Middle-income countries continue to face substantial development challenges: achieving sustained growth that provides productive employment; reducing poverty and inequality; reducing volatility, particularly in their access to private financial markets; and strengthening the institutional and governance structures that underpin viable market-based economies. The Bank is uniquely placed to help these countries craft institutional reforms, attract infrastructure investment across the public-private spectrum, improve social service delivery, and cope with volatility. Middle-income countries are generally eligible to receive IBRD assistance. The Role of IBRD IBRD is a AAA-rated financial institution—with some unusual characteristics. Its shareholders are sovereign governments, each of which has a voice in setting IBRD policies and many of which are eligible to borrow from it. IBRD’s main goal is to reduce poverty by promoting sustainable economic development in middle-income and creditworthy low-income borrowing countries. It provides financing (loans, guarantees, and related risk management tools) and expertise in development-related technical disciplines. IBRD helps clients gain access to capital and financial risk management tools in larger volumes, on better terms, at longer maturities, and in a more sustainable manner than they could receive from other sources. Unlike commercial banks, IBRD is driven by development impact rather than profit maximization. (See www.worldbank.org/mic.) IBRD Lending At $14.1 billion for 112 operations, new lending commitments by IBRD in fiscal 2006 exceeded the previous year’s level by $0.5 billion. This represents the highest volume of IBRD lending in the past seven fiscal years. The share of policy-based lending was slightly higher than in fiscal 2005. Latin America and the Caribbean received the highest level of IBRD lending, with $5.7 billion, or 40 percent of total IBRD commitments, followed by Europe and Central Asia with $3.5 billion and East Asia and Pacific with $2.3 billion. Five countries—Brazil, China, India, Mexico, and Turkey— received a combined commitment volume equaling 52 percent of total IBRD lending in fiscal 2006. Among sectors, public administration, including law and justice, received the highest volume of IBRD lending ($3.1 billion), followed by transportation ($2.1 billion), and energy and mining ($2.1 billion). The thematic composition of lending in fiscal 2006 was led by financial and private sector development, followed by public sector governance and urban development. See Share of Total IBRD Lending by Region, Theme, and Sector and World Bank Development Policy–Based Operations. SHARE OF TOTAL IBRD LENDING BY REGION, THEME, AND SECTOR
IBRD Resources
IBRD obtains most of its funds by selling bonds in international capital markets. In fiscal 2006, it raised $10 billion at medium- to long-term maturities, lower than the $13 billion raised in fiscal 2005. Debt securities, with a wide range of maturities and structures, were issued in 11 currencies. IBRD is able to borrow high volumes for long maturities on very favorable terms. IBRD’s financial strength is based on its prudent financial policies and practices, which help it maintain its high credit rating. As a cooperative institution, IBRD seeks not to maximize profit but to earn enough income to ensure its financial strength and sustain its development activities. IBRD’s operating income was $1,740 million in fiscal 2006. IBRD retained $1,036 million in its general reserve and $64 million in its pension reserve and added $140 million to the surplus account. In August 2006, the Executive Directors proposed that the Board of Governors approve a transfer of $500 million to IDA from allocable net income in fiscal 2006 and an additional transfer of $300 million to IDA from the surplus account. (See Financial Statements.) IBRD maintained adequate liquidity in fiscal 2006 to ensure its ability to meet its obligations. As of June 30, 2006, it held about $24.9 billion in liquid assets. Also as of June 30, 2006, IBRD’s outstanding borrowings from capital markets were about $91.6 billion (net of swaps) (see IBRD’s Borrowings and Investments). Borrowings exceeded equity by a factor of about three. Total disbursed and outstanding loans were $103 billion. In addition to variable-spread loans (40 percent of total loans) and fixed-spread loans (with variable rate, 19 percent, and with fixed rate, 8 percent) that are available for new commitments, IBRD’s loan portfolio includes old legacy loans: multicurrency pool loans, 12 percent; single currency pool loans, 9 percent; and fixed-rate single currency loans, 8 percent. On May 2, 2006, the Executive Directors approved the adoption of a lower and more transparent lending rate for multicurrency pool loans and dollar single-currency pool loans at the London Interbank Offered Rate plus 100 basis points (or the fixed-rate equivalent) for borrowers that agree to execute an omnibus amendment to their existing loan agreements. Consistent with IBRD’s development mandate, the principal risk it takes is the country credit risk inherent in its portfolio of loans and guarantees. Risks related to interest and exchange rates are minimized. One summary measure of the Bank’s risk profile is the ratio of balance sheet equity to outstanding net loans, which is closely managed in line with the Bank’s financial and risk outlook. This ratio stood at 33 percent as of June 30, 2006. (See Equity-to-Loans Ratio.) IBRD BORROWING AND INVESTMENTS EQUITY-TO-LOANS RATIO
