Project Number: 26194 November 2010

Budget of the Asian Development Bank for 2011

ABBREVIATIONS ACCSF – Asian Currency Crisis Support Facility ADB – Asian Development Bank ADF – Asian Development Fund ADO – Asian Development Outlook BPMSD – Budget, Personnel, and Management Systems Department bp – basis point COBP – country operations business plan CoP – community of practice COSO – Central Operations Services Office CPS – country partnership strategy CTL – Controller’s Department DEfR – Development Effectiveness Review DER – Department of External Relations DMC – developing member country DVA – direct value-added ECG – Evaluation Cooperation Group ERD – Economics and Research Department ETSW – economic, thematic, and sector work GCI – general capital increase HR – human resources IAE – internal administrative expenses IAM – independent accountability mechanism IED – Independent Evaluation Department ISTS II – Information Systems and Technology Strategy II IT – information technology JFPR – Japan Fund for Poverty Reduction JSF – Japan Special Fund LBL – LIBOR-based loans LIBOR – London interbank offered rate MDB – multilateral development bank MDG – Millennium Development Goal MfDR – managing for development results MFF – multitranche financing facility OAG – Office of the Auditor General OAI – Office of Anticorruption and Integrity OAS – Office of Administrative Services OCO – Office of Cofinancing Operations OCR – ordinary capital resources OCRP – Office of the Compliance Review Panel OECD-DAC – Organisation for Economic Co-operation Development-

Development Assistance Committee

OGC – Office of the General Counsel OIST – Office of Information Systems and Technology OREI – Office of Regional Economic Integration ORM – Office of Risk Management OSEC – Office of the Secretary OSPF – Office of the Special Project Facilitator P3M – project processing and portfolio management PPP – public–private partnership PPTA – project preparatory technical assistance PSOD – Private Sector Operations Department RCI – regional cooperation and integration RCOBP – regional cooperation operations business plan RCS – regional cooperation strategy RSDD – Regional and Sustainable Development Department SDR – special drawing right SPD – Strategy and Policy Department SPS – Safeguard Policy Statement SWIFT – Society for Worldwide Interbank Financial Telecommunication TA – technical assistance TASF – Technical Assistance Special Fund WPBF – Work Program and Budget Framework

NOTE

In this report, "$" refers to US dollars. In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS Page

I. STRATEGIC CONTEXT 1

A. ADB’s Strategic Direction and Major Initiatives 1 B. Enhancing Coherence in ADB Policies and Strategies 2 C. Other Major Institutional Activities 3

II. CURRENT PERSPECTIVE 4

A. 2010 Work Program 5 B. Estimated Utilization of the 2010 Internal Administrative Expenses Budget 5 C. Staffing and Human Resources Management 7 D. Compensation and Benefits, and Learning and Staff Development 8

III. HIGHLIGHTS OF THE 2011 WORK PROGRAM 9

A. Operations 9 B. Knowledge Solutions and Knowledge Sharing 16 C. Support to Selected Themes and Other Priorities 19 D. Operations and Administrative Support 22 E. Key Priorities in Resourcing the 2011 Work Program 28

IV. INDEPENDENT EVALUATION AND ACCOUNTABILITY MECHANISM 28

A. Independent Evaluation Department 28 B. Accountability Mechanism 31

V. FINANCIAL RESOURCES 32

A. Ordinary Capital Resources 32 B. Asian Development Fund 34 C. Special Funds 35 D. Trust Funds 37

VI. 2011 BUDGETARY RESOURCES 38

A. Drivers of Incremental Resources 39 B. Efficiency and Cost-Saving Measures to Contain Budget Growth 39 C. Staff Resource Requirements and Allocations 41 D. Internal Administrative Expenses for 2011 46 E. Summary of Resources Provided to Resident Missions 57 F. Operational Expenses by Program Category 57

VII. CAPITAL EXPENDITURES 60

A. Annual Capital Expenditure Program 60 B. Special Capital Expenditure Programs 62

VIII. RECOMMENDATIONS 63

APPENDIXES

1 Internal Administrative Expenses, 2009–2011 64 2 Summary of Annual Capital Expenditures 65 3 Status of the 2009 Budget Carryover as of October 2010 66 4 Summary of Selected Operational Outputs by Department, 2010–2011 67 5 Delegation of Specific Functions to Resident Missions, 2009–2011 69 6 Status of Selected Trust Funds 70 7 Summary of Efficiency Measures 73 8 Authorized Staff Numbers by Department and Office, 2010–2011 79 9 Indicative Allocations of 2011 Positions by Main Skills 81 10 2011 Budget: Price and Volume Growth 82 11 Distribution of Operational Expenses by Department and Office, 2009–

2011 84 12 Cross-Year Comparison of Internal Administrative Expenses, 2007–2011 85 13 Board of Directors, 2007–2011 86 14 Independent Evaluation Department, 2007–2011 87 15 Operational Expenses, 2007–2011 88 16 Administrative Expenses, 2007–2011 89 17 Enhanced Cost Information 90 18 2011 Annual Capital Budget and 2012–2013 Indicative Annual Capital

Expenditure Programs 93 19 Summary of Special Capital Expenditures, 2009–2011 94

BOXES

1 Expanding ADB's Knowledge Agenda 16 2 ADB's Support for the Millennium Development Goals 19 3 Gender Mainstreaming 20 4 Harmonizing Investigation Procedures with Partner Institutions 25 5 Independent Evaluation Department’s Work Program for 2011 with

Indicative Outputs 30

TABLES 1 Current Estimate of Internal Administrative Expenses, 2010 6 2 Work Program and Resource Parameters, 2007–2011 10 3 Portfolio Management (Loans and Non-Technical Assistance Grants),

2007–2011 11 4 Country Partnership and Regional Cooperation Strategies, 2009–2011 12 5 New Projects—Public and Private Sector Operations, 2009–2011 13 6 Project Preparation, 2009–2011 14 7 Direct Value-Added Cofinancing, 2008–2011 15 8 Capacity Development, Policy and Advisory, and Research and

Development Technical Assistance, 2009–2011 17 9 Economic, Thematic, and Sector Work, 2009–2011 17 10 Summary of Independent Evaluation Department’s Work Output, 2008–2011 29 11 Actual and Planned Financing of Technical Assistance Operations, 2009–2013 36 12 Indicative Allocation of 2011 New Positions by Department Type 42 13 Indicative Allocation of 2011 New Positions by Location of Assignment 43 14 Indicative Allocation of 2011 Positions by Key Functions and Areas of

Activities 45 15 Income and Expense Outlook, 2010–2011 48 16 2011 Budget Compared with 2010 Current Estimate 49 17 Operational Expenses, 2010–2011 50 18 Administrative Expenses, 2010–2011 55 19 Resident Mission Number and Expenses, 2009–2011 57 20 Operational Expenses by Program Category, 2010–2011 58 21 Indicative Staff Resource Distribution: International Staff-Years, 2010–2011 59 22 Indicative Staff Resource Distribution: National Staff-Years, 2010–2011 60 23 2011 Annual Capital Expenditure Budget 61

I

FIGURES 1 Salaries as a Percentage of Internal Administrative Expenses and

Operational Expenses, 2008–2011 51 2 Benefits as a Percentage of Internal Administrative Expenses and

Operational Expenses, 2008–2011 51 3 Staff Consultant as a Percentage of Internal Administrative Expenses and

Operational Expenses, 2008–2011 53 4 Business Travel as a Percentage of Internal Administrative Expenses and

Operational Expenses, 2008–2011 54 5 Other Administrative Expenses as a Percentage of Internal Administrative

Expenses, 2008–2011 55

URES

2011 BUDGET MEMORANDUM

26 November 2010 To: Board of Directors

2011 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 2011, as summarized in Appendixes 1 and 2. 2. Section I sets the strategic context under which ADB’s 2011 work program and budget proposal has been formulated. Section II describes 2010 work program delivery and budget utilization. Section III provides the highlights of ADB’s 2011 work program. Section IV focuses on the 2011 work program of the independent evaluation and accountability mechanism. Section V presents an overview of ADB’s financial resources. Section VI explains the proposed 2011 internal administrative resources budget, while section VII discusses the proposed 2011 annual capital expenditures, including the implementation status of the special capital expenditure programs. Section VIII contains recommendations to the Board of Directors.

I. STRATEGIC CONTEXT A. ADB’s Strategic Direction and Major Initiatives 3. The strategic elements of the 2011 work program mainly flow from the Work Program and Budget Framework (WPBF), 2011–2013,1 which reflects the priorities of Strategy 2020,2

and the commitments made under the ninth replenishment of the Asian Development Fund (ADF X), and the fifth general capital increase (GCI V).

