African Development FundTHE AFRICAN
DEVELOPMENT FUND
FINANCIAL MANAGEMENT
Subscriptions
ADF Replenishments

The resources of the African Development Fund (the ADF
or the Fund) primarily consist of subscriptions by the Bank,
subscriptions and contributions made by State Participantsand Donors, together with other resources received by theFund. Cumulative subscriptions to the ADF amounted to UA
33,965.94 million1 at December 31, 2022.
Subsequent to the initial subscriptions, additional resources
have been provided to the ADF in the form of periodic
replenishments, typically on a three-year cycle.
The Fifteenth Replenishment of the ADF (ADF-15) to support
the replenishment cycle 2020 to 2022 became effective on June30, 2020, following its adoption by the Board of Governors
on May 14, 2020. State participants agreed on an ADF-15
resource level of UA 5,620.28 million comprised of: (i) Donor
subscriptions of UA 3,552.51 million; (ii) Concessional Donor
Loans of UA 710.76 million; and (iii) Advanced Commitment
Capacity of UA 1,357 million.
As of December 31, 2022, the resource envelope for ADF-15
amounted to UA 5,436.54 million. This comprises of Donor
subscriptions of UA 3,606.38 million (excluding grant elementof CDLs), Concessional Donor Loans of UA 623.03 million and
an Advance Commitment Capacity of UA 1,207.13 million.
State Participants had subscribed a total amount of UA
3,719.73 million, representing 100.71 percent2 of the ADF-15
initial pledged amount.
The Fund completed negotiations for the 16th replenishment(ADF-16) in December 2022, covering the 2023–2025
operational period, with a total resource envelope of UA
6,208.7 million. Algeria, Morocco, and DRC contributed to
the Fund for the first time. The Replenishment also includes
the creation of a Climate Action Window (CAW) for a total
grant contribution of UA 312.6 million. ADF-16 will support
two strategic operational priorities: developing sustainable,
climate-resilient, and quality infrastructure; and governance,
capacity building, and sustainable debt management inrecipient countries.
The ADF-16 replenishment will deliver more impact over the
next three years. It will help to connect 20 million people toelectricity, 24 million people will benefit from improvements inagriculture, 32 million people will access water and sanitation
services and 15 million will benefit from improved access totransport.
Underlining the continued importance of addressing the rootsof fragility and improving resilience as key ADF-16 priorities,
resources allocated to the Transition States Facility increased

by 13 percent to UA 1.244 billion. The State Participants also
agreed to maintain the Regional Operations Envelope at
25 percent of the total resources available for commitment.
Finally, the continuing relevance of the Private Sector Facility
in low-income countries was affirmed, particularly in transition
states, with the approval of an additional allocation of UA
50 million.

Financial Products

The ADF is the concessional financing window of the Bank
Group that provides low-income regional member countries
with concessional loans and grants for projects and programs,
risk guarantees, and support through technical assistance forstudies and capacity building.

Loans
Prior to the ADF-13 replenishment, the ADF was operating
under differentiated lending terms for ADF-eligible countries
classified as blend, gap and graduating versus ADF-only
countries.
Accordingly, loans extended to blend, gap and graduating
countries had a maturity period of 30 years, including an 8-year
grace period with an interest rate of 1 percent per annum. For
ADF-only countries, their loans had a maturity period of 50
years, including a grace period of 10 years, with no interest
rate. The standard commitment fee of 0.50 percent per annum
on undisbursed amounts and service charge of 0.75 percent
per annum on outstanding balances, were maintained for all
ADF loans.
With a view to preserving the long-term financial sustainability
and capacity of the ADF, the ADF-13 replenishment introduced(i) hardened and differentiated lending terms, and (ii) two
sub-groups of ADF-only countries: the “regular” and the“advance” group. The financing terms for regular and advanceADF-only countries, as well as for blend, gap and graduating
countries, were hardened. An accelerated repayment clause
and a voluntary prepayment framework were also introduced.
Accordingly, new loans extended under ADF-13 andsubsequent replenishment cycles (ADF-14 and ADF-15) toregular ADF countries have a maturity of 40 years, including agrace period of 10 years; and loans extended to advance ADF
countries have a maturity of 40 years, including a grace periodof 5 years. The standard commitment fee of 0.50 percent per
annum on undisbursed amounts and service charge of 0.75
percent per annum on outstanding balances remain applicable.
Loans to blend, gap, and graduating countries have a maturityof 30 years including a 5-year grace period, and an interest
rate charge of 1 percent per annum in addition to the standard
commitment and service fees.
Under ADF-16, changes have been made to the differentiatedlending terms to strengthen the long-term financial
sustainability of the Fund. ADF-only countries with a moderaterisk of debt distress will no longer receive grants but 100 percent
loans, with a 50-year maturity including a 10-year grace period.
ADF-Only Regular and Advanced Countries will have their loan

1This includes buy down grant provided since ADF14

2

The subscribed amount of UA 3,719.73 million includes the grant element of Concessional Donor Loans provided by China, Finland, India, and Japan, thesupplementary contribution from Norway, the increase in Belgium and Germany’s subscriptions to ADF-15 and Spain’s subscription. Spain did not pledge to ADF15 during the pledging session, but ultimately subscribed resulting in a higher than 100 percent subscription versus the original pledge amount.

120

Financial Report 2022

maturity reduced from 40 to 38 years with a grace period of
10 and 5 years, respectively. ADF-Gap countries (even thoseat moderate risk of debt distress) will continue receiving loans
based on the Blend countries terms with a maturity of 30 years
and a 5-year grace period. The UA pricing terms of ADF loans
have also been revised, with the Service Charge increased
from 0.75 percent to 1 percent and the Commitment Fee from
0.5 percent to 0.75 percent. For Blend, Graduating, and Gap
countries, the interest rate of 1 percent is maintained.

Guarantees
To stimulate additional private sector investments in LowIncome Countries (LICs), the ADF Partial Risk Guarantee (ADFPRG) instrument was introduced as part of ADF-12 to leverage
resources from the private sector and other co-financiers for
ADF countries, including fragile states. The ADF-PRG protects
private lenders against well-defined political risks related to
the failure of a government or a government-related entity
to honor certain specified commitments. The PRG is aimed
at incentivizing governments to undertake policy and fiscal
reforms necessary to mitigate performance-related risks.
Starting with the ADF-13 replenishment, the Partial Credit
Guarantee (ADF-PCG) was added to the suite of ADF financial
guarantee instruments. The ADF-PCG is an instrument
designed to address the challenges faced by well-performing
ADF-only countries and State-Owned Enterprises (SOEs), in
their quest to mobilize domestic and external commercial
financing for developmental purposes. The product partiallyguarantees the debt-service obligations of LICs and wellperforming SOEs in LICs. The ADF PCG is available only to:(1) ADF countries at low and moderate risk of debt distress(green light and yellow light countries, respectively) andadequate debt management capacity; and (2) SOEs in ADF
countries at low and moderate risk of debt distress, subject
to meeting certain defined eligibility criteria. Like the ADFPRG, the ADF-PCG enables well-performing LICs and SOEs
to catalyze larger volumes of development financing at more
attractive terms.
In 2022, the Fund’s continued streamlining and outreaches
for its partial guarantee products were effective. May 2022
marked the signing of the PRG agreements of the Djermaya
Photovoltaic and storage Project in Chad, the first renewableenergy project and Independent Power Producer (IPP) in the
country. The signature of the PRG agreements represents asignificant milestone for the Fund in structuring and negotiating
PRGs designed to improve the investment climate, particularly
in fragile states. The Djermaya Solar PRG agreements are thefirst PRG agreements signed by the Fund in Central Africa,
all sectors included. However, they are the second PRG
agreement ever signed by the Fund in its member states,
following the first, which supported the Lake Turkana projectin Kenya in 2013. In September 2022, the Board approved a
PCG of UA 156 million to cover the debt service obligations of
the Republic of Benin under loan agreements executed withcommercial banks to finance the country’s ESG Framework
operations.

Investments

The Fund follows a conservative investment strategy. Cashand treasury investments amounted to UA 4.57 billion as
at December 31, 2022 (UA 3.96 billion in 2021), invested inhigh-quality instruments held in various currencies, including

USD, Euro, GBP, Chinese Yuan, and South African Rand.
Investment income for the year amounted to UA 23.28 million,
representing a return of 0.52 percent, on an average liquidity
level of UA 4.51 billion, compared with an income of UA 31.90
million, representing a return of 0.81 percent, on an averageliquidity of UA 3.94 billion in 2021.

Development Activities

Cumulative loans and grants signed, net of cancellations, at
December 31, 2022, amounted to UA 37.11 billion, compared
to UA 35.86 billion at the end of 2021. Figure 1.6 presents loans
approved, disbursed, and undisbursed balances from 2018 to2022.
As at December 31, 2022, total outstanding loans was UA 14.54
billion, which is UA 0.56 billion higher than the UA 13.97 billion
outstanding at the end of 2021.
The number of active loans and grants as at December 2022
was 1,537, while 745 loans amounting to UA 5.82 billion had
been fully repaid or canceled through MDRI.

Disbursements
Loans and grants disbursed decreased by 38.97 percent in
2022 to UA 0.83 billion down from UA 1.39 billion in 2021. As
at December 31, 2022, cumulative disbursements on loans andgrants amounted to UA 31.22 billion compared to UA 30.39
billion at the end of the previous year. A total of 2,579 loans
and grants were fully disbursed amounting to UA 25.82 billion,
which represents 82.70 percent of cumulative disbursements.
Figure 1.7 tracks the evolution of loan disbursements andrepayments over the past five years.

Repayments
Principal loan repayments for the Fund in 2022 amounted
to UA 187.83 million compared to UA 247.61 million in 2021,
representing a decrease of 24.14 percent over the previous
Figure 1.6 Lending Status, 2018–2022(UAAmillions)
7,000

Loans Approved*
Disbursements

6,000

Undisbursed Balances

5,000

4,000

3,000

2,000

1,000

0

2018

2019

2020

2021

2022

* Excludes approvals of special funds but includes guarantees and grants.

121

African Development Fundyear. As at December 31, 2022, cumulative repayments stoodat UA 8.21 billion.

Risk Management Policies and Processes

As in the case of the Bank, the Fund employs stringent risk
management procedures to prudently reduce its exposure torisks, such as liquidity, currency and interest rate risks, that are
not essential to its core business of providing developmentrelated services and assistance to its clients. The details of therisk management policies and practices employed by the Fundto manage these risks are provided in Note C to the Financial
Statements.

Figure 1.7 Loan Disbursements and Repayments,
2018–2022
A(UA millions)
2,000

Charges Paid

Principal Repayments
Disbursements

1,500

1,000

500

0

122

2018

2019

2020

2021

2022

Financial Report 2022

FINANCIAL RESULTS
The Fund reported a deficit of UA 29.47 million in 2022, asignificant improvement on the deficit of UA 67.87 million
reported in 2021. The improved performance was principally
due to UA 107.63 million increase in unrealized fair value gains
on the Cross-Currency swap.
Persistent deficits are due to structural changes to the Fund,
including the cancellation of loans under the Multilateral Debt
Relief Initiative (MDRI) as described in Note F of the financial
statements, increased grant financing to low-income countries,
and the impact of interest rates on investment of subscriptions
encashed early, leaving the Fund with a negative income
gap. As shown in the table below, although these structuralchanges affect income, their impact does not adversely affectthe commitment capacity or the financial sustainability of
the Fund because the Fund is expected to be compensatedthrough additional donor subscriptions, payable over the lifeof the canceled loans.
Total income from loans and treasury investments for the year
ended 31 December 2022 decreased by UA 37.91 million(19.99 percent) to UA 151.74 million compared to UA 189.65
million earned in the year to December 2021.
Loan income for the year ended 31 December 2022 decreased
by UA 29.29 million (18.57 percent) to UA 128.46 million
compared to UA 157.75 million reported in December 2021.
The reduction was due to the recognition of service charges
from the one-off arrears payment of UA 34.14 million received
from Sudan in May 2021, which caused loan income in 2021 tobe higher than in 2022. If the one-off receipt of UA 34.14 million
from Sudan is excluded, service charges on loans for the year
ended December 2021 would be UA 123.61 million, and theyear 2022 service charges on loans would have increased by
UA 4.85 million. Loan income reported in 2022 was in line with
operational expectations.
Interest income on treasury investments for 31 December
2022 increased by UA 5.35 million (7.74 percent) to UA 74.43
million compared to UA 69.08 million in December 2021 dueto the increase in the average size of the portfolio and the risein market interest rates aimed at curbing the high inflation.
However, the fair value losses on the treasury trading portfolio
and related derivatives increased by UA 13.96 million (37.54
percent) to a loss of UA 51.15 million from a loss of UA 37.19
million in December 2021. These fair value losses reported onderivatives that hedge accelerated encashments are designed
to lock-in the credit or discount provided to countries opting
to accelerate their payments. As market interest rates rise, thefair value of derivative instruments used to hedge accelerated
encashments decreases to offset rising investment returns
Table 1.5
Effect of MDRI and Increased Share of Grants on ADF’s
Operating Results(in UA millions)Year ended 31 December:

2022

2021

Deficit for the year

(29.47)(67.87)

Grant income forgone

59.17

57.94

MDRI income forgone

43.12

43.12

Surplus after adjustment for the
impact of MDRI & Grants

72.82

33.19

Figure 1.8 Operating Results, 2018–2022(UA millions)
250
Administrative Expenses

200

150
Loan Income

100

Investment Income

50
Income adjusted for MDRI

0

–50

–100

Deﬁcit

2018

2019

2020

2021

2022

and allow the credit or discount provided to countries to be
replicated. As a result, total treasury investment income for theyear ended 31 December 2022 declined by UA 8.62 million(27.01 percent) to UA 23.28 million from UA 31.90 million earnedin the year ended 31 December 2021. Nevertheless, the returns
on Treasury investment portfolios exceeded their weighted
average benchmarks despite challenging market conditions.
Administrative expenses are shared between the three Bank
Group entities - ADB, ADF, and NTF - based on an agreed
cost-sharing formula driven by the staff time spent on individual
entity’s work program deliverables. In 2022, the Fund’s share of
the total shareable administrative expenses of the Bank Groupdecreased to 50.98 percent, compared with 51.29 percent for
2021.
Notwithstanding the decrease in proportionate terms,
the Fund’s Administrative expenses for the year ended 31
December 2022 increased by UA 27.65 million (12.65 percent)to UA 246.21 million compared to UA 218.56 million for theyear ended December 2021. The increase in the administrative
expenses was due to the increase in the total Bank Groupadministrative activities, stemming from the Return to Officedirective and the share allocated to the Fund in 2022.
The Fund continues to cancel qualifying debts under MDRI
for countries that reached the HIPC completion point. No new
country reached the completion point during 2022. A summaryof the cumulative loan cancellations under the MDRI and HIPCis presented in Note F to these Special Purpose Financial
Statements.
According to the Fund’s non-accrual policy, service charges onloans made to or guaranteed by borrowers are excluded fromloan income if principal installments or service charges on any
such loans are in arrears for six months or more until such timethat payment is received. As a result of this policy, UA 0.28
million of non-accrued loan income was excluded from 2022
income compared to UA 0.26 million in 2021. Only one borrower(Zimbabwe) was in non-accrual status at December 31, 2022.
123African Development Fund

Borrowing Portfolio

As at 31 December 2022, the borrowing portfolio closed at UA
1,165.17 million, a decrease of UA 41.05 million (3.40 percent)from the UA 1,206.22 million as at 31 December 2021. The
decrease in the outstanding borrowings is mainly attributable
to movements in currency translation rates for JPY against the
UA. As at 31 December 2022, an estimated UA 833.83 million(71.56 percent) of the Fund’s borrowings are denominated in
JPY.
Interest charges on borrowings for the year ended 31 December
2022 increased to UA 6.23 million from UA 3.75 million reported
in December 2021 due to additional drawdowns on borrowed
funds during the year. Furthermore, a significant fair value
gain of UA 99.87 million was recorded on the cross-currency
swap transaction executed on the Japanese yen. The Fund’sborrowings are long dated, held, and measured at amortized
cost, with a grant element recorded in equity and amortizedover the life of the related concessional donor borrowing.

