General Resources Account

The financial operations of the IMF with members are primarily conducted through the GRA. The assets and liabilities in the GRA reflect the payment of member quota subscriptions, use and repayment of IMF credit, collection of charges from borrowers, payment of remuneration and interest on creditor positions and to lenders, respectively, and other operations.

Investment Account

The IA holds resources transferred from the GRA, which are invested to broaden the IMF’s income base. The current investment objective of the IA is to generate returns that exceed the SDR interest rate over time while minimizing the frequency and extent of negative returns and underperformance. Investments currently comprise primarily fixed-income securities and short-term deposits. The earnings generated by the IA may be retained in the IA or transferred to the GRA to help meet the expenses of conducting the business of the IMF.

Special Disbursement Account

The SDA is the vehicle used to receive profits from the sale of gold held by the IMF at the time of the Second Amendment of the IMF’s Articles of Agreement (1978). SDA resources can be used for various purposes as specified in the IMF Articles of Agreement, including transfers to the GRA for immediate use in operations and transactions, transfers to the IA, or to provide balance of payment assistance on special terms to developing member countries in difficult circumstances. Pending uses for other purposes, resources may also be held in the SDA and invested.

The SDA also holds claims related to outstanding loans extended under the Structural Adjustment Facility (SAF). Repayments of principal and interest from SAF loans are transferred from the SDA to the Reserve Account of the Poverty Reduction and Growth Trust (PRG Trust), which is administered separately by the IMF as Trustee.

Multilateral Debt Relief Initiative

The Multilateral Debt Relief Initiative (MDRI) provides debt relief to qualifying low-income member countries. For this purpose, the MDRI-I and MDRI-II Trusts were established on January 5, 2006, to provide grant assistance to eligible members under the MDRI. As the IMF has control over the MDRI-I Trust, the latter’s financial statements are consolidated with those of the General Department through the SDA. Grant assistance from the MDRI Trusts provides debt relief to cover debt owed to the IMF at December 31, 2004 that is not covered by debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative and that has not been repaid at the time the member qualifies for HIPC relief. At April 30, 2012 and 2011, only one of the five remaining MDRI-eligible members was expected to have debt outstanding from 2004 upon reaching completion point. Since this debt is expected to be covered by resources in the PRG-HIPC Trust, no liability was recorded for the MDRI-I Trust.

New and Revised International Financial Reporting Standards and Interpretations

Revised IAS 24, “Related Party Disclosures” was issued in November 2009 and superseded IAS 24 (as revised in 2003). The major revisions include simplifying the definition of a related party and providing partial exemption for government-related entities. The revised standard, which became effective for annual periods beginning on or after January 1, 2011, had no impact on the General Department’s consolidated financial statements.

The following new standards and amendments to existing standards have been issued by the IASB but are not yet effective and have not yet been implemented by the General Department.

IFRS 9, “Financial Instruments” was issued in November 2009 as the first step in replacing IAS 39, “Financial Instruments: Recognition and Measurement”. Under IFRS 9, financial assets currently within the scope of IAS 39 will be divided into two categories: those measured at amortized cost and those measured at fair value. The effective date for adoption of IFRS 9 is for annual periods beginning on or after January 1, 2015, but early adoption is permitted. As the General Department already measures financial assets at amortized cost or fair value, the implementation of IFRS 9 is not expected to have an impact on the General Department’s financial position or results of operations.

IFRS 10, “Consolidated Financial Statements” was issued in May 2011 and replaces the parts of IAS 27, “Consolidated and Separate Financial Statements” that deal with consolidated financial statements and SIC-12, “Consolidation – Special Purpose Entities”. The standard establishes a new control model for determining which entities should be consolidated. The standard also provides guidance on how to apply the principle of control to specific situations in order to identify whether an investor controls an investee. The effective date is for annual periods beginning on or after January 1, 2013 with earlier application permitted under certain circumstances. The implementation of IFRS 10 is not expected to have a significant impact on the General Department’s financial position or results of operations.

IFRS 13, “Fair Value Measurement” was issued in May 2011 and defines fair value, sets out a framework for measuring fair value, and requires more extensive disclosures about fair value. The effective date is for annual periods beginning on or after January 1, 2013. The implementation of IFRS 13 is expected to result in additional disclosures in the General Department’s financial statements, but will not have a significant impact on the recognition and measurement of assets and liabilities.

