56204 FOR OFFICIAL USE ONLY THE WORLD BANK'S BUDGET: TRENDS AND RECOMMENDATIONS FOR FY11 August 10, 2010 International Bank for Reconstruction and Development International Development Association Corporate Finance and Risk Management This document contains forward looking statements that are based on management's expectations, estimates, projections and assumptions. Words such as "proposes," "plans," "estimates," "anticipates," "intends," and variations of these words and similar expressions are intended to identify forward-looking statements. Such statements are not guarantees of future performance. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the Bank is under no obligation to update or alter its forward looking statements, whether as a result of such changes, new information, subsequent events or otherwise. CONTENT SECTION 1: INTRODUCTION AND OVERVIEW .......................................................................................1 1.1 Context ............................................................................................................................................... 1 1.2 FY11 Budget Recommendations ........................................................................................................ 4 1.3 Key Highlights ..................................................................................................................................... 5 SECTION 2: ALIGNMENT OF WORK PROGRAM FUNDING AND DELIVERABLES WITH KEY PRIORITIES ......6 2.1 Background ......................................................................................................................................... 6 2.2 Select Budget Shifts that Reinforce Alignment with Strategic Priorities ........................................... 8 (i) Activities and Budgets Aligned with Post-Crisis Directions .............................................................. 8 (ii) Activities and Budgets Aligned with Internal Reforms .................................................................. 12 (iii) Other Incremental Costs and Activities Associated with Key Work Program Priorities ............... 16 SECTION 3: THE BUDGET FRAMEWORK ............................................................................................. 17 3.1 Short-Term: Proposed Net Administrative Spending, Use of Set-aside, Cost Savings Measures Effective Immediately in FY11................................................................................................................. 17 3.2 Medium-Term: The Evolution of the Program Review Work Program ............................................ 20 3.3 Summary of the FY11 Administrative Budget Proposal and External Funds ................................... 21 3.4 Overall Changes in Unit Funding ...................................................................................................... 22 3.4.1 Revised Budget Plans ................................................................................................................ 22 3.4.2 Revised External Funding Projections ....................................................................................... 23 3.4.2 Total Funding............................................................................................................................. 23 3.4.3 Total Funding After Adjusting for the Projected Within-Year Budget Adjustments ................. 24 3.5 Central Accounts Items .................................................................................................................... 25 3.6 "Below the Line" Items .................................................................................................................... 26 3.6.1 Boards, Corporate Secretariat and Independent Evaluation Group ......................................... 26 3.6.2 Staff Retirement Plan and Retired Staff Benefits Plan .............................................................. 27 3.6.3 Grant Making Facilities.............................................................................................................. 27 3.6.4 External Sources of Funds ......................................................................................................... 29 3.7 Unit Specific Funding Growth .......................................................................................................... 29 3.7.1 Regions ...................................................................................................................................... 29 3.7.2 Network Anchors and Other Operational Units........................................................................ 30 3.7.3 Finance, Administrative, and Corporate Units .......................................................................... 31 3.8 Other Matters .................................................................................................................................. 32 3.8.1 Price Factor ............................................................................................................................... 32 3.8.2 Capital Budget Summary........................................................................................................... 33 3.8.3 FY11 Budget Recommendations ............................................................................................... 34 BOXES Box 1.1: Key FY11/13 MTSF Themes and Board Guidance ........................................................................... 2 Box 3.1: Cost Structure Rigidities and Criteria Guiding Cost Savings Measures ........................................ 20 Box 3.2 Other Adjustments to Central Accounts under Exploration .......................................................... 25 TABLES Table 1.1: FY11/FY10 Percentage Change in funding (real terms) ............................................................... 5 Table 2.1: Overview of Deliverables and Budget Funding for Post Crisis Direction Priorities ...................... 9 Table 2.2: Overview of Activities and Budget Funding for Internal Reform Priorities ............................... 13 Table 3.1: FY10/11 Budget and Total Funds Summary ($ millions) ............................................................ 21 Table 3.2: Trends in the Budget Plan by Unit Type ($FY10m) .................................................................... 23 Table 3.3: Trends in External Funds by Unit Type ($FY10m) ...................................................................... 23 Table 3.4: Trends in All Funds by Unit Type ($FY10m) (Budget Plan and External Funds) ......................... 23 Table 3.5: Trends in All Funds ($FY10m) ..................................................................................................... 24 Table 3.6: Centrally Managed Accounts ($FY10 millions)........................................................................... 25 Table 3.7: Board-Related Budgets ($FY10 millions) .................................................................................... 27 Table 3.8: Grant Making Facilities Budgets ($FY10m) ................................................................................ 28 Table 3.9: Capital Program Summary - Investment Schedule FY10 ­ 13 .................................................... 34 Table C-1: Expense Trends FY07-09 .............................................................................................................. 5 Table D-1: IBRD/IDA Projections ................................................................................................................... 7 Table D-2: RETF Commitment Projections .................................................................................................... 7 Table D-3: Change in All Funding Sources by Geographic Region ($FY10 millions)...................................... 8 Table D-4: All funds by Six Geographic Region Detail ($FY10 millions) ........................................................ 8 Table H.1: Reimbursements and Fee Income FY08-FY11 ($ millions) ........................................................ 15 Table I.1: Capital Program Summary - Investment Schedule FY10 ­ 13 ..................................................... 17 Table I.2: Thematic Organization and Programs - Investment Schedule FY11 - 13 .................................... 19 Table I.3: Capital Program - Investment Schedule FY10 ­ 13 ..................................................................... 22 FIGURES Figure 3.1: Comparing FY10 and Proposed FY11 Net Admin Budget Spending Authority ......................... 18 Figure 3.2 Funding composition and FY11/10 Growth Regions ................................................................. 29 Figure 3.3: Funding Composition and FY11/10 Growth - Networks and Other Ops .................................. 31 Figure 3.4: Funding Composition and FY11/10 Growth - Large FACs ......................................................... 31 Figure 3.5: Funding Composition and FY11/10 Growth - Small FACs ........................................................ 32 Figure A-1: Overall Structure of the Scorecard ............................................................................................ 2 Figure A-2: Indicative Detailed Structure of "Internal Business Process" Input Dimension ........................ 2 Figure C-1: Expense Trends FY07-09 (in %) .................................................................................................. 5 Annexes Annex-A: Corporate Scorecard ..................................................................................................................... 1 Annex-B: Resource Allocation Principles and Criteria .................................................................................. 4 Annex-C: Recent Trends in IBRD Front-Line Expenses .................................................................................. 5 Annex-D: Outlook on IBRD/IDA/Trust Fund Trends and Work Program Funding Shifts - A geographic Perspective.................................................................................................................................................... 6 Annex-E: Program Cost Summary FY08 ­ 11 ................................................................................................ 9 Annex-F: Components of Funding .............................................................................................................. 10 Annex-G: Consultative Group on International Agricultural Research (CGIAR) ......................................... 11 Annex-H: Reimbursables ............................................................................................................................. 14 Annex-I: The Capital Budget ....................................................................................................................... 17 Annex-J: Institutional Development Fund (IDF) .......................................................................................... 25 Annex-K: Staff, Consultants, Temporaries Compensation Details. ............................................................. 26 ACRONYMS AAA Analytical and Advisory Activities ACBF Africa Capacity Building Fund AFR Africa VPU ARD Agriculture & Rural Development BB Bank Budget BCP Business Continuity Plan BETF Bank-executed Trust Fund BI Business Intelligence BIF Business Improvement Fund CFO Chief Financial Officer CFP Concessional Finance and Global Partnerships VPU CIF Clean Investment Fund CFP Carbon Partnership Facility CPI Consumer Price Index CRS Conflict Resolution Services CRW Crisis Response Window CSF Social Development Civil Society Fund CSR Controller's, Strategy and Resource Management VPU DEC Development Economics VPU DGF Development Grant Facility DFID Department for International Development DMF Debt Management Facility for Low-Income Countries EAP East Asia and Pacific VPU ECA Europe and Central Asia VPU EFO Externally Financed Outputs ESW Economic and Sector Work FACs Finance, Administrative and Corporate Units FBS Fee-Based Services FCPF Forest Carbon Partnership Fund FIF Financial Intermediary Trust Funds FPD Financial and Private Sector Development Network FSAPs Financial Sector Assessments Programs GAC Governance and Anti-corruption GAFSP Global Agriculture and Food Security Program GAVI Global Alliance for Vaccines and Immunizations GDN Global Development Network GDP Gross Domestic Product GEF Global Environment Facility GET Global Expert Team GFATM Global Fund to Fight AIDS, Tuberculosis and Malaria GFDRR Global Facility for Disaster Reduction and Recovery GFRP Global Food Crisis Response Program GPF Governance Partnership Facility GSD General Services and Facilities VPU GSR Global IT Infrastructure Strategic Realignment HDN Human Development Network HRS Human Resources VPU IAASTD International Agriculture Assessment of Science and Technology IAD Internal Auditing Department IBRD International Bank for Reconstruction and Development IDA International Development Agency IDF Institutional Development Fund IEG Independent Evaluation Group IFAD International Fund for Agricultural Development IFC International Finance Corporation IFFIm International Finance Facility for Immunization IFI International Financial Institution IMF International Monetary Fund IMT Information Management and Technology INT Integrity VPU ISG Information Solutions Group VPU ITGG Information & Technology Governance Group LDC Least Developed Countries LCR Latin America and Caribbean VPU LEG Legal VPU LICUS TF Low-Income Countries Under Stress Implementation TFs LOADM Loan Disbursement Unit MDBs Multilateral Development Banks MDTF Multi-Donor Trust Fund MIGA Multilateral Investment Guarantee Agency MNA Middle East and North Africa VPU MTSF Medium Term Strategy and Finance Paper OIS Office of Information Security OKSP Operations and Knowledge Systems Program OPCS Operations Policy and Country Services VPU ORAF Operational Risk Assessment Framework PACT Partnership for Africa Capacity Building PART Program Assessment Rating Tool PCF Post-Conflict Fund PCD Post-Crisis Direction PPP Public Private Partnerships PREM Poverty Reduction and Economic Management Network QAG Quality Assurance Group QBR Quarterly Business Review RAMP Treasury's Assets Management Program RETF Recipient-executed Trust Fund RTA Reimbursable Technical Assistance SABP Self-Assessment of the Budgetary Program SAR South Asia VPU SDN Sustainable Development Network SEETF South-South Experience Exchange Trust Fund SPF State and Peace-Building Fund SRP Staff Retirement Plan StAR Stolen Asset Recovery Initiative STC/STT Short Term Consultant/Temporary TA Technical Assistance TF Trust Fund TFF Trade Facilitation Facility TRE Treasury VPU TQC Trust Fund Quality Assurance & Compliance VPU Vice Presidential Unit WITS World Integrated Trade Solution WBG World Bank Group WBI World Bank Institute SECTION 1: INTRODUCTION AND OVERVIEW _____________________________________________________________________________________ 1.1 Context 1. FY11 will be a year of opportunity but also great difficulty for the Bank. Many changes and challenges lie ahead. On the heels of the global financial crisis, the institution continues to provide high levels of client assistance to help sustain economic recovery. At the same time, the Bank is tailoring implementation to meet client needs under the post-crisis priorities and is implementing ambitious internal reforms to equip the institution to be more responsive, accountable and innovative. 2. The Development Committee has endorsed increases to the voting power of developing and transition countries1 along with the package of actions that strengthen the Bank's post-crisis directions, internal reform agenda, and financial strength.2 With this endorsement there is clear support for the Bank's renewal and continued relevance in a changing word reflecting the new multilateralism. The focus and challenge of FY11 and beyond will be on implementation within the constraints of a flat real budget environment. 3. Building on the existing alignment of the core work program with the Bank's vision, as outlined in the recent MTSF paper,3 the FY11 Budget recognizes this focus on implementation with some initial key investments that further support the institution's strategic priorities and transformational agenda: Modernizing services: $26 million4 for the knowledge strategy, rolling out Investment Lending Reforms, to incrementally expand our decentralization efforts, to establish an Internal Reforms Secretariat, and help WBI support innovation and South-South Exchanges. Other Key reforms: $13 million of new budget to help implement Access to Information, the Information Management Technology strategy, and other supporting initiatives. 4. The Budget also recognizes the importance of other critical work program challenges by providing over $14 million of new money over and above significant base spending to the following activities: Funding the expanding operational work program resulting from the global crisis: FY11 IBRD financing levels will remain at or near historic highs. Lending, supervision, and implementation requirements continue to rise, and demand for country analytical products remains strong. For ECA and LCR, the demand and need for their services will be higher than pre-crisis levels, and budget is required to deliver results. 1 World Bank Group Voice Reform: Enhancing Voice and Participation of Developing and Transition Countries in 2010 and Beyond, April 19, 2010 [DC2010-0006] 2 Synthesis Paper: New World, New World Bank Group, April 20, 2010 [DC2010-0002]; New World, New World Bank Group: Post-Crisis Directions, April 20, 2010 [DC2010-0003]; New World, New World Bank Group: (II) The Internal Reform Agenda, April 20, 2010 [DC2010-0004]; Review of IBRD and IFC Financial Capacities, April 20, 2010 [DC2010-0005] 3 Medium-Term Strategy and Finance Paper, April 1, 2010 [SecM2010-0168] 4 As the Bank has adopted a multi-year approach to budgets, increases reflected in paragraphs 3 and 4 are incremental to FY11 budgets anticipated last year. 1 An expanding IDA program: The IDA15 commitment authority of $43.6 billion is the highest to date, and includes $0.8 billion to finance the new Crisis Response Window (CRW). As a result, the costs of lending preparation and supervision activities are on the rise. Attendant decentralization to IDA countries continues to increase. 5. The FY11 Budget is consistent with the broad themes outlined in the recent MTSF. It draws from the guidance received from the Board through the FY11/13 budget/planning engagement points ­ in particular adhering to the resource allocation criteria and reducing net administrative spending to flat budget levels by FY13 (Box 1.1). As a result, Management is requesting an FY11 Net Administrative Budget that is flat in real terms, managed within the +/- 2% flexibility band, with expectations of reducing the use of the band by $16 million over FY10. The budget framework provides immediate multi-year funding to the key priorities we know today, and is affordable. Box 1.1: Key FY11/13 MTSF Themes and Board Guidance The main themes discussed in this year's MTSF focused on: Sound financial management within the context of an integrated view of revenues and expenditures Strengthened alignment of work program and deliverables to World Bank Group strategy and internal reforms Increasing work program flexibility while achieving greater cost efficiency and effectiveness Related guidance from the Board included support for: A return to flat budget levels by FY13, with declining use of the 2% flexibility band The concept of set-aside funding, to provide flexible resources for evolving internal reform/post-crisis needs The importance of maintaining the quality of the core work program and adhering to the existing resource allocation criteria 6. Management believes it has struck a good balance in financing continued high levels of deliverables in support of post-crisis directions, other key work program initiatives, and critical internal reforms as net administrative spending declines. Nonetheless, allocations have been stretched thin across all Units. To optimize the use of limited resources: Management was only able to partially fund a variety of reform-related activities to ensure that at a minimum, change is catalyzed on all fronts. Implementation progress and additional funding needs will be assessed in accordance with the Internal Reform timetable agreed with shareholders. Management pressed to maintain support and focus on front-line activities, but recognized that all Regions will need to deliver an expanded work program with a small real increase in funding (including external funds). With net administrative spending authority declining from FY10 2 levels, funding available for certain initiatives is insufficient and will require redeployments, where possible, trade-offs, and potentially program exits. The budget framework provides limited ($18 million), but sufficient, set-aside to fund work program needs that will be articulated through the fiscal year in accordance with the milestones outlined in the Development Committee Synthesis paper5 and as post-crisis operational needs evolve. The framework also identifies short-term cost savings measures for immediate implementation and describes how program reviews will help Management free up much-needed flexibility over the remainder of the three-year planning cycle. 