Treasury Investments and Subscriptions

As at 31 December 2022, treasury investments closed at
UA 3,345.62 million, an increase of UA 830.50 million (33.02
percent) over the UA 2,515.12 million as at 31 December 2021.
This increase was mainly due to the re-investment of receipts
from donor subscriptions, cash balances and the encashmentof demand obligations during the year.
The treasury investment portfolio consists of liquid assets
held at amortized cost and at fair value through profit or loss
(FVTPL). The carrying value of treasury investments held at
FVTPL as at 31 December 2022 increased by UA 946.76 million(54.96 percent) to UA 2,669.37 million from UA 1,722.61 million
as at 31 December 2021, while those held at amortized cost124

decreased by UA 116.26 million (14.67 percent) to UA 676.25
million from UA 792.51 million as of 31 December 2021.
Total subscriptions and contributions paid as at 31 December
2022 increased to UA 34,341.67 million, an increase of UA
1,389.40 million (4.22 percent) from UA 32,952.27 million as at
31 December 2021. This increase was due to the subscriptions
and contributions received from state participants and donors
during the year.

Reserves

As at 31 December 2022, the deficit in reserves increased to
UA 834.44 million from UA 804.98 million as at 31 December
2021, representing a decrease of UA 29.46 million (3.66
percent), resulting from the deficit reported for the year ended
31 December 2022.
Cumulative Currency Translation Adjustment (CCTA) improved
to a loss of UA 278.44 million, a decrease of UA 104.49
million (27.29 percent) from the loss of UA 382.92 million as
at 31 December 2021. This improvement shows the favorable
movements in translation rates for USD against the UA during
the year.

Performance Management and Monitoring

As with the African Development Bank (the Bank), managementmonitors performance measures and indicators that reflect
the critical success factors in the ADF’s business. To theextent that the ADF extends grants in addition to lending at
highly concessional rates, the conventional profitability andfinancial ratios are not deemed to be an appropriate meansof determining its effectiveness in delivering development
resources to its regional member countries.

African Development Fund
Special Purpose Financial Statements
For the year ended 31 December 2022

Statement of Net Development Resources

126

Statement of Income and Expenses andOther Changes in Development Resources

127

Statement of Comprehensive Income

128

Statement of Cash Flows

129

Notes to the Special Purpose Financial Statements

130

Independent Auditor’s Report

155

African Development Fund

Statement of Net Development Resources
for the years ended 31 December 2022 and 31 December 2021
(UA thousands – Note B)

2022

2021

1,221,313

1,441,275

DEVELOPMENT RESOURCESDUE FROM BANKSTREASURY INVESTMENTS (Note D)
Treasury Investments mandatorily at fair value
Treasury Investments at amortized cost

2,669,370

1,722,611

676,245

Total Treasury investments
DERIVATIVE ASSETS
DEMAND OBLIGATIONS (Note E)

792,508
3,345,615

2,515,119385,662

539,927

2,017,884

2,109,940

RECEIVABLES
Accrued income on loans and investments

50,82855,642Other receivables

14,201

20,53665,02976,178DERIVATIVE LIABILITIES(323,645)(546,368)

OTHER LIABILITIES(143,227)(85,089)

BORROWINGS (Note J)(1,165,173)(1,206,220)

NET DEVELOPMENT RESOURCES

5,403,458

4,844,762

FUNDING OF DEVELOPMENT RESOURCESSUBSCRIPTIONS AND CONTRIBUTIONS (Notes G & O)
Amount subscribed including contributions through accelerated encashmentof subscriptions
Less: Portion of accelerated encashment not yet effected
Less: Installments not yet payable
Less: Installments due
Contributions paid on Multilateral Debt Relief Initiative
Less: Unamortized discounts on subscriptions and contributions (Note B)
Less: Unamortized grant element on borrowings (Notes B & J)
Cumulative exchange adjustment on subscriptions and contributions (Note B)
Total subscriptions and contributions

33,965,941

33,956,736‑(7,297)33,965,941

33,949,439(694,970)(1,932,597)

33,270,971

32,016,842(7,018)(7,018)33,263,953

32,009,824

1,696,993

1,550,427

34,960,946

33,560,251(43,832)(48,700)(221,497)(214,677)

34,695,617

33,296,874(353,943)(344,605)
34,341,674

32,952,269

OTHER RESOURCES (Note H)

855,961

820,961

RESERVES (Note I)(834,441)(804,976)

CUMULATIVE CURRENCY TRANSLATION ADJUSTMENT (Note B)(278,436)(382,924)

34,084,758

32,585,330(9,005,850)(8,629,085)

ALLOCATION OF DEVELOPMENT RESOURCESGRANTS AND TECHNICAL ASSISTANCE ACTIVITIES (Note F)
HIPC GRANTS DISBURSED (Note F)(184,000)(184,000)

NET DEBT RELIEF (Note F)(4,955,072)(4,955,072)

LOANS DISBURSED AND OUTSTANDING (Note F)(14,536,378)(13,972,411)

NET DEVELOPMENT RESOURCES

5,403,458

4,844,762

The accompanying notes to the special purpose financial statements form part of this statement.

126

Financial Report 2022

Statement of Income and Expenses and Other changes in Development Resources
for the year ended 31 December 2022 and 31 December 2021
(UA thousands – Note B)

2022

2021

Service charges on loans

113,585

142,265

Commitment charges on loans

14,87915,487

Total Income on Loans

128,464

157,752

INCOMEInterest income from Treasury investments

74,42769,082

Fair value losses on treasury trading portfolio and related derivatives(51,147)(37,187)

Total Income on Treasury Investments

23,28031,895

151,744

189,647

Fair value gains/ (losses) from derivatives on Concessional Donor Borrowing

99,869(7,759)Losses on exchange(4,887)(5,216)

Interest charges on borrowings(6,227)(3,747)

Other interest cost and Bank charges(3,707)(4,680)Discount on accelerated encashment of participants’ demand obligations(12,164)(10,867)

Total Income on Loans and Treasury Investments
EXPENSES

Grant element on concessional loans(7,882)(6,687)Administrative expenses (Note M)(246,211)(218,564)

Total Expenses(181,209)(257,520)

DEFICIT FOR THE YEAR

(29,465)(67,873)

CHANGE IN DEVELOPMENT RESOURCES FUNDING
Increase in paid-up subscriptions

1,254,129

1,161,757

Contributions received on account of Multilateral Debt Relief Initiative

146,566

137,168

Increase in other resources

35,00035,000Changes in accumulated exchange adjustment on subscriptions and contributions(9,339)21,249Changes in unamortized discounts on subscriptions and contributions

4,867(1,500)Changes in unamortized grant element on concessional loans(6,820)(91,961)

Changes in accumulated translation adjustment

104,488

67,221

1,528,891

1,328,934

Disbursement of grants(376,766)(739,424)

Disbursement of loans(450,691)(617,341)

Repayment of loans

187,828

247,611

Translation adjustment on loans(301,101)(26,907)(940,730)(1,136,061)

558,696

125,000

Net Development Resources at the beginning of the year

4,844,762

4,719,762

NET DEVELOPMENT RESOURCES AT THE END OF THE YEAR

5,403,458

4,844,762

CHANGE IN DEVELOPMENT RESOURCES ALLOCATION

Change in Net Development Resources

The accompanying notes to the special purpose financial statements form part of this statement.

127

African Development Fund

Statement of comprehensive income
for the years ended 31 December 2022 and 31 December 2021
(UA thousands – Note B)

2022

2021

(29,465)(67,873)

Currency translation adjustment

104,488

67,221TOTAL COMPREHENSIVE INCOME FOR THE YEAR

75,023(652)

DEFICITOTHER COMPREHENSIVE INCOME

The accompanying notes to the special purpose financial statements form part of this statement.

128

Financial Report 2022

Statement of cash flows
for the year ended 31 December 2022 and 31 December 2021
(UA thousands – Note B)

2022

2021

(29,465)(67,873)

Unrealized losses on treasury investments and derivatives

39,02033,740CASH FLOWS FROM:OPERATING ACTIVITIES:Deficit for the year
Adjustments to reconcile net income to net cash provided by operating activities:
Unrealized (gains)/losses on borrowing related derivatives(99,869)

7,759

Discount on accelerated encashment of participants’ demand obligations

12,164

10,867

Grant element on concessional loans

7,882

6,687

Changes in accrued income on loans and investments

4,815(5,816)

Changes in net derivatives(6,451)(581)

Changes in net current assets

67,803(32,155)

Net cash used in from operating activities(4,101)(47,372)

Disbursement of grants(376,766)(739,424)

Disbursement of loans(450,691)(617,341)

Repayment of loans

187,828

247,611

Treasury investments, mandatorily at fair value(649,285)(14,241)

Treasury investments at amortized cost

(12,333)

92,896(1,301,247)(1,030,499)

Subscriptions and contributions received in cash

631,410

573,927

Participants’ demand obligations encashed

745,897

713,184

Borrowings

51,272

512,520

Increase in other resources

35,00035,000Net cash provided by financing activities

1,463,579

1,834,631

Net increase in cash and cash equivalents

158,231756,760

INVESTING, LENDING AND DEVELOPMENT ACTIVITIES:Investments maturing after 3 months of acquisition:

Net cash used in investment, lending and development activities
FINANCING ACTIVITIES:

Effect of exchange rate changes on cash and cash equivalents(41,698)(28,203)

Cash and cash equivalents at the beginning of the year

1,899,420

1,170,863

Cash and cash equivalents at the end of the year

2,015,953

1,899,420

1,221,313

1,441,275

COMPOSED OF:
Cash
Investments maturing within 3 months of acquisition:
Treasury investments, mandatorily at fair value

794,640

458,145

Cash and cash equivalents at the end of the year

2,015,953

1,899,420

Loans

301,101

26,907

Subscriptions and contributions(9,339)21,249SUPPLEMENTARY DISCLOSURE:
Movements resulting from exchange rate fluctuations on:

The accompanying notes to the special purpose financial statements form part of this statement.

129

African Development Fund

Notes to the special purpose financial statements
for the year ended 31 December 2022

NOTE A – Purpose, Organization and Resources
Purpose and Organization

The African Development Fund (ADF or the Fund) was established in 1972 as an international institution to assist the African
Development Bank (AfDB or the Bank) in contributing to the economic and social development of the Bank’s regional members,
promote cooperation and increased international trade, particularly among the Bank’s members, and to provide financing on
concessional terms for such purposes.
By resolution, F/BG/2010/3 May 27, 2010, the Board of Governors increased the membership of the Board of Directors of ADF
from twelve (12) to fourteen (14), made up of seven (7) members selected by the Bank and seven (7) members selected by
State Participants. The Board of Directors reports to the Board of Governors, which is made up of representatives of the State
Participants and the AfDB. The AfDB exercises 50 percent of the voting powers in the ADF, and the President of the Bank is theex-officio President of the Fund.
The AfDB, the ADF and the Nigeria Trust Fund (NTF), which is a special fund administered by the AfDB, are collectively referred
to as the Bank Group. The principal purpose of the AfDB is to promote economic and social development in its Regional
Member Countries (RMCs). The AfDB finances development projects and programs in its regional member states. The AfDB
also participates in the selection, study and preparation of projects contributing to the development of its member countries
and, where necessary, provides technical assistance. The NTF was established under an agreement between the Bank and theFederal Republic of Nigeria to further support the development efforts of AfDB Regional Member Countries, particularly thelesser-developed countries. The assets and liabilities of the AfDB and of the NTF are separate and independent of those of the
ADF. Furthermore, the ADF is not liable for their respective obligations. Transactions with these affiliates, where there are, aredisclosed in the notes as appropriate.

Resources

The resources of the Fund primarily consist of subscriptions by the Bank, subscriptions and contributions made by State
Participants and Donors, as well as other resources received by the Fund and funds derived from operations or otherwise
accruing to the Fund. The initial resources of the Fund consisted of subscriptions by the Bank and the original State Participants
to the Agreement Establishing the Fund (the Agreement). Thereafter, the resources have been replenished through Special andGeneral increases of subscriptions and contributions.

