement. Keyweaknesses will either be selected as DLIs that will be tied to disbursements upon achievementor included in the Program Action Plan for implementation by government, and to be moni-tored by the Bank during implementation (see RBF Guidelines for further details).

Harmonisation, which will be demonstrated by strong partnerships among donors, includingemerging donors, foundations, and the private sector where appropriate. To the extent pos-sible, RBF should leverage the effectiveness of development partners’ collective efforts to in-crease efficiency by reducing transaction costs for both the government and developmentpartners themselves. This may be done through the use of parallel or co-financing arrangements,joint assessments/analytical works, and joint missions. The possibilities of public-private part-nerships may also be considered, as appropriate. However, the criterion of harmonizationshould not prevent the Bank from providing an RBF when no other development partner isdoing so. In situations where the Bank is the only or initial funder, the Bank will consider thepotential for the RBF operation to leverage other donors’ support for the program. The Bankwill also use the RBF program as an opportunity to bring other partners together towards aharmonized framework for the program.

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6 | FINANCING RBF

6.1 Categories of Countries and Financing Windows

The Bank Group will consider the use of RBF in all its RMCs, middle income countries (MICs), lowincome countries (LICs) and blend countries, including States in transition situations. The Bank Groupwill utilize financing windows in accordance with countries’ eligibility to access these windows, subjectto prevailing ADF Rules5 and the Bank Group Credit Policy6. The Bank Group may utilize other resourceenvelopes, such as the Transition Support Facility (TSF) and climate financing instruments, to supportRBF programs in different country contexts, where appropriate.

6.2 Resource Allocation

As a new instrument, it is important to mitigate risks while pursuing investment opportunities during theinitial years of its operationalization. In this regard, the Bank will impose a cap on the total AfricanDevelopment Bank (ADB) and African Development Fund (ADF) resources allocated for RBF supportedprograms during the 5 year pilot phase of the Policy. Unless the Board makes a decision to review thefinancing cap after the Management self-assessment (i.e. after the first 3 years of the pilot), the ceilingwill remain until the end of the pilot. Details on the financing ceiling for RBF operations per annum areprovided in Section 4.1. of the RBF Guidelines. The expected total volume or share for a country will,however, be determined in the CSP, taking into account the following:

√ Financing requirements of the program: the CSP will take into account the actions necessaryto achieve the expected results of the RBF, the costs of the overall program, the amount of fi-nancing the government is allocating to the Program, the size and disbursement profile of theBank Group’s lending program, the level of transparency and effectiveness of the expendituresincluded in the Program, and the priority expenditures on the programs over a medium termframework, as well as other financing available. The RBF should also be considered in relationto the Bank’s other lending instruments (e.g. investment lending and Program-Based Opera-tions).

5 In a particular ADF cycle..6 The Bank approved in 2014 a policy proposal, which allows ADF countries to access ADB resources on a case by case basis.Operations under Results-Based Financing will be able to utilize ADB resources in ADF countries as long as the operation willbe used to finance viable transformational projects as consistent with the said policy proposal.

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The specific financing policies: In ADF and blend countries, the CSP will consider the pre-vailing ADF rules for each ADF cycle and the country’s relative allocation of available conces-sional resources. In ADB countries, including blend countries, the CSP will make thedetermination based on the creditworthiness and risk exposure of the country, as well as theimpact of disbursements of large loans on the Bank’s prudential ratios7. For ADF countries ac-cessing RBF through ADB resources, it will depend on the viability of the expenditures in theproposed RBF operation, as consistent with the policy on Diversifying the Bank’s Products toProvide eligible ADF-only Countries access to the ADB Sovereign Window.

The country’s overall debt sustainability, based on an assessment of the expected impactof results-based financing operation on the debt condition of the country.

The lending envelope envisaged and the share of RBF in total lending in the CSP.

The overall macro-economic performance and absorptive capacity of the country.

Plans of other donors to provide RBF funding.

6.2.1. The amount is subject to revision at the time of an RBF preparation in response to changingcountry circumstances, such as changes in the program expenditure, government allocation to the program,and activities of other partners, including the private sector.