7. The above recommendations are broadly consistent with the indicative FY11/13 budget framework presented in MTSF FY11/13. But there are risks: The Bank will need to deliver more with less Net Administrative Budget, and a total funding envelope that is likely to be effectively flat in real terms: External funds are likely to rise for key priorities and programs, but just enough to keep work program funding flat for most Units at FY10 levels. Although current projections for external funds remain healthy (6-8 percent growth per annum), growing budget pressures in key donor governments (particularly in Europe) are contributing to a higher degree of uncertainty on the size and predictability of Trust Fund flows than anticipated at the time of the MTSF, creating the risk of diminished funding in FY11 and beyond. Management will be challenged to find short-term savings measures that do not hamper FY11 deliveries: Management identified short term measures - generate travel cost savings, reduce off-site meeting expenditures, implement hotelling, and manage rising fixed costs in FAC Units - intended to assist Units in finding a total of $25 million of resources that they can internally redeploy to fund emerging priorities (and address cost pressures) in FY11. VPUs will be strongly encouraged to implement these measures, and will be asked to report on their progress in order to influence future mid-year and FY12/14 resource allocation decisions. The longer-term challenge of addressing cost structure rigidities in a manner that reinforces the Bank's renewal and increases budget flexibility: Management is exploring themes that could serve as focal points for the next round of actions with long term impact. Themes under discussion include: (i) "A Greener Bank", reduction of carbon emissions (supported by cost savings through hotelling and reduced travel); (ii) back-line optimization ­ this could include further IT and HR reform, additional off-shoring, and potential synergies across the World Bank Group; (iii) focusing on talent ­ measures to increase the capacity and productivity of Bank staff, including leveraging technology; and (iv) work program reviews for non country-focused programs which are currently subject to less systematic oversight. 8. Looking ahead: Management also plans to tailor the timing and purpose of the four engagement point discussions on Budget/Planning for FY11/12 to maximize discourse with the Board on further actions necessary to reposition the Bank in the new multilateralism. Specifics on adjustments to 5 See Annex 1, Synthesis Paper: New World, New World Bank Group, April 20, 2010 [DC2010-0002] and Development Committee Communiqué, April 25, 2010. 3 the engagement points will be highlighted in Management's Action Plan to improve the Budget Process early in the Fall. In response to the new priorities, Management has begun to improve budget processes and data systems to facilitate reporting and gauge the rate of impending changes. These improvements will, among other things, allow baseline budget estimates for priority areas. With these improvements, future engagement point materials will present more comprehensive information ­ both baselines and trade-offs ­ as a means to monitor implementation progress over FY12/13 for priority initiatives. Additional allocations from the set-aside in support of the transformation agenda will be made through FY11. The Board will monitor implementation progress via the Corporate Scorecard (see Annex A for details) starting with the QBR Q2 discussion in February 2011. 9. The FY11 Budget Document has been restructured in light of the Board's very positive reaction to the presentation of budget/planning issues in the MTSF, confirming its policy assumptions and providing the details underpinning the FY11 budget framework: Section 2 ­ Alignment of Work Program Deliverables with Key Priorities: This section follows the format of Section 4 of the MTSF and provides details on how FY11 budget redeployments are aligned with post-crisis directions and internal reform initiatives. Section 3 ­ The Budget Framework: This section follows the format of Section 5 of the MTSF and provides specifics on changes to the budget framework, summarizes Management's request for below-the-line items, reviews Unit budgets, the price factor, and capital budget, and gives an update on program reviews to identify further cost savings. A series of Annexes provides additional technical material including an update on Management's conceptualization of the Corporate Scorecard. 1.2 FY11 Budget Recommendations 10. To carry out the work program described in this document, Board approval is sought for the following budget recommendations for FY11 (in FY11 dollars): A Net Administrative Budget of $1,777.5 million to be managed with a range of +/- two percent Board-related FY11 funding to comprise: o $82.4 million for Executive Directors (EDs), Board of Governors, Development Committee, and Inspection Panel, of which $17.5 million reimbursables o $15.5 million for the Corporate Secretariat, of which $1.2 million reimbursables o $32.5 million for IEG, of which $7.0 million reimbursables Other below-the-line components: o $50 million for the Consultative Group on International Agricultural Research (CGIAR) 4 o Up to $33.3 million in FY11 for the State and Peace Building Fund (SPF) o Up to $17.3 million for the Institutional Development Fund (IDF) to maintain the Fund at the level set by the Board at $25 million o $2.8 million for the Social Development Civil Society Fund (CSF) o No approval is sought in this paper for the FY11 Development Grant Facility (DGF) budget. Management's proposal of $63.8 million for the DGF is being submitted separately, along with the FY10 Annual Review of DGF activities $250.8 million for contributions for the Staff Retirement Plan, Tax Supplement Account, and Other Pension Accounts A Capital Budget of $142.8 million 1.3 Key Highlights Table 1.1: FY11/FY10 Percentage Change in funding (real terms) Unit Type Budget Plan External Funds Regions 0.8% 5.7% Network Anchors -2.3% 7.3% Other operational Units 1.7% -2.9% FAC Units 0.6% 7.4% Total 0.6% 5.9% Budget plan increases over last year favor Regions and Other Operational Units consistent with the resource allocation principles and select budget increases supporting internal reforms. External funding increases are likely to be sustained supporting Regions, Network Anchors, and selected FAC Units. An $18 million set-aside is established, funded from the 2% flexibility band, to support implementation of the transformational agenda and will provide further funding in FY11 as business plans associated with internal reform milestones crystallize. Within-year adjustments to Unit budgets will likely be smaller than last year with the declining use of the 2% flexibility band, as temporary funding to the crisis response is scaled back, and due to rising exogenous costs (e.g., HQ real estate, staff medical benefits). As a result, relative to the FY10 overall spending authority (including external funds), projected funding for Regions will be effectively flat. Short-term savings measures are introduced to assist Units in finding $25 million of resources they can internally redeploy to fund emerging priorities in FY11 by (i) reducing travel expenses ($15.9 million), (ii) reducing off-site meetings expenses ($4.9 million), (iii) implementing STC Hotelling ($3 million), and iv) improving the management of fixed costs in FAC Units. Applying the Board-approved methodology, the price adjustment factor for FY11 is 2.08 percent. This yields an overall price adjustment of $36.2 million. 5 SECTION 2: ALIGNMENT OF WORK PROGRAM FUNDING AND DELIVERABLES WITH KEY PRIORITIES _____________________________________________________________________________________ 2.1 Background 11. Since FY06, the institution has operated within a flat budget environment (in real terms) while delivering significantly increased financial assistance through both IDA and IBRD, and managing a growing Trust Fund portfolio: IDA has grown rapidly over the last two replenishment periods. The IDA15 commitment authority of $43.6 billion is the highest to date and includes $0.8 billion to finance the new Crisis Response Window. Around $14 billion per year are expected to be disbursed under IDA15 to low-income countries, compared to an average of $8 billion under IDA13. IBRD has seen even stronger scale-up in lending commitments. Providing key support to middle-income clients, IBRD almost tripled its pre-crisis lending level (of approximately $13.5 billion a year) to $33 billion in FY09. New commitments in FY10 are expected to reach around $44 billion, exceeding record FY09 levels by another 35 percent. Trust Funds have grown in volume and number over the recent years. While this funding has been helpful in supplementing the financing of a growing mandate and work program, managing and administering Trust Funded programs has significantly added to the Bank's work load. 12. Shifts in administrative spending have reflected the rapid increases in lending and other front- line requirements. Consistent with the Board-approved resource allocation principles,6 spending on Country, Sector and Other Client Services has increased, while support and indirect costs have decreased. More recently, IBRD's front-line services have increased in line with elevated crisis response (see Annex D). 13. For FY11, the Bank will be asked to do more. Along with providing historically high levels of financial assistance, budget allocations must also support: (i) post-crisis assistance focused on the poorest, growth, global collective action, governance and crisis response, and (ii) a wide-ranging reform agenda to help modernize and enhance service delivery, improve supporting processes, maintain standards, and achieve results. 14. With the workload increasing, the Bank will operate within a declining net administrative resource envelope and greater uncertainty regarding external funds growth: Management is proposing a flat real budget for FY11. As a result, relative to FY10, net administrative spending authority will decline due to the elimination of the $33.6 million additional crisis response flexibility above the 2% band, and there will be a $16 million decline in the planned use of the ongoing 2% flexibility band. The remainder of the 2% flexibility band ($18 million) will be reserved to establish a set-aside for work program needs that remain in development (and, hence are not yet fully costed), exclusively for internal reforms and post-crisis shifts. Section 3 presents more details on the budget framework. 15. The combination of an increasing program of activities and a leveling off in work program funding means that the institution will need to do more with less. The challenges of managing in this environment are compounded by the institution's restricted flexibility to free up resources for redeployment from low to high priority areas, with (i) structural rigidities preventing significant budget 6 See Annex Bon Resource Allocation principles. 6 shifts, (ii) multi-year budgets with targeted productivity gains for the most part already fully committed at the outset of the planning cycle, and (iii) limited room for additional productivity measures in the short term. 16. Management therefore was selective in providing targeted funding to strike a good balance in financing continued high levels of deliverables, post-crisis directions, other key work program initiatives, and critical internal reforms: Overall changes in Unit funding ­ through FY11 revision to three-year budget plans, latest external funding projections, and within-year adjustments ­ reflect this approach (see Section 3 for more detail): 17. The cost of VPU work program proposals far exceeded available resources and a number of initiatives only received partial funding. It is expected that further redeployments and/or trade-offs will be required over the planning horizon along with, potentially, work program exits and greater synergies. 18. Although resource redeployments in FY11 are limited, the Bank starts from a strong foundation as the majority of resources and core work programs are already well aligned with priorities.7 Post-crisis directions and internal reforms endorsed by shareholders will guide further investments: Within this strategic framework, Management can strengthen the alignment of resources with strategic priorities and enhance allocation principles and processes to support more results- informed budgeting over the medium-to long-term. It will be critical to monitor implementation progress, assess whether funding priorities and levels are adequate, and gradually consider alternatives to sustain implementation efforts. Future funding considerations will closely mirror the timeline and deliverables agreed with shareholders.8 With its commitment to maintaining a flat budget in real terms, Management will reinforce strategic reviews and further productivity improvements over the medium- to long-term in the planning cycle to maximize available funds for sustaining post-crisis priorities and financing internal reform efforts. The likely reduction in IBRD lending commitments over the next three years, due to capital constraints, will help the Bank accommodate increasing work program focus and activities on other fronts ­ particularly the sizable reform agenda and post-crisis directions ­ within a reduced funding envelope. 19. The following two subsections provide a summary and supporting key examples of budget redeployments aligned with post-crisis directions and reforms. Implementation updates will be provided through the Quarterly Business Reviews. 20. Consistent with the Bank's multi-year budgeting approach, the incremental budget redeployments for select, priority-related initiatives described in this section are above and beyond the expected FY11 budget funding established in last year's planning process. Thus, these adjustments do not reflect the overall change in FY10/FY11 Unit budgets as other factors (e.g., declining use of the flexibility band, increasing HQ real estate costs, the need to find Unit-specific costs savings) contribute to net budget shifts. The net changes to Unit budgets are described in Section 3. External funding estimates aligned with priorities are also in development and, thus, not part of the budget shifts described below. 7 See Section 4 of Medium-Term Strategy and Finance Paper, April 1, 2010 [SecM2010-0168]. 8 Annex 1, Synthesis Paper: New World, New World Bank Group [DC2010-0002/1]. 7 2.2 Select Budget Shifts that Reinforce Alignment with Strategic Priorities 21. While initial estimates on baseline funding for these priorities have been made, they are not confirmed and ready to be presented in this paper. The time between shareholders' endorsement of the Bank's strategic framework at the Spring Meetings and the publication of the Budget Document has been short. Thus, the update provided below focuses on select investments and work program examples while alignment of planning and reporting systems is underway to provide a more comprehensive funding picture by priority area in the coming planning cycle. (i) Activities and Budgets Aligned with Post-Crisis Directions 22. As highlighted, FY11 revisions of Unit budget plans and investments in post-crisis priorities have been selective and partial, compared to much higher Unit estimates of funding needs but seeking to maximize allocation and use of limited resources. Work program implementation will be guided by the Bank's post-crisis Selectivity Framework9 to ensure that constrained funding is focused on key priorities. The following table and paragraphs provide an update on examples of key initiatives/deliverables aligned with priority areas and associated funding. Annex E provides a geographic perspective of alignment. 9 See Annex 6 of the MTSF. 8 Table 2.1: Overview of Deliverables and Budget Funding for Post Crisis Direction Priorities Strategic Priority Select Trends in Key Deliverables Incremental budget increase Comments and Activities for FY11 over what was anticipated last year (per annum $FY10) Target the Poor & Record of $43.6bn in IDA15 $14m in additional funds Managing historically Vulnerable / envelope , continued robust for Regional Units, with high lending and TF Create FY12/13 trend & strong IDA 16 continued focus on AFR, for disbursements, with Opportunities for expected sustained crisis response, minimal new budget IBRD commitments in FY10 increasing costs in client investments and Growth estimated to reach record services and expanding declining Unit envelopes $44bn(35% increase over FY09) and work programs related to will force redeployments remain high in FY11, expected to post-crisis activities within existing work taper off to pre-crisis levels by FY13 BETFs should continue to program budgets Client Services (including AAA, increase support for Bank partnerships, and regional work in low income Only partial funding of programs) remain in high demand countries priority activities in flat Projected FY10 TF volume of $6bn Core work programs and budget environment, as RETFs support to poverty-focused budgets protected Unit requests far activities increasing exceeded available funds Promote Global Increased FIF support for health Past budget increases for FY11: Collective Action ($5.3bn Health Systems Platform) reinforced by external fund Partnerships scaling up growth o Regions are getting Key new global funds such as $900m only $14m in GAFSP for agriculture & food additional funds out security of $62m requested Strengthen Mainstreaming of GAC About $2m funding to o Network Anchors will Governance on-going strengthen Institutional receive only $10m Efforts to improve Institutional Integrity and other out of $84m Integrity and Oversight gearing up oversight functions, in requested addition to past budget o FACs will only receive increases $8m in additional Prepare for Crisis Number of facilities/ mechanisms Part of $14m for Regions funds out of $42m and partnerships that support rapid stated above, building on requested response expanded increases last year New IDA CRW of $0.8bn 23. Target the poor and vulnerable and Create opportunities for growth: Select Examples While budget plans are on a declining trajectory (compared to FY10 levels) across the Bank, Regional Units will target almost $14 million in funding above levels anticipated last year ­ to continue the focus on front-line activities, maintain client support in the aftermath of the crisis, and continue to meet IDA objectives. However, as overall FY11 budget growth for Regions amounts to only a fraction of FY10 levels (see Section 3), redeployments, trade-offs, and work program exits will be necessary across operational activities to fund these initiatives. Examples of where planned spending is expected to rise are as follows: Budget plans anticipate extra budget devoted in AFR to support expansion of IDA, increase supervision to manage complex projects, and further decentralize to improve field presence and strengthen programs targeting the poor and most vulnerable, e.g., by funding staffing of a newly proposed Governance and Fragility hub. 9 Similarly, ECA, LCR, and SAR budget plans devote more budget to support implementation and supervision, develop additional capacity for technical assistance, and build up investment lending to assist with crisis recovery and expand post-crisis activities. Budget plans devote more budget to expand MNA's efforts on the Arab World Initiative ­ to create opportunities for growth in the region, further regional integration, enhance access to finance, develop market-relevant skills, and increase private investments. A variety of Trust Funds and corporate initiatives also expand the Bank's focus on these priority areas while placing further demands on work programs and increasing budgetary pressures for their implementation and/or coordination. Figures presented here reflect overall trust fund capacity ­ not the amount of Bank-Executed Trust Funds (BETFs) supporting the Bank's work program: Russia and Norway contributed $58 million to the Rapid Social Response (RSR) Multi-Donor Trust Fund (MDTF) this fiscal year. Under the first round, the fund financed 18 activities across all Bank Regions to improve social protection systems. An Emergency Window under the Japan Social Development Fund (JSDF) was recently established with funding of $200 million over a 3-year period and $50 million allocated in FY10. Grants are aimed at providing assistance to vulnerable and marginalized groups adversely impacted by the financial crisis, and are closely aligned with RSR and GFRP10 operations. The Malaria Bed Net Initiative will commit $200 million to fund the distribution of 25 million bed nets in the most affected countries across Sub-Saharan Africa, helping to scale up efforts toward comprehensive malaria control by the end of 2010. The Global Framework for Action will help improve nutrition for pregnant women and children under two, and the new joint WB-DFID three-year South Asia Food and Nutrition Security initiative will tackle chronic child malnutrition in the region. 24. Promote global collective action: Select Examples Budget plans devote $10 million in funding above levels anticipated last year to Network Anchors to support their sustained focus on priorities in promoting global collective action and playing a key role in the implementation of the Bank's new knowledge strategy. However, as overall FY11 budget growth for Network Anchors declines, (see Section 3), redeployments, trade-offs, and potential work program exits will be necessary to fully fund these initiatives. Examples of key work program initiatives include: SDN involvement in climate change will remain heavy at the global level. Particularly post- Copenhagen and in the run-up to Mexico (in November 2010), the Network expects an increased focus on agriculture and climate change throughout FY11-12. The Clean Investment Fund (CIF) work program funded by reimbursable revenues is expected to reach $13.7 million in $FY11 a 44 percent increase over FY10 plan. External funding of the Carbon Finance work program is also expected to increase by 2.5% to $FY11 29.1 million. Similarly, PREM expects renewal of the MTDF for Trade and Development with steady or even increased financing, and a continued increase in participation in the Debt Management Facility (DMF). 