Partnerships
Global partnerships are increasing because of the growing integration of the world’s economies and the existence of development challenges that cross national boundaries. These partnerships promote efforts in areas of common concern such as combating communicable diseases, preserving the environment, acquiring and sharing knowledge, integrating trade, addressing international migration issues, and developing infrastructure. The Bank participates in some 160 global and regional partnerships, for which it committed more than $170 million from its own resources in fiscal 2006. The Bank plays different roles in these initiatives, including trustee of donor funds, financial contributor, and implementing agency. Trust Funds World Bank–administered trust funds foster partnerships by mobilizing and directing concessional resources to support poverty reduction across a wide range of sectors and regions, thereby supporting clients in achieving development results at the global, regional, and country levels. Much of this growth responds to the international community’s desire for the Bank to help manage broad global initiatives through multilateral partnerships, such as the Global Fund to Combat AIDS, Tuberculosis and Malaria; the Global Environment Facility; and the HIPC Initiative. Trust funds also support the World Bank Group’s own development operations and work programs. Many of these activities are further described in the World Bank’s Trust Funds Annual Report. Contributions, Funds Held in Trust, and Disbursements The Bank’s trust fund portfolio expanded in fiscal 2006. Contributions from donors totaled $5.3 billion, an increase of 9.5 percent over fiscal 2005. Funds held in trust rose to $10.3 billion, a 10.5 percent increase. The top 10 donors accounted for 80 percent of all contributions (see Top Ten Trust Fund Donors). TOP TEN TRUST FUND DONORS
Major New Trust Fund Programs
In response to emerging development challenges, the donor community agreed to establish several new major trust fund programs during fiscal 2006, including the four highlighted here. The Avian and Human Influenza Facility This facility comprises several trust funds to address unmet financing needs and has pledges of more than $70 million. Funds support integrated country action plans and other activities as endorsed by the facility’s advisory board. The Africa Catalytic Growth Fund This fund was established as a mechanism for growth with an initial contribution of £200 million from the United Kingdom. The fund seeks to leverage funds from other partners and support ongoing government programs to achieve the MDGs. Trust Fund for Anti–Money-Laundering and Combating Financing of Terrorism for Asia-Pacific and for Central America and the Caribbean This Canadian-financed fund strengthens the skills of agencies responsible for anti– money-laundering activities and combating terrorism financing. Red Sea–Dead Sea Water Conveyance Feasibility Study This $15.5 million multidonor trust fund finances studies on possible solutions to the declining level of the Dead Sea through a determination of whether the transfer of water from the Red Sea to the Dead Sea is feasible.
(See www.worldbank.org/cfp.) Cofinancing Cofinancing is any arrangement under which funds from the Bank are associated with funds provided by sources from outside the recipient country for a specific lending project or program. In fiscal 2006, 141 Bank projects leveraged $4.9 billion in cofinancing. Major cofinanciers were the Inter-American Development Bank ($1.3 billion) and the United Kingdom’s Department for International Development ($0.5 billion). Multilateral agencies contributed $3.5 billion in cofinancing. The regions benefiting most from these cofinancing arrangements were Latin America and the Caribbean ($1.5 billion), East Asia and Pacific ($1.2 billion), and Africa ($1 billion). Furthering Bank-Fund Collaboration In March 2006, the Bank President and the IMF Managing Director agreed to establish a six-member External Review Committee comprising current and former Bank and IMF officials, senior international finance executives, and government finance officials. The committee will solicit views from member countries on Bank-Fund collaboration, which has increased significantly over time. The committee is expected to recommend specific improvements in Bank-Fund collaboration in such areas as policy advice, lending operations, technical assistance, and ways to tailor programs to meet specific country needs. Financial Management Framework Agreement Harmonizing and aligning donor assistance occurs at the country level through, for example, participation in joint analytic work, collaborative preparation of country and sector strategies, and development of common arrangements to finance projects and programs. The Bank made further progress with other donors on this agenda by signing a Financial Management Framework Agreement with the United Nations in March 2006. This agreement represents a significant milestone in the Bank’s ongoing program of financial management harmonization, which had, until now, focused on bilateral and multilateral development agencies. This new agreement allows the Bank to rely on the UN’s financial management regulations within a framework that continues to provide the Bank with reasonable assurance that its funds will be used for the intended purposes. © 2006 The International Bank for Reconstruction and Development/The World Bank |
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