NOTE B – Basis of Preparation and Significant Accounting Policies
Due to its nature and organization, the Fund presents its financial statements on a special purpose basis. The Special Purpose
Financial Statements are prepared for the specific purpose of reflecting the Net Development Resources (NDRs) of the Fund andare not intended to be prepared in accordance with International Financial Reporting Standards. Net development resources
represent resources available to fund loan and grant commitments and comprise primarily cash, marketable investments anddemand obligations of State Participants. These special purpose financial statements have been prepared to comply with Article
35(1) of the Agreement establishing the Fund, which requires that the Fund circulates, at appropriate intervals, a summary of its
financial position and an income and expenditure statement showing the results of its operations.
The significant accounting policies used in the preparation of the Fund’s special purpose financial statements are as follows:

Monetary Basis of the Special Purpose Financial Statements

The special purpose financial statements are expressed in Units of Account (UA). Article 1 of the Agreement defined a Unit ofAccount as having a value of 0.81851265 grams of fine gold.
On 1 April 1978, when the second amendment to the Articles of the Agreement of the International Monetary Fund (IMF) cameinto effect, gold was abolished as a common denominator of the international monetary system. Computations relating to thecurrencies of IMF members were thereafter made on the basis of the Special Drawing Right (SDR) for purposes of applying theprovisions of the Articles of the IMF. The Fund’s Unit of Account was therefore reset based on its relationship to the SDR at thetime of the establishment of the Fund. This was 1 Unit of Account equal to SDR 0.921052.
Subsequently, on 16 November 1992, the Board of Governors decided by Resolution F/BG/92/10 to redefine the Fund’s Unitof Account to be equivalent to the UA of the AfDB, which is defined as equivalent to the Special Drawing Right of the IMF. In
compliance with this Resolution, the Board of Directors, on 22 June 1993, adopted 1 January 1993, as the date for the entry into
effect of the Resolution, and the Fund’s UA has since then been defined as equal to the Bank’s UA.
The International Monetary Fund (IMF) formally approved the inclusion of the Chinese Yuan Renminbi (CNY) in the IMF’s
Special Drawing Rights (SDR) Basket with effect from 1 October 2016 with a weight of 10.92 percent. In line with the Fund’s130Financial Report 2022

policy Management approved the execution of currency exchange transactions to align, to the extent possible, the net assets
composition of the Fund to the SDR.
The Fund conducts its operations in the currencies of its State Participants. Income and expenses are converted into UA at
the rate prevailing on the date of each transaction. Assets and liabilities are translated into UA at rates prevailing at the dateof the Statement of Net Development Resources. Translation differences are debited or credited to the Cumulative Currency
Translation Adjustment. Translation gains and losses on subscriptions received are credited or debited to the Cumulative
Exchange Adjustment on Subscriptions and contributions. Where currencies are converted into any other currency, the resulting
gains or losses are included in income.
The rates used for translating currencies into UA at 31 December 2022 and 31 December 2021 are as follows:

2022

2021

Currency

1 Unit of Account equals:

AOA

Angolan Kwanza

670.332130

776.745858

ARS

Argentinian Peso235.731689

143.758194

BRL

Brazilian Real6.845700

7.964260

CAD

Canadian Dollar

1.810350

1.798080

CNY

Chinese Renminbi Yuan

9.297310

8.915990

DKK

Danish Kroner

9.312030

9.202170

EUR

Euro

1.252910

1.237480

INR

Indian Rupee

110.285000

105.457000

JPY

Japanese Yen

176.537000

159.848000

KRW

Korean Won

1,698.290000

1,667.200000

KWD

Kuwaiti Dinar

0.407490

0.423380

NOK

Norwegian Krone

13.086500

12.388800

GBP

Pound Sterling

1.102790

1.041830

SAR

Saudi Arabian Riyal

4.992860

5.241200

ZAR

South African Rand

22.776100

21.264000

SEK

Swedish Krona

13.940700

12.759300

CHF

Swiss Franc

1.238080

1.287910

TRY

Turkish Lira

24.974500

18.672200

USD

United States Dollar

1.330840

1.399590

No representation is made that any currency held by the Fund can be or could be converted into any other currency at the cross-rates resulting from the currencies indicated above.

Participants’ Subscriptions and Contributions

Subscriptions committed by State Participants for each replenishment are recorded in full as subscriptions receivable fromparticipants upon submission of an instrument of subscription by the participants. A replenishment becomes effective whenthe ADF receives instruments of subscription from participants for a portion of the intended replenishment level as specified in
the replenishment resolution. The portion of subscribed amounts for which payments are not yet due from State Participants
are recorded as installments on subscriptions not yet payable and are not included in the net development resources of theFund. The subscriptions not yet payable become due throughout the replenishment period (generally three years) in accordancewith an agreed payment schedule. The actual payment of subscriptions when they become due from certain participants isconditional upon the respective participant’s budgetary appropriation process.
The subscriptions receivable are settled through payment of cash or deposit of non-negotiable, non-interest-bearing demandnotes. The notes are encashed by the Fund as provided in an encashment program agreed to at the time of the replenishment.
Starting with the ADF-9 replenishment, participants were given the option of an early payment of cash in an amount equivalent
to the net present value of their entire subscriptions and contributions. Upon receipt of such cash payments, participants are
credited with the full-face value of their entire subscriptions, and in agreement with the Fund, such cash amounts received areinvested and the income generated thereon is retained by the Fund. A discount, calculated as the difference between the facevalue of the subscriptions and the cash amount received, is initially recorded to represent the interest expected to be earned on
the cash received from State Participants who opted for the accelerated encashment program. Such discount is amortized overthe projected encashment period, to recognize the effective contributions to equity by the relevant participant over and above
the initial cash advanced.
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African Development Fund

By its resolutions, F/BG/2006/12 and F/BG/2006/13 of 18 May 2006 and 31 August 2006 respectively, the Board of Governors of
the Fund authorized the Board of Directors to approve the participation of the ADF in the Multilateral Debt Relief Initiative (MDRI)
and in that regard, the Board of Governors also authorized an increase in the resources of the ADF to provide full and timely
compensation for the debt cancellation under the MDRI subject to the attainment of the following effectiveness thresholds:
1. Receipt of Instruments of Commitment from donors covering an aggregate amount equivalent to at least 70 percent of thetotal cost of debt relief for the first group of 14 post-completion point Heavily Indebted Poor Countries (HIPCs); and2. Receipt of unqualified Instruments of Commitments from donors for an amount not less than the equivalent of at least seventyfive percent (75%) of the total cost of debt relief incurred during the remainder of the ADF-10 period.
Upon satisfaction of the above two thresholds, the Board of Directors of the Fund approved the effectiveness of the MDRI witheffect from 1 September 2006. To ensure full compensation for forgone reflows as a result of the upfront debt cancellation, theADF governing bodies endorsed Management’s proposal for a compensation scheme over the 50-year period of the Initiative.
Donors will contribute additional resources to ADF, equivalent to the forgone debt service (service charges and principal) for
each replenishment period, by submitting pledges over the life of the initiative. The compensatory financing arrangements willtake the form of a general increase in the contribution of State Participants pursuant to Article 7 of the Agreement Establishing
ADF. The contributions received from State Participants under the compensatory financing arrangements shall not be counted
as part of the burden share for the replenishment period in which such resources are received but shall carry voting rights in thesame manner as normal subscriptions.
Such contributions are separately disclosed within the total of subscriptions and contributions in the Statement of Net
Development Resources.

Maintenance of Value of Currency Holdings

Prior to the second general replenishment, subscriptions were denominated in UA and were subject to Article 13 of theAgreement, which provided that, whenever the par value in the IMF of the currency of a State Participant is reduced in terms of
the UA or its foreign exchange value has, in the opinion of the Fund, depreciated to a significant extent within that participant’s
territory, that participant shall pay to the Fund within a reasonable time an amount of its currency required to maintain the value,
as of the time of subscription, of the amount of such currency paid into the Fund by that participant and which has not been
disbursed or exchanged for another currency.
Conversely, if the currency of a State Participant has increased in par value or appreciated in its foreign exchange value within thatparticipant’s territory, the Fund shall return to that participant an amount of such currency equal to the increase in the value of theFund’s holding of that currency which was received by it in payment of subscriptions, to the extent that these amounts have notbeen disbursed or exchanged for another currency.
In accordance with Board of Governors’ successive resolutions governing the second through to the fifteenth general
replenishment of the Fund, which stipulated that Article 13 shall not apply to these general replenishments, subscribers tothese replenishments fixed the amount of their subscriptions payable in national currencies in terms of agreed parities ruling at
the date these replenishments came into force. Gains or losses arising on translating these subscriptions, when received, into
UA are applied against subscriptions, with the offsetting debits or credits recorded as Cumulative Exchange Adjustment on
Subscriptions (CEAS).

Financial Assets

The Fund’s financial assets are classified into the following categories: financial assets at amortized cost and financial assets
at fair value through profit or loss (FVTPL). These classifications are determined based on the Fund’s business model and thecharacteristics of the contractual cash flows. In accordance with the Fund’s business model, financial assets are held either for thestabilization of income through the management of net interest margin or for liquidity management. Management determines
the classification of its financial assets at initial recognition.

i) Financial Assets at Amortized Cost
A financial asset is classified at “amortized cost” only if the asset meets the objective of the Fund’s business model to hold theasset to collect the contractual cash flows; and the contractual terms give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal outstanding. The nature of any derivatives embedded in financial assets are
considered in determining whether the cash flows of the investment are solely payment of principal and interest on the principal
outstanding and are not accounted for separately.
If either of the two criteria above is not met, the financial asset is classified at fair value through profit or loss.
Financial assets at amortized cost include mainly demand obligations and accrued income on loans and receivables and certain
investments that meet the criteria of financial assets at amortized cost.

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Financial Report 2022

Demand obligations are non-negotiable, non-interest-bearing notes payable on demand deposited for subscription payment.
Purchases and sales of financial assets are recognized on a trade date basis, which is the date the Fund commits to purchase or
sell the asset. Loans are recognized when cash is advanced to the borrowers.
Cash and cash equivalents include amounts due from banks, demand deposits and other short-term highly liquid investmentsthat are readily convertible to a known amount of cash, are subject to an insignificant risk of changes in value and have a time tomaturity upon acquisition of three months or less.

ii) Financial Assets at Fair Value through Profit or Loss
Financial assets that do not meet the amortized cost criteria as described above are measured at FVTPL. This category includes
all treasury assets held for resale to realize short-term fair value changes. Gains and losses on these financial assets are reported
in the income statement in the period in which they arise. Derivatives on financial instruments are also measured and categorized
at FVTPL and the gains and losses are recognized in the income statement.

Derecognition

Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or where the Fundhas transferred substantially all risks and rewards of ownership.

Financial Liabilities

Financial liabilities include accounts payable and are subsequently measured at amortized cost. Financial liabilities are
derecognized upon discharge, cancellation or expiration.

Derivatives

The Fund uses foreign exchange futures and currency swaps to mitigate its exposure to potential loss due to adverse movements
in market foreign exchange and interest rates respectively. The Fund’s policy is to minimize the potential fluctuation of thevalue of its net worth measured in Units of Account by matching, to the extent possible, the currency composition of its Net
Development Resources and outstanding loans, with the currency basket of the SDR (the Unit of Account). In keeping with theFund’s currency risk management policy, the Fund uses a combination of spot currency exchange transactions, foreign exchange
forwards and currency swaps to realign any misalignment.
All foreign exchange futures and currency swap transactions are measured and classified at fair value, with all realized andunrealized gains or losses recognized in the statement of income and expenses.

Impairment of Financial Assets

The Fund assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial
assets included in its Net Development Resources is impaired. A financial asset or a group of financial assets is impaired andimpairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that
occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimatedfuture cash flows of the financial asset or group of financial assets that can be reliably estimated.
If the Fund determines that there is objective evidence that an impairment loss has been incurred on its receivable or treasury
investments held at amortized cost (described in prior years as held to maturity investment), the amount of the loss is measured
as the difference between the asset’s carrying amount and the present value of its estimated future cash flows (excluding futurecredit losses that have not been incurred), discounted at the financial asset’s original effective interest rate. The estimatedimpairment loss may arise from delays that may be experienced in receiving amounts due, and the impairment calculations
reflect management’s best estimate of the effect of such delays.
The impairment loss is reported as a reduction to the carrying amount of the asset through the use of an allowance account andrecognized in the statement of income and expenses. If a treasury investment at amortized cost has a variable interest rate, thediscount rate for measuring any impairment loss is the current effective interest rate determined under the contract.
Loans are not included in Net Development Resources and are therefore not subject to impairment.

Fair Value Disclosure

The fair values of quoted financial assets in active markets are based on current bid prices, while those of liabilities are based on
current asking prices. For financial instruments with inactive markets, the Fund establishes fair value by using valuation techniquesthat incorporate the maximum use of market data inputs. These include the use of recent arm’s length transactions, discounted
cash flow analysis, option pricing models and other valuation techniques commonly used by market participants.
Financial instruments for which market quotations are not readily available have been valued using methodologies andassumptions that necessarily require the use of subjective judgments. Accordingly, the actual value at which such financial
instruments could be exchanged in a current transaction or whether they are actually exchangeable is not readily determinable.

133

African Development FundManagement believes that these methodologies and assumptions are reasonable; however, the values actually realizable in asale might be different from the fair values disclosed.
The following three hierarchical levels are used for the determination of fair value:
Level 1: Quoted prices in active markets for the same instrument (i.e., without modification or repackaging).
Level 2: Q uoted prices in active markets for similar assets or liabilities or other valuation techniques for which all significant
inputs are based on observable market data.
Level 3: Valuation techniques for which any significant input is not based on observable market data.
The methods and assumptions used by the Fund in estimating the fair values of financial instruments are as follows:
Investments: Fair values for investment securities are based on quoted market prices, where available, using the bid prices. If
quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. For government
and agency obligations with final maturities longer than 1 year, the Fund may only invest in obligations with counterparties having
a minimum credit rating of AA-, issued or unconditionally guaranteed by governments of member countries of the Bank or otherofficial entities. For asset-backed securities, the Fund may only invest in securities with an AAA credit rating. Money market
instruments include time deposits, certificates of deposit and other obligations with a maturity period of less than 1 year, issued
or unconditionally guaranteed by banks and other financial institutions with a minimum rating of A.
Derivative Financial Instruments: The fair values of derivative financial instruments are based on market quotations when possible
or valuation techniques that use market estimates of cash flows and discount rates. The Fund also uses valuation tools basedon industry-standard pricing models and valuation techniques to value derivative financial instruments. The models use marketsourced inputs such as interest rates, yield curves, exchange rates and option volatilities. All financial models used for valuing theFund’s financial instruments are subject to both internal and periodic external reviews.
Borrowings: Borrowings are carried at amortized cost. These borrowings are concessional, unsecured and unsubordinated. The
Fund retains the option to prepay, in part or in whole, the outstanding amounts without penalty. The providers of the concessionalloans are allocated voting rights based on the cash paid, computed as the derived grant element of the loan that is a function ofan agreed discount rate. The grant element is recorded as equity.