10 Set up in 2008 to provide immediate relief to countries hit hard by the rise in food prices, the Bank has mobilized more than $337 million in Trust Funds to date in support of the full range of interventions under the Global Food Crisis Response (GFRP). 10 A new $5.3 billion Health System Funding Platform is being built in conjunction with the Global Alliance for Vaccinations and Immunizations (GAVI), Global Fund, and WHO as a mechanism for passing through funds to developing countries. Building on the success of the GFRP crisis response,11 donors have committed $880 million to the new Global Agriculture and Food Security Program (GAFSP). The Bank serves as Trustee of the recently established Adaptation Fund to support developing countries in climate change adaptation. 6.7 million CERs sold by July 2010 have generated about $112 million for the Fund. 25. Strengthen Governance: Select Examples Mainstreaming of Governance and Anti-Corruption (GAC) work in country programs and key sectors continues through existing initiatives and funding, without any additional budget investments to operational activities at this time. In addition to past investments, budget plans anticipate increases of $2 million to Institutional Integrity and other key oversight functions to strengthen governance and anti- corruption efforts. Examples of other expanding key governance initiatives include: The GAC in Infrastructure Advisory Facility, launched in FY09, will scale up activities over the planning period with support from the Governance Partnership Facility to strengthen its assistance to project teams on mainstreaming GAC in operations. The Extractive Industries Transparency Initiative (EITI) MDTF, with a work program in over 40 countries, confirmed priorities and progress at their April Board meeting to advance compliance and validation in candidate countries. The recently announced cross-debarment agreement with other MDBs is sending a clear message on the Bank's anti-corruption efforts to protect the use of development funds. 26. Prepare for crises: Select Examples The increase in budget plans and additional scale-up funding provided to Regions will also support the Bank's ongoing crisis response, through the new IDA Crisis Response Window for example, and work on disaster preparedness. Examples of increased crisis-related work programs and externally financed Trust Funds include: Following immediate support in the aftermath of the Haiti earthquake, the LCR program will implement the Bank's contribution of $266 million12 to help fund the initial phase of reconstruction efforts over the next 18 months. A new Special Envoy has been appointed to support implementation of WB projects and enhance collaboration with other organizations. The Bank has also been called upon by the government and donor community to serve as trustee for the Haiti Reconstruction Fund (HRF), which will enable all partners and donors to work in a coordinated, transparent, and efficient manner in response to the government's priorities. Continued scale up of the Global Facility for Disaster Reduction and Recovery (GFDRR), for coordination within/across Regions and integration of program priorities, is undertaken with existing program resources and capacity/staffing. 11 The Bank's $2 billion fast-track GFRP reached vulnerable populations quickly. As of end 2009, it has provided support to nearly 6 million farm households and food-related social protection programs to 1.5 million people. 12 The Haiti donor conference at the end of March 2010 raised a total of $5.3 billion in pledges to aid reconstruction efforts in the country. 11 The Avian and Human Influenza Facility to date has received contributions for $110 million from external donors and supports country responses to the H1N1 pandemic. The existing Caribbean Catastrophe Risk Insurance Facility (CCRIF)13 is providing a financial solution to the short-term liquidity needs of Caribbean governments in the aftermath of recent disasters with catastrophic proportions. Creation of a Multilateral Crisis Initiative for Latin America and the Caribbean is also underway. The new Financial Crisis Global Expert Team (GET) is operationalizing world class expertise in financial crisis preparedness and response across the Bank Group. With a large and growing pool of seasoned experts, the team has started to provide key support to national authorities and is developing two core preparedness and response products: the Finance Projection Model and the Crisis Simulation Exercise (piloted in Central American and African countries). Work is underway on developing a joint UN-WB rapid response program intended to facilitate swift and coordinated responses in conflict-affected country situations. (ii) Activities and Budgets Aligned with Internal Reforms 27. As with support for post-crisis priorities, investments for reforms have been selective and only partial compared to original funding estimates by Units. Under given resource constraints, Management's budget plan anticipates targeted increases for specific reform critical activities in Other Operational and key Finance, Administrative, and Corporate (FAC) units, relative to budget levels anticipated last year. However, as budget growth for the majority of these Units declines (see Section 3), redeployments, trade-offs, and potential work program exits will be necessary to fully fund these initiatives. 28. Selected funding through the budget plan will be supplemented with set-aside funding as resource needs become clearer. The plan anticipates redeployments of $13 million from set asides for internal reforms. Budget requirements are expected to expand significantly over the planning period with key activities growing in number and size in the outer years. Claims on set-aside funding are expected to increase sharply from FY12 and FY13. 29. A joint Secretariat for Internal Reforms is being set up in OPCS14 to advise, monitor, and report on all internal reform activities and directly support cross-cutting reforms on Knowledge, Matrix, and Decentralization. Building on the experience of the FY10 Business Improvement Fund, it is envisioned that OPCS and the Secretariat will coordinate and submit funding requests to Management for reform initiatives as they develop. Requests will be evaluated based on the immediate need for funds, clarity of impact, quality of the implementation plan, and the reasonableness of the costing estimates. Performance will be monitored throughout implementation to assess the impact of initial investments and inform future funding considerations. 30. The following paragraphs provide an update on examples of key initiatives for each reform priority area and the indicative funding proposal presented in the MTSF. The table below provides a 13 CCRIF was established in May 2007 at the request of the Caribbean Community (CARICOM) Heads of Government. 14 The initial FY11 through FY13 budget for the Internal Reform Secretariat, provided to OPCS, is set at $2.5 million. Additional funding ($1.4 million in FY11, $1.2 million in FY12, $1.1 million in FY13) is earmarked in the set-aside pending the appointment of the new director and further decisions, recommendations on structure, sizing, and work program sequencing. 12 summary of initial investments to kick-start reform efforts and expected budget/cost trends for implementation over the longer term. Table 2.2: Overview of Activities and Budget Funding for Internal Reform Priorities Internal Reform Select Activities & Incremental budget increase for Comments initiative Deliverables FY11 over what was anticipated last year ($FY10) Modernizing New IL risk framework, Initial budget of $2.5m to fund Funding for the Reform Services enhanced implementation Internal Reforms Secretariat Secretariat is expected to support and IL training $4m for initial roll-out of IL reform continue in FY12 and FY13 Key knowledge activities IL Reform: Cost estimates for management activities Initial investment of $11m (with an Regional Units and the such as South-South additional $1.5m earmarked) for approaches for redeployment Exchanges, expanding GETs Knowledge Strategy, including from low-risk projects are still TF Management update funding for GETs evolving. paper discussed with Board Continued funding for support of Funding for the Knowledge Follow-up on Financial Innovation and South-South Strategy is slated to increase, Instruments Review exchanges in development subject to ongoing assessments of activities by the Knowledge & Learning Council Enhancing Further decentralization See above on funding for Highly likely and significant Service Delivery (e.g., AFR Governance and consolidated Internal Reforms cost associated with full Fragile States Center) Secretariat implementation of Global Global Bank models under $6m for Regional Units linked to Bank Initiative discussion decentralization Matrix Reform Task Force Key supporting Human Resources Funding the exploration & For HR reforms, additional reforms IT Reforms including new development of options under the costs will be funded through IMT Strategy, Operations "Global Bank" agenda redeployments and Knowledge Systems Initial investment of $2m for For implementation of IT Program (OKSP), Business implementation of IMT strategy Reforms in FY11, $4m was Intelligence (BI) Funding of $5m for the Office of originally estimated and this Resource Management (TF Information Security (OIS) - as initiative will be funded integration, Corporate planned last year through a mix of capital, Scorecard, Simplification of administrative budgets and systems and processes) internal redeployments. Increased administrative budget highly likely and could be very significant. Maintaining Transparency (new Open $2m for roll out of Access to Highly likely and significant standards and Data initiative launched in Information Policy cost for front line Units that achieving results April, new Access to $4m in support of IL, mentioned remain in development Information Policy roll-out above, will also support reform effective July 1) initiatives for improved Results Risk and Results and Risk Management Management 13 31. Modernizing services: Select Examples Seed funding has been provided to kick-start core elements of the Investment Lending (IL) reform and the new Knowledge Strategy. These are critical components in the Bank's vision to modernize its services and to remain relevant to the new multi-polar realities of development challenges. Targeted budget increases and related activities include: Investment Lending Reform: The Budget plan anticipates OPCS will redeploy $4.1 million to spearhead and roll-out key components of the new IL framework, including risks and results work. Efforts are underway to pilot the new Operational Risk Assessment Framework (ORAF), with 35 to 40 projects expected to apply the ORAF before the end of FY10. Project restructuring guidelines have been revised and approval processing has been automated. New Implementation Status and Results templates have been designed and will be tested in the coming months. IL pre-roll out training continues with the help of Regional focal points through which almost 2000 staff members have already been trained. An update on the IL reform concept and roadmap has been provided to CODE at the end of March and progress reports will be shared with the Board on a frequent basis. WBG Knowledge Strategy: To make headway in implementing the Bank's new Knowledge Agenda, significant resources will be needed to ensure that global and regional knowledge is better captured, shared, and disseminated to staff and clients. An initial budget of $11 million has been allocated to the Knowledge & Learning Council (KLC) in FY11, with $5 million funded centrally and $3 million each transferred from Regions and Networks. An additional $1.5 million has been earmarked in the FY11 set-aside. The funds will be released to initiatives and Units subject to ongoing impact assessments by the KLC. For example, experience with the Global Expert Teams (GETs), launched in early 2009, has been very positive. Key examples of strengthened knowledge activities in operations include EAP's plan to turn its Singapore Urban Hub into a global center for knowledge-sharing and AFR's focus on key South-South knowledge exchanges (e.g., between China and Africa on Special Economic Zones). $3.1 million in scale-up funding for WBI includes support for South-South knowledge exchanges and its Innovation activities. Trust Fund Management: The update to the 2007 Trust Fund Management Framework (TFMF) was presented to the Budget and Audit Committees in May and will be discussed informally by the Board in June. The paper notes that integration of IBRD/IDA Trust Funds with Bank operational and management systems is a priority, follows the Bank's Investment Lending and AAA reform, and is aligned with the Results Agenda and new Access to Information Policy. 32. Enhancing service delivery: Select Examples The budget plan devotes $14 million in additional funds above levels anticipated last year for expanding key post-crisis priorities, which will also help support continued efforts to enhance service delivery in Regions. Key examples include: Ongoing Decentralization: Across Regions, efforts are underway to move more task management and country/sector leadership to the field. AFR has already increased the presence of regional technical staff, with decentralization of sector leaders and creation of sub-regional technical clusters on health, nutrition and population in Nairobi and Dakar. The Region is also increasing its number of Country Directors and planning to establish a hub to house a Governance and Fragility Cluster in the field, with highly experienced staff to work across the range of fragile states in the region. EAP is scaling up its existing Bangkok and Singapore hubs to 14 strengthen direct services and knowledge on governance, financial crisis support and South- South partnerships on urban development. Global Bank and Matrix Management: Considerations of long-term priorities, including implementation options and funding implications, are ongoing and updates will be provided throughout the new planning cycle. 33. Supporting reforms: Select Examples Key investments have been made to advance the implementation of supporting reforms in FY11. However, as highlighted previously, seed funding falls short of original cost estimates and future funding will be assessed in conjunction with implementation progress. Key examples include: Human Resources: As indicated in the MTSF, some funding from set-asides is expected for the implementation of HR reforms through development of a global HR framework, which will support improvements in staff recruitment, diversity, mobility and redeployment, performance and development, as well as talent attraction and retention (including a global compensation review). New Learning Strategy: As part of the Bank's broader effort to improve the institutional Knowledge Agenda, a strategic framework for staff learning, largely to be funded through redeployments, is also under development. Key conceptual principles, elements of a corporate curriculum, governance structure and implementation options have been defined. Information Management Technology (IMT): The budget plan devotes incremental funding of $2 million for FY11 and $3 million each for FY12 and FY13 to support operationalization of the new 3-year IMT Strategy. Funding is expected to help implement work related to the Operations and Knowledge Systems Program (OKSP), Business Intelligence (BI), and Access to Information initiatives. The Office of Information Security (OIS) in GSD will receive initial funding of $5 million, the same as FY10. Budget Reform: A progress update on the ongoing work to improve resource management, planning and reporting, including development of a Corporate Scorecard will be provided as part of the Management Action Plan update in early FY11. 34. Maintaining standards and achieving results: Select Examples Key activities have been funded (and launched) to start improving the Bank's transparency, risk management, and results monitoring over FY11. Examples include: Transparency: The Open Data Initiative, launched in late April, provides download access to over 2,000 indicators from World Bank data sources (in this context, the budget plan recognized the $1.4 million in lost revenue in DEC). Concurrently, roll out of the Bank's new comprehensive Access to Information policy (effective July 1) is underway across a variety of Units (ISG, EXT), with systems set up and the preparation of a handbook. The estimated cost of $5 million to finance this roll-out has been supported with $2 million of central funding. Other elements are expected to be absorbed through existing work program reallocations. Risk and Results Management: Overall seed funding provided to initiate IL reform efforts is also going to help improve key operational risk and results management processes in FY11. For example, a team staffed jointly by OPCS and the Regions has been put into place to review project risk assessments. At the corporate level, work has begun to define a Corporate Scorecard which will be operationalized by the end of 2010. 15 (iii) Other Incremental Costs and Activities Associated with Key Work Program Priorities 35. As indicated in the MTSF, Management will also fund costs related to: HQ Real Estate: In FY11, $35 million has been funded within the Real Estate Proposal budget line item. This represents a $10 million real increase over FY10 costs. The cost of Staff Benefits managed centrally, such as medical insurance, will increase by $6 million in FY11 relative to FY10. 16 SECTION 3: THE BUDGET FRAMEWORK _____________________________________________________________________________________ 36. This section describes the key changes to the budget framework (i.e., declining use of the flexibility band, characteristics of the set-aside, short- and medium-term efforts to seek further cost efficiencies). It summarizes Management's request for below-the-line items, the price factor, and capital budget and reviews movements in Unit budgets to reinforce the message in Section 2 that redeployments and other savings will be necessary to help fund the additional budget devoted to priorities. 37. The changes to the budget framework are consistent with the proposals discussed with the Board at the MTSF. In particular, the framework adheres to the three broad themes outlined in the MTSF and recognizes: The Board request to reduce net administrative spending to flat budget levels by FY13 as a means of "doing more with less" thereby pursuing greater cost efficiencies. Adjustments to expenditures should be based on needs and priorities consistent with the resource allocation principles/criteria reaffirmed at the MTSF discussion. The need for greater medium-term work program flexibility to maximize future development impact (recognizing that budget allocations should be driven by events ­ not predetermined timetables). Improved integration of external funds into the framework. 38. The overall size of total work program funding remains difficult to estimate given uncertainties in external funds growth. These uncertainties have grown since the writing of the MTSF, with the fiscal frameworks of key donor governments (especially in Europe) under growing pressure.15 39. Consistent with the declining net administrative spending trajectory, after factoring in prospective external fund growth and within-year budget adjustments, total work program funding growth is expected to remain constrained in FY11 for the majority of Units. 3.1 Short-Term: Proposed Net Administrative Spending, Use of Set-aside, Cost Savings Measures Effective Immediately in FY11 40. Management proposes a declining Net Administrative Budget spending authority for FY11 (see Figure 3.1) consistent with the requirement to return to flat budget spending by FY13. Relative to FY10, spending authority will decline by $33 million from the elimination of the additional crisis response flexibility above the 2 percent band, plus, in addition, Management plans a $16 million decline in the use of the 2 percent flexibility band. A portion of the 2% flexibility band ($18 million) will be reserved to establish a set-aside for work program needs that remain in development and, hence, are not yet fully costed. The use of the set-aside will be restricted to internal reforms and post-crisis shifts. 15 Although the fiscal frameworks of key donor governments are under pressure, only a small number of donors are explicitly reducing their commitments. 