4. ADB responded quickly to the challenges posed to its developing member countries (DMCs) by the global economic crisis. ADB contributed to their recovery by providing a record level of assistance of about $19 billion (including cofinancing) in 2009 and a similar level of assistance in 2010. In the process, ADB also helped sustain economic growth, create jobs, restore business confidence, and maintain the pace of the regional integration program. With the global economic crisis slowly abating, the level of ADB operations in 2011–2013 is planned at an average of about $15.9 billion a year (including cofinancing), of which $10.7 billion will be from ordinary capital resources (OCR) and about $3 billion from the ADF. ADB assistance during this period is a response to continuing robust demand from its DMCs, while taking into account resource availability and capital adequacy requirements. Private sector operations will continue to grow, reaching $2 billion (including B-loans3

) by 2013. The planned technical assistance (TA) average $289 million per year during 2011–2013.

5. The proposed pipeline of operations in 2011 will continue to focus on the priority areas of Strategy 2020. In terms of the strategic agenda, 51% of the total projects by volume will support environmentally sustainable growth, while 19% of the total projects by volume will support regional cooperation and integration. 86% of the new public sector sovereign projects by volume will be in the core sectors of infrastructure, education and finance sector development.

1 ADB. 2010. Work Program and Budget Framework, 2011–2013. Manila. 2 ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank 2008–2020.

Manila. 3 B-loans are funded by commercial lenders with ADB acting as lender of record.

2

Operations supporting private sector development (through both private sector and public sector transactions) are projected to reach 38% in volume in 2011.

6. ADB strongly supports the achievement of the Millennium Development Goals (MDGs) in order to assist its DMCs to reduce both income and non-income poverty significantly and to achieve inclusive growth. Higher living standards and the achievement of the MDGs will be supported by (i) expanding access by disadvantaged populations and in lagging regions to basic services such as water, sanitation, transport, electricity, and small-scale infrastructure; (ii) expanding human capacities and development opportunities through investment in education, health, and social and environment protection; and (iii) improving access by the poor to markets, finance, and productive assets through sound policies and institutions. In this regard, the level of ADB's sovereign operations exhibits two very important trends: (i) ADB is increasing its ADF operations in poorer ADF countries, i.e., “Group A” countries; and (ii) it is increasing its sovereign OCR operations in poorer OCR countries, i.e., “Group B” countries, reflecting country needs and the ability to absorb additional resources.4

7. In planning and designing its operations, ADB recognizes that knowledge is a powerful catalyst for development. ADB will continue to transform itself into a knowledge institution for Asia and the Pacific, acting on three fronts. First, through research by staff and TA operations, ADB will provide support on pressing economic and development issues, identified and prioritized in line with Strategy 2020 and DMCs’ demands. Second, ADB will promote knowledge sharing among DMCs. Third, ADB will integrate knowledge elements into its lending operations. 8. The 2009 Development Effectiveness Review (DEfR) raised a concern over the impact of overstretching of ADB’s human and budgetary resources on project quality. The overstretch reflects the rapid increase in ADB operations in the last few years without a commensurate increase in the budgetary resources. The 2009 DEfR highlighted the need to address the continuing administrative resource constraint. To rectify the weaknesses identified in DEfR 2009, a significant increase in budgetary resources in 2011 will be needed. 9. In recent years, ADB has intensified its efforts to improve efficiency in order to optimize resource use and contain costs while expanding operations and knowledge activities. These efforts are being carried out through various organizational processes, including the WPBF and the annual budget. All departments and offices are consulted regularly, and a work culture is being created to meet resource demands through efficiency initiatives as much as possible. This is also helping ADB to raise staff consciousness and commitment to efficiency improvements and resource conservation. However, efficiency and optimization in the use of resources have their limits. Resources cannot be stretched beyond a point. Despite ongoing efficiency measures, budgetary and staff resources will need to be increased if the goals mandated by Strategy 2020 are to be achieved.

B. Enhancing Coherence in ADB Policies and Strategies 10. Under Strategy 2020, ADB committed itself to improving the coherence of its corporate strategies and policies. In consultation with Regional and Sustainable Development Department (RSDD) and other departments, the Strategy and Policy Department (SPD) reviewed existing directional documents covering the five drivers of change and eight operational areas of

4 Group A countries are eligible for ADF only, Group B countries are eligible for a blend of OCR and ADF.

3

Strategy 2020. The review concluded that some existing operational documents were not sufficiently detailed and/or current to guide Strategy 2020 implementation effectively. 11. ADB is refining its alignment with Strategy 2020 by gradually introducing operational plans. The goal of these plans is to integrate the expertise gained from operations with analysis of recent trends and best practices developed by knowledge departments and communities of practice (CoPs). The directions provided by these plans will begin influencing the composition and focus of ADB operations. ADB has recently completed the following operational plans: private sector and nonsovereign operations, knowledge management, energy (as part of the new ADB Energy Policy), climate change, education, transport, and agriculture (focusing on sustainable food security). New operational plans are being developed for water, urban, public–private partnerships (PPPs), disaster management, and the financial sector. C. Other Major Institutional Activities 12. The following institution-wide activities will have implications on ADB's internal resources.

1. Managing for Development Results

13. ADB systematically applies the managing for development results (MfDR) approach to its corporate performance. In 2010, ADB (i) released the 2009 DEfR in April and presented it to its Board of Governors and other stakeholders during the Annual Meeting in Tashkent, (ii) held regular senior staff meetings to review progress on the DEfR actions, (iii) began reviewing its corporate results framework, (iv) introduced the results framework into departmental and division work plans, (v) prepared country development effectiveness briefs, (vi) updated guidelines on preparing results frameworks and monitoring results at the country and sector levels, and (vii) upgraded the MfDR learning and development program and offered workshops to directors and to country and sector teams. ADB assisted DMCs’ efforts to apply MfDR in public sector management by supporting country-specific initiatives and the operation of the Asia-Pacific CoP on MfDR. 14. In early 2011, ADB will recommend refinements to its results framework to the Board of Directors. It will submit the 2010 DEfR to the Board for discussion in April 2011 and present it to the Board of Governors and other shareholders at a seminar during ADB's Annual Meeting in May 2011. ADB will prepare more country development effectiveness briefs. SPD will, in consultation with the Budget, Personnel, and Management Systems Department (BPMSD), coordinate the introduction of ADB's results framework into annual department and division work plans; and conduct regular MfDR workshops for staff. ADB will continue to support MfDR capacity development in DMCs and promote knowledge sharing through the Asia-Pacific CoP on MfDR. ADB's results orientation and the associated products and activities are expected to support the ADF XI negotiations.

2. ADF X Midterm Review and ADF XI Negotiations

15. The midterm review meeting of the ADF X was held in ADB headquarters on 18–19 November 2010 among ADF donors, selected ADF recipients and ADB management to take stock and review implementation progress. In contrast with the strong economic growth that prevailed during the ninth replenishment of the Asian Development Fund (ADF X) discussions, the first half of the ADF X implementation period (2009–2010) has been challenging because of the impact of the global economic crisis. The crisis has resulted in unprecedented demand for

4

ADF resources. The strong and timely response of ADB to this increased demand was made possible by the larger ADF X envelope. ADF X has so far been characterized by strong performance both in terms of approvals and disbursements. Resources have been allocated effectively through the performance-based allocation system, balancing country needs and performance. ADB has been able to simultaneously allocate a greater share of resources to the poorest countries and the strong performers. Despite the crisis, ADB has made good progress in implementing the ADF X strategic agenda, particularly in promoting inclusive economic growth, mainstreaming climate change, supporting regional cooperation and integration, and strengthening its support to countries in fragile and conflict-affected situations. 16. The next annual ADF donors’ consultation will be held in Ha Noi, Viet Nam, in May 2011. At the Ha Noi meeting, donors will discuss issues relating to themes, timing, and venues for the ADF XI meetings. Negotiations for the ADF XI are likely to start in late 2011, with at least one negotiation meeting expected to be in 2011.

3. Paris Declaration and Aid Effectiveness

17. ADB continues to implement the Paris Declaration on Aid Effectiveness and its follow-up agreement, the Accra Agenda for Action. Organisation for Economic Cooperation Development-Development Assistance Committee’s (OECD-DAC) 2008 monitoring survey results showed that, relative to other MDBs, ADB has made strong improvements since 2005 in aligning aid flows to national priorities, coordinating technical support, using country public financial systems, employing program-based approaches in lending, and conducting joint missions. The final survey will take place in 2011 to determine whether donors and partner countries have achieved the targets set out in the Paris Declaration.