7 The impact of large loans should be determined based on the Bank Group’s Proposal For A Framework For Managing GCIResources and Large Loans (ADB/BD/WP/2010/158/Rev.2) or as revised,

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6.3 Financing Prior Results

The primary distinction between RBF and the other Bank instruments is that disbursement is effectedagainst the achievement of tangible and independently verifiable results (called Disbursement-linkedindicators – DLIs). In some circumstances, certain results may need to be realized before the legalagreement is signed between the Bank and the borrower, or the recipient as the case may be, so that thedesired program results can be achieved - for example, establishing credible baseline data. In suchsituations the Bank may agree with the Borrower/Recipient that certain prior actions should bemet/achieved by the Borrower/Recipient between the date of project concept review and the date ofsignature of the associated financing agreement. The Bank may only upon signature of the associatedfinancing agreement disburse up to 25% of the total amount of the financing proceeds against DLIs metby the Borrower/Recipient. This agreement shall be incorporated in the associated financing agreementas a special clause.

6.4 Advance Financing

In exceptional situations, advances may be helpful, or even necessary, for the borrower or recipient tofinance the activities needed to achieve the results for one or more DLIs. Such situations might occur, forexample, in transition and conflict-affected states or where the results-based financing is supporting thestart-up of a new program in a budget challenged country. In these cases, the Bank Group willexceptionally include the possibility for advances to achieve not only the initial set of DLIs, but alsosubsequent DLIs during the implementation period. Such advances should normally not exceed 25percent of the total RBF. The amount of the advance will be deducted (recovered) from the amount tobe disbursed under a subsequently met DLI. Further advances can be made once an advance has beenfully deducted, or partially recovered, as long as the overall limit is not exceeded. Advance payment canonly be made if approved by the Board, as part of the Program Appraisal Report (PAR), and followingthe effectiveness of the legal agreement. The combined amount of financing for prior results and revolvingadvances may not exceed 30 percent of the RBF operation.

6.5 Exclusions

6.6.1. High Value Contracts: RBF programs will exclude activities that would involve procurement ofworks, goods, and services under contracts whose estimated value exceeds specified monetary amounts(high-value contracts).8 The specified monetary amounts will be harmonized with the World Bank‘sProgram-for-Results financing in order to strengthen coordination between the two institutions. However,the World Bank has currently placed these thresholds on a variable basis9; varying according to the levelof risks. The Bank will adapt these amounts when there is need to co/parallel finance with the WorldBank and other partners.

6.6.2. CES Safeguards: During the pilot phase, the RBF Policy will not support components ofgovernment programs that are classified as Category 1 (operations with significant climate, environmentand social impact) under the Bank’s Policy on Integrated Safeguards Systems (ISS). Only componentsthat are classified as Category 2 and 3 under the ISS will be supported.

8 The amounts are $50 million for works, turnkey and supply, and installation contracts; $30 million for goods; $20 million forinformation technology systems and non-consulting services; and $15 million for consulting services.

9 For instance the revision now allows the World Bank to finance higher value contracts (but less than 25% of the total lending)if it can be appropriately justified that they are deemed to be necessary to achieve the objectives of the program.

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7 | RISK MANAGEMENT

7.1 Responsibility for Risk Management

The borrower will primarily be responsible for managing the operational risks of the operation. TheBank Group will however reinforce the RMC’s role in risk management by independently identifyingthe financial and non-financial risks associated with the RBF, including:

√ Operating environment risks, such as country risk (e.g. extent to which macroeconomiccondition may affect the prospects of implementing the program), reputational, political, go-vernance (including fraud and corruption), legal and regulatory, social and developmental,and;

Program risks, such as (a) technical - relating to the technical soundness, institutional capacity,and sustainability, etc.; (b) fiduciary risk – defined as the risk that funds provided to borrowersmay not be used for the purposes intended, or may not be used economically and/or effi-ciently, either due to fraud, corruption, misallocation, waste, weak capacity or weak institu-tions; (c) climate, environmental and social risks - relating to the potential impacts of theprogram, the systems in place, and capacity and performance for avoiding, mitigating, or ma-naging such impacts; and (d) DLI risk - relating to the program’s results framework, the typeof indicators selected, and the measurement and verification of results, and (e) other pro-gram-related risks not covered under the above four dimensions.