Economic Outlook

As at the end of year 2022, economic growth declined worldwide to the extent that the global economy was projected to fall
into recession – indicating a gloomy 2023 outlook for most economies that are recovering at varying degrees from the lingering
effects of the COVID-19 pandemic. Global inflation has been stubbornly high and Central Banks have raised interest rates
sharply to curb its impact. Although this policy tightening has moderated price instability in some economies, it has worsened
global financial conditions, triggering cost-of-living and cost of operations crises, and leading to a slowdown in global economic
activities. Geopolitical tensions have also caused a sharp rise in prices of commodities and disrupted global supply chains,intensifying inflation and global distress.
Against this backdrop, in its latest World Economic Outlook report published in January 2023, the IMF forecasts global economic
growth in 2023 to slow down to 2.9 percent from the 3.4 percent estimated for 2022. Incidentally, the IMF’s 2023 growth forecast
is higher than its previous October estimate of 2.7 percent because it now envisages a better-than-expected global economic
recovery in 2023 - global inflation is expected to fall from 8.8 percent in 2022 to 6.6 percent in 2023, and further to 4.3 percent in
2024, fewer countries may face recession and a global downturn is no longer anticipated in 2023. Similarly, the World Bank in its
January 2023 Global Economic Prospect projected the global economic growth to slow to 1.7 percent in 2023, 1.3 percent below
the previous estimate for 2023, which suggests that the global economic recovery remains fragile.
However, there are strong indications that global inflation will likely moderate over the year, but remain well above pre-COVID-19
rates, which may help stabilize economic growth in 2023.
In Africa, most countries recorded economic growth of varying magnitude in 2022, except for incidents of economic contraction
in a few countries. In the Bank’s Macroeconomic Performance and Outlook report released in January 2023, Africa’s GDP growthis projected to average about 4 percent in 2023 and 2024, higher than the projected world averages of 2.9 percent and 3.1
percent, respectively. The report identified the downside factors for Africa to include spillovers from rising geopolitical tensions,climate change risks, and the lingering impact of the COVID-19 pandemic, which have been amplified by the tightening global
financial conditions and the associated increase in domestic debt service costs. These economic downside factors could put
further pressure on exchange rates and keep debt vulnerabilities and domestic inflation elevated, threatening food and energy
security in most African countries.
For Africa therefore, economic growth in 2023 and 2024 would require greater public policy attention to priority sectors (e.g.,
health, agriculture, power, and education) to contain the effects from COVID-19, moderation of the tough monetary policies
aimed at curbing the inflation, reduction of the cost of production and living, sound fiscal management policies to optimize public

134Financial Report 2022

debt and development of adaptation strategies to minimize disruptions to livelihood from climate change. Despite economic
headwinds in 2022, African countries remain resilient with a stable economic outlook for 2023 and 2024.
From a financial reporting perspective, the known and estimable spill-over effects of the various global events for the period
ended 31 December 2022, have been recorded in the Fund’s financial statements. The reduction in the reported deficit in 2022
is attributed primarily to the unrealized fair value gain of UA 99.87 million recognized from the cross-currency swap (derivative.)
The increase in interest rates by most central banks, aimed at easing inflationary pressure led to an increase in interest income
from treasury investments. Further, the increase in interest rates also caused a rise in fair value losses on the derivatives used
to hedge accelerated encashments (as market interest rate rises, present value or fair value of treasury investments decreases,
leading to a loss). This was responsible for the bulk of treasury portfolios’ fair value losses, which increased to UA 51.15 million
for 31 December 2022 from UA 37.19 million in December 2021. This market volatility that affected key valuation inputs andestimates is expected to subside in to 2023.
The Fund will continue to monitor and report all the effects of market uncertainties arising from the geo-political tensions in its
financial statements as they become known and estimable.

Change in Presentation and Comparatives

In some cases, the Fund may, in the current year, change the presentation of certain line items in the financial statements toenhance inter-period comparability. When such a change in presentation is made, the comparative information is also adjusted
to reflect the new presentation.

NOTE C – Risk Management Policies and Procedures
In carrying out its development mandate, the Fund seeks to maximize its capacity to assume core business risks resulting fromits lending and investing operations while at the same time minimizing its non-core business risks (market risk, counterparty risk,
and operational risk) that are incidental but nevertheless critical to the execution of its mandate.
The degree of risk the Fund is willing to assume to achieve its development mandate is limited by its commitment capacity. The
Fund’s overall risk management strategy is to minimize the exposure of its replenishment resources (the Commitment Capacity)
to the risk of over-commitment and also to protect its Net Development Resources from currency translation losses that could
negatively affect the Fund’s long-term capacity to meet its development needs.
The policies, processes and procedures which the Fund uses to manage its risk profile continually evolve in response to market,
credit, product, and other developments. The highest level of risk management oversight is assured by the Fund’s Boardof Directors, which is chaired by the President. The Board of Directors is committed to the highest standards of corporate
governance. In addition to approving all risk management policies, the Board of Directors regularly reviews trends in the Fund’srisk profiles and performance to ensure compliance with the underlying policies.
The guiding principles by which the Fund manages its core and non-core risks are governed by the General Authority on Asset
Liability Management (the ALM Authority) approved by the Board of Directors of the Fund.
The ALM Authority is the overarching framework through which Management has been vested with the authority to manage theFund’s liquid assets and liabilities within defined parameters.
The ALM Authority sets out the guiding principles for managing the Fund’s interest rate risk, currency exchange rate risk, liquidity
risk, counterparty credit risk and operational risk. The ALM Authority covers the Fund’s entire array of ALM activities.
Under the umbrella of the ALM Authority, the President is authorized to approve and amend more detailed operational guidelines
as necessary, upon the recommendations of the Asset and Liability Management Committee (ALCO).
The ALCO, chaired by the Vice President for Finance, is the oversight and control organ of the Fund’s finance and treasury risk
management activities. The ALCO meets regularly to perform its oversight role. ALCO is supported by several standing working
groups that report on specific issues including interest rate risk, currency risk, financial projections, and financial products andservices. In June 2012, the Bank Group also created the Credit Risk Committee (CRC), to ensure effective implementation of theFund’s credit policies and oversee all credit risk issues related to loan operations.
Day-to-day operational responsibility for implementing the Fund’s financial and risk management policies and guidelines aredelegated to the appropriate business units. The Financial Management Department is responsible for monitoring the day-today
compliance with those policies and guidelines.

135African Development Fund

Treasury Investments

The Fund’s treasury investment securities are classified either as financial assets at amortized cost or at fair value. Treasury
investments classified as financial assets at amortized cost include non-derivative financial assets with fixed or determinable
payments and fixed maturities. These investments are carried and subsequently measured at amortized cost using the effective
interest method. All other investment securities are classified as investments at fair value through profit or loss and measured atmarket value.
Investments of the proceeds of accelerated encashment of notes are classified at amortized cost or fair value depending onwhether they are held to collect contractual cash flows or to realize fair value. The primary objective of such investments is torecoup the discount granted to State Participants on the accelerated encashment program.
Income on treasury investments includes interest earned and unrealized gains and losses on the portfolio held at fair value
through profit or loss, including derivatives. Purchases and sales of treasury investments are recognized on a trade-date basis,
which is the date on which the Fund commits to purchase or sell the investments.

Loans

The Fund provides concessional funding for development purposes to the least developed countries in Africa. Country eligibility
is determined by assessing gross national income per capita, creditworthiness and performance. Annual Debt Sustainability
Analysis is used to determine the risk of debt distress of each beneficiary country and set appropriate financing terms. The
following categories of countries are eligible for ADF loans:•

Category A: Countries that are not deemed creditworthy for non-concessional financing and whose income levels are
below the operational cut-off.

•Category A (Gap Countries): Countries that are not deemed creditworthy for non-concessional financing but whose
income levels are above the operational cut-off. These have access to ADF funds with modified financing terms at parwith those of blend countries.

•

Category B: Countries that are deemed creditworthy for non-concessional financing but whose income levels are below
the operational cut-off (blend countries). These have access to a blend of ADB and ADF resources.

Graduating countries are those that are graduating from the category of ADF borrowing countries to the category of ADB
borrowing countries. The applicable graduating policies are determined for each new ADF replenishment.
Disbursed and outstanding loans are reported at amortized cost and not included in Net Development Resources in the special
purpose financial statements, rather they are presented as an allocation of development resources. Accordingly, no provision forpossible loan losses is required.
Loan income arising from interest, service and commitment charges is recognized on an accrual basis. The Fund places all loans
to a borrower country in non-accrual status if the principal installments, interest or service charges on any of the loans to suchmember country are overdue by six months or more, unless the Fund’s management determines that the overdue amount will
be collected in the immediate future. Further, management may place a loan in non-accrual status even if it is not yet overdueby six months, if the facts and circumstances, including consideration of events occurring subsequent to the balance sheet date,warrant such action. On the date a borrower’s loans are placed in non-accrual status, unpaid interests and charges that had
previously been accrued on loans to the borrower are deducted from income on loans for that period. Interests and charges onloans in non-accrual status are included in income only to the extent that payment of such charges has been received by theFund.

Partial Risk Guarantee

The Fund’s Partial Risk Guarantee (PRG) program provides guarantees to cover private sector projects against a government or
government owned entity’s failure to meet its specified contractual obligations to the project. The PRGs cover projects against welldefined political risks related to the failure of a government or government related entity to honor certain specified commitments
such as political force majeure, currency inconvertibility and non-transferability, confiscation, expropriation, nationalization anddeprivation, regulatory risks and various forms of breach of contract including non-honoring of financial obligations.
Under the PRGs framework, the Fund executes the payment obligations if the government (or its entity whose obligations arecovered) defaults and the guarantee is called. Any amount paid by the Fund under the guarantee is immediately (or as otherwise
decided by the Fund) due from the host government under the counter-indemnity agreement signed between the Fund and thehost government.
Guarantee fee income received upfront is deferred and amortized over the life of the guarantee.

Partial Credit Guarantee

The Partial Credit Guarantee (PCG) is another credit enhancement instrument provided by the Fund. Like the PRG, it is a risk
mitigation instrument designed to better leverage resources by crowding-in private capital.

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Financial Report 2022

As a partial guarantee towards debt service obligations, the PCGs help to (i) extend debt maturities; (ii) improve access tocapital markets for public sector investment projects, especially in infrastructure; (iii) reduce effective borrowing costs; (iv) support
mobilization of long-term resources from international and domestic capital markets; and (v) support sovereign mobilization ofcommercial financing for policy or sectoral reforms.
Guarantee fee income received upfront under the PCGs is deferred and amortized over the life of the guarantee.

GrantsIn addition to loans, the Fund is authorized to provide development financing in the form of grants. Prior to the ninth
replenishment of the resources of the Fund, grant funds were granted for technical assistance activities only. With effect fromthe ninth replenishment, grants may be used for technical assistance as well as project financing. Grants, like loans, represent
allocations of development resources and are accordingly treated as such in the Statement of Net Development Resources of
the Fund.

Heavily Indebted Poor Countries (HIPC Debt Initiative)

The Fund participates in a multilateral debt relief initiative for addressing the debt problems of countries identified as HIPCs tohelp ensure that their reform efforts are not compromised by unsustainable external debt burdens. Under this initiative, creditors
provide debt relief for those countries that demonstrate good policy performance over an extended period to bring their debt
burdens to sustainable levels. As a part of this process, the HIPC Debt Initiative Trust Fund, (the Trust Fund) constituted by funds
from donors, including the Bank Group, was established to help beneficiaries reduce their overall debt, including those debts
owing to the Fund.
Under the original framework of the debt relief initiative, upon signature of a HIPC Debt Relief Agreement by the Fund, thebeneficiary country and the Trust Fund, loans or repayment installments identified for sale to the Trust Fund are written down totheir estimated net present value. On the settlement date, the estimated write-down is adjusted to reflect the actual difference
between the cash received and the carrying value of the loans sold.
Under the enhanced HIPC framework, the implementation mechanism comprises a partial payment of ADF debt service as it falls
due with funds received from the Trust Fund.

Multilateral Debt Relief Initiative (MDRI)

Under the MDRI, loans due from eligible HIPCs are canceled when the countries attain the completion point under the HIPC
framework. The Fund is expected to be fully compensated for loans canceled under MDRI by additional contributions to bemade by donors over the previously scheduled repayment periods of the canceled loans. When MDRI becomes effective for acountry, certain amounts previously disbursed to that country as loans are no longer repayable by the country and effectively takeon the character of grants made by the Fund. Accordingly, loans canceled under the MDRI are included in “Net Debt Relief” andreported in the Statement of Net Development Resources as allocation of development resources, with a corresponding offset
to loans outstanding.
The following sections describe in detail the manner in which the individual sources of risk are managed by the Fund.

Credit Risk

Credit risk arises from the inability or unwillingness of counterparties to discharge their financial obligations to the Fund. It is thepotential financial loss due to default of one or more debtors/obligors. Credit risk is the largest source of risk for the Fund arisingessentially from its lending and treasury operations.
The Fund’s credit risk arises from two principal sources: (i) sovereign credit risk arising from lending to its qualifying RMCs and (ii)counterparty credit risk on its portfolio of treasury investments and derivative transactions.

Sovereign Credit Risk

The Fund provides concessional loans in order to fund economic and social development of its member countries which
generally have a lower credit quality than ADB borrowers. Although loans are included in the financial statements as resources
already allocated for development and therefore not included in the Net Development Resources, the Fund still manages
sovereign credit risks to ensure equitable allocation of resources to eligible beneficiaries and ensure that expected reflows fromloan repayments are properly monitored and managed. Country eligibility for loans is determined by assessing, among otherthings, gross national income per capita, creditworthiness and performance. The Fund uses the International Monetary Fund/World Bank Debt Sustainability Framework (DSF) for Low-Income Countries, to make performance-based allocation (PBA) of
ADF resources among the many competing needs in the continent and to ensure the funds are directed to areas they will be
used most effectively. The PBA process, which is reviewed regularly, is also used to determine the proportion of ADF resources
allocated in the form of grants to each qualifying borrower. On the basis of the debt sustainability analysis, certain countries areallocated grants-only resources, while others may receive a combination of loan and grant resources or loan resources only.

137

African Development FundCountry Exposure

The Fund’s exposures as at 31 December 2022 and 31 December 2021 from its lending activities are summarized below:
Summary of Loans as at 31 December 2022
(UA thousands)
Country
AngolaBenin
Botswana
Burkina Faso
BurundiCabo Verde
Cameroon
Central African Republic
Chad
Comoros
Congo
Côte d’Ivoire
Democratic Republic of Congo
Djibouti
Egypt
Equatorial Guinea
Eritrea
Eswatini
Ethiopia
Gabon
GambiaGhana
GuineaGuinea-Bissau
Kenya
LesothoLiberia
Madagascar
MalawiMali
Mauritania
Mauritius
MoroccoMozambique
Namibia
Niger
Nigeria
RwandaSão Tomé & Principe
Senegal
Seychelles
Sierra Leone
SomaliaSouth Sudan
Sudan+
Tanzania
Togo
UgandaZambiaZimbabwe**
Multinational
Total

N° of Loans*
14
43
12
43
6
29
42
2
16
2
4
23
17
21
16
11
8
8
33
1
15
49
26
14
70
42
13
37
33
55
22
2
5
37
2
37
36
31
7
48
3
18
17
1
13
63
10
46
29
10
16
1,158

Total Loans*
67,963383,033
29,995549,668
21,737
77,108609,478
3,624
96,466
10,63952,356
281,457
460,153
95,23389,841
16,40570,58420,932
1,681,571
815
38,4561,001,026
256,739
40,683
2,023,840
145,833
202,664
531,380
367,716
617,304
98,665
1,052
19,874758,428
8,264
529,981
868,032
649,332
16,575582,878
2,648
125,224
16,168
8,763
69,8552,315,232
57,634
1,370,803
442,321
37,264425,059
18,248,751

Unsigned Loan
Amounts
‑
‑
‑
9,760
‑
‑
11,600
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
12,704‑14,00012,000‑2,500‑
26,750‑‑‑‑‑43,400
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
5,860
‑
‑
‑
388,439
527,013

Undisbursed
Balance
1,757
52,613‑
113,152‑
121
103,129
‑
7,517
4,716
17,543125,882309,140
9,946
‑
‑
8,812
‑
93,720‑3,811
104,388
76,40913,749347,352
17,74088,614
197,667
57,64063,091
28,899‑‑47,835‑
166,415130,312
95,9501,757
73,361‑
10,760939‑‑
465,643
21,344
239,385
57,603‑26,6503,185,362

Outstanding
Balance
66,206
330,420
29,995426,756
21,73776,987494,749
3,624
88,9495,923
34,813
155,575
151,01385,287
89,841
16,405
61,772
20,932
1,587,851
815
34,645
896,638
167,626
26,934
1,662,488
116,093
114,050
331,213
310,076
527,463
69,766
1,052
19,874
710,593
8,264
320,166
737,720553,382
14,818509,517
2,648
114,464
15,2298,763
69,855
1,849,589
30,4301,131,418
384,718
37,2649,970
14,536,378% of Total
Outstanding Loans
0.46
2.27
0.21
2.94
0.15
0.53
3.40
0.02
0.61
0.04
0.24
1.07
1.04
0.59
0.62
0.11
0.42
0.14
10.92
0.01
0.24
6.17
1.15
0.19
11.44
0.80
0.78
2.28
2.13
3.63
0.48
0.01
0.14
4.89
0.06
2.20
5.07
3.81
0.10
3.50
0.02
0.79
0.10
0.06
0.48
12.72
0.21
7.78
2.65
0.26
0.07
100.00+ The outcome of the referendum conducted in South Sudan in January 2011 supported the creation of an independent state of South Sudan. After the split of thecurrent state of Sudan into two separate nations became effective in July 2011, the number and amounts of loans shown against Sudan in this statement would be
split between the emerging states, on a basis agreed upon following the ongoing negotiations between Sudan and South Sudan. At the end of December 2022, nodecision has been taken by the states of Sudan and South Sudan regarding the terms and conditions of such exchange.
* Excludes fully repaid loans and canceled loans.
** Countries in non-accrual status as at 31 December 2022.
Slight differences may occur in totals due to rounding.