Amended IAS 19, “Employee Benefits” was issued in June 2011. The amendments include removal of the option to defer actuarial gains and losses under the “corridor” method and a new approach for calculating the asset return amount included in the reporting period’s income statement. All actuarial gains and losses will be recognized immediately in other comprehensive income and the net pension asset or liability recognized in the consolidated statement of financial position will reflect the full excess or deficit of plan assets over the defined benefit obligation, respectively. The amendment to IAS 19 is effective for annual periods beginning on or after January 1, 2013. The immediate recognition of actuarial gains and losses will result in increased volatility of the pension asset in the General Department’s financial position and the associated changes that will be recognized in other comprehensive income.

The following new standards and amendments to existing standards issued by the IASB are expected to have little or no impact on the General Department’s consolidated financial statements:

Amendments to IFRS 7, “Disclosures – Transfers of Financial Assets” (effective for annual periods beginning on or after July 1, 2011).

Amendments to IAS 1, “Presentation of Items of Other Comprehensive Income” (effective for annual periods beginning on or after July 1, 2012).

IFRS 11, “Joint Arrangements” was issued in May 2011 (effective for annual periods beginning on or after January 1, 2013).

IFRS 12, “Disclosure of Interests in Other Entities” was issued in May 2011 (effective for annual periods beginning on or after January 1, 2013).

IAS 28 (as revised in 2011), “Investments in Associates and Joint Ventures” was issued in May 2011 (effective for annual periods beginning on or after January 1, 2013).

IAS 27 (as revised in 2011), “Separate Financial Statements” was issued in May 2011 (effective for annual periods beginning on or after January 1, 2013).

Unit of account

The consolidated financial statements are presented in Special Drawing Rights (SDRs), which is the IMF’s functional unit of account. The U.S. dollar equivalent of the SDR is determined daily by the IMF by summing specific amounts of the four basket currencies (see below) in U.S. dollar equivalents on the basis of market exchange rates. The IMF reviews the SDR valuation basket at five-year intervals. The last review was completed in November 2010. No changes were made to the basket currencies, but the weights of the four currencies in the basket were changed and became effective on January 1, 2011. The currencies in the basket at April 30, 2012, and 2011 and their specific amounts, relative to one SDR, were as follows:

Currency	Amount
Euro	0.423
Japanese yen	12.1
Pound sterling	0.111
U.S. dollar	0.660

View Table

Currency	Amount
Euro	0.423
Japanese yen	12.1
Pound sterling	0.111
U.S. dollar	0.660

At April 30, 2012, one SDR was equal to US$1.55055 (US$1.62096 at April 30, 2011).

Use of estimates and judgment

The preparation of consolidated financial statements requires management to make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income, and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.

Information about areas involving estimates and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements are described in Notes 3, 13, and 16.

Basis of consolidation

The consolidated financial statements include the GRA, the IA, the SDA, and the MDRI-I Trust. Control is achieved where the IMF has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. All transactions and balances between these entities have been eliminated during consolidation.

Quotas and reserve tranche positions

The IMF’s resources are provided by its members through the payment of quotas, which broadly reflect each member’s relative position in the global economy. Quotas also determine each member’s relative voting power, access to IMF financing, and share in SDR allocations. The IMF conducts general reviews of all members’ quotas at five-year intervals. The reviews allow the IMF to assess the adequacy of quota resources to meet its financing needs and to allow for adjustments of members’ quotas to reflect their relative positions in the world economy.

Member quota increases are recorded when a member consents to the quota increase and makes the actual payment.

A quarter of a member’s quota is normally paid in reserve assets, and the remainder is paid in the member’s own currency. Should a member withdraw from the IMF, its quota subscription is refunded to the extent it is not needed to settle the net obligations of the member to the IMF. A member’s reserve tranche is equivalent to its quota less the GRA’s holdings of its currency, excluding holdings that reflect the member’s use of GRA credit. Reserve tranches result from quota payments in reserve assets and from the use of the member’s currency in the GRA’s transactions or operations. A member’s reserve tranche is considered a part of its international reserves and a liquid claim against the GRA.