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8.1 The Bank Group Policies on Procurement (2015)and Financial Management (2014) provide the required policy frameworks that are critical for Results-Based Financing.

These policies emphasize effective service delivery to citizens and fiduciary risk-based approach, with adefining feature being the full or partial use of borrower systems depending on risk levels. On thisbasis, RBF will address fiduciary issues as follows (see guidelines for further details):

√ Procurement. Procurement of goods, works and services in RBF will be undertaken in ac-cordance with the borrower’s procurement system (BPS). Using BPS will imply relying onthe country’s own laws and regulations and its internal control institutions, including Fraudand Corruption (F&C). This will allow the Bank to engage deeply and more meaningfullywith the country on discussions about the adequacy and effectiveness of its anti-fraud andintegrity institutions, and their role in delivering “value for money” (VfM) in procurement.However if the use of BPS results in awarding a contract to a firm or individual ineligibleunder Bank rules, the Bank will not finance such a contract. Necessary provisions will be in-cluded in the Financing Agreement. As funds will be disbursed based on results, the BankGroup will neither approve procurement plans nor undertake contract management10. TheBank will however provide support to the borrower to design the procurement arrangementsof an RBF operation and build capacity in areas of weaknesses and risks, based on the as-

8 | ADDRESSING FIDUCIARY ISSUES

10 In the case of RBF, as BPS is applicable, contract management will be the responsibility of the borrower. The Bank will onlyverify that the DLI has been achieved and therefore proceed with payment.

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sessment of the BPS. As consistent with international best practices, however, procurementweaknesses will not be included as part of the DLIs, but rather included in an Action Plancovenanted with the borrower and followed up through supervision missions. The BankGroup will consider alternative financing instruments, such as investment lending, when si-gnificant weaknesses and risks are observed.

√ Financial management. Financial management (FM) which includes budgeting, accounting,internal control, funds flow, reporting and external audit, will follow the same guiding prin-ciples as procurement, using borrower FM systems. Capacity weaknesses observed duringthe assessment of the borrower’s FM systems shall be included in an FM Action Plan to befollowed up with the borrower through supervision missions.

√ Disbursement11. Disbursement will be effected based on the achievement of the disbursementlinked indicators (DLIs). Disbursements will be made once an independent verification ofthe achievement of results is concluded by an independent firm, agency or individual experts.The Bank Group’s existing disbursement methods will not apply to RBF, as these are generallybased on expenditures verification (inputs). The Bank Group will allow partial disbursementsin cases where a DLI is achieved partially. This will allow the Bank to exercise flexibility undercases of deviations between planned and actual implementations. An executing agency willnot be required to submit (along with the disbursement request) the supporting documents

11 See the Bank’s Guidelines on Results-Based Financing (RBF) for details on disbursements arrangements, disbursement-linkedindicators (DLIs) and results verification.

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that provide evidence of expenditures incurred to achieve the results. However, such evi-dence of expenditures and other related documents shall be maintained by the executingagency as part of the adequate internal controls, procurement, accounting and administrativesystems which will ensure timely issuance of project financial reports that will be audited onan annual basis by independent auditing firms acceptable to the Bank.

√ Protocol for verifying Results: DLIs will have clear independent verification protocols todefine how they will be achieved, measured and verified. The Bank Group will agree withthe borrower on the results verification protocol. The Bank will include a clear definition ofhow the results will be measured and who will be conducting the independent verificationin its Appraisal Report. With the exception of the initial disbursement of up to 25% as ad-vance, each disbursement will be subject to independent verification of results. These as-sessments can be conducted either by individual experts or firms with recognized technicalexpertise in the corresponding sectors and hired in accordance with terms of reference agreedby the borrower and the Bank. Under circumstances where a government entity has the man-date and capacity to conduct independent verification of results, it can also be consideredas an independent verification agent if defined and specified in the loan agreement. The se-lection and hiring of the independent firm, agency or individual experts will follow the coun-try’s policies and procedures as consistent with the Bank’s Procurement Policy. The verificationof results will be subject to Bank’s satisfaction.

