Disbursement Delays Impact on Uzbekistan Growth in Asian Development Bank (ADB) Loan Projects

Abstract

Compared with commercial banks that take one day, ADB loans take over 5-year before they are fully disbursed after the borrower signed the loan agreements, because of conditionalities. During which, the funds stay in the banks and gain compounded interest disfavoring Uzbekistan and affects its economic growth. These gains and their impacts have been mostly overlooked in development aid studies. We reviewed the financial costs of delays during project implementation in Uzbekistan and their impacts on GDP growth involving 67 loan projects, from 1996 to 2019 totaled over $6.7 billion. We applied a non-econometric and quantitative attribution methodology, adopting project and portfolio management principles combined with stochastic simulations. The results show that even 'if disbursed 100% in year-1', for each 1%-GDP of ADB loans, it reduces growth by 1.24%. It worsens growth as ADB loans increase and delays prolong. It costs a minimum of 1.2%-GDP for 5-year disbursement delays. Uzbekistan suffers a capital loss of $0.6 - $11 per $1 loan or equivalent to 0.91-8.6%-GDP per year because of disbursement delays under today's prevalent banking practices. Endogenizing these losses, ADB loans have severe negative impacts as growth suffers about 200% volatility as a result of disbursement delays. Fixing this is simple but requires a fundamental change.