In news that could further boost sentiment for Asian financial markets, the Asian Development Bank (ADB) has approved the allocation of $3.4 billion in additional funds to help developing member countries respond to the global economic crisis.
Investor sentiment in the region has improved in large part due to expectations that fiscal stimulus packages around the region, particularly in China, will help stave off any lingering effects of the global financial crisis. The ADB's latest loan facility is yet another fallback for economies in Asia.
The ADB has established a $3 billion Countercyclical Support Facility (CSF) that will provide short-term, fast-disbursing loans. It will support developing member countries aiming to ramp up fiscal spending to counter the crisis, but who lack the financial means to do so amid tight global credit conditions and a sharp increase in funding costs. The CSF, which will be available to qualified developing member countries, will be capped at $500 million per country.
The ADB will also make available a further $400 million to the Asian Development Fund, which will benefit countries with no access to the CSF. ADF resources are provided in the form of concessional loans and grants to low-income developing member countries with limited debt repayment capacity.
The additional ADF resources will be used to provide funds to finance key development investments in low-income countries that are among the most fiscally constrained in responding to the crisis.
Conditions for accessing the CSF include a significant slowdown in growth, exports and remittances, fiscal constraints, and difficulty in sourcing finance from international capital markets on favourable terms. Developing member countries will also need to put in place a specific countercyclical development programme, to be supported by CSF, which includes investment in public infrastructure, or a social safety net scheme targeting the poor and vulnerable.
Loans under the new facility will have a five-year tenor, with a three-year grace period, and will cost around 200 basis points over ADB's financing cost, pricing that is lower than its special programme loans facility set up to help the region in the wake of the 1997-1998 Asian financial crisis.
The ADB plans to increase its lending assistance by more than $10 billion in 2009-2010, bringing total ADB assistance for these two years to about $32 billion. This compares with about $22 billion in 2007-2008. Of the proposed $10 billion increase in lending, $1 billion is committed to support trade finance, $3 billion to the CSF and $6 billion to extending loans such as those for infrastructure investment. The ADB will also expand its crisis-related support through grants for policy analysis and capacity building.