√ The current Bank policies on appropriate remedies in case of non-compliance with fiduciaryrequirements will be followed. This includes suspension.

√ Loan cancelations of RBF operations will follow the Bank Group’s policies and proceduresapplicable to investment loan operations. In addition, if the borrower decides to cancel aloan in which an initial disbursement has been provided and no targets have been achieved,the disbursed portion of the loan (including principal and accrued finance charges) shall berepaid in the lump sum within six months after the date of the cancellation request.

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9.1 The Bank Group’s Integrated Safeguards System(ISS) and its related Climate Safeguards System(CSS) are the strategic tools to ensure that Banksupported operations are designed in asustainable manner.

The Bank will use RBF to advance the sustainability agenda by looking, beyond project technicalities, atways of improving the capacity of countries and agencies to properly manage climate, environment andsocial (CES) considerations. Safeguards assessments and improvements, guided by a thoroughbenchmarking against the ISS in terms, of equivalence and acceptability, will help adapt program systemsto the country context and improve country and agency systems.

9.1.1. One of the key guiding principles of the proposed RBF instrument is to focus on identifyingand strengthening the institutional capacity needed for an RBF-supported program to achieve its desiredresults including positive results with respect to the management of CES risks. This approach forms a corepillar vis-a-vis environmental and social (E&S) risk management in RBF programs. The RBF instrument willtherefore rely on E&S risk management tools like SESA with emphasis on system and capacity diagnosis.

9 | ADDRESSING CLIMATE, SOCIAL AND ENVIRONMENTAL

SAFEGUARDS

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9.1.2. Based on the CES assessments, the Bank could also provide technical assistance to build/andor strengthen the government’s capacity, as relevant. However, the RBF, because of its system-widefocus, goes further in promoting the objectives of the ISS at a strategic/institutional level, rather than atjust the project by project level. In this regard, the RBF provides room for improving the country systems.

9.2 The implementation of RBF programs will followthe policy objectives and principles in theIntegrated Safeguards System (2013), and will bebased on procedures and processes that are wellsuited for RBF since the instrument is focused onintended results rather than project type inputs.

The Bank Group will therefore rely on and improve the use of country safeguards systems to ensuresustainability under RBF12.

12 In the context of the Bank’s ISS, a country safeguard system means the country’s own policies, procedures and institutionalmechanisms for applying safeguards. Core environmental management functions of public agencies include policy and lawformulation, integration of environmental and social policies and greening of development policies, establishment ofenvironmental and social standards, compliance and quality assurance, support to public and private entities on environmentaland social management, and application of decision-making procedures for mainstreaming climate change into developmentinterventions.

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9.3 The Bank will track and evaluate institutionaldevelopment with respect to environmental andsocial risk management at the country level whichwill be the entry point.

This will be in addition to sub-level monitoring and evaluating of development in E&S risk management.The Bank will therefore use enhanced supervision and monitoring for this. The Bank Group will buildsafeguards mainstreaming and due diligence processing around three key building blocks:

√ Examining Potential Impacts. The Bank will examine a program‘s potential safeguard impacts interms of soundness and sustainability through categorization and assessment of relevant operationalpolicy triggers. In this regard, the Bank will undertake the necessary categorization of the operation,alongside the required due diligence assessments on CES-related country systems to determinetheir equivalency and acceptability with respect to the objectives, and principles and requirementsof the ISS and CSS as benchmarks. Once this is done, the Bank will determine which critical ac-tions ought to be selected and included in the program as DLIs (on the basis of which disburse-ments will be effected and verified by independent parties) and those that should be part of theProgram Action Plan (PAP) that will be consistently monitored during supervision. It should benoted that there is a distinction between CES actions, such as mitigation measures, capacity buil-ding and strategic assessments, among others, that will be part of DLIs and those actions that willbe included in either the Safeguards Results Matrix that is attached to the program appraisal reportor the overall program action plan, because not all actions will be necessarily suited for DLIs.