17 Additional budget for Units was generated through savings (of approximately $28 million) following a program review of central accounts components. Figure 3.1: Comparing FY10 and Proposed FY11 Net Admin Budget Spending Authority FY10/11 Net Admin Budget Spending Authority FY10 Additional crisis (From FY09 Base, $FY10m) response flexibility. (Not used in FY10, Eliminated for FY11/13) Remainder of the flexibility band 4% band provides but a small cushion for unanticipated needs) FY10 Crisis response & business improvement Set aside for Post-crisis and set asides 2% band Internal Reforms (Fully disbursed to (Reduced to $18m from $23m units during FY10) $1,741 projected in MTSF) Budget for Programmed budget units, for units & central central accounts accounts, Real Estate Flat budget $0 FY10 Recommended Framework FY11 Framework 41. The rationale for the FY11 Set-aside draws from the positive experiences in FY10. The Crisis Response Credit line and Business Improvement Fund allowed Management to direct budget to work program activities as crisis-related needs were established and business improvement priorities were sequenced and costed. Releases from both funds began as early in FY10 as possible once needs were understood. 42. The general objective of the FY11 set-aside fund is to provide flexible resources for evolving internal reform/post-crisis needs. Use of the Set-aside funding should maximize business impact to position the Bank in the new multilateralism and be consistent with the time line for deliverables set out in the DC Synthesis Paper. As such, disbursements for incremental funding for internal reforms will begin in early FY11. Management anticipates that roughly $13 million of the $18 million will be devoted to internal reform efforts. The remaining $5 million provides budget flexibility for evolving post-crisis directions needs. This working assumption provides the foundation for the shifts in Unit budget described below, and the shifts in geographic spending described in Annex E. To access funds, the Internal Reforms Secretariat will coordinate and submit funding requests for initiatives as they develop. Requests will be evaluated based on the immediate need for funds, clarity of impact, quality of the implementation plan, and the reasonableness of the costing estimates. 18 43. Management believes the $18 million Set-aside is insufficient to provide the flexibility necessary to respond to budgetary needs in FY11. To complement the Set-aside, Management has therefore identified efficiency measures for implementation in FY11. These measures identify areas of lower priority spending from which Units will redeploy to meet needs as they emerge through the fiscal year. 44. These short-term savings measures are a result of program reviews and consistent with the criteria for identifying cost savings presented in the MSTF (reproduced in Box 3.1 for convenience). For FY11, these measures assist Units in finding $25 million of resources they can internally redeploy to fund emerging priorities in FY11 : General Travel Cost Savings ($15.9 million): Targeted reductions - 5 percent in Regions, 10 percent in Network Anchors and Other Ops, and by 20 percent in FACs. Management believes, this is the most effective way to control expenses, and a few Units have already implemented similar measures. With this general approach, Units will have the flexibility to choose the right combination of travel between operations, training, retreats, etc., depending on their needs. Reduce off-site Meetings Expenses ($4.9 million): The total amount Units spent in FY09 on this expense category was $13 million, including Meetings and Other Events, Staff Retreats, External Training, Meetings & Other. "Off-site Meetings" expenses includes not only staff retreats, but also some operational work, and other areas in which changes will be forthcoming, such as Knowledge and Learning. At this point, the proposal is therefore to ask Units to reduce off-site retreat/meeting costs for staff and management activities only, protecting operational activities. STC Hotelling ($3 million): Estimated savings of around $3 million through greater efficiencies in space use and, hence, lower lease charges. Controlling Staff Flexibility in FACs: Management is working to develop mechanisms to control the significant increase in staff costs in FAC Units over the past years. This measure will not yield direct cost savings, but will enhance the flexibility of back-line Units and help set the stage for implementing Back Office optimization over the medium term. 19 Box 3.1: Cost Structure Rigidities and Criteria Guiding Cost Savings Measures As first outlined in the MTSF, rigidities in the cost structure limit opportunities for VPUs to redeploy existing budget from low to high-priority areas in the short term: The inability to increase work program selectivity: The majority of VPUs indicate that donor/ shareholder interests make fully exiting legacy work programs difficult. The opportunity costs associated with low performing staff: With the flat budget environment, the opportunity cost of low performing staff is rapidly increasing. Rising fixed costs: With increased staffing and decentralization, Bank fixed costs are rising (5 percent increase compared to December 2008), further constraining budgets. Uneven organizational structure: The number of small Finance, Administrative, and Corporate (FAC) VPUs has grown in the past few years leading to increased overheads and the potential for increased fragmentation in the work program. By contrast, AFR has 1,550 staff and more than $400 million total work program funding. In light of these cost rigidities, to increase budget available to fund key activities of the transformational agenda that remain in development, Management is developing a mix of new cost savings measures that will be deployed in the short- and medium term. The criteria guiding Management in the selection of new measures are as follows: Measures must reinforce, not impede, work program shifts supporting the transformational agenda and will be sequenced as post-crisis directions and internal reform needs crystallize. Measures need to respect the long-standing resource allocation principles. In particular, they must ensure savings benefit client country work programs and enhance delivery capacity. Measures should trigger a significant cost-benefit return. Ad-hoc/arbitrary actions should be avoided. 3.2 Medium-Term: The Evolution of the Program Review Work Program 45. Past planning cycles indicate that the level of resource flexibility needs to be in the order of 4-5 percent of the Net Administrative Budget to have any meaningful impact. Therefore, to ensure adequate budget flexibility in the medium- to long-term, Management believes savings in the order of $60-80 million per annum are necessary. 46. However, medium-term measures must promote sustainable improvements to the cost structure, while improving the Bank's capacity to deliver on its transformational agenda. The Bank should be able to redeploy resources quickly and decisively to high priority areas, to respond to the changing internal and external environment within a given resource envelope. The timing for implementing these medium-term savings is consistent with the working hypothesis described in the February 2010 Emerging Directions presentation: Management is committed to ensuring that longer- terms savings would be linked to funding longer-term mainstreaming of key initiatives. 47. Management is exploring themes that could serve as focal points for the next round of actions with long term impact. Themes under discussion include: (i) a "Greener Bank", reduction of carbon emissions (supported by STC hotelling and reduced travel); (ii) back-line optimization ­ this could include further IT and HR reform, additional off-shoring, and potential synergies across the World Bank Group; 20 (iii) focusing on talent ­ measures to increase the capacity and productivity of Bank staff, including leveraging technology; and (iv) work program improvements.16 48. Work on identifying these measures is well underway. Since the FY10 Budget approval, Management's work on a series of program reviews in three focal areas ­ Expenditure Objects, Business Processes, and Organizational Clusters17 ­ is informing where savings opportunities, consistent with the criteria, can be found. In addition, Management (i) retained the services of PricewaterhouseCoopers LLP to undertake a high-level review of synergy opportunities in back-line functions among the WBG entities, and (ii) initiated a survey among other International Financial Institutions (IFIs) to determine relative progress in the implementation of efficiency initiatives. A more comprehensive update on the status of efficiency initiatives, including the findings of the WBG synergy review and medium-term actions, will be included in the upcoming Q4 QBR. 3.3 Summary of the FY11 Administrative Budget Proposal and External Funds 49. Consistent with the adjustments to the budget framework described above, the proposed FY11 budget and work programs support the Bank's continued crisis response, post-crisis directions, and internal reform agenda, while protecting core work program priorities and maintaining some flexibility through the set-aside to fund critical initiatives still evolving. Table 3.1 summarizes these trends and the remainder of this section provides more specifics on each budget item and Unit resource envelopes. 50. Bank Net Administrative spending is expected to peak in FY10 with the full use of the +2% flexibility band. To implement the work program along the key priorities and parameters endorsed by shareholders, Management seeks approval of a FY11 Net Administrative Budget that is flat in real terms, following Board guidance to return to flat budget spending by FY13. In nominal terms, the Net Administrative Budget will increase by around $36 million with application of the price factor. Table 3.1: FY10/11 Budget and Total Funds Summary ($ millions)18 FY10 Budget FY11 Budget Net Admin Budget Net Admin Budget in $FY10 $1,741.3 $1,741.3 Price increase $36.2 Net Admin Budget ($Nominal) $1,777.5 Memo: Board-approved expenditure range +/-2% +/-2% Below-the-line items Budget for Boards, SEC, IEG (FY10$) $101.0 $102.1 Board Price Increase $2.7 Contribution to Staff Retirement Accounts $232.2 $250.8 Grant Facilities (DGF, SPF, IDG) $171.2 $167.2 Total Admin Budget Sum of Net admin Budget and below-the-line items $2,245.8 $2,300.3 External Funds Bank-Executed Trust Funds (BETFs) $447.0 $484.5 Total Reimbursables $303.2 $322.8 Total Funds Sum of Total Admin Budget and External Funds $2,996.0 $3,107.3 16 Improvements are proposed through the application of more systematic oversight and governance frameworks on programs that are currently not subject to such mechanisms. 17 See FY10 Q2 QBR, page 28 and Annex 7, for more details. 18 See Annexes F and G for more details. 21 51. Taking into account "below-the-line" items, the total administrative budget will increase nominally by 2.5 percent ($54 million) to $2,300.3 million. Earlier in April 2010, the MTSF document projected a FY11 total administrative budget $33 million higher ($2,334 million). The reduced figure in this document is attributed to the following: A downward revision of the Price factor (from $57 to $38 million), reflecting the impact of US$ appreciation in Country Office price factor components; No funding of the Africa Capacity Building Fund (ACBF) through the Administrative Budget, resulting in a decrease of $20 million compared to the MTSF document; An increase in DGF funding by $2 million, reflecting a small rise in core DGF funding; An increase in Board, SEC, and EDs spend by $3 million, mainly due to decreased IFC/MIGA Board reimbursables and increased access to information costs; A small increase of $1 million in contributions to the Staff Retirement Plan. 52. External sources of funds will likely increase in FY11 as a complement to the budget for work program funding: Reimbursables and fee income is estimated to be $322.8 million; BETF spending is projected at $484.5 million in nominal terms (compared to $482.1 million of actual expenditures for the past 12 months ending FY10 Q3). However, as stated above, these projections are highly uncertain in light of recent events in Europe. 3.4 Overall Changes in Unit Funding 53. Overall changes in Unit funding are composed of three elements: Budget Plan revisions: Three-year Unit-specific budget plans are revised annually by Senior Management after receiving Board guidance on budget parameters at earlier Board/Management engagement points in the planning cycle. These plans represent the expectations for Unit spending trends as they are known at present and are based on existing resource allocation criteria. Revised External Funding Projections. Projections are revised annually in consultations with the Units and the CFP VPU. Within-year adjustments to the budget plan: Consistent with Budget reform principles, plans can be revised as priorities shift and opportunities arise. Often, these shifts are redeployments from contingencies or, as the case last year, from the Crisis Response Credit line and Business Improvement Fund, and releases from central accounts. These adjustments can be temporary increases in funding (e.g., to crisis response) or incorporated into plans in subsequent years for longer-running initiatives (e.g., Office of Information Security). The total amount of within-year adjustments varies ­ mostly driven by the overall size of set-asides/contingencies. 3.4.1 Revised Budget Plans 54. Table 3.2 shows the FY11/10 shifts in budget plans. Adhering to the resource allocations principles, these revisions reflect the challenges Management faced in balancing the operational demands in support of post-crisis directions, essential longer-standing priorities, and internal reforms. 22 Overall, Regional Units received almost $9 million in new funding ­ to maintain service levels in the aftermath of the crisis and continue to meet IDA objectives. Other Operational Units, and a small set of FAC Units, received funding for Internal Reform initiatives. Network Anchor budget plans will decline. Table 3.2: Trends in the Budget Plan by Unit Type ($FY10m)19 Regions Network Anchors Other Ops FACs Total FY10 Budget Plan $1,050.7 $159.7 $141.8 $488.4 $1,840.5 FY11 Budget Plan $1,059.4 $156.1 $144.2 $491.1 $1,850.8 FY11/10 (change) $8.7 -$3.6 $2.4 $2.7 $10.3 FY11/10 (%age change) 0.8% -2.3% 1.7% 0.6% 0.6% Memo: FY12/13 Budget Trajectory Increasing Slightly Decreasing Slightly Decreasing Decreasing Decreasing 3.4.2 Revised External Funding Projections 55. As indicated earlier, expected growth in external funds remains uncertain but, at present, projections remain robust for most Unit types (Table 3.3) and will remain a contributing factor in influencing incremental shifts in the Bank's work program. Regions are expecting to receive the largest increases in external funding in absolute terms while Network Anchors will receive the most in percentage terms. However, as described earlier, these funds are difficult to project. Table 3.3: Trends in External Funds by Unit Type ($FY10m)20 Regions Network Other Ops FACs Total Anchors FY10 External Funds $312.1 $201.3 $49.0 $152.3 $714.7 FY11 External Funds $329.9 $216.0 $47.6 $163.6 $757.1 FY11/FY10 increase (change) $17.8 $14.7 -1.4 11.3 42.4 FY11/FY10 increase (%age change) 5.7% 7.3% -2.9% 7.4% 5.9% 3.4.2 Total Funding 56. After consolidating the shifts in budget plans and external funds, planned spending for all Units will increase in real terms with the exception of Other Operational Units which will grow by only 0.6 percent in real terms (Table 3.4). Table 3.4: Trends in All Funds by Unit Type ($FY10m)21 (Budget Plan and External Funds) Regions Network Anchors Other Ops FACs Total FY10 All Funds $1,362.8 $361.1 $190.7 $640.7 $2,554.2 FY11 All Funds $1,389.2 $372.1 $191.8 $654.7 $2,607.9 FY11/10 Difference $26.4 $11.0 $1.1 $14.0 $53.7 FY11/FY10 %age change) 1.9% 3.0% 0.6% 2.2% 2.1% 19 See Annexes G and H for more details. 20 See Annexes G and H for more details. 21 See Annexes G and H for more details. 23 3.4.3 Total Funding After Adjusting for the Projected Within-Year Budget Adjustments 57. Although increases in budget plan and external funds provide more funding to Units in FY11, projected within-year adjustments are $25 million less in FY11 as the temporary funding for crisis response is eliminated and set-aside funding Table 3.5: Trends in All Funds ($FY10m) balances post-crisis needs (Regions) and the Total internal reform agenda (non-Regions). FY10 All Funds $2,608.5 Memo: Within-year adjustments $54.3 58. As a result, FY10 to FY11 growth in total FY11 All Funds $2,637.2 Unit funding is expected to be 1.1 percent in real Memo: Projected within-year adjustments $29.3 terms (see Table 3.5) - about 1/3 the real FY10 FY11/10 All Funds increase $28.7 growth anticipated in last year's Budget Document and the lowest projected growth in well over half a FY11/FY10 all Funds increase (% Change) 1.1% decade. As described in Section 2, Unit requests for additional funding were only partially met: Total funding for Regions will grow by about $6.8 million ­ a fraction of FY10 growth. Although Regions received $14 million for critical initiatives relative to FY11 levels established last year, their overall net administrative budgets22 will decline compared to FY10. Restricted funding levels will force these Units to make redeployments and trade-offs ­ likely from the savings areas (travel, meetings, hotelling) identified earlier in this section. Total funding for Network Anchors will increase by 5.0 percent in real terms in FY11 ­ on the strength of projected releases from Set-Asides and expected external funds growth. Releases from Set-Asides reflect investments in internal reforms ­ in particular, to begin the implementation of the knowledge strategy. Other Operational Units (i.e., OPCS, DEC, WBI) will see their budgets held constant ­ but will see significant shifts in their work programs with the funding of the Internal Reforms Secretariat ($2.5 million), funding for WBI's support of innovation and South-South activities, and increases to DEC's budget to partially cover the costs of the Open Data Initiative. These Units are expecting decreases in external funds (-2.9 percent). Overall funding for Finance, Administrative, and Corporate Units will increase by 0.7 percent, although budget increases and external fund growth are concentrated in a small number of Units. Budget increases are for internal reform priorities (e.g., Institutional Integrity, Access to information, and IMT). 22 Program Budget plus projected within year adjustments. 24 3.5 Central Accounts Items 59. Along with Unit-specific budgets, the Net Administrative Budget contains the centrally managed accounts that consolidate expense activities which are not easily ascribed to specific Units. Highlights are as follows (see Table 3.6 for details): The budget for the Staff Separation Fund will be $9.3 million. This fund supports a number of business instruments dealing with staff in transition and exit. The HQ Real Estate Proposal, a separate reporting line-item since FY10, will have $35 million allocated in FY11 and the budgeted amount is as expected last June. Centrally managed overheads and benefits are expected to decline by $27 million in real terms. This decline is in spite of expected increases in benefits costs such as Mobility Premium, Education Allowance, Country Office Leave Accrual, and Medical Insurance. The reduction is due in part to savings generated through a program review of components under this budget item; the savings have been incorporated into Unit budget plans. Management does not expect any further substantive savings from the central accounts review over the near term, but work is under way in order to mitigate the high (budgetary) volatility associated with select components (see Box 3.2). Guidance will be sought from the Budget Committee in FY11 in advance of any decisions. Table 3.6: Centrally Managed Accounts ($FY10 millions) FY10 FY11 Staff Separation Fund $8.7 $9.3 Centrally-Managed Overhead & Benefits -$159.2 -$186.6 Business Continuity Plan $15.4 $14.3 HQ Real Estate Proposal $25.1 $35.2 J Building Remap $10.0 $10.5 Others $10.2 $7.2 Total -$89.7 -$110.1 Box 3.2 Other Adjustments to Central Accounts under Exploration Management is reviewing the budgetary treatment of expenditures incurred on Centrally Managed Benefits in order to minimize the impact of discount rate volatility. Movements in this rate are outside of Management's control and thus guidance on any specific proposals will be sought from the Budget Committee in FY11, in advance of changes in approach. Four of the central benefits are particularly sensitive to interest rate and inflation rate fluctuations: Separation Grant, Annual Leave Payments, Resettlement on Relocation, and Expiration Payments. The valuation of employer liabilities associated with these benefits can change significantly as a result of changes in actuarial assumptions. A 100 basis point change between the budgeted and actual rates results in a +/- $20 million change in the benefit liabilities charted to the administrative budget. 