18. ADB measures progress achieved via its own annual monitoring surveys. The 2010 survey, covering 2009 data from 25 DMCs, found that ADB as a whole continued to meet the targets on five of the nine relevant Paris Declaration indicators: aligning aid with national priorities, coordinating TA, using country public financial management systems, reducing parallel project implementation units, and increasing the number of joint missions. It had also made significant progress in joint country analytical work. The survey also highlighted areas where more efforts are required, including the use of country procurement systems, use of program-based approaches, and aid predictability.

19. Together with other development partners, ADB launched the multi-donor Capacity Development for Development Effectiveness Facility in March 2009 to support capacity development of DMCs in the preparation of their own localized action plans to implement the Paris Declaration. ADB continues to support and actively participates in these activities. In November 2011, the Republic of Korea will host the Fourth High Level Forum on Aid Effectiveness in Busan. As a member of the Executive Committee, ADB will help drive the agenda for the Forum and encourage greater development effectiveness in the region.

II. CURRENT PERSPECTIVE

20. This section reviews the progress of implementation of the 2010 work program and the associated utilization of the internal administrative expenses budget. It provides updates on human resources, compensation and benefits, and staff development.

5

A. 2010 Work Program 21. Public sector new approvals. Total new approvals for lending and grants for public sector projects, including multitranche financing facility (MFF) subprojects, are expected to reach about $15.17 billion for 141 projects in 2010 (compared with $14.16 billion in 2009 for 111 projects). ADB will process about 18 MFFs totaling $7.29 billion (compared with 12 MFFs for $6.19 billion in 2009). 22. Private sector new approvals. It is estimated that 22 new private sector projects, excluding B-loans,5 totaling about $1.42 billion will be approved in 2010 (compared with $1.60 billion6

for 10 projects in 2009).

23. Technical assistance approvals. Total technical assistance (TA) commitments for 2010 are projected to be $302 million for 341 TA projects (compared with $267 million for 313 TA projects in 2009). This will comprise 98 projects for $70 million for project preparatory TA and 243 projects for $232 million for capacity development, policy and advisory, and research and development TA.

24. Portfolio management. Total disbursements for sovereign and nonsovereign loans and ADF grants are currently projected at $8.37 billion for 2010 (compared with $10.45 billion in 2009), comprising $6.51 billion from OCR and $1.86 billion from ADF (loans and grants). At the end of 2010, ADB is expected to be administering 521 public sector projects (compared with 485 in 2009) and 151 private sector projects (compared with 140 in 2009). The ratio of projects rated satisfactory in the public sector portfolio (as a percentage of the total number of projects) is expected to improve from 94.2% in 2009 to 95.6% in 2010. 25. Cofinancing and credit enhancement operations.7

During 2010, direct value-added cofinancing is projected to reach about $2.76 billion for 44 projects (compared with $3.32 billion for 35 projects in 2009). TA cofinancing is expected to exceed the projection of $75.00 million in 2010 because of a $50 million grant from the Australian Agency for International Development and the European Union for a capacity development TA project in the education sector in Indonesia.

B. Estimated Utilization of the 2010 Internal Administrative Expenses Budget 26. The current estimate of the 2010 net internal administrative expenses (IAE) budget utilization is $439.46 million, including a contingency of $3.77 million. Overruns in some of the expense items under the operational and administrative budget categories are expected to be met through reallocations from anticipated savings of other expense items within the same budget categories. If the anticipated savings are not adequate to cover overruns, general contingency funds will be used to meet overruns. Table 1 compares the original and current budget estimates, and shows the expected overruns and underruns by budget category. These are further discussed in paras. 27–30.

5 B-loans are funded by commercial lenders with ADB acting as the lender of record. 6 This includes the major change in scope and amount of $1.0 billion for the Trade Finance Facilitation Program. 7 During the preparation of the Work Program and Budget Framework, 2011-2013, the definition of the direct value-

added cofinancing was clarified so it could more accurately capture ADB’s cofinancing mobilization efforts and achievements. The number and amount of direct value-added cofinancing projects are being revised to reflect this.

6

27. Board of Governors. Compared with the original allocation of $2.25 million, the current estimate for expenses for the Board of Governors is $2.90 million, an overrun of about $0.65 million. This was mainly to support the host government (Uzbekistan) in providing logistics to the 43rd Annual Meeting in May 2010. Contingency funds will have to be used to cover the overrun of $653,000. 28. Board of Directors. The current estimate for the budget of the Board of Directors expense category, including the estimates for each of its subcategories, is maintained at the original budget levels: (i) offices of the directors, $14.84 million; (ii) accountability mechanism, $2.74 million; and (iii) independent evaluation, $8.36 million.

Table 1: Current Estimate of Internal Administrative Expenses, 2010

($’000)

… = not available or not calculated, ( ) = negative, IAE = internal administrative expenses. a Estimated recoveries of costs associated with administering the trust funds. b $7.7 million was carried over from 2009 budget to 2010. 29. Operational expenses. Compared with the original budget of $336.38 million, the current estimate for operational expenses is $336.37 million. Staff cost (salaries and related costs) is estimated to increase slightly because of the increase in the number of staff years. However, certain benefit costs and relocation expenses decreased, which was offset by increases in allocations to meet additional requirements for (i) staff consultants to supplement skills mix requirements in some departments and offices, and (ii) business travel to support additional operational missions for project processing and administration activities. 30. Administrative expenses. Compared with the original budget of $77.23 million, the current estimate for administrative expenses is $77.22 million. Anticipated savings in communications, office occupancy, and insurance were offset by anticipated overruns in office supplies, contractual services, and an increase in the projected depreciation expenses related to capital spending in information and communication technology and special capital expenditures. 31. General contingency. The overrun of $0.65 million in the Board of Governors budget category will have to be covered from the general contingency of $4.42 million. The remaining balance of $3.77 million at midyear may be partly used by the end of 2010 if anticipated savings

CurrentActual Budget Estimate2009 2010 2010 Amount %

Budget Category (A) (B) (C) (D) = (C-B) (D)/(B)Board of Governors 1,300 2,250 2,903 653 29Board of Directors 24,226 25,952 25,944 (8) 0Operational Expenses 292,418 336,383 336,368 (15) 0Administrative Expenses 67,040 77,230 77,221 (9) 0Total Before General Contingency 384,984 441,815 442,436 621 0General Contingency … 4,418 3,765 (653) (15)Fee Reimbursements from Trust Funds a (5,981) (6,745) (6,745) … …Net IAE 379,003 439,488 439,456 (32) 0Carryover of IAE Budget b 7,700 … …Net IAE After Carryover 386,703 439,488 439,456 (32) 0

Overrun/(Underrun)

7

are not enough to cover overruns, if any, under the operations and administrative expenses budget categories. 32. Carryover from 2009 budget.8

An amount of $7.7 million was carried over from the 2009 budget to 2010. Allocations from the 2009 carryover budget totaled $5.86 million as of October 2010 (compared with $6.14 million as of October 2009) for various unplanned initiatives. The use of the carryover for many of the unplanned activities has eased the resource pressure on the current budget. A summary of allocations is in Appendix 3.

C. Staffing and Human Resources Management 33. Staffing. ADB is expected to have six Management staff,9 986 international staff (IS),10 and 1,744 national staff (NS) and administrative staff (AS)11

at the end of 2010. This compares with five Management staff, 893 international staff, and 1,614 national staff and administrative staff at the end of 2009. As of 30 September 2010, women comprised 29.0% of the international staff and 72.5% of the national staff and administrative staff.

34. Our People Strategy. Management approved the Our People Strategy12

in December 2009 after extensive interviews and consultations with staff, including members of the Staff Council and Professional Women’s Committee. The strategy was endorsed by the Board in January 2010. It describes the quality of staff, leadership, and workplace environment ADB needs in order to meet the objectives of Strategy 2020 successfully.

35. Human Resources Function Strategic Framework and Action Plan. This document was approved by Management in April 2010.13

It lays down a foundation for the ADB human resource framework by linking different human resources policies and programs, organizational structure and information technology infrastructure required to deliver the human resources function effectively. Its core elements are (i) active staff management by managers and supervisors; (ii) human resources service delivery; and (iii) human resources policy and process design.

36. Staff engagement survey. Our Voice 2010, a staff engagement survey, was launched with a briefing from the consulting firm Towers Watson in March 2010. This covered the purpose of the survey, the proposed content, a refresher of the 2008 survey results, and the timeline for the 2010 survey. Inputs were solicited from stakeholders before the questionnaire was finalized. The survey was administered on 17 May 2010, and by the time it had closed on 31 May 2010, 87.5% of ADB staff had responded. In July 2010, results were disseminated across ADB with each department and office required to communicate further with the staff and propose follow-up actions on the results. 37. Review of business processes and staff resource requirements for Controller’s Department and Office of Information Systems and Technology. In-depth reviews of the 8 In 2006, the Board approved the introduction of a budget carryover of up to 2% of the net IAE into the following

year, beginning with the 2007 budget. 9 Includes the President and five vice presidents. 10 Includes director’s advisors and international staff in the Office of the Compliance Review Panel, Independent

Evaluation Department, and Office of the Special Project Facilitator, but excludes staff on special leave without pay and on secondment.