√ Safeguard systems policy and implementation. Using the ISS and CSS as benchmarks, theBank will carry out a diagnostic assessment of applicable and relevant national, program and/orsector level laws, regulations, rules, and procedures for managing and mitigating the CES impactsof an RBF program. The assessment will: (i) review CES-related country systems to determinetheir equivalency and acceptability with respect to the ISS and CSS, using the ISS and CSS (ob-jectives, principles13 and requirements) as benchmarks; (ii) assess if the CES-related country sys-tems can manage and mitigate the impacts of the program; and (iii) identify areas for improvement.Actions to address the areas for improvement will be included as part of the disbursement-linkedindicators (DLIs) or in a program action plan (for example, in a specific capacity action plan ora Safeguards Results Matrix). For each specific country or program assessed, the CES-relatedcountry system may achieve the principles and objectives of the ISS even if the procedure in thecountry system is not exactly the same as the detailed procedures prescribed by the ISS; thepriority will be in assessing the functional equivalence of the system in terms of providing thesame level of protection as the ISS. The acceptability assessment will include the recipient membercountry’s implementation practices, track record, and capacity. Operations with significant impactwill be excluded from RBF support. If the impact of an RBF supported operation is likely to bemoderate, mitigation measures will either be included as part of disbursement-linked indicatorsor in a specific capacity action plan or a Safeguards Results Matrix attached to the Appraisal Re-port.

√ Capacity development planning. The Bank and the RMC will agree upon support measures tostrengthen the country safeguard systems and include these in an action plan to be monitoredduring implementation. The Bank could use advance financing or design a specific technical as-sistance program to strengthen capacity of country systems for benchmarking and upgrading thecountry safeguard systems.14

13 Such principles include, proportionality and adaptive management, enhanced access to information and maximum disclosure,biodiversity offset principles, and assessments, as spelt out in the different operational safeguards procedures of the ISS.

14 The Bank may develop the technical assistance as a stand-alone support in the operation, through parallel efforts financed bydevelopment partners, or through other appropriate arrangements.

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10.1 The RBF instrument will be subjected to the samecorporate oversight functions as other lendinginstruments, as shown in Box 4 below.

10 | COMFORMITY WITHCORPORATE COMPLIANCE

MECHANISMS

Box 4

RBF Conformity with Corporate Compliance Mechanisms

√ Integrity and Anti-Corruption Department has the mandate to investigate and determinethe veracity of allegations of corruption, fraud and other sanctionable practices in ope-rations financed by the Bank Group.

√ Compliance Review and Mediation Unit an independent accountability and recoursemechanism that may investigate the Bank’s operations to determine whether the Bankhas complied with its operational policies and procedures, and to address related issuesof harm. Hence, people affected by activities included in the RBF program may submita Request to Compliance Review and Mediation Unit, as per the requirements set outin the Independent Review Mechanism. The same legal remedies that are available toinvestment lending (IL) will also be available to RBF. If there is non-compliance withcontractual commitments between the Bank and the borrower, these remedies will beapplied.

√ The Bank’s Review and Clearance Process: The Operations Committee (OpsCOM),supported by its Secretariat, is responsible for sharpening the country focus and strategicselectivity of the Bank’s operations, strengthening its internal cooperation and cohesion,and improving its development impact. To this end the Committee coordinates and ma-nages the Bank review and clearance processes for all operations, ensuring their com-pliance with Bank’s policies, strategies, and directives. It also oversees the continuousenhancement of the review and clearance processes and systems to ensure their consis-tency with industry standards and quality review.

√ The Office of the Auditor General provides objective and independent review and as-sessment of the Bank Group’s business activities and controls.

√ The Independent Development Evaluation Department is responsible for providing anobjective assessment of the results of the Bank Group’s work and identifying and disse-minating the lessons of experience.

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11.1 RBF provides the opportunity for broad basedconsultation and participation, from defining the boundaries of the program to selecting DLIs and implementing the program.