25 3.6 "Below the Line" Items 3.6.1 Boards, Corporate Secretariat and Independent Evaluation Group 60. Highlights are as follows (see Table 3.7 for details): The FY11 overall funding for Executive Directors (EDs), Board of Governors, Development Committee, and Inspection Panel totals $FY10 80.7 million, of which $17.5 million is reimbursable budget that represents cost sharing arrangements with IFC and MIGA. This reflects the COGAM discussion of the Board-related budget. The figure for the EDs' Budget for FY11 ($67.3 million) in Table 3.7 incorporates the recommendations made by COGAM on May 19, 2010, including a gross increase of the EDs' Budget by $1.8 million with a parallel reduction23 of $ 500,000 in the ED's individual budget category of communications and IT. This net overall increase of $1.3 million is related to the establishment of the 25th Chair. COGAM has however asked that a comprehensive review of the EDs' Budget be conducted to identify options for further cost savings, efficiencies and trade- offs. The $1.3 million increase in ED's budget will be offset by a $1.3 million reduction in the Board of Governors Budget, which due to efficient management has systematically under-spent in the past several years. This measure is consistent with the commitment and efforts by the Board to aim at maintaining at flat real level the budgets directly related to the Board. The proposed budget for FY11 for SEC in Table 3.7 amounts to $15.2 million, of which $1.2 million is reimbursable budget. Although a "below the line" unit, SEC is currently subject to the differentiated productivity tax, but is not eligible for institutional contingency funds, or the flexibility band or any claw-back of the productivity tax. As a significant part of foreseen new initiatives under the SEC Work Plan for FY11 are not properly funded, the FY11 Budget line of SEC has been increased by a contingency-like provision of $0.5 million, which may be used exclusively for funding new activities and initiatives explicitly authorized by the Board in the course of the financial year. The proposed FY11 IEG budget reflects the first year of a consolidated request for its activities across the Bank Group ($FY10 31.8 million). Reflecting the true cost to the total administrative budget, the cost of activities pertaining to IFC and MIGA are shown as reimbursables (-$7.0 million). 23 EDs' FY11 Budget is also less by $2 million when compared to FY10 due to reduction in allocations for Annual Meetings travel costs. 26 Table 3.7: Board-Related Budgets ($FY10 millions) FY10 FY11 EDs total $68.0 $67.3 Board of Governors $9.4 $8.2 DC Secretariat $1.8 $1.8 Inspection Panel $3.1 $3.4 SEC $14.4 $15.2 IEG $24.9 $31.8 Board, SEC Reimbursables -$20.5 -$18.7 IEG Reimbursables -$0.1 -$7.0 Total $101.0 $102.1 3.6.2 Staff Retirement Plan and Retired Staff Benefits Plan 61. Contributions to the Staff Retirement Plan, the Retired Staff Benefits Plans, and the Post Employment Benefits plan are expected to increase to an estimated $251 million in FY11, when compared with FY10 ($232 million). The FY11 allocations are based on the new modified methodology which involves use of a five-year asset averaging method and a hybrid funding method that includes 10 years of expected staff hires in the valuation model. The FY11 allocations are in line with estimates stated in the April 2010 MTSF. 3.6.3 Grant Making Facilities 62. Grant making facilities allocations in FY11 remain broadly in line with MTSF projections from April, 2010. 63. Development Grant Facility (DGF)24: Budget contributions to the Development Grant Facility will decline by $9 million in nominal terms from FY10 to FY11. With the separation of Institutional Grant programs (Institutional Development Fund and Civil Society Fund) from DGF in FY09, and with changes in governance and reporting processes, Management has now more clearly defined DGF as a grant instrument in support of partnership programs, while strengthening its original objectives of supporting catalytic and innovative partnerships. In the light of this strategic re-focus, Management is considering reductions to the DGF budget by about 25 percent over a three-year timeframe, with an initial reduction of 15 percent in FY11 and further 5 percent annual reductions (should budget pressure continue). CGIAR is now segregated from DGF as a separate below-the-line item for approval by the Board. 64. Management plans to fund the Africa Capacity Building Foundation (ACBF) through the IDA Regional Programs Window starting in FY11. This arrangement will allow ACBF to benefit from the same operational arrangements (including supervision), that apply to all IDA operations (M&E, fiduciary oversight). The arrangement will also position clients well to build their own capacity. Therefore, there is no FY11 funding request for ACBF through the Administrative Budget. 65. State and Peace Building Fund (SPF): Management proposes a funding level of up to $33 million for FY11. The SPF was established as a Multi-Donor Trust Fund in April 2008, with an overarching goal to strengthen state and local governance and peace-building in fragile and conflict-affected countries. The Board endorsed an initial allocation of $100 million to the fund over FY09-11, and to date the Netherlands, Australia and Norway have contributed a further $18.9 million. Denmark entered as a new 24 FY11 Development Grant Facility Budget and Reorientation of DGF Strategy, May 19, 2010 [R2010-0120]. 27 donor in FY10, and a contribution of approximately $1.8 million is expected. The demand for SPF funds continues to be substantial, and there is a robust pipeline of proposals. While it is difficult to estimate future demand for SPF funds beyond FY11 accurately, early indications suggest that demand will probably continue to be very high, as the global financial crisis and its adverse impact on fragile and conflict-affected countries is likely to further increase. 66. Institutional Development Fund (IDF): For the Institutional Development Fund, Management proposes a FY11 funding level of up to $17.3 million subject to cash management requirements, in order to maintain the commitments at the level set by the Board at $25 million. The request reflects the extraordinary effort to clean up and close a number of inactive grants which led to reflows higher than in previous fiscal years. The IDF was established in FY93 to provide "quick response" funding for action- oriented capacity-building programs focusing on good governance that are identified in the Bank's Country Assistance Strategy and policy dialogue. IDF grants are used to strengthen institutions when specific Bank-financed projects are not anticipated and other donor resources are not available. The IDF has usefully complemented Bank lending and analytical/advisory services in all Regions and is expected to continue along the same trajectory over the next three years. IDF funding is provided entirely from Bank resources and related investment income.(See Annex J) 67. Institutional Grant making Programs: Social Development Civil society Fund (CSF): Management recommends a budget of $2.8 million for FY11, unchanged from previous years. 68. Consultative Group on International Agricultural Research (CGIAR):25 Management is proposing $50 million in funding to CGIAR consistent with past requests. Guided by a vision of reduced poverty and hunger, improved human health and nutrition, and greater ecosystem resilience, brought about through high-quality international agricultural research, partnership and leadership, the CGIAR (established in 1971) applies cutting-edge science to foster sustainable agricultural growth that benefits the poor. The Bank has historically funded CGIAR though a grant mechanism which, since 1997, has been through the Development Grant Facility (DGF). The level of DGF support to the CGIAR has remained at $50 million annually during this period. Because of the size of the CGIAR support relative to the rest of the DGF portfolio, as well as the long term nature of the CGIAR's mission, there has been broad recognition that the Bank's CGIAR funding needs to be handled separately to ensure its security and visibility. Furthermore, treating CGIAR funding as separate from DGF would present the opportunity to elevate the Bank's commitment to CGIAR. Management therefore, proposes that CGIAR be presented as a separate "below-the-line" budget item starting FY11. Table 3.8: Grant Making Facilities Budgets ($FY10m) FY10 FY11 Institutional Development Fund (IDF) $12.0 $17.3 Civil Society Fund $2.8 $2.8 State and Peace-Building Fund (SPF) $33.3 $33.3 Core DGF $72.9 $63.8 Consultative Group on International Agricultural Research (CGIAR) $50.0 $50.0 Total Grant Making Facilities, including CGIAR $171.0 $167.2 25 See Annex H for more details on CGIAR. 28 3.6.4 External Sources of Funds 69. External sources of funds (BETFs and Reimbursables) will continue to be an important leveraging tool to reinforce IBRD/IDA work programs. While it is difficult to predict increases or decreases in BETFs in the current volatile environment, the present forecast takes the midpoint between central and VPU- specific projections and has been revised downwards to between 6 -7 percent for FY11. 70. Projections for Reimbursables26 show robust growth (about 6.5 percent p.a.), with reimbursable revenues for Regions expected to grow due to Fee-Based Services (FBs), and Externally Funded Outputs (EFOs), which will taper off somewhat in Regions to a rate of 9.5 percent in FY11. Reimbursables could also increase with the forthcoming GEF replenishment. Networks expect a slowdown in EFO growth with growth segments including programs supported by the Clean Investment Fund. Among FAC Units, Treasury (TRE) is the largest recipient of reimbursables and fee income and is projecting a growing investment fee income from IFFIm/GFA and Clean Investment Fund, and a small growth (1.1 percent in FY11) in its Asset Management Program. 3.7 Unit Specific Funding Growth27 71. Consistent with the presentation of Unit-specific funding growth presented in past Budget Documents, the changes described below are comprised of the first two components of Unit funding discussed earlier ­ revised program budgets and projections of external funds.28 All growth rates in this section are expressed in real ($FY10) terms. 3.7.1 Regions 72. Figure 3.2 shows three components of Unit funding sources: Budget Plan (BB), Reimbursables, and Bank-Executed Trust Fund (BETFs) projections on the left hand scale. The FY11/10 total growth in funding is shown on the right hand axis. 73. The FY11 all-funds growth for Regional VPUs is projected to be 2.0 percent before any allocations from the set-aside fund. 74. Taking into consideration Figure 3.2 Funding composition and FY11/10 Growth Regions total sources of funds, SAR's FY11 trajectory is unchanged whereas 450.0 5.0% FY11 Fundign by Source in $ Million increases are seen for most other 400.0 4.5% 4.0% Regional Units. Overall, increases in 350.0 FY11/10 Change in % 3.5% Regional FY11 funding should help 300.0 3.0% support crisis and post crisis activities 250.0 2.5% and a ramping up in investment 200.0 2.0% lending. In addition to these recurring 150.0 1.5% 1.0% themes, certain regions have received 100.0 0.5% 50.0 0.0% 26 0.0 -0.5% See Annex I for more details on Reimbursables 27 AFR EAP ECA LCR MNA SAR BETF projections are the "mid-points" between the Corporate and the Unit projections. While Corporate projections are been conservative. FY11/10 in Europe adds based on past trends, Unit projections have traditionally BETF more Reimbursables The financial situationchange in total funds BB further complexity to projecting BETF contributions in the immediate future. Thus, the mid-point projections need to be interpreted cautiously. 28 Although Management has projected deployments from the set-aside and from knowledge funds by Unit type in the calculation of total funds presented in Table 3.8 above, projecting allocations to individual Units is problematic. 29 targeted allocations to focus on specific initiatives ­ e.g., MNA for its Arab World Initiative. Where outlined, explicit budget plan funding ties closely with one or multiple post-crisis priority areas. 75. In comparison to FY10, AFR received a 2.6 percent increase (amounting to $8.3 million) to its budget plan. This increase is targeted specifically at helping AFR deliver its expanded crisis and post- crisis activities, at providing support for supervision and implementation, and at expanding capacity to manage complex projects. The increase is also intended to help staff the Governance and Fragility Center ­ an effort that aligns closely with the "Strengthen Governance" post-crisis priority. Taking into account a total funds view, AFR's FY11 funding increase amounts to 2.6 percent. 76. In terms of its budget plan, SAR has received a 0.9 percent increase (amounting to $1.3 million), for FY11. In addition to helping deliver its expanded work program on crisis and post-crisis activities, this increase is also directed at building up investment lending and enhanced supervision support within the Region. The ramping up of investment lending is a key driver of the "Create Opportunities for Growth" post-crisis priority. From a total funds perspective, SAR's FY11 trajectory remains unchanged from FY10. Within this overall picture, the Region is absorbing an increase in security related spending. 77. The budget plan for MNA in FY11 remains relatively stable at FY10 levels. From a total funds perspective however, MNA's FY11 trajectory will slightly increase by 0.3 percent. 78. LCR's increase for FY11 is 1.5 percent of its FY10 budget plan which in absolute terms, amounts to $2.5 million. While the majority of LCR's planned increase is intended to assist the Region deliver on its expanding program on crisis and post-crisis activities, the FY11 budget also supports the Bank's response in Haiti. The targeted areas underlying LCR's budget plan increase align closely with creating opportunities for growth and targeting the poor and the vulnerable - both of which are post-crisis priority areas. LCR's FY11 funding increase is the highest of all Regions at 4.3 percent, indicating a significant increase in external funds as compared to FY10. 79. EAP's FY11 budget plan will be 0.6 percent lower than its FY10 budget. However, EAP's total funds for FY11 grows by approximately 2.8 percent, second only to LCR. 80. For FY11, ECA's real decline in its budget plan has been mostly arrested reflecting an expanding work program related to crisis and post-crisis activities. This Region plans to ramp up its targeted investments in investment lending, support for supervision and implementation, and additional capacity to offer its clients technical assistance. When accounting for external funds, ECA's FY11 trajectory grows by 0.3 percent. 3.7.2 Network Anchors and Other Operational Units 81. The average growth in total funds for Network Anchors and Others Operational Units in FY11 in 2.2 percent. As shown in Figure 3.3, SDN is expected to have the largest absolute share of external funds (at $137 million) followed by WBI (at $28.8 million). In terms of total funds in FY11, FPD shows the largest growth at 10.3 percent followed closely by OPCS at 5.9 percent.29 Of this group, WBI is the only Unit with declining total funds in FY11 (due to a 2.5 percent decline in external funds). 29 This represents the Unit's total funds growth including the funding for the joint, institutional Internal Reforms Secretariat to be housed in OPCS. 30 Figure 3.3: Funding Composition and FY11/10 Growth - Networks and Other Ops 82. Given competing demands 250.0 12.0% FY11 Fundign by Source in $ Million across multiple Units (and its status as 10.0% the largest recipient of external 200.0 8.0% FY11/10 Change in % funding), SDN's FY11 budget plan was 150.0 6.0% reduced by 1.9 percent ($1.1 million). 4.0% This amount is inclusive of a $0.8 100.0 2.0% million contribution aimed at funding the Global Agriculture and Food 50.0 0.0% Security Program (GAFSP). Despite -2.0% the decline in its budget plan, SDN's 0.0 -4.0% FY11 total funding is still expected to SDN FPD HDN PREM OPCS DEC WBI rise by 1.9 percent. BETF Reimbursables BB FY11/10 change in total funds 83. In FY11, PREM's budget plan will decline by 1.7 percent ($0.5m). The dollar figure decline matches the Unit's contribution toward executing the Bank's new Knowledge Agenda. FPD's budget plan will also decline by 1.9 percent ($0.8m) in FY11. FPD's budget reflects a $0.6 million contribution towards execution of the new knowledge agenda. FY11 total funds for PREM and FPD are 0.9 percent and 10.3 percent higher than in FY10, respectively. 84. DEC's FY11 budget plan received a 1.3 percent ($0.6 million) increase aimed at partially offsetting the impact of lost revenue from the Bank's Open Data Initiative. Despite this scale up, from an all sources viewpoint, DEC's FY11 budget is up by 0.9 percent. WBI's FY11 budget represents a reversal of the projected budget plan decrease of 4.9 percent (outlined in the FY09 SRAM), to an increase of 1.5 percent ($0.4 million). This changed trajectory may be predominantly attributed to the Unit's role in supporting Innovation and South-South knowledge exchanges. 85. The FY11 budget plan for OPCS will grow by 2.7 percent ($1.1 million). This growth is mainly attributable to the establishment of the Internal Reform Secretariat. OPCS's overall funding for FY11 is up by 5.9 percent. This Unit has the smallest share of external funds within the Networks and Other Ops group and in line with overarching trajectories, over FY11-13, OPCS will experience a decline in its budget plan. 3.7.3 Finance, Administrative, and Corporate Units 86. As with the Other Operational Units, the overall FAC trends disguise some significant heterogeneity in Unit-specific funding changes. With certain exceptions (ISG, GSD, EXT, OES, CRS), larger-scale Units show marginal increases while small Units are declining (Figures 3.4 and 3.5). 87. Overall funding changes for large FACs include specific earmarks related to various Internal Reforms and other targeted priority initiatives. ISG for example, will receive an additional $3.9 million to implement Bank Internal Reform Figure 3.4: Funding Composition and FY11/10 Growth - Large activities (i.e., OKSP and BI) and for 180.0 FACs 7.0% the Access to Information initiative. FY11 Fundign by Source in $ Million 160.0 6.0% Funding for GSD is expected to 5.0% 140.0 remain constant in FY11 at $5.0 FY11/10 Change in % 4.0% 120.0 million. GSD's plan trajectory for 3.0% 100.0 FY11 will increase by 1.6 percent; its 2.0% 80.0 1.0% 60.0 0.0% 40.0 -1.0% 20.0 31 -2.0% 0.0 -3.0% TRE CTR HRS ISG GSD EXT LEG BETF Reimbursables BB FY11/10 change in total funds total FY11 funding will increase by 4.8 percent. 88. The seven largest FACs' (Figure 3.4) overall funding growth averages only 2.5 percent ($13.3 million). However, FY11 budget plan resources will remain relatively the same for these seven Units (0.2 percent increase). Among those Units, ISG has the highest overall funding growth of 6.3 percent ($5.2 million) while GSD's funding growth is 4.8 percent. EXT declines by 2.2 percent. CTR has increased by 2.7 percent. Overall, HRS has increased by 0.3 percent in spite of the FY11 budget plan reduction of $3 million ($1 million anticipated from increased cost sharing from IFC), mainly due to a projected increase in non-fungible BETFs. Figure 3.5: Funding Composition and FY11/10 Growth - Small 89. Overall funding for smaller FACs FACs is down by an average of 0.7 percent. Targeted examples of 30.0 20.0% increases include the following: FY11 Fundign by Source in $ Million 15.0% OES's FY11 budget plan increases by 25.0 10.0% FY11/10 Change in % 14.4 percent ($0.2 million) mainly to 20.0 5.0% fund increased costs associated 0.0% with sanctions cases; CRS's FY11 15.0 -5.0% budget plan increases by 19.9 -10.0% 10.0 -15.0% percent ($1.7 million) to fund a -20.0% third Ombudsman as recommended 5.0 -25.0% by the Scott Report; INT's 9.3 0.0 -30.0% percent ($1.4 million) increase is in EXC MDG IISEC CFR OES IAD ICS CFP CRS INT response to recommendations BETF Reimbursables BB FY11/10 change in total funds made by the Volcker panel on institutional integrity. 3.8 Other Matters 3.8.1 Price Factor 90. Applying the Board-approved methodology, the price adjustment factor for FY11 is 2.08 percent. This yields an overall price adjustment of $36.2 million comprised of the following: Price adjustment of $21.5 million on US$-based Headquarters salary and salary-related costs. Price adjustment for other US$-based costs of $15.3 million. Price adjustment for non-$US Country Office salaries of $3.2 million comprised of a positive local structural adjustment of $8.3 million and an offsetting adjustment reflecting local currency depreciation relative to the $US of -$5.1 million. Price adjustment for non-$US Country Office non-salary related costs of $2.5m comprised of a positive local inflation adjustment of $10.5m and an offsetting adjustment reflecting local currency depreciation of -$8.0 million. Adjustment of -$6.3 million in eliminating the reimbursables effect from above four components. 32 91. The overall price adjustment is the weighted average of the above components: 2.4 percent structural adjustment for Washington-based staff costs, 1.9 percent for US$-based non-staff costs, 2.7 percent for Country Office staff costs, and 1.4 percent for non US$-based non-staff costs. Price for country office costs includes adjustments for local currency depreciation. Reimbursements, fee income, and depreciation are calculated on a nominal basis without price adjustment. 92. Management plans to apply Unit (VPU) specific price adjustment only for selected Units that have sizable local currency costs. 3.8.2 Capital Budget Summary 93. The total proposed Capital Budget for FY11 is $142.8 million. This 20 percent ($23.7 million) increase over the Board-approved FY10 capital budget is due to: $20.1 million increase investments in Technology and Systems ( of which $7.9 million is a reserve scale-up associated with the IMT three-year strategy) $5.3 million decline in investments in Washington Facilities $8.9 million increase in investments in Country Office Facilities (of which $24.9 million is a Global Bank Set-aside in keeping with the Global Bank Strategy) 94. The Information Management and Technology (IMT) Three-Year Strategy FY11-13 provides the selection framework for Technology and Systems capital investments ­ a critical element of the Bank's internal reform agenda. Major areas of investment include: Global Communications and Country Office Network ($11.0 million), Corporate Systems and Infrastructure ($12.9 million), Systems Development and Specialized Computing ($12.1 million), some special allocations ($7.9 million), and the establishment of an IMT Investment Scale-Up Reserve ($7.9 million). 