138

Financial Report 2022

Summary of Loans as at 31 December 2021
(UA thousands)
Country
AngolaBenin
Botswana
Burkina Faso
BurundiCabo Verde
Cameroon
Central African Republic
Chad
Comoros
Congo
Côte d’Ivoire
Democratic Republic of Congo
Djibouti
Egypt
Equatorial Guinea
Eritrea
Eswatini
Ethiopia
Gabon
GambiaGhana
GuineaGuinea-Bissau
Kenya
LesothoLiberia
Madagascar
MalawiMali
Mauritania
Mauritius
MoroccoMozambique
Namibia
Niger
Nigeria
RwandaSão Tomé & Principe
Senegal
Seychelles
Sierra Leone
SomaliaSouth Sudan
Sudan+
Tanzania
Togo
UgandaZambiaZimbabwe**
Multinational
Total

N° of Loans*
14
43
12
42
6
29
41
2
16
2
4
20
17
21
16
11
8
8
33
1
15
49
23
14
67
40
11
33
32
54
22
2
5
39
2
34
36
31
7
47
3
18
16
1
13
61
8
46
28
10
8
1,121

Total Loans*
68,855389,529
31,704
552,562
23,27480,210609,786
3,669
100,140
10,64253,708267,048455,427
97,65895,316
17,51473,055
22,155
1,637,710
838
39,169988,721234,061
41,646
1,858,786
138,185
172,832
391,598
346,732
619,749
101,001
1,106
21,277
744,937
8,661
442,487
856,342634,281
17,415594,421
2,945
122,908
16,993
8,333
74,253
2,112,655
52,243
1,367,866
424,844
35,434265,084
17,327,765

Unsigned Loan
Amounts‑
10,620‑‑‑‑27,000‑‑‑‑11,00050,000
‑
‑
‑
‑
‑
‑
‑
375
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
‑
10,000‑‑‑‑‑80,530
8,000
‑
7,090
‑
255,000
459,615

Undisbursed
Balance
2,176
47,598‑120,110‑
121
102,735
‑
7,517
6,231
19,016107,256
275,733
15,994‑‑
9,277‑
120,106‑
4,082
118,01389,68916,180260,288
21,113
69,17974,00353,061
81,29930,740‑‑60,245‑
141,120
166,058
109,888
2,583
76,754‑
16,852‑‑‑306,595
15,736297,276
51,111‑‑
2,895,735

Outstanding
Balance
66,679331,31131,704432,452
23,27480,089480,051
3,669
92,623
4,411
34,692
148,792
129,694
81,664
95,316
17,514
63,77822,155
1,517,604
838
34,712870,708
144,372
25,466
1,598,498
117,072
103,653
317,595
293,671
538,450
70,261
1,106
21,277
684,692
8,661
301,367
690,284
524,393
14,832507,667
2,945
106,056
16,993
8,333
74,253
1,725,530
28,507
1,070,590
366,643
35,434
10,084
13,972,411% of Total
Outstanding Loans
0.48
2.37
0.23
3.10
0.17
0.57
3.44
0.03
0.66
0.03
0.25
1.06
0.93
0.58
0.68
0.13
0.46
0.16
10.86
0.01
0.25
6.23
1.03
0.18
11.44
0.84
0.74
2.27
2.10
3.86
0.50
0.01
0.15
4.90
0.06
2.16
4.94
3.76
0.11
3.63
0.02
0.76
0.12
0.06
0.53
12.35
0.20
7.66
2.62
0.25
0.07
100.00+ The outcome of the referendum conducted in South Sudan in January 2011 supported the creation of an independent state of South Sudan. After the split of thecurrent state of Sudan into two separate nations became effective in July 2011, the number and amounts of loans shown against Sudan in this statement would be
split between the emerging states, on a basis agreed upon following the ongoing negotiations between Sudan and South Sudan. At the end of December 2021, nodecision has been taken by the states of Sudan and South Sudan regarding the terms and conditions of such exchange.
* Excludes fully repaid loans and canceled loans.
** Countries in non-accrual status as at 31 December 2021.
Slight differences may occur in totals due to rounding.

139

African Development FundCounterparty Credit Risk

In the normal course of business, the Fund utilizes various financial instruments to meet the needs of its borrowers, manage its
exposure to fluctuations in market interest and currency rates, and to temporarily invest its liquid resources prior to disbursement.
All of these financial instruments involve, to varying degrees, the risk that the counterparty to the transaction may be unable to meetits obligation to the Fund. Given the nature of the Fund’s business, it is not possible to completely eliminate counterparty credit
risk, however, the Fund minimizes this risk by executing transactions within a prudential framework of approved counterparties,
minimum credit rating standards, counterparty exposure limits, and counterparty credit risk mitigation measures.
Counterparties must meet the Fund’s minimum credit rating requirements and are approved by the Bank Group’s Vice President
for Finance. ALCO approves counterparties that are rated below the minimum rating requirements. Counterparties are classified
as investment counterparties, derivative counterparties, and trading counterparties. Their ratings are closely monitored by the
Financial Management Department.
For trading counterparties, the Fund requires a minimum short-term credit rating of A-2/P-2/F-2 for trades settled under delivery
versus payment (DVP) terms and a minimum long-term credit rating of A/A2 for non-DVP-based transactions.
The following table details the minimum credit ratings for authorized investment counterparties:

Maturity
6 months

1 year

5 years

10 years

15 years

30 years

Government agencies and supranationals

A/A2
AA-/Aa3
AAA/Aaa
Maximum remaining maturity of 5 years in the trading portfolios and 10 years in the heldat amortized cost portfolio for SDR denominated securities rated A+/a1 or below.
A/A2
AA-/Aa3
AAA/Aaa

Banks

A/A2

AA-/Aa3

AAA/Aaa

Corporations including non-bank financial institutions

A/A2

AA-/Aa3

AAA/Aaa

Government

Mortgage Backed Securities (MBS)/
Asset Backed Securities (ABS)AAA
Maximum legal maturity of 50 years. Also, the maximum weighted average life
for all ABS/MBS at the time of acquisition shall not exceed 5 years.

The Fund uses derivatives in the management of its assets and liabilities. As a rule, the Fund executes an International Swaps
and Derivatives Association (ISDA) master agreement and collateral exchange agreement with its derivative counterparties
prior to undertaking any transactions. Derivative counterparties are required to be rated AA-/Aa3 by at least two approved
rating agencies or A-/A3 for counterparties with whom the Fund has entered into a collateral exchange agreement. These
counterparties require ALCO approval. Approved transactions with derivative counterparties include swaps, forwards, options
and other over-the-counter derivatives.
In addition to these minimum rating requirements, the Fund operates within a framework of exposure limits based on the
counterparty credit rating and size, subject to a stipulated maximum for any single counterparty. Individual counterparty credit
exposures are aggregated across all instruments using the Bank for International Settlements (BIS) potential future exposure
methodology and monitored regularly against the Fund’s credit limits after considering the benefits of any collateral.

Credit Risk Profile of the Investment and Derivative Portfolios
AAA

AA+ to AA-

A+ and lower

2022

32%

21%

47%

2021

23%

19%

58%

2020

26%

25%

49%

2019

32%

21%

47%

2018

31%

15%

54%

140

Financial Report 2022

Liquidity Risk

Liquidity risk is the potential for loss resulting from insufficient liquidity to meet cash flow needs in a timely manner. The Fund’s
principal liquidity risk management objective is to hold sufficient liquid resources to enable it to meet all probable cash flowneeds for between 50 and 75 percent of the three years’ moving average of expected disbursements. The Funds liquidity riskarises from borrowings, other liabilities and derivatives as presented in the NDR.
To strike a balance between generating adequate investment returns and holding securities that can be easily sold for cash if theneed arises, the Fund divides its investment portfolio into two tranches with different liquidity objectives and benchmarks. The
Fund’s core liquidity portfolio, which is fair valued, is invested in highly liquid securities that can be readily liquidated if the needarises to meet the Fund’s short-term liquidity needs. In addition to the trading portfolio, the Fund maintains a second tranche ofliquidity under the broad category of amortized cost portfolio, which is held in a portfolio of fixed income securities intended toearn contractual cash flows.

Currency Exchange Risk

Currency risk is the potential loss due to adverse movements in market foreign exchange rates. To promote stable growthin the Fund’s Net Assets, including its Net Development Resources and outstanding loans, the Fund’s principal currency risk
management objective is to ensure that it is able to provide the disbursement currencies requested by borrowers while minimizing
the exposure of its net development resources to adverse exchange rate movements. To the extent possible, the Fund shallmaintain the alignment of the currency composition of its Net Assets with the UA as the primary benchmark of its currencycomposition. The Fund may conduct currency exchange transactions for the following two reasons: (1) to align the currencycomposition of its Net Assets (loan and investment portfolios) with the UA, and (2) for the purpose of providing ADF borrowers
with the disbursement currencies requested.

Interest Rate Risk

Interest rate risk is the potential for loss due to adverse movements in market interest rates. In seeking to earn a stable andreasonable return on invested liquidity, the Fund’s principal interest rate risk management objective is to reduce the sensitivity of
the Fund’s investment returns to changes in market interest rates. To achieve this objective, the Fund’s investments are managed
in two portfolios: (1) an actively managed portfolio (the “Operational” Portfolio); and (2) a passively managed portfolio (the“Investment” Portfolio).
The Operational Portfolio provides a readily available source of liquidity to cover both expected and unexpected disbursements
as well as any other probable cash outflows. The Operational Portfolio is managed against a 3-month LIBOR reference benchmark
in each currency. Generally, investments in the Operational Portfolio are held for trading and are regularly marked to market.
The Investment Portfolio consists of funds that are not immediately required for loan disbursements and therefore may beinvested for a longer horizon. Generally, investments in the Investment Portfolio are purchased with the intention to hold tocollect the contractual cash flows and are not marked to market. The Investment Portfolio comprises two sub-portfolios, (1)an investment portfolio for income stabilization for the purpose of generating a stable income for the Fund and reducing theFund’s investment income sensitivity to interest rates. This portfolio is managed against a ten-year uniform re-pricing profile
for each invested currency, and (2) an investment portfolio for accelerated encashments for the purpose of investing proceedsfrom accelerated encashments to recoup the discount granted to State Participants, minimizing or eliminating interest raterisk on accelerated encashments. This portfolio is managed against a target rate, which is the discount rate agreed with State
Participants. The Fund also uses currency swaps to mitigate interest rate risk.

141

African Development FundInterest rate risk position as at 31 December 2022 and 31 December 2021 was as follows:
Interest Rate Risk Position as at 31 December 2022
(UA thousands)
1 yearor lessMore than 1
year but lessthan 2 years

More than 2
years but lessthan 3 years

More than 3
years but lessthan 4 years

More than 4
years but lessthan 5 years

More than
5 years

Total

Cash

1,221,313

‑

‑

‑

‑

‑

1,221,313

Treasury Investments

Assets
1,731,940

358,250444,930

233,260

154,520422,715

3,345,615

Derivative assets

385,662

‑

‑

‑

‑

‑

385,662

Demand obligations

508,830

388,987

367,548

290,343

205,880

256,2962,017,884

Accounts receivable

65,029

‑

‑

‑

‑

‑

65,0293,912,774

747,237

812,478

523,603

360,400

679,011

7,035,503

Derivative liabilities(323,645)

‑

‑

‑

‑

‑

(323,645)

Accounts payable(143,227)

‑

‑

‑

‑

‑

(143,227)

‑

‑

‑

‑

‑

(1,165,173)(1,165,173)(466,872)

‑

‑

‑

‑

(1,165,173)(1,632,045)

3,445,902

747,237

812,478

523,603

360,400(486,162)

5,403,458

Liabilities

Borrowings

Net Development Resources
at 31 December 2022

Interest Rate Risk Position as at 31 December 2021
(UA thousands)
1 yearor lessMore than 1
year but lessthan 2 years

More than 2
years but lessthan 3 years

More than 3
years but lessthan 4 years

More than 4
years but lessthan 5 years

More than
5 years

Total

Cash

1,441,275

‑

‑

‑

‑

‑

1,441,275

Treasury Investments

1,112,556

500,960

195,970

129,345

74,850501,438

2,515,119

Derivative assets

539,927

‑

‑

‑

‑

‑

539,927

Demand obligations

752,451

530,043

419,534

286,21186,88934,812

2,109,940

Accounts receivable

76,178

‑

‑

‑

‑

‑

76,1783,922,387

1,031,003

615,504

415,556

161,739536,250

6,682,439

Derivative liabilities(546,368)

‑

‑

‑

‑

‑

(546,368)

Accounts payable(85,089)

‑

‑

‑

‑

‑

(85,089)

‑

‑

‑

‑

‑

(1,206,220)(1,206,220)(631,457)

‑

‑

‑

‑

(1,206,220)(1,837,677)

3,290,930

1,031,003

615,504

415,556

161,739(669,970)

4,844,762

AssetsLiabilities

Borrowings

Net Development Resources
at 31 December 2021

142

Financial Report 2022

Note D – Financial assets and liabilities
Analysis of Financial Assets and Financial Liabilities by Measurement Basis

The tables below set out the classification of each class of financial assets and liabilities, and their respective fair values as at 31
December 2022 and 31 December 2021:(UA thousands)
Financial Assets and Liabilities
through Profit or Loss
Mandatorily
at Fair value