Each stage offers an opportunity for the Bank to dialogue with the government and development partnersto develop and implement an effective program, while simultaneously building the program’s systemsand institutions. Also, the assessments of the country systems and program level diagnosis, as part of thedesign of RBF operations, will cover aspects such as consultation, participation and grievance mechanismsat the program activities level in such a way that identified management actions, if any will, be effectiveat the sub-program level. Additionally, the Bank Group will proactively engage in country dialogue withgovernments and other development partners, as necessary for RMCs, to deepen arrangements forbroad based consultations and participation in RBF. In addition, the Bank Group will advise RMCs toconsult with and engage participation of key stakeholders in the country in the process of formulating thecountry’s development plans/strategies. The PAR will describe the country’s arrangements forconsultations and participation relevant to the operation, and the outcomes of the participatory processadopted in the preparation of the RBF program. The Bank Group has a duty to consult on the actions itsupports. Relevant analytical work conducted by the Bank Group, particularly on the three assessments,will be made available to the public as part of the consultation process, in line with the Bank Group’sDisclosure and Access to Information Policy, as well as the Bank’s procedures on participation.

11 | CONSULTATIONS ANDPARTICIPATION

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12.1 Legal Basis for the Instrument and its Conformitywith the Agreements Establishing the Bank and the Fund (the “Agreements”).15

The Agreements provide sufficient legal basis to allow the Board to approve this new instrument. Theyprovide, in part, that Bank loans should be used to contribute towards sustainable economic developmentand social progress of regional member countries for specific projects (except in exceptionalcircumstances), particularly those forming part of a national development program with due attention toconsiderations of economy and efficiency, and for expenses as they are actually incurred. Subject to theBoard’s approval of the policy recommendations set out in this paper, the implementation of Results-Based Financing would comply with the Bank’s Agreements.

12.2 Key Elements for Policy Implementation

As a new instrument, effective implementation of the Policy by the Bank Group will require substantialefforts to mobilize and prepare staff, provide detailed guidance and improve procedures. Emphasiswill be placed on the following elements:

12 | POLICY IMPLEMENTATION

15 The Agreement Establishing the African Development Bank and the Agreement Establishing the African Development Fund

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√ One Bank Approach. √ Revising of processing procedures to take into account RBF. √ Detailed guidelines.√ Design and roll-out of continuous staff training program and external commu-

nications.

12.2.1. One Bank Approach. With the increasing importance of an integrated Bank and the potentialvalue of using the RBF instrument across all sectors implies an imperative to embrace the “One Bankapproach” that will see the Bank’s Regional Departments (which includes Field Offices and GeneralDirectorates) and other operational units regularly programming RBF in CSPs and operationalizing RBFas part of financing instruments. This will require: (i) strengthening the capacity of Regional Departmentsand the relevant operational units to frequently consider RBF in CSPs as well as design and implementRBF within the framework of Bank’s lending program; (ii) inter-departmental collaboration, across regionaldepartments and the other operational units; (iii) enhancing the capacity of field offices and generaldirectorates to engage pro-actively in program-level dialogue as well as provide critical support to theother operational units in the design, implementation and evaluation of RBF; and (iv) clear demarcationof roles and responsibilities (across levels, including Director Generals) as well as accountability structuresto support implementation of an RBF operation well-articulated in the PAR.

12.2.2. Business Processes. Business processes for both investment lending and PBOs have tendedto rely on the Directives set forth in Presidential Directive 03/2013 (Concerning the Bank Group’sOperations Review Process). These processes will be revised to reflect the value-added at each stageof identification, preparation, appraisal and supervision of an RBF and the potential time savings, especiallyin light of the need for the Bank to enhance its flexibility and responsiveness to RMCs. The revisions willalso clarify the roles and responsibilities across country departments, field offices and general directorates,task teams and Management at the various stages of the process. These will be prepared by theOperations Committee (OpsCom) in close consultation with the Strategy and Operations PoliciesDepartment (SNSP) as well as other departments.

12.2.3. Enhanced oversight. Management will put in place enhanced corporate oversight arrangementsduring the pilot phase. This will be a corporate support team, an operational excellence platform that willenhance quality at entry for RBF operations. This platform will be a dedicated corporate-level team thatwill comprise specialists from relevant Bank departments, including policy and strategy, procurement,results, quality assurance and operations committee, financial management, and climate, environmentaland social. This review will take place before the country team review in order to provide the countryteam with technical input into its discussions.