95. The FY11 Washington Facilities capital budget supports the implementation of the HQ Real Estate Proposal ($17.1 million), Space Realignment Project ($26.0 million) is designed to realign and consolidate the majority of the VPUs in the Washington campus between FY10-FY11, Other funds support asset replacement, new purchases, and upgrade projects such as the Security Systems Upgrade/Disaster Planning System ($5.1 million). 96. The HQ Real Estate Proposal that was approved by the Board on June 18, 2008, involves leasing a new building with the option to buy at the landlord's choice of timing (between FY2014 and FY2019). 97. The FY11 Capital Budget request for Country Office facilities is decomposed into a Global Bank Set-aside ($24.9 million) and the remaining $11.9 million funding investments in security, expansions, and upgrades of existing facilities in support of the current decentralization model. This includes requests from regions for Country Office set-up, relocations, upgrades, and expansion of offices due to greater decentralization of staff and authority in the Country Office. The Capital Budget takes into account on-going decentralization and anticipated alignment with the Global Bank reforms, as well as the co-location of Bank entities. The Global Bank set-aside will ensure the necessary flexibility and fiscal space for future decentralization. 98. In FY11, Technology and Systems capital projects will impact the budget plan over the FY10 envelope by $6.2 million. This incremental increase is associated with the following projects: Access to Information, Integrated Communication Platform, OKSP, desktop security (SecurID), Strategic Business Intelligence and the Business Continuity program. 99. The Space Realignment project will impact the budget plan over the long-run, and the resulting savings in lease expenses are estimated to average $8-11 million per annum. For Country Offices, the 33 Global Bank set-aside in FY11 will not have a significant change over FY10, but will likely increase in outer years. Table 3.9: Capital Program Summary - Investment Schedule FY10 ­ 13 Capital Funds ($ Millions) FY10 FY10 FY11 FY12 FY13 1 Approved YTD Budget Plan Plan Technology and Systems 34.8 11.4 54.9 67.3 52.3 of which: IMT Investment Scale-Up Reserve n/a n/a 7.9 23.4 31.7 Facilities ­ Washington 56.4 29.8 51.1 34.5 16.8 of which: HQ Real Estate Proposal 38.2 26.0 17.1 19.2 0.0 Space Realignment Project 8.4 0.0 26.0 0.3 0.0 Facilities - Country Offices 27.9 6.2 36.8 39.0 45.0 2 of which: Global Bank Set-aside n/a n/a 24.9 30.0 35.0 Total Capital Release (All Parts): 119. 47.3 142.8 140.8 114.1 3 Total Percent Utilization (FY10 YTD) Release/FY10 App'd ) 39.8% Notes: 1 Data on capital release of funds as of May 3 and 24, 2010. 2 Global Bank set-aside is an estimate that takes into account ongoing relocations/anticipated Decentralization reforms, and co-location with IFC. 3 FY10 Total Capital Budget authority was $119.1 million. 3.8.3 FY11 Budget Recommendations 100. To carry out the work program described in this document, Board approval is sought for the following budget recommendations for FY11 (in FY11 dollars): A Net Administrative Budget of $1,777.5 million to be managed with a range of +/- two percent Board-related FY11 funding to comprise: o $82.4 million for Executive Directors (EDs), Board of Governors, Development Committee, and Inspection Panel, of which $17.5 million reimbursables o $15.5 million for the Corporate Secretariat, of which $1.2 million reimbursables o $32.5 million for IEG, of which $7.0 million reimbursables Other below-the-line components: o $50 million for the Consultative Group on International Agricultural Research (CGIAR) o Up to $33.3 million in FY11 for the State and Peace Building Fund (SPF) o Up to $17.3 million for the Institutional Development Fund (IDF) to maintain the Fund at the level set by the Board at $25 million o $2.8 million for the Social Development Civil Society Fund (CSF) 34 o No approval is sought in this paper for the FY11 Development Grant Facility (DGF) budget. Management's proposal of $63.8 million for the DGF is being submitted separately, along with the FY10 Annual Review of DGF activities $250.8 million for contributions for the Staff Retirement Plan, Tax Supplement Account, and Other Pension Accounts A Capital Budget of $142.8 million 35 ANNEXES Annex-A: Corporate Scorecard A.1. Background and Purpose: The corporate scorecard aims to provide a standardized mechanism for monitoring performance information across priority areas, internal reform initiatives, and ongoing work programs. The structure must be flexible enough to respond to changing priorities and indicators must provide meaningful progress information on ongoing work programs, internal reforms (drawing on priorities and indicators discussed with shareholders in the recent DC Internal Reforms paper), and emerging directions. The scorecard's primary intent is to support Senior Management dialogue (both internally and with the Board) on planning and budgeting decisions in the FY12/14 planning cycle, beginning in January 2011. Elements of the scorecard may also inform performance reporting to shareholders in conjunction with Spring and Annual Meetings. A.2. Scorecard Structure: The structure of the scorecard is based on best practice public sector Balanced Scorecard Collaborative Frameworks. It is organized around five dimensions that have been customized for the Bank. Three dimensions focus on inputs (i.e., Capacity and Skills, Internal Business Processes, Finance & Budget), and two focus on outputs (i.e., Shareholder & Donors, Client Delivery). The broad structure envisioned for the scorecard can be found in Figure B-1. Every dimension is broken down into key sub-components, each of which will be monitored using a selection of performance indicators. Figure B-2 provides a drill-down of the Internal Business Process dimension as an example. This structure and supporting indicators will facilitate performance management discussions motivated by the following questions: Capacity and Skills ­ Are we improving our staffing and skills mix? Are we managing our knowledge and learning better? Internal Business Processes and Reforms ­ On which business processes should we focus to ensure organizational efficiency and effectiveness objectives are being met? Finance and Budget ­ Are we managing and allocating our resources for maximum impact in regards to our strategic priorities? Shareholders and Donors ­ Are we improving our engagement with shareholders to ensure we have the resources and the authorization for our mission? Clients and Partners ­ Are we improving service delivery to our clients? Are we coordinating with partners more effectively? A.3. Relationship between the Bank's Results Framework and the Corporate Scorecard: The Bank is also adopting a three-tiered development Results Framework, based on latest thinking and best practice among MDBs (see Figure B-3). The first tier captures high-level country development progress without attribution. MDG-type indicators are included in this tier. The second tier captures development results (outputs and outcomes) related to Bank programs, projects, and activities. Data collected under core sector indicators is reported on in this tier. The third tier concentrates on indicators showing operational effectiveness and improvements in the measuring and monitoring of results in Bank programs, projects, and activities. This tier includes indicators on the quality of project results frameworks. As such the Results Framework complements the scorecard. Management is working to identify indicators that are most appropriate for the scorecard and also those that fit both into the scorecard and the development results framework. 1 A.4. Next Steps: Definition of the draft scorecard and exemplary performance indicator presented below is still in preliminary stages. Over the coming months, Management will work on refining the components of scorecard's structure and selecting critical variables under each dimension, consulting appropriate stakeholders to vet the framework and select indicators throughout the Bank. By end- December 2010 the scorecard will be operational. Figure A-1: Overall Structure of the Scorecard Input Dimensions Output Dimensions Internal Business Finance & Shareholders & Capacity & Skills Client Delivery Processes Budget Donors Critical process Align staff skills Sub-components of each dimension supporting the Results informed Operational mix on-going business budgeting effectiveness Improve staff Modernize Ensure financial Mobilize donor Portfolio mobility Services (IL risk mitigation resources management Improve Reform, Knowledge) Ensure strategic Improve donor AAA trends coordination of management of coordination K&L Enhance Service Sector finances Donor Delivery strategies Improve staff satisfaction (Decentralization, diversity Enhance Matrix) performance Priority areas Improve staff management Enabling Systems Client satisfaction (HR, IT, & Budget) satisfaction Figure A-2: Indicative Detailed Structure of "Internal Business Process" Input Dimension Input Dimension Sub-Components Sub-Component Supporting Performance Indicators Detail (Indicative / Work in progress) Processing tracks for risk-based approach to IL IL Reform Regular & express Process (% of projects) IBRD indicators (volume, cost & time) Modernize Knowledge & Global expert teams (GETS - # of) Services (IL Learning Technical level GI staff (#) Reform, Knowledge) TM in COs (% task managed in COs) Decentralization Regional IRS staff in COs Internal Business Cross Support (%) Processes Enhance Service Implement plan to rationalize sector managers' Delivery Matrix span of control (Decentralization, Matrix) Establish framework for network accountability Shortlist to appointment (days) HR Reform Rotation (% of ops staff 7+ years in VPU) Enabling Systems (HR, IT, & Budget) SM span of control (avg. # of staff) IT risk mgmt. (% overdue audit findings) IT Reform Board engagement updates Stakeholder Satisfaction with enabling IMT systems 2 Figure A-3: Illustrative Results Framework Tier 1: How are Bank partner countries making progress on key development indicators? Indicator examples: - GDP per capita (constant 2000 US$) - Gender Parity Index - Under 5 mortality rate (per 1,000) Tier 2: What is the contribution of Bank-supported operations and programs to development results? Indicator example: - Aggregate standardized core sector indicators Tier 3: What is the operational effectiveness of the Bank, and how is the measurement and monitoring of results improving in Bank-supported operations and programs? Indicator examples: - Monitor percent of operations that have monitoring indicators with baselines and targets - Monitor percent of Implementation Completion Reports (ICRs) that report on key outputs and outcomes from the results framework 3 Annex-B: Resource Allocation Principles and Criteria General Allocation Principles B.1. Beginning with the FY08/10 planning cycle, Management elaborated and adopted a set of principles to guide discussions on year to year allocations. These have been endorsed by Executive Directors in subsequent planning cycle engagement points.30 Scale up of new initiatives is done in a measured way to better match resource availability from budget resizing, productivity tax, and redeployments. Operational Units receive bulk of funding FAC Units receive resources necessary to exercise Bank fiduciary and service functions Preference is given to Regions with greatest development challenges Funding is focused on areas where there is regional demand and that are managed by Regional Units Scalingup how we work does not equate to increased budget Greater emphasis on results in the consideration of resource allocation Criteria for the allocation from the set-aside are as follows: B.2. The general objective of the set-aside fund ($18m in FY11) is to provide flexible resources for the evolving internal reform/post-crisis needs. Use of the Set-aside funding should maximize business impact to position the Bank in the new multilateralism and be consistent with the time line for deliverables as set out in the DC Synthesis Paper. B.3. Management anticipates that roughly $13m of the $18m will be devoted to internal reform efforts. The remaining $5m provides budget flexibility for post-crisis directions needs. Management could reconsider redeploying funds between these categories based on the actual needs that materialize during FY11. B.4. Building on the experience of the FY10 Business Improvement Fund, Management plans to coordinate and submit funding requests for internal reform initiatives through the Internal Reform Secretariat. B.5. Disbursements for incremental funding for Internal Reforms will begin in early FY11 and be approved by MDs/CFO. Requests will be evaluated based on the immediate need for funds, clarity of impact, quality of the implementation plan, and the reasonableness of the costing estimates. 30 See, for example, "FY10-12 Planning Cycle: Baseline and Prospects," SecM2008-0495, dated November 12, 2008. 4 Annex-C: Recent Trends in IBRD Front-Line Expenses C.1. As budgets have remained flat over the past years, Management has been shifting a greater share of resources to priority areas. As displayed in TableD-1, IBRD's share of total expenses exhibits a gradual increase over the FY07-09 period. Simultaneously, country, sector and other client services have also followed a similar, upward trend. Growth in these areas is mostly attributed to the rise in crisis- related lending during this time, specifically to Middle Income Countries (MICs), and shows a movement to focus expense allocations on front line activities and country services - indicating a shift in priorities and related funding witnessed over the crisis period. Table C-1: Expense Trends FY07-09 Expense Item FY07 FY08 FY09 C.2. To support increased spending on IBRD country, IBRD Expens es $ 873 $ 911 $ 936 sector and other client services,31 expenses for support Tota l Expens es $ 1,882 $ 1,930 $ 1,938 IBRD Sha re of Tota l 46.4% 47.2% 48.3% services declined between FY07-08. An increase in Country Servi ces $ 575 $ 606 $ 628 support service expenses (mainly incurred by GSD) Country Servi ces Sha re of Tota l Expens es 30.6% 31.4% 32.4% between FY08 and FY09 is for the most part attributable Sector a nd Other Cl i ent Serv $ 352 $ 375 $ 393 to organizational priority initiatives related to Business Sector a nd Other Cl i ent Improvement Funding (BIF), the Office of Information Servci es % of Tota l 18.7% 19.4% 20.3% Support Servi ces $ 733 $ 695 $ 735 Security (OIS), internal reforms and governance-related Support Servi ces Sha re of activities (e.g., in IAD, OES, INT). Indirects, as percentage Tota l Expens es 38.9% 36.0% 37.9% Indi rects $ 222 $ 255 $ 183 of total expenses, increased between FY07 and FY08 Indi rects Sha re of Tota l before decreasing (below pre-FY07 levels) in FY09. Expens es 11.8% 13.2% 9.4% Figure C-1: Expense Trends FY07-09 (in %) C.3. Targeted increases for organizational improvements aside, the 60.0% decreasing proportions of expenses related 50.0% to indirects and support services roughly account for the increased expenses spent on 40.0% front-line priorities such as country, sector 30.0% and other client services to support IBRD's FY07 FY08 significant crisis response. 20.0% FY09 C.4. Observed expenditure patterns over 10.0% the FY07-09 timeframe confirm the Bank's 0.0% shift in priorities, application of selectivity, IBRD Share of Country Sector and Support Total Expenses Services Share Other Client Services Share Indirects Share of Total and resulting reallocation of resources of Total Expenses Servcies % of Total Expenses of Total Expenses Expenses during this period to fund increased deliverables in support of crisis response and continued focus on frontline activities while decreasing costs for backline functions ­ to do more with less in a flat budget environment. 31 For detailed definitions, refer to "2010 Review of Loan Pricing ­ May 28, 2010." 5 Annex-D: Outlook on IBRD/IDA/Trust Fund Trends and Work Program Funding Shifts - A geographic Perspective IBRD/IDA and Trust Fund Trends: A geographic Perspective D.1. The MTSF showed that past track-record and recent outlook on IBRD/IDA Lending volumes and Trust Fund resources were robust and well-aligned in supporting Bank priorities. Latest projections confirm this trend. Lending trends remain strong with continued support to crisis-related demands and post-crisis needs, expected to peak in FY10 with IBRD/IDA commitments projected to range from $55- 61 billion:32 IDA disbursements are projected to remain strong throughout FY10-12, given higher commitments and funding mechanisms such as the Crisis Response Window (CRW) under IDA15 to protect the poor and bolster growth in low income countries. As of end March, IDA disbursements were already at $8.9 billion, close to the total for FY09 ($9.2 billion). Projections for FY11-12 show a continued upward trend and first discussions indicate a strong IDA16 replenishment. IBRD disbursements are projected to reach a record high in FY10 as demand for continued support on addressing the aftermath of the global crisis remains elevated. In the following two years, lending is projected to slow down gradually with post-crisis needs expected to abate and middle-income countries experiencing slower economic growth and pressures on both social and economic policy dimensions. As of end-March, FY10 IBRD disbursements reached $20.5 billion, a record high that already exceeds FY09 total disbursements ($18.6 billion). The new projected total range for FY10 is $30.6-33 billion. Projections for FY11 are expected to range from $25.6-30 billion, in line with gradually declining lending, and disbursements for FY12 are expected to taper off to $21-24.7 billion. FY10 Trust Fund disbursements continue to be strong, as at the end of FY10 Q3 disbursements had already equaled the FY09 total. The projected range for FY10 is $8-9 billion. The greatest increases in disbursements are in Financial Intermediary Funds and IFC Trust Funds, while BETFs are growing more slowly and RETF disbursements are possibly falling below FY09 levels. Nonetheless, contributions to all Trust Fund categories during the first three quarters of FY10 have been very high and suggest that in FY11 disbursements in all Trust Fund categories will increase. However, predictability and size of external funding remains uncertain. Although central projections for external funds remain healthy (6-8 percent growth per annum), growing budget pressures in key donor governments (particularly with recent developments in Europe) are contributing to a higher degree of uncertainty on TF flows than anticipated at the time of the MTSF, creating the risk of diminished funding going forward. D.2. A significantly increased and more complex program portfolio has shifted emphasis in the Bank's product mix towards greater implementation support, with more attention to lending preparation and supervision. This trend is expected to continue as it remains critical to provide clients with high-quality support and guidance on addressing post-crisis challenges. Providing more implementation support in an environment of declining budgetary resources and spending authority further constrains the Bank's capacity to deliver a growing work program. 32 While IDA demands are projected to stay high, IBRD commitments are expected to return to pre-crisis levels over the planning period, bringing overall IBRD/IDA commitment estimates for FY11 and FY12 down to $41-55 billion and $34-46 billion respectively. Correspondingly, the share of Development Policy Operations (DPOs) as an instrument to provide fast financial support is also expected to decline, particularly for IBRD clients. 