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3. DISBURSEMENT POLICIES

Basic Principles

3.1 The Agreement Establishing the Asian Development Bank (the ADB Charter)[1] states three main principles of disbursement for development projects:

• The proceeds of any loan, investment, or other financing provided by the Asian Development Bank (ADB) shall be used only for procurement in member countries of goods and services produced in member countries unless specifically permitted by its Board of Directors (Article 14[ix]).

• The borrower shall be permitted by ADB to draw its funds only to meet expenditures in connection with the project as they are actually incurred (Article 14[x]).

• Proceeds of any loan made, guaranteed, or participated by ADB are used only for the purposes for which the loan was granted and with due attention to considerations of economy and efficiency (Article 14[xi]).

3.2 The borrower[2] can withdraw loan funds only for eligible expenditures incurred after the loan agreement becomes effective, unless retroactive financing is provided in the loan agreement.

Definitions

3.3 The following terms are defined for the purpose of this handbook.

• closing date The date ADB may terminate the right of the borrower to make withdrawals from the loan[3] account.

• disbursement The withdrawal of proceeds from an ADB-financed loan account.

• eligible expenditures Project expenditures that can be financed under an ADB loan.

• expenditures incurred The borrower's obligation to pay either as a result of contractual terms or after goods and services have been provided.

• loan account The account opened or to be opened by ADB on its books in the name of the borrower, and to which the amount of the loan has been or will be credited.

Loan or Grant Regulations

3.4 The regulations[4] further set out conditions for the use of loan or grant proceeds financed by ADB, or proceeds administered by ADB.

[5] These documents are expressly incorporated in the associated loan agreement, guarantee agreement, or grant agreement. If any provision of a loan agreement, guarantee agreement, or grant agreement is inconsistent with a provision of these regulations, the provision of the loan agreement, guarantee agreement, or grant agreement governs.

Loan Documents

3.5 Loan documents6 include the following documents and agreements:

• The report and recommendation of the President to the Board of Directors (RRP) presents the project proposal for consideration by the ADB Board.

• The project administration manual (PAM)[6] includes all the information and schedules describing project implementation and project readiness filters covering major pre-project implementation actions (e.g., government approvals, procurement, and resettlement) to ensure a rapid start-up and enable early disbursement. It is mandatory[7] that the PAM be referenced in the RRP and in the loan (or facility) agreements, is presented as a standalone linked document to the RRP, and serves as the main document describing implementation details. The PAM is prepared in the course of loan processing and initially agreed with the government at the loan fact-finding stage. At loan negotiations, the borrower and ADB shall review and confirm the PAM agreed during loan fact-finding to ensure consistency with the loan agreement, and such confirmation shall be reflected in the minutes of the loan negotiations. The detailed cost estimate by financier (one schedule included in the PAM) is prepared based on Section J6 of the ADB Operations Manual (Appendix 3A).[8] Related illustrative tables are also provided in this handbook (Appendix 3B).

• The loan agreement is an agreement between ADB and a borrower and sets out the loan's terms and conditions.

• A guarantee agreement is an agreement between ADB and a borrowing member country as guarantor of the loan when ADB lends directly to a nonmember entity.

• A project agreement is an agreement between ADB and the project executing agency (EA) or implementing agency of the borrower specifying requirements related to, among other things, physical implementation of the project, procurement provisions, and financial aspects, including the maintenance of project financial statements and audit arrangements.

  • [1] ADB. 1965. Agreement Establishing the Asian Development Bank. Manila.
  • [2] "Borrower(s)" in this handbook refers to borrowers, recipients (of grants), and/or their executing agencies unless the context requires otherwise.
  • [3] The term "loan(s)" as used in this handbook refers to loan(s) and grant(s) for investment projects which are managed by executing agencies unless the context requires otherwise.
  • [4] Includes Ordinary Operations Loan Regulations, Special Operations Loan Regulations, Special Operations Grant Regulations, and Externally Financed Grant Regulations.
  • [5] ADB in practice applies similar principles to those set out in Articles 13 and 14 (ix), (x), and (xi) of the Charter to grants or loans from external funding sources that are administered by ADB, except when ADB and the cofinancier agree otherwise.
  • [6] A PAM is prepared for project loans, and a facility administration manual (FAM) is prepared for multitranche financing facilities (MFFs). The term "PAM" in this handbook also refers to FAMs unless the context requires otherwise.
  • [7] Except for program loans, policy-based loans, and technical assistance (TA). In the case of a program loan or a policy-based loan, the development policy letter and policy matrix presented as part of the RRP should specify required actions in the form of reform implementation, and the PAM would be optional. (ADB. 2010. Processing Sovereign and Sovereign-Guaranteed Loan Proposals. Operations Manual. OM D11/OP. Manila.)
  • [8] ADB. 2012. Disbursement. Operations Manual. OM J6. Manila.
 
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