12.2.4. Detailed Guidelines. Staff guidelines have been drafted and attached to the proposed Policy,focusing on how to operationalize the instrument throughout the RBF program cycle. Management willdesign templates for appraisal and supervision. PCN and program completion reporting will use theexisting standard template for Investment lending.

12.2.5. Training. The implementation of the new RBF policy will require developing an ambitious trainingprogram for staff that will be implemented on a rolling basis over time. These trainings will include allaspects of the new policy, including how to identify a government program to support, conducting thethree assessments (technical, fiduciary, climate, environment and social), and selecting DLIs, amongothers. The trainings will target management and professional level staff in Headquarters and countryoffices and will also include models that clearly delineate roles and responsibilities of Bank staff in thedesign and implementation of RBF operations. Furthermore, the training will involve re-orienting staff andmanagement to RBF specific dialogue with countries to enhance supervision and deepen dialogue aroundhigher level technical issues, focusing on results (outcomes and outputs) as opposed to inputs which areusually the focus in investment lending operations. These trainings will be offered quarterly upon approvalof the Policy and will be delivered in the Bank’s Headquarters, Regional Offices and Country Officesto ensure broader outreach. Separate trainings will be delivered to staff and the Bank’s client countries.Other trainings will be co-organized with the World Bank. There will also be an online training programthat will be developed as a precursor to face-to-face training.

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12.2.6. Capacity of countries. During the pilot phase, as part of the gradual roll-out of the instrument,targeted training and sensitization programs will be put in place for countries that will be using RBFinstrument to ensure that these countries fully understand the instrument to better maximize the deliveryof results. Additionally, the corporate support team for RBF will provide guidance and advisory servicesto countries through the operations task teams. Tailored capacity building and technical assistance willalso be provided as part of the RBF operation to address areas of key weaknesses in systems andinstitutions that could potentially undermine the achievement of program results.

12.2.7. Communications and outreach. In addition to staff guidance and training, comprehensive internaland external communications and outreach efforts will accompany the introduction of the instrument. 12.2.8. Reporting to Board. Management will report to the Bank’s Board of Directors annually on thestatus of RBF Operations as well as the status of implementing the RBF Policy at the institutional levelduring the pilot phase.

12.3 Interim Guidance

The Policy should become effective upon approval by the Board. It is expected that the implementationof the Policy will be gradual, as the Bank prepares the tools and templates, implement the staff trainingprogram and update the CSPs. In the interim, targeted support will be provided to teams working on theearly operations and a help desk will be set up to answer questions about RBF.

12.4 Policy Alignment

Where applicable, the Bank Group’s policies, strategies, and related administrative rules, operationalprocedures and guidelines will be aligned with this Policy to support the Policy implementationrequirements.

12.5 Review of Implementation Experience

After three years of implementation, Management will carry out a self-assessment on experiences withthe new instrument. A full reassessment of the RBF policy will be conducted after an independentevaluation of the instrument at the end of the pilot phase (in the 5th year of implementation) by the BankGroup’s Evaluation Department. The findings of the full reassessment will be sent to the Board and usedto update the Policy accordingly. In addition, the Policy and Strategy Department will monitor and reportthe use of the RBF instrument to the Board on an annual basis.

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13.1 The Boards of Directors are requested to approvethe new policy instrument on Results-BasedFinancing.

13.2 The proposed Results-Based Financing Policy willbe effective upon Board approval.

13 | CONCLUSIONS ANDRECOMMENDATIONS

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Outcomes Outcome Indicators Output

1. Improved effectiveness & efficiency of government-owned programs.

1.1a. Number of RMCs with improved indicatorsin Bank priority sectors (e.g. people benefitingfrom improvements in agriculture by gender,people benefiting from new investee projects bygender).

1.1b. No. of RMCs with improved economicgrowth and improved access to basic services[e.g. population, by gender, with improvedaccess to energy, treated water and sanitation,transport, health and education].

1.1c. % of women and youth with improvedaccess to, and benefitting from governmentprograms.

1.2. Efficient and sustainable delivery of RMCsprograms in priority sectors and basic services(e.g. energy, education, water, agriculture, etc.).