Designated at
Fair Value

Financial Assets
and Liabilities at
Amortized Cost

Total Carrying
AmountFair Value‑‑

1,221,313

1,221,313

1,221,313

2,669,370‑

676,245

3,345,615

3,345,629

385,662‑-385,662385,662

Demand obligations‑‑

2,017,884

2,017,884

2,017,884

Loans disbursed and outstanding‑‑

14,536,378

14,536,378

14,536,378

Accounts receivables‑‑

65,02965,02965,029Total financial assets

3,055,032‑

18,516,849

21,571,881

21,571,895

Derivative liabilities

323,645--

323,645

323,645‑‑

143,227

143,227

143,227‑‑

1,165,173

1,165,173

1,165,173

323,645‑

1,308,400

1,632,045

1,632,045

Mandatorily
at Fair value

Designatedat Fair Value

Financial Assets
and Liabilities at
Amortized Cost

Total
Carrying
AmountFair Value‑‑

1,441,275

1,441,275

1,441,275

1,722,611‑

792,508

2,515,119

2,515,131

31 December 2022
Cash
Treasury investments
Derivative assets

Other Liabilities
Borrowings
Total financial liabilities(UA thousands)

31 December 2021

Financial Assets and Liabilities
through Profit or Loss

Cash
Treasury investments
Derivative assets

539,927‑‑

539,927

539,927

Demand obligations‑‑

2,109,940

2,109,940

2,109,940

Loans disbursed and outstanding‑‑

13,972,411

13,972,411

13,972,411

Accounts receivable‑‑

76,17876,17876,178

Total financial assets

2,262,538‑

18,392,312

20,654,850

20,654,862

Derivative Liabilities

546,368--

546,368

546,368

Other Liabilities‑‑

85,08985,08985,089Borrowings‑‑

1,206,220

1,206,220

1,206,220

546,368‑

1,291,309

1,837,677

1,837,677

Total financial liabilities

The composition of treasury investments as at 31 December 2022 and 31 December 2021 was as follows:(UA thousands)
Treasury Investments Mandatorily measured at FVTPL
Treasury Investments at amortized cost
Total

2022

2021

2,669,370

1,722,611

676,245792,508

3,345,615

2,515,119143

African Development Fund

Treasury Investments Mandatorily Measured at Fair Value through Profit or Loss
A summary of the Fund’s treasury investments measured at FVTPL at 31 December 2022 and 31 December 2021 follows:(UA millions)

Chinese Yuan
2022
Time deposits
Asset-backed securities
Government and agency obligations
Corporate bonds
Financial institutions
Supranational
Total

‑
‑
472.03‑‑‑472.032021

US Dollar
2022

7.85
207.07‑0.01
260.73358.08‑16.37‑
351.84‑145.08268.58 1,078.45

2021

218.140.02
127.92
‑
27.38
98.57
472.03Euro
2022
490.70‑202.42‑129.6933.48
856.29Other currencies
2021

189.97‑
197.00
‑
47.62
33.16
467.75

2022
75.35
‑
129.54‑‑57.71
262.602021

All Currencies
2022

42.18
773.12‑0.01
338.50 1,162.07
‑
16.37
10.73
481.53122.84236.27514.25 2,669.37

2021

458.140.02
924.15‑85.73
254.57
1,722.61

The contractual maturity structure of investments measured at FVTPL at 31 December 2022 and 31 December 2021 was as follows:(UA millions)
One year or lessMore than one year but less than two years
More than two years but less than three years
More than three years but less than four years
More than four years but less than five years
More than five years
Total

2022

2021

1,677.06
301.57390.49176.54123.700.01
2,669.37

1,054.95
443.69135.94
72.34
15.67
0.02
1,722.61

Treasury Investments at Amortized Cost
A summary of the Fund’s treasury investments at amortized cost at 31 December 2022 and 31 December 2021 follows:(UA millions)

Chinese Yuan
2022
Government and agency obligations
Supranational
Total

266.06‑266.062021

336.36‑336.36US Dollar
2022
‑
11.29
11.29

2021

‑
10.78
10.78

Euro
2022
‑
‑
‑

Other currencies
2021
‑
‑
‑

2022
398.90‑398.902021

445.37‑445.37All Currencies
2022
664.9611.29
676.252021

781.73
10.78
792.51

The contractual maturity structure of investments at amortized cost at 31 December 2022 and 31 December 2021 was as follows:(UA millions)

2022

2021

One year or less

54.88

57.60

More than one year but less than two years

56.68

57.27

More than two years but less than three years

54.44

60.03

More than three years but less than four years

56.72

57.01

More than four years but less than five years

30.82

59.18

More than five years

422.71501.42

Total

676.25792.51

144

Financial Report 2022

Derivative Contracts
Futures Contracts
The Fund has entered into futures contracts to hedge fixed interest rate bonds against interest rate variations. As at 31 December
2022, the Fund had futures with a notional value and carrying value as summarized in the table below. The Net asset positionof UA 16.62 million on the futures is presented in the Net development resources. The gains on valuation are presented in thestatement of income and expenses, under fair value losses/gains on treasury trading portfolio and related derivatives.
(in millions)

Futures CCY

Notional (CCY)

Notional (UA)Receivable

PayableFair value (in UA)

EUR

4,110.00

3,280.36(2.15)

9.03

6.88

USD

7,790.00

5,853.45

10.19(3.30)

6.89

GBP

1,330.00

1,206.03

4.89(3.59)

1.30

CAD

1,778.00

982.13(1.60)

3.15

1.55

11,321.97

11.33

5.29

16.62

Total

Swaps
Currency swaps
The Fund entered into currency swap contracts to mitigate risk on its borrowings portfolio. Specifically, the Fund executed aderivative transaction to swap currency from JPY 73.6 billion borrowing into EUR 569.31 million.
As at 31 December 2022, the carrying value of the currency swap was UA 372.51 million (receivable leg) and UA 315.14 million(payable leg) resulting in a net asset position of UA 57.37 million in the NDR and fair value gains of UA 99.87 million presented
under fair value gains from derivatives on concessional donor borrowing in the statement of income and expenses.

Interest rate swaps
The Fund entered into interest rate swap contracts to hedge against interest rate risk on investment of proceeds from accelerated
encashments. As at 31 December 2022, the carrying value of the CAD interest rate swap was UA 1.82 million (receivable leg)and UA 13.79 million (payable leg) resulting in a net liability position of UA 11.97 million in the NDR and fair value losses of UA
7.02 million included in the fair value losses on treasury trading portfolio and related derivatives in the statement of income andexpenses.
The total net asset position of UA 62.02 million on the derivatives is summarized in the table below and presented in the
Net development resources as derivative assets (UA 385.66 million) and derivative liabilities (UA 323.64 million) respectively.
(in millions)

Derivatives
CCY Swap-JPY (receivable leg)Int. Rate Swap-CAD (receivable leg)

Notional (in CCY)

Notional (in UA)

Fair value (in UA)

73,601.00

416.92372.51

98.12

54.20

1.82

Futures contracts (receivable leg)

11.33

Derivative assets

385.66CCY Swap-EUR (payable leg)

(569.31)(454.39)(315.14)Int. Rate Swap-CAD (payable leg)

(98.12)(54.20)(13.79)Futures contracts (payable leg)
Derivative Liabilities

5.29(323.64)
Net Position (in UA)

Net position (Asset)

62.02

145

African Development FundNOTE E – Demand Obligations
Demand obligations represent subscription payments made by participants, in accordance with Article 9 of the Agreement.
These obligations take the form of non-negotiable, non-interest-bearing notes payable at their par value on demand. The Boardof Governors has agreed that the encashment of these notes will be governed by the Fund’s disbursement requirements.
As at 31 December 2022, demand obligations totaled UA 2,017.88 million compared to UA 2,109.94 million as at 31 December
2021, the decrease is due to encashments during the year.

NOTE F – Development Activities
According to the Fund’s loan regulations, loans are expressed in UA and repaid in the currency disbursed.

Project Loans and Lines of Credit

Loans to ADF-Only countries are generally granted under conditions that allow for repayment over 40 years including a 10-year
grace period commencing from the date of the loan agreement. Loan principal is generally repayable from years 11 through 20
at a rate of 2 percent per annum and from years 21 through 40 at a rate of 4 percent per annum. A service charge at a rate of
0.75 percent per annum on the principal amount disbursed and outstanding is payable by the borrower semi-annually. Loansapproved after June 1996 carry a 0.50 percent per annum commitment charge on the undisbursed portion. Such commitment
charge commences to accrue after 120 days from the date of signature of the loan agreement. With effect from the ADF-12
replenishment, loans to blend, gap and graduating countries carry differentiated financing terms of thirty (30) years’ maturity
including a grace period of 5 years and interest rate of 1 percent, in addition to the existing standard 0.50 percent commitment
fee and 0.75 percent service charge. Under ADF-13, further differentiated lending terms were adopted with the view of preserving
the long-term financial sustainability and capacity of the Fund. ADF-Only Countries are grouped into two subgroups based on
their GNI per capita. Countries with GNI per capita below the average for the group are called “ADF-Only Regular Countries”
and benefit from the standard terms referred to above. Countries with GNI per capita above the average of the group are called“ADF-Only Advance Countries”; their financing terms differ from the Regular subgroup through a shorter grace period of 5 years
and equal and consecutive principal amortization after grace period. The new lending terms require the acceleration of loan
repayment for member countries that fulfil the requirements for graduation to AfDB window. Financial incentives are also offered
to AfDB graduated countries for voluntary loan prepayment to ADF.
ADF Lending Terms:

Category
ADF-only
Blend, Gap andGraduating

Subgroups

Maturity(years)Graceperiod(years)First
period(years)Amortization
rate

Secondperiod(years)Amortization
rate

Servicecharge Commitment(%)
fee (%)

Regular: 40/10

40

10

10

2.0%

20

4.0%

0.75

Advance: 40/5

40

5

—

2.9%

—

2.9%

Blend/Gap/
Graduating: 30/5

30

5

—

4.0%

—

4.0%

Interest
rate

Concessionality

0.50

0.0%

61%

0.75

0.50

0.0%

51%

0.75

0.50

1.0%

35%

Of the undisbursed balances of loans signed, the Fund may enter into special irrevocable commitments to pay amounts toborrowers or others in respect of the cost of goods and services to be financed under loan agreements. As at 31 December 2022,
outstanding irrevocable reimbursement guarantees to commercial banks amounted to UA 10.38 million (31 December 2021: UA
8.20 million).
As at 31 December 2022, loans made to or guaranteed by certain borrowers with an aggregate principal balance outstandingof UA 37.26 million (31 December 2021: UA 35.43 million) of which UA 18.25 million (31 December 2021: UA 16.24 million) wasoverdue, were in non-accrual status.
If the overdue loans had not been in non-accrual status, income from loans for the year ended 31 December 2022, would
have been higher by UA 0.28 million (31 December 2021: UA 0.26 million). At 31 December 2022, the cumulative charges notrecognized on the non-accrual loans amounted to UA 6.28 million, compared with UA 5.93 million at 31 December 2021.
As at 31 December 2022, Zimbabwe is the only country with arrears for over six months.
The Fund also provides innovative financial instruments in the form of “Partial Risk Guarantees” (PRGs) and, “Partial Credit
Guarantees” (PCGs) for the purpose of better leveraging resources by sharing or mitigating risk and crowding-in other sourcesof financing. ADF guarantees allow borrowers and project companies to get access to new sources of financing and to improvefinancing terms and conditions.
The PRGs product is a financial guarantee that covers private sector projects against a government`s or government owned
entity’s failure to meet its specified contractual obligations to the project. As at 31 December 2022, guarantees approved by the146Financial Report 2022

Fund to private entities on account of its borrowers amounted to UA 402.75 million (31 December 2021: UA 238.86 million). The
outstanding approved PRGs as at 31 December 2022 amounted to UA 266.28 million (31 December 2021: UA 102.39 million).
The PCGs cover debt service on scheduled payments of commercial debt against all risks or specific events of defaults byborrowers from both public and private sectors. PCGs support private sector entities, government and State-Owned Enterprises(SOEs) in mobilizing debt from commercial lenders/investors to finance their activities and projects. Governments can also use
PCGs in the form of Policy-Based Guarantees (PBGs) to raise commercial financing in support of their strategic reforms under
the Policy-Based Operations Framework (Budget Support operations). As at 31 December 2022, PCGs provided by the Fundamounted to UA 29.77 million (31 December 2021: UA 30.14 million). The outstanding PCGs as at 31 December 2022 were UA
29.77 million (31 December 2021: UA 30.14 million).

Private Sector Credit Enhancement Facility

The Private Sector Credit Enhancement Facility (the Facility or PSF) was established with the approval of the Board of Governors
during the Consultative Meeting on the thirteenth replenishment (ADF-13) held on 31 January 2014. The PSF provides credit
enhancement guarantees to eligible private sector loans in ADF eligible countries. This is geared towards catalyzing additional
private investment in these countries. The PSF is operationally and financially autonomous from the Fund and its establishingframework explicitly precludes it from having recourse to the Fund for any losses that it may incur.
As at 31 December 2022, the total available resources to the PSF were UA 465 million. This is made up of a UA 165 million grant
allocated by the Fund in 2014 for the establishment of the PSF to encourage increased development financing in the ADF
countries, an additional contribution of UA 200 million, approved in 2017, under the fourteenth replenishment (ADF-14) andUA 100 million approved in 2020 under the fifteenth replenishment (ADF-15). An additional allocation of UA 50 million has been
approved and will become effective under the sixteenth replenishment cycle (2023–2025). As at 31 December 2022, a total of
UA 165 million had been paid to the PSF.
The facility had a signed credit enhancement guarantee portfolio of UA 497.99 million as at 31 December 2022.
Maturity and Currency Composition of Outstanding Loans
The maturity distribution of outstanding loans as at 31 December 2022 and 31 December 2021 was as follows:(UA millions)

2021

2022
Amount%Amount%One year or less*241.161.66

207.53

1.49

More than one year but less than two years

248.111.71

210.001.50

More than two years but less than three years

275.751.90

236.04

1.69

More than three years but less than four years

301.362.07

260.811.87

More than four years but less than five years

325.522.24

285.682.04

More than five years

13,144.48

90.42

12,772.35

91.41

Total

14,536.38

100.0013,972.41

100.00* Includes the arrears on loans.

147

African Development FundThe currency composition of outstanding loans as at 31 December 2022 and 2021 was as follows:(UA millions)

2021

2022
Currency

Amount%Amount%Canadian Dollar

4.83

0.03

5.22

0.04

Danish Kroner

4.69

0.03

5.08

0.03

4,201.53

28.90

4,204.48

30.09

Chinese Yuan

21.74

0.15

23.27

0.17

Japanese YenEuro

478.503.29

540.603.87

Norwegian Krone

6.03

0.04

6.83

0.05

Pound Sterling

572.51

3.94

612.97

4.39

Swedish Krona

5.17

0.04

6.04

0.04

Swiss Franc

31.53

0.22

32.25

0.23

9,209.69

63.36

8,534.80

61.08

United States Dollar
Others
Total

0.17

0.00

0.87

0.01

14,536.38

100.0013,972.41

100.00Grants and Technical Assistance Activities

Under the Fund’s lending policy, 5 percent of the resources available under the third and fourth general replenishments, 10
percent under the fifth and sixth general replenishments, and 7.5 percent under the seventh and eighth general replenishments
were allocated as grants and grant-based technical assistance for the identification and preparation of development projects orprograms in specified member countries. In addition, amounts in the range of 18 to 21 percent of the total resources under the
ninth replenishment were set aside in the form of grants for permitted uses, including technical assistance and project financing.
Grants do not bear charges. The share of grants under the tenth to the fifteenth general replenishments is based on a countryby-country analysis of debt sustainability.
As at 31 December 2022, the Fund’s allocation to grants and technical assistance activities amounted to UA 9.005 billion (31December 2021: UA 8.629 billion), reflecting an increase of UA 376.77 million on grants disbursed during the year.
Technical assistance loans do not carry charges.

