Greater Mekong Subregion Highway Expansion Phase 2 Project

The risks associated with single-tranche loans can be mitigated through proper management of the loan proceeds and control of the project cost. The ADB loan was featured to have a single tranche disbursement arrangement to address currency mismatch and hedge financial risks arising from foreign borrowing. In the early stage of project implementation, the full amount of the ADB loan ($90.8 million) was disbursed as an advance and exchanged to local currency. Since most of the project contracts and payments were made in local currency, such an arrangement might have adequately locked the project funds in local currency and avoided the risks of fund shortages caused by exchange rate fluctuation, but it increased the loan interest paid by the government. Although such an arrangement simplified the loan management and avoided processing time requirements for regular loan disbursement and replenishment from ADB's side, it increased the processing procedure on the government's side. Concurrent with the loan disbursement, the unallocated loan amount of $8.6 million was canceled upon request by the government. Such loan cancellation increased the risk of project fund shortage if significant scope change and cost overrun occurred. Fortunately, the government properly managed the loan proceeds and controlled the project cost well. This loan proceeds management could be analyzed and, if appropriate, lessons learned shared with other countries. and projects.