2. Improved systems and institutions. 2.1. No. of RMCs with improved policy andinstitutional frameworks that promote equal rightsto economic resources, ownership and controlover land and other resources.

2.2. Quality and resilient institutions, systemsand infrastructure (physical & non-physical) tosupport poverty reduction and economic growthin priority sectors.

3. Improved institutional capacity of governmentsto sustain growth programs through increasedproductivity.

3.1a. No. of RMCs line ministries with improvedcapacity that is adequate to deliver on theirprograms.

3.2a. Strengthened capacity of line ministries tomaximize the delivery of development results.

3.2b. Development of national youthemployment and skills development strategies.

3.2c. Strengthened capacity of domestic financialinstitutions to encourage and expand access tobanking and financial services.

3.2d. Strengthened national policies to supportproductive sectors.

RESULTS FRAMEWORK FOR THE IMPLEMENTATION

* RMCs: Regional Member Countries

Overall Impact: Increased social and economic development in Africa through increased accountability and incentives for delivering andsustaining results. Expected Results: (i) Enhanced inclusiveness and transition to green growth (ii) Reduced poverty and increasing living standards, (iii)Specific SDGs attained.

ANNEX

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Output indicators Key activities & initiatives contributingto achieving outcomes

Assumptions/risks

1.3a. No. of countries that provide crediblemedium-term sector level budgeting.

1.3b. No. of RMCs that have increased deliveryof appropriate outputs related to basic services(e.g. new renewable power capacity installed).

1.3c. No. of RMCs that have improved deliveryrelated to outputs of Bank priority sectors (e.g.Agriculture inputs provided, roads constructed,rehabilitated or maintained, cross bordertransmission lines constructed or rehabilitated,direct jobs created etc.).

1.3d. No. of actions achieved under RBFProgram Action Plans (PAP) related toefficiency and effectiveness of governmentprograms.

1.4a. Provision of results-based Financing toRMCs

1.4b. Support for capacity building of keyinstitutions and systems.

1.4c. Technical assistance support.

1.4d. Complementary budget support toimprove the policy, regulatory and institutionalaspects of priority sectors.

1.4e. Promotion of enabling environment.

1.4f. Support in mobilizing resources, including,through co and parallel financing arrangements.

Strong, sustained and results-focus commitmentfrom governments.

Sound/improving fiduciary systems.

Good systems to manage environment, climateand social systems.

Sound/improving macro-economic conditions.

2.3a. No. of RMCS with improved MTEF**that ensure priorities for achieving national goalscan be identified.

2.3b. No. of RMCs with an improved systemto ensure that nationally important goals receivepriority in the budget, with timely /full release offunds.

2.3c. No. of RMCs that score betweenmedium-low risks in fiduciary systemsassessments.

2.3d. No. of countries with improved systems toeffectively manage climate, social andenvironmental issues.

2.3e. No. of RMCs that have implementednationally improved social protection systemsand measures.

2.3f. No. of actions achieved under RBFProgram Action Plans (PAP) related toimprovements in systems and institutions.

2.3g. No. of RMCs with increased revenuefrom investee projects and sub-projects.

2.3h. No. of RMCs with improved competitiveenvironment.

2.4a. Support for capacity building of keyinstitutions and systems.

2.4b. Technical assistance support.

3.3a. No. of RMCs with new or revisedpolicies that support productive activities, decentjob creation, entrepreneurship, creativity andinnovation, and encourage the formalization andgrowth of micro-, small- and medium-sizedenterprises, including through access to financialservices.

3.3b. No. of RMCs with strengthened capacityof domestic financial institutions to encourageand expand access to banking and financialservices for all.

3.3c. No. of RMCs with new or revisedstrategies for youth employment.

3.3d. No. of actions achieved under RBFProgram Action Plans (PAP) related toinstitutional capacity.

3.4a. Support to enhanced capacity andinstitutional development.

3.4b. Support to policy, regulatory andinstitutional reforms.

3.4c. Physical investments in productive andlabor intensive sectors.

OF RBF POLICY

** MTEF: Medium-term expenditure framework

RESULTS FRAMEWORK FOR THE IMPLEMENTATIONOF RBF POLICY

ANNEXE

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