IFAD9 Consultation inter-sessional paper

1. Ninth Replenishment of IFAD’s Resources IFAD9 Consultation inter-sessional paper 24-25 October 2011

2. 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

3. 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

4. Options for strengthening internal resources • Loan prepayment • Could 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 terms • Hardening some highly concessional terms • Dropping intermediate terms • Could generate resources in the range of US$40-55 million

5. Fuller analysis of ACA/CFS • Benefits of ACA • Limitations in its use • Why CFS is better

6. 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 …

7. 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

8. 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

9. 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

10. 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

11. 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)

12. Snapshots of IFAD9 and beyond IFAD sources of funds and requirements (Millions of United States dollars)

13. 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 reasonable • Data agrees to published financial information • Model arithmetically and logically valid • Projections reasonable • Clean audit assurance on all counts

14. Additional resources needed as a result of DSF Resources required to compensate IFAD for the loan principal repayments forgone as a result of DSF

15. 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

16. Thank you!