Working Paper 186 - Balancing Development Returns and Credit Risks: Evidence from the AfDB’s Experience

Recent debates amongst civil society organizations focusing on the governance of multilateral development banks have expressed some concerns regarding institutional capacities to ensure project quality-at-entry in line with key developmental issues. The present paper delves upon the African Development Bank’s (AfDB) “Additionality and Development Outcomes” framework practice in that respect. By reviewing the concepts that underpin the AfDB’s project quality-at-entry framework, the paper brings out the importance of well-aligned appraisal criteria with institutional priorities. The paper’s main contribution is to provide empirical regarding the extent to which key components of project quality-at-entry criteria interrelate and how they balance against credit concerns. Results suggest that at appraisal the AfDB has played an active role in achieving development outcomes, increasing the development focus of portfolio decisions. Also, results highlight that the variables taken into account during appraisal – whether they pertain to development or risk concerns - are rather independent from each other and that no assumption should be made on one variable given information on the others. Finally, findings suggest that both development outcomes and additionality considerations are important for project approval at board level. More specifically, considerations regarding financial additionality matter when it comes to AfDB value-added in a project, and concerns over household benefits, gender & social effects, government revenues and private sector development matter most when it comes to overall development outcomes. While some caveats remain to be addressed, the overall conceptual and institutional framework now in place has laid strong foundations that will help measure how these projects have performed in practice.