HIPC Debt Relief Initiative

Under the original framework of HIPC, selected loans to beneficiary countries were paid off by the HIPC Trust Fund at a priceequivalent to the net present value of the loans as calculated using the methodology agreed under the initiative. Following thesignature of a HIPC debt relief agreement, loans identified for payment were written down to their estimated net present value.
The amount of the write-down, representing the difference between the book value and net present value of the loans, wasshown as an allocation of development resources. The amount of UA 71.08 million, which was the write-down in respect of thedebt relief granted to Mozambique in 1999 under the original HIPC framework, is included in the amount stated as net debt
relief in the Statement of Net Development Resources. The outstanding balance and net present value of the loans owed by
Mozambique and sold to the HIPC Trust Fund in 1999 were UA 132.04 million and UA 60.96 million, respectively.
In 1999, the HIPC initiative was enhanced to provide greater, faster and more poverty-focused debt relief. This was achieved by
reducing the eligibility criteria for qualification under the initiative and by commencing debt relief much earlier than under theoriginal framework. Under the enhanced framework, where 33 African countries are currently eligible, debt relief is delivered
through annual debt service reductions which allow the release of up to 80 percent of annual debt service obligations as they comedue until the total net present value (NPV) of debt relief, determined by the debt sustainability analysis (DSA), is provided. Interim
financing of up to 40 percent of total debt relief is granted between the decision and completion points. Total contributions by
the Fund to the HIPC initiative at 31 December 2022 amounted to UA 184 million and are shown as allocations of development
resources in the Statement of Net Development Resources.

Multilateral Debt Relief Initiative

At the Gleneagles Summit on 8 July 2005, the Group of 8 major industrial countries agreed on a proposal for the ADF, theInternational Development Association (IDA) and the International Monetary Fund (IMF) to cancel 100 percent of their claims on
countries that had reached, or would reach, the completion point under the enhanced HIPC initiative. Through the Development

148

Financial Report 2022

Committee Communiqué of 25 September 2005, the donor community expressed its support for the MDRI, and urged theinstitutions referred to above to proceed with the necessary steps to ensure implementation.
The main objective of the MDRI is to complete the process of debt relief for HIPCs by providing additional resources to help 38
countries worldwide, 33 of which are in Africa, to make progress towards achieving the Millennium Development Goals (MDGs),
while simultaneously safeguarding the long-term financing capacity of the ADF and the IDA. The debt cancellation is deliveredby relieving post-completion-point HIPCs’ repayment obligations and adjusting their gross assistance flows downward by thesame amount. To maintain the financial integrity of the ADF, donors are expected to make additional contributions to the ADF tomatch “dollar-for-dollar” the forgone principal and service charge payments.
The MDRI became effective for the ADF on 1 September 2006. Since disbursed and outstanding loans were already excluded
from net development resources, the debt cancellation did not have an impact on the Fund’s balance of net development
resources. Cancellation of ADF debts are affected when other eligible countries reach the HIPC completion point.
At 31 December 2022, a gross amount of UA 5.68 billion (31 December 2021: UA 5.68 billion) of outstanding loans had beencanceled under MDRI for 30 (2021: 30) HIPC completion-point countries. Of this amount, UA 1,225.99 million (2021: UA 1,225.99
million) in nominal terms were converted by the HIPC Trust Fund. The present value of the converted loans was UA 942.71 million(2021: UA 942.71 million). As of 31 December 2022, the present value amounts had been transferred from the HIPC Trust Fundto ADF.
A summary of debt relief granted under HIPC and MDRI as at 31 December 2022 and 2021 is as follows:(UA thousands)

2021

2022
Balance at 31 December

HIPC

MDRI

Total

HIPC

MDRI

Total

235,096

4,719,976

4,955,072

235,096

4,719,976

4,955,072

Special Arrears Clearance Mechanism

Arrears Clearance Mechanism for DRC – In connection with an internationally coordinated effort between the Bank, theInternational Monetary Fund (the IMF), the World Bank and other bilateral and multilateral donors to assist the Democratic
Republic of Congo (DRC) in its reconstruction efforts, the Board of Directors on 26 June 2002 approved an arrears clearance
plan for the DRC. Under the arrears clearance plan, contributions received from the donor community were used immediately
for partial clearance of the arrears owed by the DRC. The residual amount of DRC’s arrears to the Bank and loan amounts not yet
due were consolidated into new contractual receivables, such that the present value of the new loans was equal to the present
value of the amounts that were owed under the previous contractual terms. The new loans carry the weighted average interest
rate of the old loans. In approving the arrears clearance plan, the Board of Directors considered the following factors: a) the
arrears clearance plan is part of an internationally coordinated arrangement for the DRC; b) the magnitude of DRC’s arrears to
the Bank ruled out conventional solutions; c) the prolonged armed conflict in the DRC created extensive destruction of physicalassets, such that the DRC had almost no capacity for servicing its debt; and d) the proposed package would result in a significant
improvement in its repayment capacity, if appropriate supporting measures were taken. Furthermore, there was no automatic
linkage between the arrears clearance mechanism and the debt relief that may be subsequently provided on the consolidated
facility. In June 2004, the DRC reached its decision point under the HIPC initiative. Consequently, the consolidated facility has
since that date benefited from partial debt service relief under HIPC.
A special account, separate from the assets of the Bank, was established for all contributions towards the DRC arrears clearance
plan. Such contributions may include allocations of the net income of the Bank that the Board of Governors may from time totime make to the special account, representing the Bank’s contribution to the arrears clearance plan. The amount of such net
income allocation is subject to the approval of the Boards of Governors of the Bank, typically occurring during the annual general
meeting of the Bank. Consequently, income recognized on the consolidated DRC loans in current earnings is transferred out ofreserves to the special account only after the formal approval of such transfer, in whole or in part, by the Board of Governors of
the Bank.
Fragile States Facility Framework – The Post Conflict Countries’ Fund was established as a framework to assist countries emerging
from conflict in their efforts towards re-engagement with the donor community in order to reactivate development assistance andhelp these countries reach the HIPC decision point to qualify for debt relief after clearing their loan arrears to the Bank Group.
The framework entails the setting aside of a pool of resources through a separate facility with allocations from the ADB’s net
income, and contributions from the ADF and other private donors.
Resources from the facility are provided on a case-by-case basis to genuine post-conflict countries not yet receiving debt relief
to fill financing gaps after maximum effort by the post-conflict country to clear its arrears to the Bank Group. In this connection,
the Board of Governors, by its Resolution B/BG/2004/07 of 25 May 2004, established the Post Conflict Countries Facility (PCCF)
under the administration of the ADF and approved an allocation of UA 45 million from the 2003 net income of the Bank. The
149

African Development Fund

Board of Governors, by its resolution B/BG/2005/05 of 18 May 2005, also approved an additional allocation of UA 30 million fromthe 2004 net income as the second installment of the Bank’s contribution to the facility. And by its resolution B/BG/2006/04 of 17
May 2006, the Board of Governors also approved the third and final installment of the Bank’s allocation of UA 25 million from the2005 net income.
In March 2008, the Board of Directors approved the establishment of the Transition Support Facility (TSF) to take over theactivities of the PCCF and provided broader and integrated framework for assistance to eligible states. The purposes of the TSF
are to consolidate peace, stabilize economies and lay the foundation for sustainable poverty-reduction and long-term economic
growth of the eligible countries. As a matter of policy, contributions made by ADB to the PCCF/TSF are not used to clear the debt
owed to the Bank by beneficiary countries. As at 31 December 2022, no arrears were cleared, compared to 2021 when Sudan
cleared the long-standing arrears of UA 135 million.

NOTE G – Subscriptions and Contributions
The Fund’s initial subscriptions were provided by the Bank and the original State Participants to the Agreement, and States
acceding to the Agreement since the original signing date. Thereafter, further subscriptions were received from participantsin the form of a special general increase and fifteen general replenishments. Details of these movements are shown in theStatement of Subscriptions and Voting Power in Note O.
The Board of Governors, by its resolution F/BG/2020/01 of 14 May 2020, approved the fifteenth general replenishment of theFund (ADF-15), following the Deputies agreement for a replenishment level of UA 5.41 billion, of which UA 1.21 billion representsinternally generated resources, for the three-year operational period, 2020 to 2022. ADF-15 came into effect on 30 June 2020
after the State Participants deposited with the Fund enough instruments of subscriptions, and the approval by the Board of
Directors for the use of the internally generated resources for operational commitments.
For the ADF-16 replenishment cycle, the Fund mobilized the largest ever replenishment in its 50-year history. Development
partners agreed to commit a total package of UA 6.5 billion for the Fund’s 16th financing cycle (2023 to 2025), with UA 313 millionof that package going towards the newly created Climate Action Window.
As at 31 December 2022, subscriptions to ADF-15 amounted to UA 3.75 billion (31 December 2021: UA 3.75 billion).
At 31 December 2022, cumulative contributions pledged on account of the MDRI amounted to UA 5.83 billion (31 December
2021: UA 5.83 billion) of which UA 1.70 billion had been paid and included in total subscriptions and contributions (31 December
2021: UA 1.55 billion). Consistent with the resolution approving MDRI, the contributions paid entitle the State Participants tovoting rights, as reflected in Note O.
Gains or losses arising from translation of subscriptions and contributions received into UA are recorded in the Cumulative
Exchange Adjustment on Subscriptions account in the Statement of Net Development Resources.

NOTE H – Other Resources
In conformity with the findings of the UN General Assembly, the Board of Directors accepted that the former Socialist Federal
Republic of Yugoslavia no longer exists as a state under international law and hence is no longer a State Participant in the Fundor a member of the Bank. Pursuant to a decision of the Board of Directors of the Fund in 1993, the subscriptions of the former
Socialist Federal Republic of Yugoslavia in the Fund, less the unpaid portion, are deemed to have become part of the permanent
patrimony of the Fund and are not returnable to any entity. Accordingly, the amounts of the paid subscriptions are reported aspart of other resources in the Statement of Net Development Resources.
Also included in other resources is a total of UA 842.99 million representing contributions by the Bank of UA 840.99 million as at
31 December 2022, and by the Government of Botswana of UA 2 million towards the Fund’s activities, in accordance with Article
8 of the Agreement.

150

Financial Report 2022

Note I – Reserves
Reserves as at 31 December 2022 and 31 December 2021 were as follows:(UA thousands)

2022

2021

Reserves at 1 January(804,976)(737,103)

Deficit for the year

(29,465)(67,873)(834,441)(804,976)

Balance

NOTE J- Borrowings
The Fund’s borrowings comprise concessional loans from State participants. The borrowings are concessional, unsecured andunsubordinated, and the Fund retains the option to prepay, in part or in whole, the outstanding amounts without penalty. Theseborrowings are carried and reported at amortized cost. The lenders are allocated voting rights based on the cash paid, computed
as the derived grant element. The grant element is recorded as equity and is a function of the agreed discount rate. The grantelement is amortized over the life of the borrowing.
As of 31 December 2022, the Fund’s outstanding borrowings decreased by UA 41.05 million to UA 1,165.17 million from UA
1,206.22 million as at 31 December 2021.This decrease of UA 41.05 million is mainly attributable to the depreciation of the JPY
against the UA during the year, especially as the Fund’s borrowings are largely denominated in JPY.
These borrowings have original maturities of 35 years and 40 years, with the final maturity being 2061.
The interest charges on borrowings for the year ended 31 December 2022 increased to UA 6.23 million (31 December 2021: UA
3.75 million), a 66.13 percent increase (UA 2.48 million), due to the increase in the size of the Fund’s borrowing portfolio.
The Fund recorded significant fair value gains of UA 99.87 million on the currency swap executed on the JPY borrowing whencompared to UA 7.76 million loss in December 2021. This is the main reason for the decline in the deficit reported by the Fundfor the period ended 31 December 2022 when compared to deficit reported in 2021.

NOTE K – Trust Funds
The Fund has resources at its disposal entrusted to it under Article 8 of the Agreement, which empowers the Fund to receive
other resources including grants from State Participants, non-participating countries and any public or private body or bodies.
As at 31 December 2022, the undisbursed balance of trust fund resources was UA 6.68 million (31 December 2021: UA 6. 71
million) representing the balance of a grant received from Japan for the development of human resources in Africa.
Resources of the trust funds are kept separate from those of the ADF.

151

African Development FundNOTE L – Total Income
Total Income on Loans

Total income on loans for the year ended 31 December 2022 and 31 December 2021 are as follows:(UA thousands)

2022

2021

Service charges on loans

113,585

142,265

Commitment charges on loans

14,87915,487

128,464

157,752

Total

Total Income from Treasury Investments

Total treasury investment income from interest income and fair value gains and losses on the trading portfolio including derivatives
for the year ended 31 December 2022 and 31 December 2021 are as follows:(UA thousands)

2022

2021

Interest income

74,42769,082

Fair value losses on treasury investments and related derivatives(51,147)(37,187)

Total

23,28031,895NOTE M – Administrative Expenses
Pursuant to Article 31 of the Agreement, the Fund reimburses the ADB for the estimated fair value of its use of the latter’s offices,
staff, organization, services and facilities. The amount of such administrative expenses reimbursed is based on a predetermined
cost-sharing formula, which is driven primarily by the staff time spent on individual entity’s work program deliverables. The
administrative expenses incurred by the Fund for the year ended 31 December 2022 amounted to UA 246.21 million, representing
an increase of UA 27.65 million (12.65 percent) over the UA 218.56 million reported for 31 December 2021. The increase in the
expenses attributable to the Fund was due to the increase in the total Bank Group administrative expenses during the year underreview.

NOTE N – Related Parties
The general operation of the Fund is conducted by a 14-member Board of Directors, of which 7 members are selected by the
Bank. The Bank exercises 50 percent of the ADF’s voting power and the President of the Bank is the ex-officio President of theFund. In accordance with the Agreement, the Fund utilizes the offices, staff, organization, services and facilities of the ADB (theBank) to carry out its functions, for which it reimburses the Bank as disclosed in Note M. In this regard, the Bank administers theresources of the Fund. The Fund also administers trust funds entrusted to it by one of its State Participants.