11 Includes Board of Directors’ support services, but excludes staff in special-incumbent-only positions and staff on special leave without pay status.

12 ADB. 2010. Our People Strategy. Manila. 13 ADB. 2010. Human Resources Function Strategic Framework and Action Plan. Manila.

8

Controller’s Department and of the information technology (IT) function at ADB have been completed. Based on the recommendations of these reviews, ADB will further determine the optimal organization and resource requirements for these functions, streamline processes, link governance arrangements to the Controller’s and IT functions, and improve efficiency. 38. New grading system for national staff and administrative staff, and level complement. Management approved New Staff Grading System14

in November 2010 after extensive consultations with the heads of departments, country directors, and all national staff and administrative staff in both the headquarters and field offices. ADB staff will be grouped according to the new categories to appropriately recognize the roles carried out by the staff and to acknowledge their respective professional qualifications and skills set, and to streamline career progression within the national staff category. As a corollary, new position grades for national staff are defined, setting a uniform and standard position-level classification for headquarters and resident missions. A flexible level complement system will be adopted for national staff and administrative staff to help their career progression.

39. ADB staff special category. A staff special category has been proposed to diversify ADB staffing resources through a flexible and innovative resource management mechanism to support ADB’s initiatives on better knowledge management and knowledge sharing. The proposed special category will complement ADB’s regular staff strength in achieving ADB’s mandates and enhancing ADB’s collaboration with development partners and DMCs. The proposed special category will cover: (i) eminent persons and visiting scholars who provide intermittent services, (ii) DMC officials on ADB-sponsored programs and activities for capacity development, (iii) staff recruited with a fixed coterminous term appointment linked to program or project implementation supported by development partners, (iv) staff seconded to ADB, (v) staff members on the external assignment program (including ADB staff seconded to other organizations such as ADB Institute), (vi) expanded young professional program (including current young professionals), and (vii) staff on special leave. D. Compensation and Benefits, and Learning and Staff Development 40. Realignment of compensation and benefits functions. The functions and work processes relating to compensation and benefits in the Staff Development and Benefits Division of BPMSD were reviewed and realigned to (i) promote consistency in implementing compensation and benefits policies and procedures in accordance with the administrative orders and guidelines, (ii) strengthen support to resident missions, and (iii) achieve efficient delivery of services to staff, retirees, and their dependents. 41. Staff retirement plan. The development of an online self-service access for retirees and beneficiaries started in 2009. The online certification request system, which is undergoing user acceptance testing, is expected to be rolled out by the end of 2010. When fully operational, the online self-service system will reduce staff time in responding to queries and data requests from retirees and beneficiaries. An additional contribution of $10.94 million was made to the staff retirement plan fund from the overall savings of the 2009 internal administrative expenses budget. This increased the total contribution in 2009 to $39.87 million, or 26% of salaries.

14 ADB. 2010. New Staff Grading System. Manila.

9

Further, following the Pension Committee meeting in June 2010, Management approved a transfer of an additional $63.15 million15

from OCR to the staff retirement plan fund.

42. Learning and staff development. The Our People Strategy highlights the enabling role of staff development in achieving all three of its goals: (i) a strong mix of high-caliber, motivated, client-responsive staff working in partnership; (ii) inspiring leadership and proactive people management; and (iii) a supportive and enabling workplace environment and culture. The staff development framework has been substantially realigned to support these goals.

III. HIGHLIGHTS OF THE 2011 WORK PROGRAM 43. The 2011 work program and the proposed priorities for internal resources allocation are in line with those reflected in the WPBF, 2011–2013. While the broad resource implications of the 2011 work program are discussed in this section, the overall level and allocation of internal resources proposed for 2011 are comprehensively presented in Section VI. A. Operations

1. Portfolio Management 44. Portfolio size. ADB’s portfolio in 2011 is expected to comprise 560 public sector projects financed by OCR and ADF loans and by ADF grants, representing a 7.5% increase over 521 projects in 2010 (Tables 2 and 3, and Appendix 4); 50 grant projects financed by the Japan Fund for Poverty Reduction (JFPR); and 180 projects in private sector operations, a 19.2% increase over 2010 (Table 3). The number of projects in the nonsovereign public sector portfolio is also expected to increase in 2011. The projected expansion of the portfolio, combined with greater emphasis on quality of operations, requires substantial additional internal resources, including staff and travel budget. Reflecting the growing emphasis on project implementation, 20 new international staff and national staff will be provided for project implementation and supervision in operations and direct operations support departments. 45. Disbursements. Annual disbursements for 2011 are projected at $9.89 billion ($7.63 billion from OCR and $2.26 billion from ADF for loans and grants), 18.1% up on the 2010 estimate of $8.37 billion (Table 3). The projected OCR and ADF disbursements are 17.1% and 21.5% higher than their respective 2010 levels. To cope with this increase in disbursements, ADB will continue to streamline its work processes and expand the use of IT solutions.

15 This represents the accrued pension cost for the staff retirement plan. It is the cumulative difference as of

31 December 2009 of the net periodic pension costs calculated under the required annual accounting valuation and actual contributions made to the staff retirement plan.

10

Table 2: Work Program and Resource Parameters, 2007–2011

CurrentEstimate

2010 a

I. Key OutputsA. Investment Operations

Portfolio Management Public sector operations (number) 468 485 541 521 560 Private sector operations (number) 141 140 197 151 180 OCR and ADF disbursements ($ million) 8,717 10,445 9,927 8,374 9,889

Project Preparation and Processing b

Public Sector OperationsNumber of Approvals 97 111 162 141 141

Regular program 53 58 88 85 76 ADF stand-alone grants 15 16 14 15 25 MFF subprojects 19 23 52 31 37 Sub- and nonsovereign 2 2 8 6 …Supplementary financing 9 12 0 4 3

MFF framework (number) 10 12 21 18 12 Other grant projects (JFICT and JFPR) (number) 14 15 16 14 15 Amount of Approvals ($ million) 10,868 14,158 11,751 c 15,170 c 12,662 c

MFF Framework ($ million) 5,312 6,193 6,648 7,290 4,810 Other grant projects (JFICT and JFPR) ($ million) 30 35 48 34 38

Private Sector Operations Number of Approvals 17 10 22 22 25 Amount ($ million) d 1,526 1,600 1,420 1,420 1,325

B. TA ProgramTotal ongoing TA projects (number) 826 845 702 885 e 894 e

Total new TA project approvals (number) 285 313 313 341 316 Total new TA project approvals ($ million) 262 267 335 302 298

C. DVA Cofinancing Operations Investment projects (number) 26 35 30-40 44 30-40Investment projects ($ million) 1,970 3,318 f 1,800-3,300 2,763 3,000-4,000TA projects (number) 74 86 65 125 110-120TA projects ($ million) 79 64 75 185 135

D. Country and Regional Strategies (number)Country Partnership Strategies 6 7 14 6 16 Regional Cooperation Strategies 1 1 0 1 1 Country and Regional Strategy Reviews 2 5 6 0 0Country and Regional Operations Business Plans 18 13 15 25 33

II. Borrowings [Confidential information from this table has been removed in accordance with paragraph 126 of ADB's Communication Policy.]

III. ResourcesAuthorized Staff Positions (number) g 2,428 2,472 2,719 2,719 2,876 International Staff 859 874 962 962 1,007 National Staff and Administrative Staff 1,569 1,598 1,757 1,757 1,869

Internal Administrative Expenses ($ million) 350.8 379.0 439.5 439.5 496.4 IV. Allocable Net Income

[Confidential information from this table has been removed in accordance with paragraph 126 of ADB's Communication Policy.]

ItemAverage

2007−2009Actual2009

Program2010

Program2011 a

… = not available or not calculated, ADF = Asian Development Fund, JFICT = Japan Fund for Information and Communications Technology, JFPR =Japan Fund for Poverty Reduction, MFF = multitranche f inancing facility, OCR = ordinary capital resources, RCOBP = regional cooperation operations business plan, TA = technical assistance.Notes: Numbers may not sum precisely because of rounding. aEstimates as of August 2010. bSome 2010 projects may be shifted to 2011. c Figures include $100 million, $456 million and $538 million unallocable amounts for 2010 program, 2010 current estimate and 2011 program, respectively. d

Excludes B-Loans. eActive TAs as opposed to ongoing TAs. fWithout guarantees. gExcludes staff of the Office of Compliance Review Panel,Independent Evaluation Department, directors' advisors, and support staff of the Board of Directors. hAllocable net income for OCR is beforeFinancial Accounting Standards 133/159 adjustment and unrealized gains or losses from proportionate share of earnings from certain equityinvestments, and after appropriation of guarantee fees to special reserve and adjustment to the loan loss reserve. i Represents net income beforegrants and net realized and unrealized gains or losses.Source: Asian Development Bank.

