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IFAD9 Consultation inter-sessional paper

24-25 October 2011

Ninth Replenishment of IFAD’s Resources

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Key messages from the 2nd Consultation

• Non-repeatability of the ratio of Members’ contributions to PoLG under IFAD8

• Strong view that the PoLG should not be reduced

• Further clarification and information required in a number of areas

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Further clarification

• Options for strengthening internal resources

• Fuller analysis of ACA/CFS

• Longer-term perspective on IFAD’s financial capacity

• External audit of the assumptions and projections used in IFAD’s financial model

• Additional resources needed as a result of DSF

• Request for alternate scenarios

• Additional medium-term funding possibilities

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Options for strengthening internal resources

• Loan prepaymentCould enhance internal contribution by US$15 million

Can only be done on a voluntary case by case basis, hence eliminated from calculations

• Alignment of lending termsHardening some highly concessional terms

Dropping intermediate terms

Could generate resources in the range of US$40-55 million

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Fuller analysis of ACA/CFS

• Benefits of ACA

• Limitations in its use

• Why CFS is better

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Benefits of ACA

• Future reflows virtually certain

• IFAD carries high levels of liquidity

• Can safely commit, based on future cash receipts

• Allows enhancement of resources while limiting Member contributions

• But …

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Limitations of ACA

• Increasing ACA is a one-time drawdown of resources

• ACA oversimplifies

• Does not give any insight into repeatability

• Does not represent maximum prudent use of resources

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What is CFS and why is it better?

• Other IFIs use cash flow modelling to determine prudent disbursements

• CFS is one form of cash modelling

• Assumes repeatability is desirable

• Assures repeatability by explicitly considering future IFAD replenishments

• Assumes maximising PoLG by optimizing cash flow for any given IFAD replenishment

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Implementation plan for a CFS approach

• Creation of a Financial Planning and Risk Analysis unit within the Financial Operations Department

• Unit to be directly supervised by the CFO

• Will include ALM, BUD and Financial Management Office

• ALM will therefore be independent from TRE and will focus on Risk budgeting Financial forecasting Developing quarterly financial projections for management

to report to the EB

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Longer-term perspective on IFAD’s financial capacity

• Assumed US$1.6 billion IFAD9 Member contributions

• Assumed US$3.2 billion PoLG

• From IFAD10 onward, contributions and PoLG grow with inflation

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IFAD long-term cash flow

IFAD cash flows under an IFAD9 with a US$ 3.2 billion PoLG, assuming US$1.62 billion in Member contributions(Millions of United States dollars)

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Snapshots of IFAD9 and beyond

IFAD sources of funds and requirements(Millions of United States dollars)

IFAD9 (2013-2015)

IFAD10 (2016-2018)

IFAD11 (2019-2021)

IFAD12 (2022-2024)

Source of FundsInvestment Income 188 140 104 86 Loan Reflows 886 1 085 1 339 1 656 Cancellations/Reduction 193 243 297 309 Use of future reflows 921 832 708 565 Total IFAD 2 188 2 299 2 448 2 617

Members Contributions 1 615 1 739 1 873 2 017 Total Funds 3 803 4 038 4 321 4 634

PoLG 3 200 3 446 3 711 3 997 Admin and HIPC 603 592 610 637 Total PoLG, Admin and HIPC 3 803 4 038 4 321 4 634

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External Audit of IFAD’s financial modelling

• PWC engaged to perform an external audit of the assumptions and projections used in IFAD’s financial modelling

Assumptions reasonableData agrees to published financial informationModel arithmetically and logically validProjections reasonable

• Clean audit assurance on all counts

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Additional resources needed as a result of DSF

Replenishment Forgone principal due and compensated by Member States (Millions of United States dollars)

IFAD 9 (2013-2015) 0

IFAD 10 (2016-2018) 3.4

IFAD 11 (2019-2021) 39.7

IFAD 12 (2022-2024) 99.2

Resources required to compensate IFAD for the loan principal repayments forgone as a result of DSF

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Additional medium-term funding possibilities

• Management will build on lessons learned

• Potential new sources

• New and existing partners

• Validated proposals will be brought before the relevant governing body

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Thank you!