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Financial Report 2022

Note O – Statement of Subscriptions, Contributions and Voting Power as at 31 December 2022
(UA thousands)
Subscriptions
State participants/
Donors
1 ADB
2 Angola

3 Argentina
4 Austria

5 Belgium

6 Brazil

7 Canada

8 China

9 Denmark10 Egypt*

11 Finland

12 France

Grant
Initial &ADF-1 toGrants element ofSpecialADF-13ADF-14
ADF-15 Compen- Concessional
Increase Installments Installment Installment
sation
Loans
‑
‑
‑
‑
5,987
105,754
9,691

1,842

13,816
2,763

‑

5,204

5,280

‑

‑

472,417

91,86891,8683,380‑

16,789‑‑‑532,334

56,587

60,834

3,434

20,724

1,771,970

179,162

187,138

6,289

6,447

656,320

66,34073,417

3,215

1,842

560,489

48,95653,082

3,517

2,763

13,816‑140,866

506,203

2,629‑

86,292

1,427‑

76,358

1,443

‑

282

‑

‑
‑
‑

‑

19,08866.1593.308‑

18,791

26,32723.5391.177‑

76,82436,30119.369

0.968

‑

9,071

159,961

107.310

5.365

‑

‑

‑

1.515

682,951

786,9475,499

591,316

5,526

86,333

10,657

10,661

349

6,642

120,168

8,818‑

2,751,364

234,702

251,852

14,507

139,692

19 Kuwait

4,974

174,710

8,462

9,309

341

‑

5,526

1,103,398

9,211

9,211

‑

1,680,719
257,202‑

197,424
62,628‑222,090
69,230‑1,417

20 Luxembourg

14,51422 Norway

6,908

1,185,399

139,163

171,628

7,612

24 Saudi Arabia

8,290

275,409

14,267

‑

81

7,368

25 South Africa*

1,794

27 Sweden

8,289

28 Switzerland

108,9023,385,011 3,320,915

13,81626 Spain‑

64,09617 Japan

23 Portugal‑

18,420

2,763

5,701

‑

174,766
45,688601,636

1,313,258
920,450

8,356

149,422
7,611

7,809

12,912

171,529
125,795

9,231

164,364
8,413

8,741

‑

8,484

1,294
280

40,887

4,884

138,4395,260

179,5198,180

29 Türkiye
40,693‑713
721‑
United Arab
‑
‑
‑
30
4,145
4,145
Emirates
31 United Kingdom 7,873 2,604,221
437,042
575,112 18,163
United States
32
20,724 2,989,756
360,638
360,450 18,048
of America
Supplementary/
Voluntary‑
110,764
46,81257,441
6,500
contributions
Total
332,012 26,360,366 3,225,616 3,640,256 159,083
Supplementary information:
Supplementary
contributions
through
accelerated
encashment to
reduce the gap‑

65,321

‑

‑

‑

‑
‑

‑
‑

3,558,421 3,549,350
52,370113,526

52,3702,118,262 1,887,917

3,405,932 3,266,240
399,689

399,688

32,101

32,101

197,796

197,796‑

1,431,194 1,307,066‑

199,452

199,452

64,31264,312

‑
‑
‑
‑
‑
‑
‑

1,510,710 1,510,708
298,047
663,082

1.016

0.978

368,243

16,32820.311

19.567290,037

444,506

28,73537,512

2,635,406

403,800‑

17,104

8,809

2,679,971

0.025

‑

143,629

5,499

0.507

638,848

143,629

686,975‑

9,771

673,349

702,040

2,640

7,018

673,349
655,952‑

1,842

805,738

52,37021 Netherlands

17,535‑19,08915 Ireland

18 Korea

18,631

2,165,283 2,165,283

13,81616 Italy

20,175‑13 Germany

14 India

Total
Subscriptions
111,741

Payment Positions
MDRI
Voting Power
Total
InstallInstall- Installments
ments ments
not yet Payments Number
Paid
Due
Payable Receivedof Votes%
111,741‑‑‑ 1,000.000 50.000

298,047
663,082

1,680,776 1,680,776
1,195,645 1,195,643

‑
‑
‑
‑
‑
‑

‑
‑
‑
‑
‑

‑

230,345

‑

1

‑

‑

‑
‑

‑

‑

38,274‑

222,660
4,211

96,802

0.053

4.155

21.5550.000

104.977
3.598

14,084

6.093

0.929

124,128

79,86439.777‑‑

13,679

6.166

‑

0.180

0.076

46.359

5.161

0.305

0.046

1.989

2.318
0.308

5,682

8.813

0.441

‑

74,55521.332

1.067

‑

2

149,405

38.940

1.947

‑
‑
‑

‑
‑

96,80251.425

2.571

8,290

‑

‑

‑

0.240

0.012

‑

3,642,412 3,642,412‑‑

181,503110.6255.531‑

3,749,615 3,524,095‑

206,293

47,944103.895

5.195‑
221,517489,101
248,607 33,965,941 33,263,953

‑
7,018

121,363

‑

1.219

0.000

8,290

65,321‑0.000

42,127

‑

‑

9,562

42,127‑‑‑85,671

5.249

0.600

‑

‑

0.000

12.008103.211

‑
‑

1.078

2.818

161,704‑

0.208

56.352‑

15,391

0.003

0.061

‑
1,463
0.000
0.000
694,970 1,696,993 2,000.000 100.000

5,320

6,366

* Donors to the Fund.
Slight differences may occur in totals due to rounding.

153

African Development Fund

Statement of Subscriptions, Contributions and Voting Power as at 31 December 2021
(UA thousands)
Subscriptions
State participants/
Donors
1 ADB
2 Angola

3 Argentina

Grant
Initial &ADF-1 toGrants element ofSpecialADF-13ADF-14
ADF-15 Compen- Concessional
Increase Installments Installment Installment
sation
Loans
‑
‑
‑
‑
5,987
105,754
9,691

1,842

4 Austria

13,816

6 Brazil

2,763

5 Belgium
7 Canada‑‑

472,417

91,86891,8683,380‑

673,349

644,701‑

143,629

143,629‑‑60,834

3,434

20,724

1,771,970

179,162

187,138

6,289

6,447

656,320

66,34073,417

3,215

53,082

3,517‑

12 France

5,280

‑

56,58710 Egypt*

11 Finland

5,204

532,334

13,816

9 Denmark‑16,7892,763

8 China

1,842

140,866
506,2032,629

560,489‑

86,292

1,427

48,956‑76,358

1,443

‑

‑
‑

‑

‑

19,088583,397

64,096

3,385,011 3,182,335

5,526

86,333

10,657

10,661

349

6,642

120,168

8,818‑

2,751,364

234,702

251,852

14,507

139,692

19 Kuwait

4,974

174,710

8,462

9,309

341

‑

9,211

9,211

‑

1,680,719
257,202‑

197,424
62,628‑222,090
69,23016,328‑1,417

20 Luxembourg

14,51422 Norway

6,908

1,185,399

139,163

171,628

7,612

8,290

275,409

14,267‑

81

601,636

12,912

5,526‑

1,103,398

23 Portugal

7,368

25 South Africa*

1,794

27 Sweden

8,289

1,313,258

29 Türkiye
United Arab
30
Emirates
31 United Kingdom
United States
32
of America
Supplementary/
Voluntarycontributions

40,693‑28 Switzerland

5,018

768,155

18,42013,81626 Spain

5,499

368,243

17 Japan

24 Saudi Arabia

682,951

290,037

444,506

2,763

5,701

174,766

45,688

8,356

149,422
7,611

7,809

171,529

9,231

164,364‑

8,741

40,887

179,519

‑

8,484

502

280

4,884

8,180

‑
‑

‑
‑

399,689

376,319

32,101

32,101

197,796

197,796

190,247

‑
‑
‑
‑

5,260

4,145

4,145

‑

‑

‑

‑

7,873

2,604,221

437,042

575,112

18,163

20,724

2,989,756

360,638

360,450

18,048‑ 110,764
46,81257,441 6,500
Total
332,012 26,360,366 3,225,616 3,631,843 158,292
Supplementary information:
Supplementary
contributions
through
accelerated
encashment to
reduce the gap‑
65,321‑‑‑

3,405,932 3,179,210‑

138,439‑

52,3702,118,262 1,842,272

1,431,194 1,286,170‑

125,795

721

109,895‑

920,450713

3,558,421 3,396,450
52,370‑‑1,510,710 1,451,765
298,047
64,312

663,082

0.502

0.025

‑

28,64825,78720.215

1.011

‑

‑

‑

4.330

‑

2,635,406

403,800‑

612,187

8,809

2,679,971

3,520

7,018

702,040

686,975‑

1,842

805,738

19,08952,37021 Netherlands

655,952

16,655‑282

15 Ireland

18 Korea

18,631

2,165,283 2,101,065

13,81616 Italy

20,175‑13 Germany
14 India

Total
Subscriptions
111,741

Payment Positions
MDRI
Voting Power
Total
InstallInstall- Installments
ments ments
not yet Payments Number
Paid
Due
Payable Receivedof Votes%
111,741‑‑‑ 1,000.000 50.000

190,247
298,047
64,312

651,507

1,680,776 1,619,317
1,195,645 1,148,490

9,771

43,765‑33,6630.056

19.472

0.003

0.974

0.217

‑

64,21897,72866.6433.332‑

37,58323,62523.883

1.194‑

84,74332,57619.563

0.978

‑
‑

‑

481

35,659‑22.000
0.000

1.100
0.000

‑

138,579

199,814104.345

‑

3,631

3,779

3.568

0.178

57.051

2.853‑‑

161,971‑‑

275,990‑

23,370

‑
‑
‑

0.079

104.436

5.222‑

14,084

6.353

0.318

‑

‑

‑

‑

1.579

5.336

145,112145,024‑‑

86,869106.727

87,031‑‑

143,548

5.217

13,812‑

79,86411.7620.968

40.823

0.588

0.048

2.041

58,94576,88046.271

2.314

‑

5,682

9.185

0.459

‑

12,275
9,562

6.106

0.000

0.305

0.000

‑

11,57568,46221.7071.085‑

47,153

142,489

38.922

1.946‑‑

61,459240

86,869‑51.440
1.263

2.572

42,12741,887

0.063

8,290

8,290

‑

‑

‑

0.250

0.012

‑

3,642,412 3,382,970‑

259,442

162,879

106.904

5.345‑

3,749,615 3,371,676‑

358,71247,944103.678

5.184‑ 221,517 455,060‑
26,744
1,463
0.000
0.000
248,607 33,956,736 32,009,824 7,018 1,932,5971,550,427 2,000.000 100.000‑

65,321

121,363

‑

5,320

6,892

* Donors to the Fund.
Slight differences may occur in totals due to rounding.

NOTE P – Approval of Special Purpose Financial Statements
On March 29, 2023, the Board of Directors authorized these financial statements for issue to the Board of Governors. The financial
statements are expected to be approved by the Board of Governors at its annual meeting in May 2023.
154

African Development Fund
Avenue Joseph Anoma
01 BP 1387 Abidjan 01
Côte d’Ivoire

Independent Auditor’s Report on the Special Purpose Financial Statements
Year ended December 31st, 2022
To the Board of Governors of the African Development Fund
OpinionWe have audited the accompanying special purpose financial statements of the African Development Fund which comprisethe statement of net development resources as at December 31, 2022 and the statement of income and expenses and otherchanges in development resources, the statement of comprehensive income and the statement of cash flows for the year thenended, and notes comprising significant accounting policies and other explanatory information as set out in notes A to P.
In our opinion, the accompanying special purpose financial statements have been prepared, in all material respects, inaccordance with the accounting and financial reporting matters as set out in the accounting policies in note B to the special
purpose financial statements for the year ended December 31, 2022.
Basis for Opinion
Audit Framework
We conducted our audit in accordance with International Standards on Auditing (ISA). We believe that the audit evidence wehave obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the “Auditor’s Responsibilities for the Audit of the Financial
Statements” section of our report.
Independence
We are independent of the Fund in accordance with the International Ethics Standards Board for Accountants (IESBA), andwe have fulfilled our other ethical responsibilities in accordance with these requirements.

Justification of Assessments
We inform you that the assessments which, in our professional judgment, were of most significance in our audit of thefinancial statements, addressed the appropriateness of the accounting principles used, the reasonableness of the significant
estimates made and the overall presentation of the financial statements.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on specific items of the financial statements.
Other information
Management is responsible for the other information. The other information comprises the information included in the African
Development Bank Group Annual Report but does not include the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information, and we do not and will not express any form ofassurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements, or our knowledge obtained in
the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the special purpose financial statements in accordancewith articles 26(5), 35(1) and 35(3) of the Agreement Establishing the Fund and the accounting policies set out in note B to
the special purpose financial statements, and for such internal control as management determines is necessary to enable thepreparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the special purpose financial statements, management is responsible for assessing the Fund’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless it is expected to liquidate the Fund or to cease operations.
The Audit & Finance Committee of the Board, and more generally those charged with governance, are responsible foroverseeing the Fund’s financial reporting process and to monitor the effectiveness of the internal control and risk management
systems, as well as the internal audit, as regards the procedures relating to the preparation and processing of accounting andfinancial information.
The special purpose financial statements were approved by the Board for transmission to the Board of Governors.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISA will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements.
In accordance with International Standards on Auditing (ISA), our role as external auditor does not consist in guaranteeing theviability or quality of management of the audited entity.

As part of an audit conducted in accordance with ISA, the auditor exercises professional judgment throughout the audit andfurthermore:
•

•
•
•

•

Identifies and assesses the risks of material misstatement of the financial statements, whether due to fraud or error, designs
and performs audit procedures responsive to those risks, and obtains audit evidence considered to be sufficient andappropriate to provide a basis for his opinion. The risk of not detecting a material misstatement resulting from fraud ishigher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,or the override of internal control;
Obtains an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in
the circumstances, but not for expressing an opinion on the effectiveness of the internal control;

Evaluates the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management in the financial statements;

Assesses the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on
the Fund’s ability to continue as a going concern. This assessment is based on the audit evidence obtained up to the dateof his audit report. However, future events or conditions may cause the Fund to cease to continue as a going concern. If
the auditor concludes that a material uncertainty exists, there is a requirement to draw attention in the audit report to therelated disclosures in the financial statements or, if such disclosures are not provided or inadequate, to modify the opinion
expressed therein;
Evaluates the overall presentation of the financial statements and assesses whether these statements represent the underlying
transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of
the audit as well as the results of our audit. We also report, if any, significant deficiencies in internal control regarding theaccounting and financial reporting procedures that we have identified.
From the matters communicated with those charged with governance, we determine those matters that were of most significancein the audit of the financial statements of the current period and are therefore the key audit matters. We describe these mattersin our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because the adverse consequences ofdoing so would reasonably be expected to outweigh the public interest benefits of such communication.

Paris – La Défense, April 27, 2023
The independent auditor
Deloitte & Associés

Jean-Vincent COUSTELPartnerAfrican Development FundADF Administrative Budget for financial year 2023
(UA thousands)
Management Fees*
Direct Expenses
Total

261,470440
261,910* The amount represents the African Development Fund’s share of the fair value of the Bank’s expenses in respect of officers, staff, organization, services, and facilities
based on a formula approved by the Fund’s Board.

158