11

Table 3: Portfolio Management (Loans and Non-Technical Assistance Grants), 2007–2011

… = not available or not calculated, DMF = design and monitoring framework, JFICT = Japan Fund for Information and Communication Technology, JFPR = Japan Fund for Poverty Reduction, MFF = multitranche financing facility, PPMS = project performance management system. Note: Numbers may not sum precisely because of rounding. a Projects financed by two loans or by combination of loan and grant are counted as one project. b Includes projects fully divested and/or fully paid but administered during the year. Source: Asian Development Bank.

2. Country Partnership and Regional Cooperation Strategies 46. The country partnership strategy (CPS) and the regional cooperation strategy (RCS) are primary documents for aligning ADB operations with the priorities of DMCs and Strategy 2020. In 2011, 16 CPSs, 1 RCS, and 33 country and regional cooperation operations business plans (COBPs and RCOBPs) are planned (Table 4). The CPSs for 2011 include eight that were postponed from 2010. The efficiency gains from the streamlined CPS and RCS preparation process will enable ADB to handle CPS-related operations without significant additional demand for staff and budget resources in 2011.

CurrentAverage Actual Program Estimate Program

Item 2007–2009 2009 2010 2010 2011

1. Ongoing Projects (number) a

Public sector projects 468 485 541 521 560JFPR and JFICT Grant projects 66 63 73 53 50Public sector project completion reports 63 62 88 85 89Private sector operations b 141 140 197 151 180

2. Annual Disbursements ($ million) 8,717 10,445 9,927 8,374 9,889Ordinary Capital Resources 6,535 7,898 7,676 6,513 7,628 Public sector loan projects 6,023 7,449 6,826 5,663 6,728 Private sector operations 511 449 850 850 900Asian Development Fund (loans and grants) 2,182 2,548 2,249 1,861 2,261

3. Project Rated Satisfactory (% of loan number) Public Sector (%) 93.6 94.2 96.4 95.6 96.0 Private Sector (%) … … … … …

4. Seminars to Support Portfolio Management (number) 50 62 58 48 55Project implementation and administration 13 14 14 10 14 Business opportunities 18 17 15 18 15PPMS-DMF for executing agencies 3 0 4 2 6 PPMS-Training of facilitators 2 7 4 0 0Development of national consultants 6 6 6 0 0Project disbursements 7 18 15 18 20

12

Table 4: Country Partnership and Regional Cooperation Strategies, 2009–2011 (number)

…= not available or not calculated, CPS = country partnership strategy, RCS = regional cooperation strategy. Source: Asian Development Bank.

3. Preparing New Lending and Grant Operations 47. Public sector operations. During 2011, 141 new public sector projects, to be financed through $9.4 billion16

in OCR loans and $3.3 billion in ADF loans and grants, are programmed for approval—the same total number of projects as the current estimate for 2010 (Table 5). The volume of the projects to be processed, however, will be lower than that in 2010. This is largely because of increasing number of smaller projects resulting from diversification of ADB operations due to DMCs demand. Nonsovereign projects in the energy, finance, and education sectors will be explored during 2011 for potential financing of $389 million.

48. The streamlined business processes, introduced in January 2010, have led to some reduction in the staff resources required for project processing. However, the rising trend in the number of projects since 2005, compounded by the greater emphasis on project quality and readiness, requires additional staff and other budgetary resources. Significant new positions are proposed for 2011 in response to the planned growth of operations. The business travel budget of regional departments will rise commensurately with the anticipated growth in staff and processing requirements. 49. Private sector operations. The Private Sector Operations Department (PSOD) will continue to promote its core focus areas of infrastructure and capital market development to support growth and poverty reduction objectives of Strategy 2020. It will increasingly expand its operations to the underserved economies and will explore operations in new areas to improve ADB’s relevance to the needs of these economies. In 2011, PSOD plans to process 25 projects for about $1.7 billion ($1.3 billion OCR and $0.4 billion B-loans) through lending, equity investments, commercial financing, and guarantees. This compares with 22 projects for $1.8 billion ($1.4 billion OCR and $0.3 billion B-loans) in 2010. Through its Operations Coordination Division, PSOD will continue to increase its engagement with regional departments in CPS-related operations, by playing an active role in the areas such as sector road map preparation and private sector assessments. PSOD will increasingly provide technical advisory services to the regional departments to help structuring and processing of public nonsovereign and public–private partnership (PPP) transactions. In addition to having more projects to process, PSOD will pay greater attention to risk management, as well as to monitoring and demonstrating the broader development impacts of its projects. In 2011, 19 new positions are proposed for PSOD, together with a commensurate rise in business travel and

16 This figure comprises $8.85 billion programmed and $0.54 billion unallocable OCR.

CurrentActual Program Estimate

Item 2009 2010 2010Country Partnership Strategy 7 14 6 16 167Regional Cooperation Strategy 1 0 1 1 0CPS and RCS Reviews 5 6 0 0 …Country and Regional Cooperation Operations Business Plans

Program2011

2011 Program over2010 Estimate

(%)

13 15 25 33 32

13

other budgetary resources. Incremental resources for nonsovereign operations are further discussed in para. 71.

Table 5: New Projects—Public and Private Sector Operations, 2009–2011

50. Sector distribution. The proposed 2011 lending program contains a robust pipeline in line with the priority areas of Strategy 2020. 86% of the new public sector sovereign project approvals by volume will be in the core sectors of infrastructure, education, and finance sector development. While infrastructure continues to account for the largest share (78% of projects by volume), investments within the sector will continue to shift toward relatively new areas to promote environmentally sustainable growth, such as mass transit, clean energy, urban development, water supply and sanitation, and other solutions that help improve the environment and mitigate carbon emissions. Finance sector development and education sector will account for 8% of 2011 operations by volume, while the combined share of health, agriculture, and the remaining sectors will be 14%. Substantially higher staff and other associated resources are required for processing and administering projects in the new areas, as they tend to be more complex and often require new expertise. More than half of the new international staff in 2011 will be supporting new initiatives, skills, and knowledge. Staff recruitment and redeployment, as well as the planned staff development program, will continue to be geared toward building ADB’s in-house capacities and expertise in the new and priority areas.

4. Preparing and Designing the Future Lending Program 51. In 2011, 108 project preparatory TA (PPTA), representing a 10% increase over 98 PPTA in 2010, are programmed for approval. These will help design and prepare loan and grant projects for approval in 2011 or the following year. The number of PPTA administered by ADB is expected to increase by 12% between 2010 and 2011 (Table 6). In 2011, a larger number of

Current 2011 ProgramActual Program Estimate Program over 2010 Estimate

Item 2009 2010 2010 2011 (%)Public Sector Operations OCR and ADF Projects Approval (number)a 111 162 141 141 0 OCR Loans 80 102 89 75 (16) ADF Loans and Grantsb 71 72 92 71 (23) Loans and blended grants 55 58 77 46 (40) ADF Grants (stand alone projects) 16 14 15 25 67 OCR and ADF Projects Approval ($ million) 14,158 11,751 c 15,170 c 12,662 c (17) OCR Loans: 11,036 8,779 11,417 8,852 (22) ADF Loans and Grants 3,122 2,872 3,296 3,272 (1) JFPR Grant Projects ($ million) 35 48 34 38 10 MFF Framework ($ million) 6,193 6,648 7,290 4,810 (34)Private Sector Operations Number of projects 10 22 22 25 14 Amount ($ million)d 1,600 1,420 1,420 1,325 (7)

a A project financed by both OCR and ADF is counted as one.b Includes ADF grants blended with OCR and ADF loans.

d Excludes B-Loans.Source: Asian Development Bank.

"0" = magnitude zero, ( ) = negative, ADF = Asian Development Fund, JFPR = Japan Fund for Poverty Reduction, MFF = multitranche financing facility, OCR = ordinary capital resources.Note: Numbers may not sum precisely because of rounding.

c Figures include $100 million, $456 million and $538 million unallocable amounts for 2010 program, 2010 current estimate and 2011 program, respectively.

14

projects will be prepared and processed without PPTA (8% more than in 2010), reflecting increasing reliance on staff resources and staff consultants for project preparation. Higher staff and travel budgets will be provided for preparation and administration of the increased numbers of PPTA and project preparation without PPTA.

