Lending operations reached $64 billion over the decade (Figure 1), compared to $43 billion over 1987–1996. ADF operations accounted for 22% of total lending (down from 30% in the previous decade). Lending peaked in 1997 in response to the AFC. Large financial sector loans to the Republic of Korea and Thailand, both financed from OCR, boosted total lending for the year to $9.5 billion, around $4 billion more than in 1996. However, the effect of the crisis dissipated quickly, with lending levels stabilizing around $5 billion–$6 billion from 1998 to 2005. Lending picked up in 2006, with eight multitranche facilities approved totaling $3.8 billion (compared with two for $1.5 billion in 2005).

The overall increase in lending volume was mostly driven by an increase in the average size of ADB loan projects rather than an increase in the number of projects. This trend was more pronounced for projects financed from OCR.³⁷ OCR sovereign loans increased by 59% in volume term (from $28.8 billion over 1987–1996 to $46 billion over 1997–2006), despite a slight decrease in the number of loans. There was a significant increase in the share of program lending (brought about by the AFC) that lasted even after the crisis, with a corresponding decline in the proportion of investment projects. New OCR approvals for nonsovereign operations more than tripled (from $1.2 billion to $4 billion over the same period). Yet, they accounted for a relatively small share of the OCR portfolio (less than 10%). A review of OCR operations conducted in the mid-2000s highlighted the following trends in OCR public sector lending: (i) flat new approvals, (ii) concentration of new approvals in a few countries and sectors, (iii) delayed start-ups, (iv) slow disbursement, and (v) cancellation of a large portion of approved OCR loans. These broad trends caused concern that ADB’s traditional lending products (i.e., project loans) may no longer be meeting the needs of OCR clients effectively (Box 12).

Compared to the previous decade, lending operations were more equally distributed across regions with Southeast Asia, accounting for 28% of lending followed by South Asia (27%), East Asia (25%), Central and West Asia (17%), and the Pacific (1%), as seen in Figure 2.³⁸ Lending to East Asia increased significantly, due to the large crisis support given to the Republic of Korea and continued significant lending to the PRC. So did lending to Central and West Asia, as additional members from the former Soviet Union joined the Bank and their lending gained momentum. The events of 11 September 2001 also led to increased ADB support to Central and West Asia, especially to Pakistan and Afghanistan. ADB resumed operations in Afghanistan in 2002, after a hiatus of 23 years (Box 13). Lending to South Asia also grew, as lending to India continue to expand. By contrast, lending to Southeast Asia stagnated and even decreased slightly in some countries, like the Philippines and Indonesia. No loans were made to Malaysia since 1997 and no new public sector lending was provided to Thailand since 1999. The top five borrowers over the decade were the PRC (accounting for 19% of lending), India (16%), Indonesia (13%), Pakistan (12%), and the Republic of Korea (6%). Refer to Appendix Tables 2.1 and 2.2 for breakdown of lending approvals by fund type and by DMC; and for TA approvals per DMC.

Following approval of the PRS, ADB diversified its activities into a broader range of sectors (i.e., the average number of sectors with ADB involvement by country increased). In terms of broad sector allocations, transport and information and communication technology (ICT) accounted for 27% of total lending followed by finance (23%), energy (15%), public sector (9%), agriculture (9%), water (8%), education (4%), health (3%), and industry (2%) (Figure 3). Compared to the previous decade, transport overtook energy as the largest sector. Lending in support of the finance sector and public sector management surged in response to the crisis, with corresponding reduction in the share of loans to other sectors (particularly agriculture, industry and energy, where total volume of lending actual fell compared to the previous decade).³⁹

Total ADB lending to the transport sector reached $17.5 billion (a 71% increase over the previous decade). As domestic economies in most DMCs continued to expand, the need for national transport infrastructure increased. ADB’s operations remained predominantly focused on roads (72%), followed by rail transport (17%), urban roads and traffic management (a new area accounting for 5%), air and water transport (2% each), and ICT (1%). Compared to the previous decade, lending became even more concentrated on roads, with a corresponding decrease in the share of lending going to ICT and water transport. The top five country recipients were: the PRC (accounting for almost half of total lending or 45%), India (20%), Pakistan (7%), Bangladesh (4%), and Indonesia (4%). Eighty-one percent of transport sector lending was financed from OCR.

Transport sector projects aimed to promote pro-poor economic growth. Projects were increasingly focused on developing and rehabilitating roads that directly impacted on the poor by lowering transport costs and improving access to markets and social services, with 72% of road transport support focused on nonurban areas. Sustainable transport development was emphasized by implementing sector reforms on improving governance, establishing more efficient and effective sector agencies, introducing regulatory reforms for increased participation by the private sector, and improving sector financing and cost recovery. Partnerships between the public and private sectors were also promoted. In addition to country-specific assistance, ADB also implemented regional projects. According to the Operations Evaluation Department (OED), ADB’s transport projects have generally performed well. Over the period 1970–2005, 83% of transport operations were rated successful or better, increasing to 91.7% in 2000–2005. The proportion was more substantial for roads (90%) than for other subsectors (75%).

Acknowledging the powerful force of ICT in shaping the social and economic development of the region, ADB adopted a strategic approach to help DMCs seize opportunities created by ICT.⁴⁰ The new strategy called for greater access by DMCs to information and knowledge, allowing them to compete in global markets and move out of poverty. More specifically, the strategy aimed to (i) create an enabling environment for ICT development by developing innovative sector policies and strengthening institutions; (ii) develop ICT facilities, related infrastructure and networks; and (iii) build human resources to improve knowledge and skills and promote ICT literacy. The strategy advocated applying ICT to improve human welfare, expand economic growth, and extend good governance practices. All stakeholders (governments, private sector, civil society and international organizations) were encouraged to work together to leverage their collective resources to ensure that the benefits of ICT improve the lives of the poor. As ICT is a cross-cutting field, its application in ADB could be wide-ranging. Many of these activities were financed through TA grants. The Japan Fund for Information and Communication Technology was established in 2001 for this purpose (see section VII.C).

ADB support to the finance sector reached $14.4 billion over 1997–2006 (compared to $4.7 billion in the previous decade). Half of this assistance (50%) supported development of the finance sector, mostly in response to the AFC. The rest went to inclusive finance (14%), infrastructure finance and investment funds (13%), money and capital market (7%), housing finance (6%), banking and nonbanking financial institutions; insurance; and small-and medium-sized enterprise finance (3% each), and trade finance (1%). Ninety-two percent of financial sector lending was financed from OCR.

The role of ADB in promoting reforms in the capital and financial markets became particularly critical in the wake of the AFC. ADB support focused on the following areas: