PBOs are fast-disbursing financing instruments, which the AfDB provides to countries in the form of loans or grants. They address the actual, planned or unexpected development financing requirements of AfDB’s regional member countries (RMCs).3African Development Bank. 2012. Policy on Program-Based Operations. Abidjan.

PBOs are intended to support nationally owned policy and institutional reforms in RMCs, and to make available predictable medium-term finance to support priority spending to meet medium- and long-term development goals. They provide funds to the country’s Treasury, to be executed using the national financial management system. PBOs are fungible and are provided together with associated policy dialogue and economic as well as sector work, all in support of nationally driven policy and institutional reforms.

Following in the footsteps of the World Bank (which first created structural adjustment loans to provide balance of payment finance to countries in return for policy and institutional reforms), the PBO instrument, formerly known as policy-based lending (PBL), was introduced in 1988 through the Bank Group Policy on Structural and Adjustment Lending.4African Development Bank. 1988. Policy on Structural and Adjustment Lending. Abidjan.The same year, AfDB also introduced Policy-Based Lending Operations: Supplementary Guidelines and Procedures5African Development Bank. 1988. Policy-Based Lending Operations: Supplementary Guidelines and Procedures. Abidjan.to provide guidance on the use of the instrument. Until then, lending had focused exclusively on investment projects. In 2004, AfDB adopted Guidelines on Development Budget Support Lending6African Development Bank. 2004.Guidelines on Development Budget Support Lending.Abidjan.and Guidelines for Policy-Based Lending on Governance,7African Development Bank. 2004.Guidelines for Policy-Based Lending on Governance.Abidjan. complemented by a Legal Note on Sector Budget Support Operations8African Development Bank. 2005. Legal Note on Sector Budget Support Operations. Abidjan.in 2005.

The Governance, Economic and Financial Management Department was established in 2006 to lead AfDB’s work on PBOs. In 2008, AfDB’s Governance Strategic Directions and Action Plan, 2008–2012 (GAP I),9African Development Bank. 2008. Governance Strategic Directions and Action Plan: GAP 2008–2012. Abidjan.was adopted to guide AfDB’s governance work in its RMCs. Using a combination of PBOs, institutional support projects (ISPs), technical assistance, economic and sector work (ESW), policy dialogue, and advisory services, AfDB has emphasized economic and financial governance in its RMCs. In 2010, after an independent evaluation, a commitment was made as part of the African Development Fund (AfDF)10The standard abbreviation for the African Development Fund is ADF. However, to avoid possible confusion with the Asian Development Fund, which uses the same abbreviation, in this book the abbreviation AfDF has been used to signify the African Development Fund. replenishment negotiations that a comprehensive new policy would be prepared to consolidate existing good practices and streamline requirements for policy-based operations. Consequently, in 2011, the Program-Based Operations Policy, 2012–2017 (henceforth “the 2012 policy”) was adopted. The subsequent guidelines, which were finalized in March 2014, complemented the 2012 policy by providing additional practical guidance on the design and implementation of PBOs in AfDB, while re-establishing good practice in aid effectiveness in relation to predictability, country ownership, donor coordination, policy dialogue, and reporting.

• 3African Development Bank. 2012. Policy on Program-Based Operations. Abidjan.
• 4African Development Bank. 1988. Policy on Structural and Adjustment Lending. Abidjan.
• 5African Development Bank. 1988. Policy-Based Lending Operations: Supplementary Guidelines and Procedures. Abidjan.
• 6African Development Bank. 2004.Guidelines on Development Budget Support Lending.Abidjan.
• 7African Development Bank. 2004.Guidelines for Policy-Based Lending on Governance.Abidjan.
• 8African Development Bank. 2005. Legal Note on Sector Budget Support Operations. Abidjan.
• 9African Development Bank. 2008. Governance Strategic Directions and Action Plan: GAP 2008–2012. Abidjan.
• 10The standard abbreviation for the African Development Fund is ADF. However, to avoid possible confusion with the Asian Development Fund, which uses the same abbreviation, in this book the abbreviation AfDF has been used to signify the African Development Fund.