Table 6: Project Preparation, 2009–2011 (number)

PPTA = project preparatory technical assistance . a Figures include PPTA projects for Regional and Sustainable Development Department. b Active PPTA projects as opposed to ongoing PPTA projects. Source: Asian Development Bank.

5. Cofinancing and Credit Enhancement Operations 52. In 2011, $3.0 billion–$4.0 billion in direct value-added cofinancing is expected to help the financing of 30–40 projects. In addition, about $135 million of external funds is expected to complement ADB’s grant financing of 110–120 TA projects (Table 7). In collaboration with operations departments, the Office of Cofinancing Operations (OCO) will utilize credit enhancement products such as syndications and guarantees to mobilize commercial financing to assist in ADB projects, including the promotion of PPPs. OCO will continue its efforts to engage early on during the project processing stage in order to assist projects under development to make full use of cofinancing opportunities. To improve efficiency, ADB will continue to build relations with financing partners and further streamline cofinancing arrangements to reduce complexity in reporting and relationship management. OCO will also increase its efficiency by utilizing IT systems to manage project financing, trust funds, and donor information. Additional resources in business travel will be provided to increase the number of missions so that discussions can be held with ADB project implementation staff, executing and implementation agencies, and cofinanciers to explain ADB’s procedures for administering projects with loan and grant cofinancing. While in the field, staff will identify principal donors and build contacts, particularly for cofinanciers with decentralized offices.

2011 Programover 2010 Estimate

ItemOngoing PPTAsa 204 222 b 249 b 12 PPTAs for approval 88 98 108 10 Preparation without PPTA 51 65 70 8 Public sector 41 43 45 5 Private sector 10 22 25 14

Actual2009

CurrentEstimate

2010Program

2011 (%)

15

Table 7: Direct Value-Added Cofinancing, 2008–2011

6. Emphasis on Quality of Operations 53. Improving project quality. In 2011, ADB will continue to increase its focus on improving the quality of its projects and portfolio. In the Central Operations Services Office (COSO), a dedicated unit has been established to improve reporting to Management on portfolio trends and issues. A working group on project implementation has been established to identify and share good practice and experience among regional departments. Efforts are being made on several aspects of project processing and implementation, including technical design, due diligence, procurement, financial control, and monitoring to improve the quality of ADB services. Efforts by the regional departments to improve portfolio quality include (i) strict project readiness review and improved quality at entry, (ii) special attention to problematic projects, (iii) improved coordination between ADB headquarters and resident missions, particularly for technical and sector support from headquarters based on client needs, (iv) introduction of “internal warning systems”, (v) strengthened accountability for project results using the ADB results framework, (vi) an improved project performance reporting system, and (vii) selective impact evaluation studies. 54. The growing number of projects and efforts to improve project quality will require increase in staff, particularly in the operations departments, to process projects and administer the portfolio effectively. More than half of the proposed new international staff and national staff positions in 2011 will be assigned to regional departments to strengthen capacity in project processing, procurement, project implementation, and portfolio management. New international staff and national staff positions will also be allocated to PSOD and the Office of Risk Management (ORM) to improve the quality of private sector operations through more thorough and prudent credit risk assessment and systematic portfolio monitoring. Business travel and staff consultant budgets for operations departments will also increase to match the increase in staff and to provide the supplementary skills or specialized knowledge required to conduct operations effectively. These will be accompanied by a commensurate increase in the internal administrative resources of operations support and knowledge departments.

ProductsAmount

($ million)No. of

ProjectsAmount

($ million)No. of

ProjectsAmount

($ million)No. of

ProjectsAmount

($ million)No. of

ProjectsInvestment Projects

Credit enhancements a 575 4 276 3 337 4 … …Commercial loan b … … 120 1 … … … …Grants 70 17 154 23 82 16 … …Official loans 925 6 2,768 10 2,343 28 … …Subtotal c 1,570 25 3,318 d 35 d 2,763 44 3,000–4,000 30–40

TA Projects (Grants) 84 76 64 86 185 e 125 135 e 110–120 Total 1,654 3,382 2,948

2008Actual Estimate Projection

2009 2010 2011

… = not available or not calculated, TA = technical assistance.a Comprising B-Loans.b Collaboration cofinancing under framework agreement. c Subtotal does not sum precisely as projects with multiple cofinancing products are counted as one.d Without guarantees. e Beginning 2010, includes TA projects financed under enhanced Japan Fund for Poverty Reduction (JFPR).Source: Asian Development Bank.

16

55. Enhancing the role of resident missions. During 2007–2010, three resident missions and four liaison offices were set up, and 114 staff positions provided to the field offices. In 2011, ADB will continue to strengthen resident missions and to decentralize. Building on the advantage of having its headquarters in the region, and on the collegial nature of working relations allowed by its size and corporate culture, ADB’s decentralization model is based on close collaboration between field offices and headquarters, under the combined leadership of country and sector directors, and the oversight and ultimate responsibility of the regional director general. ADB will strengthen the role of resident missions by addressing quantitative and systemic human resources constraints. In 2011, 37% of the new positions will be allocated to further strengthen resident missions. Appendix 5 provides key statistics on the roles of the field offices. B. Knowledge Solutions and Knowledge Sharing 56. In 2011, ADB will continue efforts to transform itself into a knowledge institution to provide the knowledge services required by its client countries. ADB will enhance its role in knowledge sharing for the region by continuing flagship knowledge initiatives, strongly supporting advisory services and capacity development partnerships with DMCs, and forming research alliances with regional and global research institutions. Internally, mechanisms and IT systems for knowledge sharing as well as the role of communities of practice will be reinforced. These will build on the recent achievements (Box 1).

57. During 2010, knowledge-related activities focused on clarifying knowledge management and learning strategies. The knowledge management agenda of ADB for 2011 includes preparation of progress reports on enhancing knowledge management under the Strategy 2020: plan of action (2009–2011). Knowledge departments will also continue to carry out studies and assessments across Asia to inform the policy debate, and to provide advisory services. ADB’s extensive research into key sector and thematic areas will help its DMCs to have a better understanding of country-specific models and capacity building. During 2011, ADB will continue

Box 1: Expanding ADB's Knowledge Agenda Significant progress has been accomplished following the adoption of the action plan for knowledge management, 2009–2011. To sharpen the knowledge focus of ADB's operations, the TA strategic forum refines ADB's research and development TA. Work on an e-library is in progress. The knowledge activities of resident missions are being strengthened. The knowledge departments collaborate closely to enhance synergy. The knowledge solutions and knowledge showcases series provide supportive insights. To empower its communities of practice, ADB has written guidelines on sector and thematic reporting, provided significant additional budgetary resources, dedicated staff resources, integrated members into peer review processes, begun to involve them in staff interviews, and built platforms for collaboration. To strengthen external knowledge partnerships, ADB has drafted guidelines. Complementing these is a platform for partnership management. Support for ADB’s 24 regional knowledge hubs continues. Pioneering steps have been made in storytelling, resulting in the book ADB: Reflections and Beyond. To speed the quality and flow of knowledge, ADB uses blogs, Twitter, and other social media. New services include a quarterly e-newsletter on sustainable development (Intersections), a monthly e-flyer on ADB knowledge products (knowledge@ADB), and an upgraded collaboration platform (MyADB).

17

to strengthen its coordination and partnership with ADBI to further improve the synergy between ADB’s knowledge departments and ADBI. In 2010, to facilitate and lend momentum to ADB’s knowledge work, ADB approved 28 new positions for knowledge management. A stronger focus on knowledge and the efforts needed to transform ADB into a knowledge institution will continue to be supported by additional budgetary and staff resources during 2011.

1. Operational Activities 58. Technical assistance program. In 2011, ADB will implement 646 capacity development, policy and advisory, and research and development TA projects. ADB expects to process and approve 208 new TA projects in these categories during 2011 (Table 8). Increasingly, the focus will be on improving the quality of and coordination for ADB’s knowledge products and services, which will be supported by additional internal resources.

Table 8: Capacity Development, Policy and Advisory, and Research and Development Technical Assistance, 2009–2011

CD = capacity development, PA = policy and advisory, RD = research and development, TA = technical assistance. a Ongoing TA projects. b Active TA projects. Source: Asian Development Bank.

59. Economic, thematic, and sector work. ADB expects to complete 365 economic, thematic, and sector work (ETSW) activities in 2011 (406 are estimated for 2010)—Table 9. Of these, 241 (66%) will be carried out by operations departments. The planned work includes assessments of macroeconomic management, poverty reduction, energy efficiency, environmental protection, safeguards and governance risk assessments, private sector development, and formulation of key sector road maps at the country level. The projected number of ETSW activities during 2011 reflects a better consolidation of ETSW, and improved coordination among knowledge departments and between knowledge departments and regional departments.