6 D.3. Looking at the geographical distribution of lending projections, all areas are anticipating declines but remain significantly above pre-crisis levels. Africa, Europe/Central Asia, and Latin America are expected to continue receiving the largest share of IBRD/IDA commitments over the FY10/11 period due to critical IDA and crisis-related activities. Table D-1: IBRD/IDA Projections IBRD/IDA Lending Commitments (Billions of US$) Geographic Region FY10 Projections FY11 Projections Percentage Change Low Case High Case Low Case High Case Low Case High Case Africa $11.2 $12.5 $8.9 $10.9 -20% -13% East Asia and Pacific $7.2 $7.8 $6.3 $8.0 -13% 2% Europe and Central Asia $11.1 $ 11.1 $6.6 $10.7 -40% -12% Latin America and Caribbean $12.9 $ 14.3 $8.1 $10.9 -37% -27% Middle East and North Africa $3.2 $3.8 $1.9 $3.7 -40% -2% South Asia $9.5 $11.4 $9.0 $10.6 -6% -7% Totals $55.0 $ 61.0 $40.8 $54.8 -26% -13% D.4. Volumes of ESW/TA are expected to decline in FY11 between 5 and 10 percent. Most of the decline is in the Regional Units (between 6 and 11 percent). D.5. Total commitments of RETF grants (including Carbon Funds) are expected to amount to around $3.4 billion in FY10, down by some 5% from FY09 commitment levels. This decrease follows on the 15% decrease in cash contributions to IBRD/IDA funds (used to finance both BETF and RETF grants) in FY09. The decrease in FY10 commitments is primarily affecting East Asia and Europe/Central Asia while commitment levels for Latin America/Caribbean and Middle East/North Africa are expected to exceed previous year levels. Table D-2: RETF Commitment Projections Region FY10 Africa $1,400 East Asia and Pacific $250 Europe and Central Asia $125 Latin America and Caribbean $330 Middle East and North Africa $425 South Asia $850 Global / Regional / Not Defined $50 Total $3,430 D.6. Cash contributions to IBRD/IDA trust funds have increased significantly in FY10. It is expected that this will be reflected in an increase of RETF grant commitments in FY11. The overall increase is expected to be between 5 percent and 20 percent. Shifts in work program funding: A geographic Perspective D.7. For the first time, Management presents unit funding33 by geographic region­ developed to complement the traditional Components of Funding by VPU (provided in Annex G). This view shows funding in geographic locales, independent of the delivery units involved. For example, SDN-delivered 33 As discussed in Section 3, overall changes in unit funding are composed of three elements: revised budget plans, latest external fund projections, and within-year budget adjustments. 7 water programs to client countries in Africa are captured as part of spending for the "Africa" geographic region. In future planning cycles, Management's believes that future iterations of this alternative presentation will increasingly support discussions on the use of resources, and their alignment with key priorities.34 D.8. With trends in IBRD, IDA and Trust Fund deliverables growing and an ambitious reform agenda planned, Bank work program funding across geographic regions is under pressure. Of note, as indicated in Table E-3, is the effectively flat work program spending authority of average 0.8 percent in real terms for the six geographic regions. Spending on global programs is expected to increase (one can think of Global Programs as the "7th geographical region"). The spending for Finance, Administrative, and Corporate (FAC) units, added for completeness as program budgets support internal reforms in these units. Table D-3: Change in All Funding Sources by Geographic Region ($FY10 millions) Geographic Region FY10 All Funds FY11 All Funds Percentage Change Global Programs $ 479 $494 3.2% All Geographic Regions $1,389 $1,400 0.8% FACs $750 $752 0.3% Totals $2,617 $2,646 1.1% D.9. Management focused investments selectively on supporting shifting priorities, key post-crisis demands, and reform initiatives. Coupled with anticipated increases in external funds (with Europe/Central Asia expecting the largest in percentage terms, South Asia anticipating declines), most geographic areas will see FY11 funding at or slightly above the FY10 peak. Table D-4: All funds by Six Geographic Region Detail ($FY10 millions) Geographic Region FY10 All Funds FY11 All Funds Percentage Africa $438 $442 Change 0.9% East Asia and Pacific $214 $218 1.9% Europe and Central Asia $214 $212 -0.9% Latin America and Caribbean $201 $205 2.0% Middle East and North Africa $133 $134 0.8% South Asia $188 $188 0.0% Totals $1,388 $1,399 0.8% 34 The information presented in this document represents first findings of this approach. Management continues to develop funding related tables by geographic region and priority area. At this time, these tables and figures remain in development and will be updated in engagement point documents for the forthcoming planning cycle. 8 Annex-E: Program Cost Summary FY08 ­ 11 9 Annex-F: Components of Funding FY10 in FY10 $'s FY11 in FY10 $'s FY10-11 Growth All Budget Reimb. BETF All Funds Budget Reimb. BETF All Funds Budget Funds ADMINISTRATIVE PROGRAMS REGIONAL PROGRAMS Africa 315.4 17.3 72.9 405.6 323.6 17.2 75.5 416.2 2.6% 2.6% East Asia and Pacific 146.8 15.7 69.0 231.5 146.0 18.9 73.2 238.1 (0.6%) 2.8% Europe and Central Asia 169.0 20.4 15.6 205.1 166.8 21.1 17.8 205.7 (1.3%) 0.3% Latin America and Caribbean 167.1 11.3 18.5 197.0 169.7 13.1 22.8 205.5 1.5% 4.3% Middle East and North Africa 98.6 16.2 17.7 132.5 98.4 17.2 17.4 132.9 (0.2%) 0.3% South Asia 140.6 12.1 25.2 177.9 141.9 9.7 26.1 177.7 0.9% (0.1%) SUB TOTAL 1,037.5 93.1 219.0 1,349.6 1,046.3 97.2 232.7 1,376.1 0.8% 2.0% Expected funding from Knowledge Council for Regional Units 5.5 5.5 0.0% 0.0% Crisis Response Fund 2.0 2.0 (100.0%) (100.0%) Bank/FAO Cooperation Program 13.1 13.1 13.1 13.1 0.0% 0.0% TOTAL 1,052.7 93.1 219.0 1,364.8 1,064.9 97.2 232.7 1,394.8 1.2% 2.2% NETWORK & OTHER OPERATIONAL PROGRAMS Sustainable Development Network 59.0 30.9 101.9 191.8 57.9 35.4 102.2 195.5 (1.9%) 1.9% Financial and Private Sector Development 38.7 0.4 28.8 67.9 37.9 1.1 35.9 74.9 (1.9%) 10.3% Human Development 30.3 3.1 21.9 55.3 29.1 2.7 23.6 55.4 (4.1%) 0.1% Poverty Reduction and Economic Management 31.7 0.9 13.4 46.0 31.2 0.9 14.3 46.4 (1.7%) 0.9% Expected funding from Knowledge Council for Network Units 5.5 5.5 0.0% 0.0% Operations Policy & Country Services 41.1 0.2 1.8 43.0 42.2 0.2 3.1 45.5 2.7% 5.9% Quality Assurance Group 0.0 0.0 0.0 0.0 0.0% 0.0% Development Economics 50.3 1.7 13.7 65.7 50.9 3.3 12.0 66.3 1.3% 0.9% World Bank Institute 50.3 6.0 25.7 82.0 51.1 2.8 26.1 80.0 1.5% (2.5%) TOTAL 301.5 43.1 207.2 551.8 305.8 46.3 217.3 569.4 1.4% 3.2% FINANCE, ADMIN. AND CORPORATE PROGRAMS Treasurer's 46.3 41.5 87.8 46.3 41.5 87.8 (0.0%) (0.0%) Controller's 35.3 12.7 48.0 35.5 13.8 49.3 0.6% 2.7% Human Resources 68.9 9.1 12.4 90.3 65.8 9.7 15.2 90.6 (4.5%) 0.3% Information Solutions Group 64.9 18.6 83.4 68.0 20.7 88.7 4.8% 6.3% General Services and Facilities 121.1 29.1 150.2 123.1 34.4 157.5 1.6% 4.8% Office of the President 5.5 5.5 5.5 5.5 0.0% 0.0% Managing Directors 8.2 8.2 7.7 7.7 (6.1%) (6.1%) IDA IFC Secretariat 0.5 0.5 1.1 0.3 0.5 0.8 (50.0%) (24.5%) Corporate Finance and Credit Risk 19.9 19.9 19.8 0.2 20.0 (0.8%) 0.3% Office of Evaluation and Suspension 1.3 1.3 1.5 1.5 14.4% 14.4% External Affairs 34.6 1.0 3.3 38.8 33.6 1.0 3.3 38.0 (2.8%) (2.2%) Internal Audit 9.2 2.7 11.9 9.2 2.7 11.9 0.0% 0.1% Legal Services 30.9 5.2 1.5 37.6 30.5 4.8 2.4 37.7 (1.5%) 0.2% International Centre for the Settlement of Investment Disputes 1.9 1.9 1.8 1.8 (2.7%) (2.7%) Concessional Finance and Global Partnerships 16.3 9.0 0.3 25.6 16.0 7.7 0.2 23.9 (2.1%) (6.6%) Conflict Resolution System 8.4 2.0 10.4 10.1 2.0 12.0 19.9% 16.1% Department of Institutional Integrity 15.1 3.6 18.7 16.5 3.5 20.0 9.3% 7.1% TOTAL 488.4 134.8 17.5 640.7 491.1 142.5 21.1 654.7 0.6% 2.2% Business Improvement Fund 0.0 0.0 (100.0%) (100.0%) ALL UNITS TOTAL 1,842.6 271.0 443.7 2,557.3 1,861.8 286.0 471.1 2,618.9 1.0% 2.4% Note: Budget refers to Administrative Budget, Reimb refers to reimbursable programs, BETF refers to Bank Executed Trust Funds. FY10 figures do not include the two set aside funds (Crisis Response Fund and Business Improvement Fund) funded from the 2% band. FY10/FY11 BETF figures are based on the latest mid-point projections. FY10 Budget figures includes minor adjustments subsequent to FY10 Budget Document. Operations Policy & Country Services includes Internal Reform Secretariat 10 Annex-G: Consultative Group on International Agricultural Research (CGIAR) G.1. The Consultative Group on International Agricultural Research (CGIAR) has produced high returns since its inception in 1971, with overall benefits far exceeding costs. Estimates of the benefits from CGIAR research since 1989 alone range from nearly US$14 billion to more than $120 billion. G.2. The Consultative Group on International Agricultural Research (CGIAR), established in 1971, is a strategic partnership of diverse donors that support 15 international Centers, working in collaboration with many hundreds of government and civil society organizations as well as private businesses around the world. CGIAR donors include both developing and industrialized countries, international and regional organizations and private foundations. G.3. Guided by a vision of reduced poverty and hunger, improved human health and nutrition, and greater ecosystem resilience, brought about through high-quality international agricultural research, partnership and leadership, the CGIAR applies cutting-edge science to foster sustainable agricultural growth that benefits the poor. The new crop varieties, knowledge and other products resulting from the CGIAR's collaborative research are made widely available to individuals and organizations working for sustainable agricultural development throughout the world. G.4. CGIAR has produced high returns since its inception in 1971, with overall benefits far exceeding costs. Estimates of the benefits from CGIAR research since 1989 alone range from nearly US$14 billion to more than $120 billion. G.5. Challenges and Way Forward. The Independent Review of the CGIAR in 2008 confirmed the significant impact of the CGIAR research while identifying the principal challenges facing the system. These included (a) stagnating resources; (b) increasingly restricted funding, with smaller grants; and (c) less strategic funding, all at a time when the CGIAR was also faced with global challenges such as the food crisis and climate change. To address these challenges a new partnership model was adopted at the Annual General Meeting in Maputo, Mozambique in December 2008. The principles of the new model were articulated in a reform document entitled A Revitalized CGIAR: A New Way Forward, which emphasized managing for results and proposed to strike a more effective balance between donor sovereignty and donor harmonization, and between the autonomy of the individual Centers and the strategic coherence of the larger System. G.6. The new CGIAR is in transition towards full implementation in 2010. A new CGIAR Fund is being established at the Bank to serve as a multi-year strategic financing facility. A 22 member Fund Council, chaired by the World Bank, was appointed and held its inaugural meeting in February 2010. The 15 research Centers formed a Consortium as a joint venture to coordinate their collective affairs. The Consortium Board (a Chair, two Vice Chairs and four members) was appointed and held its first meeting in March. A new integrated and overarching Strategy and Results Framework (SRF) will underpin the programmatic approach of the new CGIAR. The SRF has been developed through an inclusive process to identify partnership opportunities with national research and development programs, advanced research institutes, UN agencies, NGOs, and the private sector, as well as through regional and sub-regional meetings. These processes culminated in the first biennial Global Conference on Agricultural Research for Development (GCARD) in March. In July all donors to the CGIAR will endorse the SRF at the Funders Forum, allowing the Fund Council to review and later endorse a portfolio of Mega Programs operationalizing the SRF, including several Mega Programs that will be fast tracked for approval 11 by the Council later this year. The new CGIAR aims at increasing agricultural productivity annually by 0.5 percent across all regions and lift over 270 million people out of poverty through partnerships in the next 10-15 years. G.7. These reforms bring clarity to the Bank's various roles in the new CGIAR, hence removes it from potential conflicts of interest with reputational risks. While new risks may surface, they will be more like those found in many other partnerships, and can be more easily dealt with. G.8. In the past risks associated with the CGIAR partnership have been identified and discussed in progress reports and requests for DGF funding from the Bank. As the Bank considers a separate below the line source of funding for the new CGIAR, risks related to the new partnership include the following. On these and previously identified potential risks, mitigation measures have been developed in the design and implementation phases of the reforms. a. Activity-related: transition to the new CGIAR has been lengthy. Implementation of the reforms will be complex and challenging, requiring leadership, coordination, consultations and resources. b. Strategic effectiveness: While the new CGIAR is refocused on managing for results, its capacity to deliver development objectives as defined in the SRF is contingent on factors beyond the CGIAR's immediate control (e.g., an enabling policy environment and rural infrastructure at the national and intergovernmental levels), and there could be differing perspectives between the Consortium and Centers which may continue with their own research programs. c. Financing arrangements: Some donors have conditioned additional financial support on successful implementation of the reforms, and others may be hard pressed to fulfill their pledges because of the ongoing global financial crises. The perceived continued leadership of the Bank in the new partnership may raise expectations on the part of the Centers that future funding shortfalls could be plugged by the Bank. d. Low stakeholder support: Although the Fund Council composition is quite representative with an even allocation of seats between the North and the South, expectations of the latter of similar recognition on Consortium governance, SRF formulation and implementation may not be fulfilled, resulting in low stakeholder support from the South. G.9. Alignment. World Bank investment in the CGIAR is closely aligned with both the Bank's larger development agenda and with its engagement in agriculture, climate change, and in a number of related sectors including environment, social development, and other areas that relate to poverty reduction and human development ­ health and nutrition in particular. With respect to the Bank's work on agricultural development, its investment in the CGIAR relates strongly to both the vision of Agriculture for Development that was set forth in the 2008 World Development Report and to the objectives set forth in the World Bank Group Agriculture Action Plan for 2010 to 2012. G.10. Funding. The Bank has historically funded CGIAR though a grant mechanism which since 1997 has been the Development Grant Facility (DGF). The level of DGF support to the CGIAR has remained at $50m annually during this period. Because of the size of the CGIAR support relative to the rest of the DGF portfolio, as well as the long term nature of the CGIAR's mission, there 12 has been broad recognition that the Bank's CGIAR funding needs to be handled separately to ensure its security and visibility. Furthermore, treating CGIAR funding as separate from DGF would present the opportunity to elevate the Bank's commitment to CGIAR. Management therefore, proposes that CGIAR be presented as a separate "below-the-line" budget item starting FY11. 13 Annex-H: Reimbursables H.1.Reimbursable income is projected grow in FY11, albeit at a lower rate, reaching $322.9 million, an increase of 6.5 percent from FY10 levels. This increase is lower than the 9 percent average growth observed over the last four years. Operational reimbursables: H.2.Growth in operational reimbursables will slow to 4.2 percent, compared to 13.2 percent four-year average. Growth projections differ, however, between two categories that comprise the operational reimbursables - fees for administrative services and fees for operational services. H.3.Trust Fund fees, a major component of fees for administrative services and VPUs across the Bank consistently project them to stay at par with the FY10 level. This slowdown is largely reflective of a growing number of customized fee trust funds, and declining expectations for the crisis-related donor support. H.4.Fees for administrative services category are expected at FY10 levels ($48.2m). Fees for admin services related to Recipient- and Bank-executed trust funds are expected to grow by 1.2 percent, reaching $35.5 million. Fees from administering Financial Intermediary Funds will remain about equal to FY10 level with the following exceptions: A substantial increase in fees is expected from IFFIm/ GFA fund due to both increased investment fees from a much larger fund balance (some $1 billion larger) and addition of several donors to the fund, including Australia and the Netherlands. Fees from the Adaptation Fund will decline. H.5.Growth in fees for operational services ($139m) is expected to slow to 5.7 percent (four-year average was 13.7 percent). Revenues are derived from implementing programs such as IFAD, MNA reimbursable technical assistance program (RTA), GEF, CIF, Montreal Protocol, Carbon Fund, etc., and includes EFOs, Fee-based Services (FBS), and TRE's Assets Management Program (RAMP). Some highlights: Revenues from EFOs are now expected to reach $18.8 million in FY11 - a 7.9 percent increase relative to FY10 budget plan. Growth in RAMP is projected to be around 1.1 percent, far below the FY10 34 percent growth rate. Clean Investment Fund (CIF) revenues are expected to reach $13.7 million in FY11 a 44 percent increase over FY10 plan. Revenues from Fee-based Services are expected to reach $15.6 million in FY11 (18 percent growth) with ECA expecting these revenues to almost triple in FY11. 14 Non-Operational reimbursables: H.6.Cost sharing income35 is the only high growth category within non-operational reimbursables. While in the previous three years cost sharing revenues saw an average increase of less than 1 percent nominally, now this category is projected to increase 23.8 percent in FY11 ­ to around $64 million. Cost sharing revenues from IFC and MIGA will have the largest share of growth - respectively 25.4 and 32.7 percent. Big part of this growing picture is new participation of IEG in the cost sharing process: this will add some $7.5 million to this revenue stream. H.7.In addition, GSD will provide a suite of new services to IFC such as by the Office for Information Security (OIS) and by a dedicated procurement team. Furthermore, the new Children Center will be able to accommodate more children from other members of the Bank Group adding to cost sharing revenues. H.8.In contrast, the other non-operational revenues category is expected to slightly decline (-0.2 percent) over FY10. This category covers services such as facilities rental, publishing, parking, training, other informal cost shared services, pension administration, IT and GSD external user charges, and miscellaneous non-operational services. Some highlights are: Revenues from publications are expected to drop some 30 percent due to implementation of the Access to Information policy. Revenues in staff reimbursements item will decline 58.7 percent due to both reduction and consolidation of Staff Exchange and Global Secondment programs. Revenues from office co-location will increase (14.3 percent growth) Table H.1: Reimbursements and Fee Income FY08-FY11 ($ millions) FY08 FY09 FY10 FY11 OPERATIONAL SERVICES Budget Budget Budget Budget 1) Fees for Administrative Services $32.0 $42.1 $48.1 $48.2 2) Fees for Operational Services $88.3 $118.1 $131.6 $139.0 International Fund for Agricultural Development (IFAD) $0.9 $0.9 $0.7 $0.4 Reimbursable Technical Assistance (RTA) $9.7 $12.4 $13.0 $12.7 Global Environmental Facility (GEF) $34.3 $30.6 $25.1 $25.8 Montreal Protocol (MP) $4.4 $3.1 $3.2 $3.4 Carbon Finance (CF) $28.9 $28.8 $28.4 $29.1 2 Clean Investment Fund (CIF) $9.5 $13.7 3 Management Services (RAMP) $10.1 $14.0 $18.8 $19.0 4 Externally Financed Outputs (EFO) $9.2 $17.4 $18.8 5 Fee Based Services (FBS) $10.4 $13.2 $15.6 5 Other Operational Reimbursable Arrangements $8.7 $2.4 $0.6 SUBTOTAL OPERATIONAL SERVICES $120.3 $160.2 179.7 187.3 NON-OPERATIONAL SERVICES 35 Cost-sharing income includes reimbursements from formal cost-sharing arrangements with the International Monetary Fund (IMF), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA), involving a variety of services on a full-cost recovery basis 15 FY08 FY09 FY10 FY11 Cost Sharing Income Budget $54.3 Budget $55.9 Budget $51.9 Budget $64.3 6 IMF $2.6 $4.6 $4.9 $4.8 IFC $45.2 $45.1 $40.7 $51.0 MIGA $6.5 $6.2 $6.3 $8.4 Other Non-Operational Services $73.8 $70.7 $71.5 $71.4 Facilities Rental/Services $3.2 $3.8 $3.8 $3.8 7 Travel Rebates $11.6 $0.0 $0.0 $0.0 Publications Sales $6.0 $6.0 $5.0 $3.5 Parking $4.3 $4.9 $5.0 $5.1 Training/ Conferences $1.9 $1.9 $1.9 $1.0 8 Informal Cost Sharing/ Co-location $0.3 $2.4 $2.7 $3.1 9 Staff Reimbursements $4.0 $3.6 $2.8 $1.2 Pension Administration and Other Investment $11.8 $12.4 $13.7 $12.5 10 ISG Support and General Services $10.2 $10.3 $28.2 $29.6 Other Miscellaneous $20.5 $25.5 $8.4 $11.6 SUBTOTAL NON-OPERATIONAL SERVICES $128.1 $126.6 $123.5 $135.6 TOTAL $248.4 $286.8 $303.2 $322.9 Of which: 11 Reimbursable Programs $223.9 $256.0 $297.6 $316.7 1 Includes Trust Fund Admin Fees and GFATM, LDC, SCCF fees, and GEF Trustee, CIF Trustee Fees, and Other TF Fees. TF Startup Fees are also included in this category in FY10, but not in FY09. 2 Clean Investment Fund - new fund that will invest in the demonstration, deployment, and transfer of low carbon technologies. The Bank will act as both a trustee and an implementing agency. 