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ADB to increase lending rates for higher income countries

posted onNovember 19, 2019

The Asian Development Bank (ADB) said on Tuesday (Nov. 19) that it will raise its lending rates for wealthier member countries. Under the new pricing structure effective on 1 January 2021, countries that will belong to higher income sub-groups will pay higher maturity premiums for longer-term loans.

ADB said it would update the income categories of member countries before the implementation of the new pricing framework using the latest gross national income (GNI) per capita data. 

Recipients of ADB funds are currently divided into three groups according to their per capita income levels and creditworthiness. 

Group A countries are eligible for Asian Development Fund (ADF) grants and concessional loans, Group B countries have access to both concessional and market-based loans, and Group C countries have access only to market-based loans.

The financing terms offered to Group A and B countries are already diversified with a combination of grants, concessional loans, and market-based loans. Group C countries have a wider spread of per capita incomes but are all offered the same financing terms.

In the new loan pricing, Group C countries will be divided into several sub-groups according to their gross national income (GNI)—lower middle-income, upper middle-income, and high-income. 

Upper middle-income countries with per capita GNI of $6,976 to $12,375 will pay up to 30 basis points additional maturity premium depending on the loan tenor, the ADB said. 

Asian Development Bank member states

The new pricing framework will provide more favourable terms to more vulnerable countries such as small island developing states and countries transitioning from Group B to Group C. 

“The current flat pricing structure offered to our recipient countries borrowing only market-based loans does not reflect the high level of diversity among these countries in their income levels, capacities to mobilize domestic resources, and access to capital markets,” ADB President Takehiko Nakao said in a statement.

“The new structure will enable us to continue engaging with countries at a more advanced stage of development on terms that remain fair and competitive with other multilateral development banks, and contribute to ADB’s long-term sustainability.”

Additional income generated from the new pricing will supplement ADB’s existing funds meant to support policy advice, institution building, and knowledge sharing in developing member countries, the lender said. It will also boost the Japanese-led institution's reserves for expanding its lending capacity in the long term.

This reform reflects a regional landscape that has changed over the past 50 years. The situation in Asia and the Pacific region is now different compared to 1966 when ADB was established. Most ADB recipient countries are currently middle-income countries. These countries, though with relatively higher income and strong financial capacity, still need ADB’s support to tackle pockets of poverty, strengthen institutions, and address other areas with externalities.

Established in 1966 with a mandate to lift hundreds of millions of Asians out of poverty, ADB is owned by 68 members—49 from the region. In 2018,  the Manilla-based lender made commitments of new loans and grants amounting to $21.6 billion.