Table 9: Economic, Thematic, and Sector Work, 2009–2011 (number)

Source: Asian Development Bank.

ItemOngoing and Active CD,PA, and RD TA projects (number) 641 a 663 b 646 b

CD, PA, and RD TA projects for processing (number) 225 243 208 CD, PA, and RD TA projects for processing ($ million) 203 232 218

Actual2009

CurrentEstimate

2010Program

2011

CurrentActual Estimate Program

Department/Office 2009 2010 2011Operations 211 275 241Knowledge and non-operations 130 131 124

Total 341 406 365

18

60. Economic research. The Economics and Research Department (ERD) leads the preparation of the Asia Development Outlook (ADO) and contributes to ADB’s development work through research and analysis of key development issues, providing timely, relevant and evidence-based policy recommendations for DMCs. In 2011, ERD's macroeconomic research will cover the three broad areas of Strategy 2020: (i) inclusive growth and public policy; (ii) climate change and low carbon growth; and (iii) macroeconomic stability, finance, and trade. ERD will continue to help strengthen statistical capacity in ADB's DMCs and enhance data services. It will also provide effective and strategic support to regional departments in analytical work in preparing CPS papers, identifying economically viable projects with significant development impact, ensuring quality-at-entry of ADB operations, and training staff on the economic analysis of investment projects. ERD will also step up its efforts to strengthen partnerships with development agencies and think tanks around the globe, enabling ERD to tap a larger talent pool and a broader range of expertise, improve its effectiveness in producing quality knowledge products, and enhance its capacity for providing knowledge solutions. In partnership with the Department of External Relations (DER), ERD will continue to publish the flagship publications: ADO, ADO Update, and Key Indicators for Asia and the Pacific as well as the Asian Development Review and the ADB Economics Working Paper Series. These efforts relating to ERD’s knowledge work will be supported by a commensurate increase in budgetary resources in 2011.

2. Enhancement of Communities of Practice

61. In the last few years ADB has taken active measures to improve staff skills and internal knowledge sharing practices as it seeks to transform itself into a knowledge bank. Communities of practice (CoPs) were established for 13 sector and thematic areas to facilitate internal knowledge sharing. The role of CoPs in ADB operations has significantly expanded over the years. Beginning in 2010, sector peer review procedures were introduced in support of the streamlined business processes. Qualified CoP members are now assigned to individual loans at the concept and appraisal stages. The strengthening of CoPs in core sectors and thematic areas under Strategy 2020 through the appointment of dedicated practice leaders or lead specialists will continue. In order to empower the CoPs and make them more effective, special efforts are being made to increase budgetary allocations for them. The budgetary provisions for CoPs include business travel, staff consultants, representation and books, external printing services, membership fees and IT equipment. In the 2010 budget, the provision for these CoPs was significantly expanded to over $1 million, enabling them to play a more meaningful role. This approach will be continued in 2011 so that the CoPs are well resourced.

3. External Knowledge Partnerships 62. To further its knowledge work, ADB intends to establish alliances with regional and global research institutions to study issues of topical importance, such as rebalancing global growth and human and economic development. ADB will also monitor high frequency data on fuel and food prices, and financial sector developments and will use the data to analyze the implications of such price movements on social and economic development in DMCs. ADB will actively participate in global policy debates such as the Group of Twenty, the Asia-Europe Meeting, and the World Trade Organization’s Aid for Trade initiative. 63. To promote exchange of knowledge, ADB will implement a range of institutional arrangements to facilitate movement of people and ideas. These include (i) short-term and developmental assignments; (ii) creation of rosters of sectors and thematic experts; and (iii) workforce sharing for specialized skills. ADB will also diversify the intake of international

19

staff through expanded secondment and young professional program, and through the eminent expert and visiting scholar programs. ADB will mobilize skills and knowledge needed to address new operational areas, while retaining flexibility in overall staff numbers, by tapping external resources and through cooperation agreements with regional and global research institutions. This expansion in knowledge partnerships during 2011 will be supported by additional budgetary resources. C. Support to Selected Themes and Other Priorities 64. Inclusive growth. ADB will continue to promote inclusive growth actively and to strengthen synergies among the sector and thematic dimensions of poverty reduction. To contribute effectively to poverty reduction and inclusive growth, ADB will continue to support the achievement of the Millennium Development Goals (MDGs) in its DMCs (Box 2).

65. Economic growth, a necessary condition for successful poverty reduction, will be supported through a strong pipeline of infrastructure projects that will enhance power supply, expand transport links, and promote private sector and human development. ADB operations

Box 2: ADB's Support for the Millennium Development Goals (MDGs)

Strategy 2020 emphasizes all five main MDG areas: poverty reduction, education, gender equality, health, and environment. ADB supports their achievement though its focus on inclusive and sustainable growth. Poverty reduction (MDG1) is a central objective of Strategy 2020, achieved through two mutually reinforcing elements. First, ADB expands economic opportunities through rapid and sustainable growth supported by infrastructure, appropriate policies, private sector and human development. Second, ADB ensures broader access to these opportunities through projects that (i) expand human capacities through education, health, and social protection; (ii) improve access for disadvantaged populations and lagging regions to basic services and infrastructure development; (iii) enhance the poor's access to markets, finance, and basic productive assets; and (iv) support pro-poor public sector management. ADB focuses on improving the overall quality of education (MDG 2), including basic education, as well as expanding secondary, technical and higher education. Gender (MDG3) is a driver of change in Strategy 2020, mainstreamed in ADB’s operations, with particular attention to improved access of females to education and health services, clean water, better sanitation and basic infrastructure. Health (MDGs 4, 5 and 6) is pursued in ADB operations by reducing risk of HIV in infrastructure projects; improving effectiveness and equity of public expenditures on health; and improving water supply and sanitation to reduce communicable diseases. Environmental sustainability (MDG 7) is promoted through clean water supply and sanitation, urban improvement, management of water and other natural resources, and carbon emission reduction. The actual areas of support for the MDGs differ across countries, and are based on ADB’s individual Country Partnership Strategies aligned to national poverty reduction strategies and countries’ development priorities. ADB also actively advocates MDG achievement through a regional partnership with the Economic and Social Commission for Asia and the Pacific (ESCAP) and the United Nations Development Programme (UNDP). While ADB monitors the status of MDGs in its DMCs through the annual Development Effectiveness Review and in partnership with ESCAP and UNDP, attribution of these results to ADB operations would be methodologically difficult, and ADB regularly monitors instead related project output indicators. A special evaluation study on ADB’s contribution to achievement of MDGs by its DMCs is planned by the Independent Evaluation Department in 2012.

20

will also (i) increase the share of ADF resource allocations to its poorest (ADF-only) member countries from 29% under ADF IX to 35% for the ADF X period; (ii) improve access by poor populations and lagging regions to basic services, such as water supply and sanitation, transport, power, and small-scale infrastructure (30% of all of ADB’s planned sovereign operations are in rural regions, and about 30% of all infrastructure investment is small scale17

); (iii) increase human capacities through investments in education, health, and social protection; and (iv) improve the poor's access to markets, finance, and public services.

66. Education is a core operation area in Strategy 2020 as it contributes significantly to inclusive growth, poverty reduction, and gender equity. Priority areas will include workforce skills development through technical and vocational education, and higher education, in addition to ADB’s continuing work in basic education. During 2011, operations supporting education are expected to account for about 5% of total lending. Further support to education is being actively explored through country partnership strategy work in several countries. Strategy 2020 stresses that health is vital for development, productivity, social inclusion, and gender equity. ADB focuses on the health outcomes of its activities, including its large infrastructure portfolio. It works with governments to strengthen public expenditure management for cost-effective delivery of health services. ADB is also strengthening regional collaboration for cross-border communicable diseases. This approach emphasizes knowledge as a key way to improve outcomes and development effectiveness, together with strategic and innovative partnerships with specialized agencies and bilateral donors. ADB will promote food security, which will also contribute to inclusive growth. It will continue to support the global initiative to strengthen and harmonize the development of knowledge and technologies for food security, through the Consultative Group on International Agricultural Research and other research partners.

67. Gender equity. ADB's Strategy 2020 highlights gender equality as a driver of change. It is also a key element of ADB's goal of poverty reduction through inclusive and sustainable growth. Under the gender and development plan of action, 2008–2010, ADB has initiated a range of actions to strengthen gender mainstreaming in its operations. In 2009, an interdepartmental technical working group was formed to find ways to improve ADB’s performance. A Special Evaluation Study on Gender and Development (Phase 1 Desk Review) by the Independent Evaluation Department in 2009 concluded that the Policy on Gender and Development (1998) remained relevant but more work needed to be done to implement it

17 Small-scale investments include rehabilitation of schools, small-scale rural and urban infrastructure (bus stands,

marketplace rehabilitation, and similar projects), and improvements to irrigation canals.

Box 3: Gender Mainstreaming The results framework target is for 40% of ADB projects at entry to have gender mainstreaming by 2012. To achieve this, ADB has ensured that gender-inclusive project designs have been developed, not only for sectors that are likely to offer direct benefits to women and gender equality (water supply and sanitation, education, health, and agriculture), but also for energy, transport (both urban and rural), finance, and public sector management. ADB has increased the frequency and quality of staff briefing and training. In 2010, ADB introduced a pilot results delivery scheme linking additional allocations from ordinary capital resources to meeting performance targets in gender mainstreaming. Staffing has been strengthened over the years. These steps are improving ADB performance notably. In 2007, the percentage of projects approved with gender mainstreaming was 23%. This increased to 27% in 2008 and 31% in 2009. For 2010, it is projected to be between 35% and 40%, steadily approaching towards the 2012 target.

http://www.adb.org/Poverty/�

21

effectively. ADB has been implementing the recommendations of these two reports actively (Box 3). Seven additional international staff and national staff will be provided to support gender equity in 2011. 68. Environment and climate change. In 2011, ADB will continue to promote environmentally sustainable growth, which is one of the three strategic agendas of ADB’s Strategy 2020. An action plan outlining ADB’s priorities in attaining environmentally sustainable growth was approved in April 2010. The plan indicates five priority areas for ADB support: (i) scale up clean energy, (ii) encourage sustainable transport and urban development, (iii) manage land use, (iv) promote climate-resilient development, and (v) strengthen policies, governance, and capacity. In 2011, about 51% of ADB’s planned project financing will mainstream environmental sustainability, outpacing the interim results framework target of 25% by 2012. ADB will continue to mainstream environmental concerns—including climate change—into its operations through various programs and initiatives to promote energy efficiency, renewable energy sources, sustainable transport, urban environmental improvements, low-carbon infrastructure investments, sustainable natural resource management, and enhanced environmental management capacities. It will expand its current initiatives to support regional cooperation on management of globally significant transboundary ecosystems and initiatives that address common environmental concerns. These efforts will be supported by provision of new skills and other budgetary resources in 2011. 69. Regional cooperation and integration. Strategy 2020 identified regional cooperation and integration (RCI) as one of the five core areas of ADB operations and targeted RCI’s share in total ADB operations to be 30% by 2020. About 17% of all sovereign operations planned in 2011 support RCI, which implies ADB is on track to meet the corporate results framework target of 15% by 2012. Moreover, there will be a bigger and more diversified pipeline covering more sectors and with a wider geographic coverage. ADB will expand its RCI activities in the development of economic corridors, transport and trade facilitation, energy trade, environment, and information technology (IT). ADB plans to work towards bond financing for infrastructure projects in the Association of Southeast Asian Nations plus the People’s Republic of China, Japan, and the Republic of Korea (ASEAN+3), financing regional infrastructure development, and facilitating regional trade. ADB also plans to develop a strategy to assist the subsequent stages of Asian integration. 70. During 2011, the Office of Regional Economic Integration (OREI) will focus on six priorities: (i) articulating the challenge of the next stages of Asian integration, (ii) designing a robust regional economic surveillance system, (iii) promoting financial sector development, (iv) developing Pan-Asian infrastructure, (v) fostering trade integration, and (vi) mobilizing and managing resources for RCI and financial sector development. These priorities will be carried out in 2011 through activities that will promote regional economic policy dialogue, support capacity building and institutional strengthening, support research, disseminate knowledge and information on RCI, and develop partnerships with stakeholders. OREI will continue to publish the Asia Economic Monitor, Asia Bond Monitor and Asia Capital Markets Monitor as well as the ADB Working Paper Series on Regional Economic Integration and books on RCI. Expanded RCI activities will be supported by the provision of additional staff and other budgetary resources in 2011. 71. Private sector development and private sector operations. The target in Strategy 2020 is for private sector development and private sector operations to account for 50% of ADB’s annual operations by 2020. Such support can be provided through public sector sovereign and nonsovereign operations as well as by private sector operations. About 38% of

22

ADB’s operations will support private sector development and private sector operations in 2011. ADB encourages public–private partnerships (PPPs) through its public and private sector windows. In promoting such partnerships, ADB will continue to focus on policy dialogue to develop the enabling legal, policy, and institutional frameworks. It will assist in capacity development and in project development to structure potential PPPs. In 2011, 20% of new international staff and national staff positions and substantial additional budgetary resources will support the continuing focus on private sector development and private sector operations, including improved risk management. D. Operations and Administrative Support 72. Safeguards. The ADB Safeguard Policy Statement (SPS) became effective in January 2010, and its provisions are being applied to all projects. ADB made significant efforts at the corporate level to ensure sound implementation of the SPS in 2010, including: (i) strengthening internal safeguard review; (ii) enhancing staff capacity and resources, and adding several new international staff and national staff positions to strengthen the capacity of operations departments; (iii) increasing awareness of borrowers and other stakeholders; (iv) preparing tools and sourcebook materials; and (v) making progress toward strengthening and use of country safeguard systems. 73. During 2011, ADB will continue focusing on SPS implementation through (i) project due diligence, review, and supervision; (ii) safeguard review missions; (iii) staff training; (iv) external stakeholder briefing and training; (v) development and testing of tools and sourcebooks; and (vi) policy dialogue and technical assistance to strengthen country safeguard systems and develop capacity. Implementation of the new SPS will require a significant expansion of safeguard activities and will be supported by additional budgetary and staff resources in 2011, including two new international staff positions and six national staff positions. 74. Risk management. In 2011, the Office of Risk Management (ORM) will continue its active involvement in the credit process for nonsovereign operations, including risk assessments of new transactions; monitoring and review of existing transactions and approvals of waivers and amendments of agreements; management of impaired accounts; and development and execution of exit or workout strategies. In the market and treasury risk area, ORM will continue providing risk management solutions for the expanded funding and investment operations, derivative transactions, and monitoring of collateral programs. ORM will enhance risk analysis and the pricing capability for derivative transactions. Other key priorities include developing country and macroeconomic analysis to rate nonsovereign transactions, implementation of the operational risk management framework, and development of policies and methodologies for estimating risk in ADB’s equity investments. ORM will continue to enhance the accuracy of its risk measurement tools for capital adequacy, stress testing, risk rating, loss provisioning, and pricing. 75. The recently approved risk management system will provide more robust, automated and controlled risk management for both lending and treasury operations. The system is scheduled for completion in 2012 and will make risk management processes more effective and efficient, resulting in saving staff time. The system will enable ORM to cope with future increases in workload without corresponding staff increases. Planned enhancements in derivative collateral management and cash custodian will result in efficiency gains as well as significant annual cost savings.

23

76. As ADB continues to enhance its risk management capabilities, additional staff and business travel resources will be provided for ORM in 2011. Staff consultants will supplement staff resources in credit monitoring and workout activities. These will be accompanied by additional budgetary resources for outsourced analytical services and database subscriptions essential for ADB to perform sound risk rating and benchmarking for its projects and portfolios. 77. Consulting services and procurement. In 2011, the Central Operations Services Office (COSO) will continue to work closely with operations departments to further enhance portfolio management and improve project implementation. It will conduct special studies on improving project implementation effectiveness, support country portfolio performance reviews, provide secretariat support to the monthly meetings of project administration unit heads and quarterly portfolio performance operations review meetings, and conduct regular procurement reviews. COSO will focus on building the capacity of ADB staff, DMC officials, consultants, suppliers, and contractors in project implementation and procurement-related matters. A key element will be an accreditation program that will gradually generate a network of procurement staff. COSO will also develop an integrated, modular, project design and management training program for ADB staff that will be rolled out in 2011. The modules will be adapted for DMC stakeholders and ADB will explore opportunities to partner with regional training institutions for course delivery. 78. COSO will continue to use technology to improve efficiency and capacity in engagement of consulting services. The individual consultant system has shortened the amount of time needed to recruit an individual consultant from an average of 28 days to 7 days. The full implementation of the consultant management system II will reduce the average recruitment time for TA consulting firms and PPTA consultants. The overall resource implications of the 2011 work program for COSO includes a significant increase in staff and business travel to fund new capacity building initiatives and extended missions to support procurement-related needs in the resident missions.

79. Financial control and accountability. In 2011, the expansion of operations will cause an increase in the Controller’s Department