3 RAMP includes TRE's Assets Management program to Client Countries 4 Externally Financed Outputs are introduced as of January 1, 2008 5 Prior FY09 categorized as part of Other Miscellaneous 6 Includes TRE's Assets Management program (RAMP) to IMF 7 Beginning FY09, Travel Rebates will be treated as negative expense and not as revenue 8 Includes cost sharing for co-location of offices with IFC, IMF, ADB, etc. 9 Staff Reimbursements include cost sharing for the Staff Exchange Program, and selected payments for seconded staff 10 Includes ISG and GSD external chargeback such as to IFC and MIGA. 11 Reimbursable Programs include the categories of income against which Bank Units are allocated expense budgets, as opposed to general income related to rentals, rebates and support services provided to the IMF. 16 Annex-I: The Capital Budget I.1. Each total proposed Capital Budget for FY11 is $142.8 million. This 20 percent ($23.7 million) increase over the Board-approved FY10 capital budget is due to: $20.1 million increase investments in Technology and Systems ( of which $7.9 million is a reserve scale-up associated with the IMT three-year strategy ) $5.3 million decline in investments in Washington Facilities $8.9 million increase in investments in Country Office Facilities (of which $24.9 million is a Global Bank Set-aside in keeping with the Global Bank Strategy) Table I.1: Capital Program Summary - Investment Schedule FY10 ­ 13 Capital Funds ($ Millions) FY10 FY10 FY11 FY12 FY13 Approved YDT* Budget Plan Plan Technology and Systems 34.8 11.4 54.9 67.3 52.3 of which IMT Investment Scale-Up Reserve - - 7.9 23.4 31.7 Facilities - Washington 56.4 29.8 51.1 34.5 16.8 of which HQ Real Estate Proposal 38.2 26.0 17.1 19.2 0.0 Space Realignment Project - - 26.0 0.3 0.0 Facilities - Country Office 27.9 6.2 36.8 39.0 45.0 of which Global Bank Set-aside 1 - - 24.9 30.0 35.0 Total Capital Release (All Parts): 119.1 47.3 142.8 140.8 114.1 Total Percent Utilization (FY10 YTD Release/FY10 App'd ) 39.8% *Data on capital release of funds as of May 3 and 24, 2010 1 Global Bank Set-aside is an estimate that takes into account on-going/anticipated Decentralization reforms and co-location with IFC. The Capital Program for Technology and Systems I.2. The Information Management and Technology (IMT) Three-Year Strategy FY11-13 provides the selection framework for Technology and Systems capital investments ­ a critical element of the Bank's internal reform agenda. The proposed FY11 Capital Budget has been reviewed and approved by the Information and Technology Governance Group in consultation with CFRPA. I.3. The FY11 Capital Budget for the Technology and Systems program will be distributed as follows: Global Communications and Country Office Network ($11.0 million). This includes the cyclical renewal of country office servers and networks, in addition to the enterprise communications infrastructure. Capital investment for FY11 include: Integrated Communications Platform ($6.6 million), SAP/BW Storage and Server Replenishment ($1.8 million), and Global Communications Infrastructure Replenishment ($1.0 million). Desktop Computing and Enterprise Network ($1.0 million). This includes the cyclical replacement of hardware related to server infrastructure, as well as the engineering of the enterprise desktop software and related investments such as information and network security. Corporate Computer Replenishment ($2.1 million). This represents the Bank's corporate replacement program for notebooks, desktops, and monitors. 17 Corporate Systems and Infrastructure ($12.9 million). This category includes capital investments that support web portals and infrastructure, data management and delivery, and corporate business systems. Notable FY11 capital investments include: Access to Information ($2.4 million), SAP Upgrade ($2.3 million), Business Intelligence Infrastructure ($2.0 million), and Backup Infrastructure Replenishment ($1.0 million). Systems Development and Specialized computing ($12.1 million). Within the Technology and Systems program, capital investments are initiated and supported directly by the sponsoring VPUs. These investments are mainly aimed at addressing regulatory compliance, reducing fiduciary risks, supporting revised business models, providing increased support to front-line business processes, and improving effectiveness, especially in the delivery of services to internal and external clients. Major investment for FY11 includes: HR Renewal ($1.8 million), Social Collaboration ($1.5 million), Treasury Computing Infrastructure ($1.2 million), Cash and Collateral Management System ($1.0 million), and Centralized Computing ($1.0 million). Special Allocations ($7.9 million). Capital investments include the enterprise-wide content and document management system or Operations and Knowledge Systems Program (OKSP). This is a top corporate priority and a critical investment in the Bank's IT investment portfolio for the medium term. IMT Investment Scale-Up Reserve ($7.9 million). The FY11 Capital Budget includes an investment reserve associated with the IMT Three-Year Strategy and its associated Implementation Agenda (as shared with the Board in April 2010). The WBG CIO has committed to a further round of review before any IMT reserves are considered for allocation and release of funds. IMT reserves for release of funds will be contingent upon following: Identification of business efficiencies that can be redeployed to fund the sustaining costs for added investments Confirmation of sequencing of investments to align with actual implementation timing of business reforms; Capturing of synergies with IFC's capital program, and Leveraging of scale across shared services for all Bank Group entities. I.4. The IMT thematic organization provides an alternative perspective of the Technology and Systems budget follows (see Table I.2). These themes serve to align strategic direction with the implementation agenda for delivery. 18 Table I.2: Thematic Organization and Programs - Investment Schedule FY11 - 13 Capital Funds ($ Millions) Theme FY11 FY12 FY13 Program Budget Plan Plan 1 Modernization of Core Business Capabilities 24.3 19.9 18.9 Bank Operations and Knowledge Reforms 9.4 1.0 0.5 HR Reforms and GSD Modernization 2.5 3.7 2.9 e-Business Client Services 0.0 0.5 0.0 Financial Systems Renewal 5.9 2.2 0.0 IMT Scale-Up Reserve 6.5 12.5 15.5 2 Information Transparency and Access 6.9 6.0 3.4 Information Delivery 3.5 1.4 0.0 Strategic Business Intelligence 2.8 3.4 0.8 IMT Scale-Up Reserve 0.6 1.2 2.6 3 Productivity and Connectivity 6.6 15.1 10.7 Global Mobile Solutions 6.6 6.6 0.7 IMT Scale-Up Reserve 0.0 8.5 10.0 4 IMT Capacity Building 2.6 5.4 4.1 Standard Platform Leverage 1.8 4.2 0.5 IMT Transformation 0.0 0.0 0.0 IMT Scale-Up Reserve 0.8 1.2 3.6 5 Steady State Cyclical Re-Investment 14.5 20.9 15.2 Subtotal Capital Release Base Case: 47.0 43.9 20.6 Subtotal IMT Scale-Up Reserve: 7.9 23.4 31.7 Total Capital Release: 54.9 67.3 52.3 WBG Information Management and Technology (IMT) Three-Year Strategy FY11-FY13 I.5. The primary purpose of the WBG IMT Three-Year Strategy is to more optimally align IMT investments and services to the current business drivers for WBG. Benefits include increased staff and team productivity, business process simplification, and improved client service. Changes in the IMT operating model will enable WBG IMT strategy to be more agile supporting key business reforms to enhance the operational effectiveness and accountability of the World Bank Group. I.6. The proposed IMT implementation plan (see program plan below) is expected to modernize business capabilities and reduce risks; enhance information delivery and business intelligence; and, support a global mobile work force. It is intended to address risk areas related to systems, consolidation of non-standard and non-compliant systems, disclosure policy implementation, and security. Management is currently developing more detailed business cases for specific investments and cost estimates for capital expenditures and related administrative budget impact. When finalized, the IMT Strategy is expected to be financed using several levers, keeping in mind the flat budget environment, including IMT internal efficiencies, business process streamlining, and synergies generated from consolidating World Bank-IFC shared services. I.7. In the FY11 budget proposal, Management has reflected the working plan of IMT strategy through a set-aside of incremental capital budget of $8m, $23m, and $32m for FY11-FY13 respectively, subject to a finalized implementation plan and subsequent endorsement by the Board. In the FY11 19 administrative budget, Management has redeployed $4m for high priority IMT investments supporting programs begun in FY10 to enable the Reform Agenda-related programs such as improving information access, Operations and Knowledge Systems Program (OKSP), and the Business Intelligence program which aims to improve accessing and aggregating WBG operational information across the WBG at the country, regional and global levels. The outer year allocations are still under Management review and would be subject to final Board approval. WB IMT (IT) Spend Ten Programs by Theme Programs 300 Themes FY11 FY12 FY13 Bank Operations and Knowledge Reforms 250 IFC Operations and Advisory Services IMT/IT Spend ($m) Modernization of Core 200 Business Capabilities HR Renewal e-Business Client Services 150 Financial Systems Renewal 100 est. depreciation Information Delivery Information Transparency 50 and Access Strategic Business Intelligence - Global Mobile Solutions Productivity and Connectivity FY09 Act. FY10 Est. FY11 Plan FY12 Plan FY13 Plan Standard Platform Leverage Admin Budget Spend Capital Depreciation IMT Capacity Building IMT Transformation 20 The Capital Program for Washington and Country Office Facilities I.8. The FY11 Washington Facilities capital budget supports the implementation of: The HQ Real Estate Proposal ($17.1m), which was approved by the Board in 2008, involves leasing a new building with the option to buy, and taking on additional facility leases in order to address the future loss of the H building in 2023. Space Realignment Project ($26.0m) is designed to realign and consolidate the majority of the VPUs in the Washington campus between FY10-FY11, paving the way for the H Building to be vacated in June/July 2011. It is expected to involve approx 8,000 staff moves and reconfiguration of approx 350,000 Square Feet of existing office space in the MC, I, J, G and U Buildings. The proposed space realignment and reconfiguration would include setting up institutional hotelling areas campus wide to house short-term consultants (STCs) and other contingent workers. Other funds support asset replacement, new purchases, and upgrade projects such as the Security Systems Upgrade/Disaster Planning System ($5.1 million). I.9. The FY11 Capital Budget request for Country Office facilities is decomposed into a Global Bank Set-aside ($24.9 million) and the remaining $11.9 million funding investments in security, expansions, and upgrades of existing facilities under in support of the current decentralization model. This includes requests from regions for Country Office set-up, relocations, upgrades, and expansion of offices due to greater decentralization of staff and authority in the Country Office. The Capital Budget takes into account on-going decentralization and anticipated alignment with the Global Bank reforms, as well as the co-location of Bank entities. The Global Bank set-aside will ensure the necessary flexibility and fiscal space for future decentralization. 21 Table I.3: Capital Program - Investment Schedule FY10 ­ 13 Capital Funds ($ Millions) FY10 FY10 FY11 FY12 FY13 Approved YDT* Budget Plan Plan Facilities - Washington Security 3.4 0.0 5.1 0.0 0.0 HQ Real Estate Strategy 38.2 26.0 17.1 19.2 0.0 Space Realignment Project 0.0 0.0 26.0 0.3 0.0 Infrastructure Maintenance and Upgrades 1 14.8 3.8 2.9 15.0 16.8 Washington: 56.4 29.8 51.1 34.5 16.8 Facilities - Country Office 2 Security 12.9 0.0 3.0 1.0 1.0 Acquisition and Outfitting 3 15.0 n/a n/a n/a n/a Expansions n/a 0.1 2.6 4.0 4.0 Relocations and Global Bank Set-aside4 n/a 5.1 24.9 30.0 35.0 Infrastructure Maintenance and Upgrades 1 n/a 0.9 6.3 4.0 5.0 County Office: 27.9 6.2 36.8 39.0 45.0 Facilities: 84.3 36.0 87.9 73.5 61.8 Percent Utilization (FY10 YTD Release/FY10 Approved ) 42.7% *Data on capital release of funds as of May 3, 2010 1 Includes capital projects for equipment upgrades, repairs, replacements, and purchases. Also includes projects for space renovation and fit-out. 2 GSD managed country office projects included. 3 The Acquisition and Outfitting category is phased out and replaced by Global Bank Set-aside, Infrastructure Maintenance and Upgrades, and Expansions. 4 Global Bank Set-aside is an estimate that takes into account on-going relocations/anticipated Decentralization reforms and co-location with IFC. DECENTRALIZATION PLANS FOR FY11 I.10. The Units' future decentralization plans will depend on the approval and implementation of the Global Bank initiative. However, in the short term, regional units are trying to balance clients and work program demands within a flat budget environment. Depending on their own specific requirements, each region has its own plan to send staff to the field in FY11: AFR: Africa Region will continue its decentralization commitment of improving and scaling up results on the ground in FY11. Africa will continue positioning technical staff in the field particularly with the strong mandate of supporting fragile and post conflict affected states. Current plans indicate an additional flow of about 20 IRS GF+ technical staff to the field, along with local recruitment of about 5 net positions. In addition, AFR will increase its country departments from 11 to 15. EAP: Over time the EAP Region has increased its field presence to reach the right balance of IRS and LRS in the field. Currently, the Region is focusing on the decentralization of task management and has no plans of increasing its presence in the field beyond replacing returning staff. This approach reflects specific country work program needs, and recognizes that further decentralization would require prioritization of additional field benefits above country work programs, which at this point is not desirable. 22 ECA: The region does not have major plan to send more staff to the field in FY11. ECA would also like to decentralize an additional country unit to the field, however, ECA is awaiting for a decision on the Global Bank initiative. MNA: Since MNA is amongst the least decentralized of Regions, at 35% of GE+ staff located in Country Offices, compared to the all Regions average of 54%, the Region would like to significantly increase the pace of decentralization. The work program demand exists and there is strong pressure from the Bank's partners, both client governments and donors, for increased presence on the ground. However, in view of the unit's cost pressures in FY11, a key trade off that has been made in the Region's budget allocation is to cut back on planned decentralizations. In FY11, the Region expects to decentralize delegation of authority by moving the Country Directors for the Maghreb and for the Gulf Cooperation Council (GCC) Countries to the field, thereby achieving 100% of Country Directors decentralized, and to appoint a Country Manager for Tunisia. In terms of sector staff however, there is only enough funding for two or three Internationally Recruited Staff to be decentralized so as to meet the most pressing business needs. LCR: The unit is adding three new senior level internationally recruited positions in Haiti to provide support for the expanded work program resulting from the devastating earthquake. The total number of decentralized position will increase to 60. The Unit in the process of filling 7 vacant decentralized positions and is projecting that about 11 staff will be completing their field assignment during FY11 and these will be redeployed taking into account the clients' needs, work programs, decentralization costs and LCR's advantage of same time zone and proximity to Washington. SAR: The region plans to gradually move Sector Manager positions to the field in FY11, with the multiple objectives of enhancing client engagement and responsiveness, greater management attention to smaller countries which are unable to attract critical skills, quick operational support to task teams, and enhanced oversight and development of the large share of sector staff who are now based in the field. Decentralization Costs by Category by Region Decentralization Other Costs by Category $m - May YtD of the indicated FY $m - May YTD of the indicated FY 100 Other Costs 60 80 Equipment/Building IRS Field Benefits Travel 60 Local Salaries 7.9 6.0 40 Communication & IT 6.7 8.4 40 6.7 6.6 Contractual Services 20 Security Related Costs 20 15.1 15.1 - Other Expenses FY10 FY10 FY10 FY10 FY10 FY10 FY09 FY09 FY09 FY09 FY09 FY09 12.0 11.4 - AFR EAP ECA LCR MNA SAR FY09 FY10 23 Administrative Budget Impact of the Capital Budget I.11. The Bank's Administrative Budget may be impacted in subsequent fiscal years based upon the level of capital spending authority approved by the Board. Budget expenses such as depreciation and operating and maintenance have a claim on a Unit's budget resources once a capital project is completed and becomes an asset. In general, VPUs are responsible for these expenses over the life of the asset. A VPU must demonstrate that it can fund sustaining costs of a capital investment over the asset's life cycle within their allocated budget before any release of funds. I.12. In FY11, Technology and Systems capital projects will impact the Administrative Budget over the FY10 envelope by $6.2 million. This incremental increase is associated with the following projects: Access to Information, Integrated Communication Platform, OKSP, desktop security (SecurID), Strategic Business Intelligence and the Business Continuity program. I.13. Specific capital investments identified as part of the IMT reserve will need to achieve tradeoffs within the Administrative Budget in order to support any unfunded costs. I.14. The Space Realignment project will impact the Administrative Budget over the long-run, and the resulting savings in lease expenses are estimated to average $8-11 million per annum. For Country Offices, the Global Bank set-aside in FY11 will not have a significant change over FY10, but will likely increase in outer years. Annex-J: Institutional Development Fund (IDF) J.1. For FY11, IDF is requesting an allocation of up to $17.3 million, subject to cash management requirements, in order to maintain the commitments at the level ("ceiling") set by the Board at $25 million. The FY11 allocation proposal reflects an increase of $5.3 million over the FY10 request (of $12 million). The FY10 budget request was lower than usual due to high reflows from the clean up (explained below) done earlier. In fact, FY10 approvals by Regions reached the maximum of $25m and about $1.5m in grants could not be approved because ceiling limits were reached. The current FY11 proposal of $17.3 million reflects the return to normal levels of reflows. Institutional Development Fund Replenishment, Commitment Authority and Grants Approved Compared (in US dollars) FY05 FY06 FY07 FY08 FY09 FY10 FY11 Replenishment 19.0 16.0 16.0 16.0 16.0 12.0 17.3 Roll-over of Reflows, Inv 3.8 4.6 7.4 5.9 11.6 13.3 7.7 Income, etc from previous FY Commitment Authority 22.8 20.6 23.4 21.9 27.6 25.3 25.0 From which: Grants Approved 21.7 19.4 23.1 23.7 25.1 25.2 Replenishment. This is the annual budget request Roll-over. Amount of resources generated from sources internal to the program and forms part of the commitment authority for the next FY. The amounts are uncertain as to amount and timing hence the rollover takes place at FY-end. Reflows. Amounts returned to the IDF pool after a grant is legally and financially closed. This is not under direct control of the IDF secretariat as this happens after (i) Gov has returned unused funds and (ii) CTR performs all necessary housekeeping to take the grants off the books. In FY09, there was a signifcant effort by the Regional IDF Committees to clean up long outstanding grants that had not been taken off the books in FY07 and FY08. This backlog has now been addressed and reflow are expected to go back to normal levels. Trend in IDF Reflows (US dollars) FY05 FY06 FY07 FY08 FY09 FY10 FY11 Re flo w s 2.5 2.1 3.0 1.8 4.7 9.6 6.4 Investment Income. IDF's share of investment income earnings on the TF pool. Managed centrally by Treasury with all other Bank TF funds Commitment Authority. The amount set by the Board in June 1992 ($25m commencing in FY93) as the ceiling of the IDF program. Accordingly, the IDF submits to the Board and Annual Performance Report. The report for FY10 will be completed in the fall. Grant Approvals. Amounts approved by Regions in respect of grants (within four focus areas). For FY10, actual . approvals total $25.2 million. 25 Annex-K: Staff, Consultants, Temporaries Compensation Details. Expenses by Type of Expense - Staff Salaries and Benefits, Consultants and Temporaries Details ($ million) YTD Change Expense Type FY08 FY09 May FY10 %a Staff Salaries & Benefits 1,117.0 1,181.3 1,166.6 8% Staff Salaries - HQ 712.8 760.9 731.8 5% Staff Salaries - CO 89.9 97.5 101.1 13% Staff Benefits 256.0 254.2 264.3 13% Field Benefits 52.3 62.0 63.4 12% Other Staff Costs 6.0 6.7 5.8 -5% Consultants and Temporaries 244.4 267.3 224.8 -8% ST Consultants 163.3 171.6 129.0 -18% ST Temporaries 17.4 18.6 16.0 -6% ET Consultants 53.7 66.8 69.1 13% ET Consultant Fees - HQ 34.4 43.7 43.8 9% ET Consultant Fees - CO 7.5 8.3 10.1 33% ET Consultant Benefits - HQ 10.3 13.2 13.2 9% ET Consultant Benefits - CO 1.5 1.6 2.0 34% ET Temporaries 9.9 10.3 10.8 14% ET Temporary Fees - HQ 5.2 5.2 5.5 14% ET Temporary Fees - CO 2.6 2.8 2.9 13% ET Temporary Benefits - HQ 1.6 1.7 1.8 15% ET Temporary Benefits - CO 0.6 0.6 0.6 21% a) For calculation of change, FY10 is normalised i.e. numerator = actual x 12/11 26