Quota subscriptions and the reserve tranche positions are classified as liabilities as they embody an unconditional obligation to redeem the instrument, in the case of quotas only upon a member’s withdrawal from the IMF.

Currencies

Currencies consist of members’ currencies held by the GRA and securities (issued by members), which are non-interest bearing and are encashable by the IMF on demand. Usable currencies are currencies of members considered to have a strong balance of payments and reserves position that can be used by the GRA to finance the use of resources through a quarterly financial transactions plan, for lending activities, approved by the Executive Board. Usable currencies and the GRA’s SDR holdings are considered cash equivalents for the presentation of the statement of cash flows. Other currencies are not used to finance the use of resources by members, and therefore are not considered cash equivalents in the presentation of the statement of cash flows.

All currencies in the GRA are revalued in terms of the SDR, at each financial year end, and members are required to settle the currency valuation adjustments promptly thereafter. Member currencies are also revalued in SDR terms whenever used by the IMF in a transaction with another member or at the request of a member during the year, for example, at the end of each month. The currency balances in the statements of financial position include the receivables and payables arising from the revaluation.

SDR holdings

SDRs are not allocated to the IMF, but the IMF, through the GRA, can hold SDRs, which it can acquire from members in the settlement of their financial obligations to the IMF. In addition, SDRs can be used in a number of transactions and operations with members, including the provision of SDRs to purchasing members and the payment of remuneration on reserve tranche positions or interest on GRA borrowings. The IMF earns interest on its SDR holdings at the same rate as other holders of SDRs.

Credit outstanding

Credit outstanding represents financing provided to members under the various IMF credit facilities. Members receive credit in the GRA by purchasing SDRs or usable currencies in exchange for their own currencies. IMF credit is repaid by members by repurchasing holdings of their currencies in exchange for SDRs or usable currencies. Depending on the type of IMF credit facility, repurchase periods for GRA credit vary from 3% to 10 years.

An impairment loss would be recognized if there is objective evidence of impairment as a result of a past event that occurred after initial recognition, and is determined as the difference between the outstanding credit’s carrying value and the present value of the estimated future cash flows. Such cash flows take into account the proceeds from the burden sharing mechanism, explained below. Accordingly, no impairment losses have been recognized in the financial years ended April 30, 2012, and 2011, and there are no allowances against the overdue positions.

Burden sharing mechanism and Special Contingent Account

The IMF excludes from income, interest charged on the use of IMF resources by members that are at least six months overdue in meeting any financial obligation to the IMF (overdue charges). The IMF fully recovers such income under the burden sharing mechanism, through adjustments to the rates of charge and remuneration. Members that participate in burden sharing for overdue charges receive refunds to the extent that the overdue charges are subsequently collected.

The IMF accumulates balances in the first Special Contingent Account (SCA-1) under the burden sharing mechanism. The SCA-1 is intended to address the risks posed to the IMF by overdue financial obligations. Balances in the SCA-1 would be used first if the IMF were to incur any loss from overdue obligations. Balances in the SCA-1 are refundable to the members that shared the cost of its financing, in proportion to their contributions, when there are no outstanding overdue repurchases and charges, or at such earlier time as the IMF may decide (see Note 10). Effective November 1, 2006, the IMF’s Executive Board decided to suspend, for the time being, further additions to the SCA-1.

Investments

The IMF has designated its investments in fixed-income securities (see Note 7), other than fixed-term deposits, as financial assets held at fair value through profit or loss. Such designation may be made only upon initial recognition and cannot subsequently be changed. The designated assets are carried at fair value in the statements of financial position, with the change in fair value included in the statements of comprehensive income in the period in which they arise.

Gold holdings

The IMF values its gold holdings at historical cost using the specific identification method. In accordance with the provisions of the Articles, whenever the IMF sells gold held on the date of the Second Amendment of the Articles, the portion of the proceeds equal to the historical cost must be placed in the GRA. Any portion of the proceeds in excess of the historical cost will be held in the SDA or transferred to the IA (see Note 8). Profits from sale of gold acquired after the Second Amendment are to be placed in the IA under the amendment to the Articles on the expanded investment authority of the IMF, while an amount equivalent to the acquisition price is placed in the GRA.

Fixed assets

Tangible and intangible fixed assets (see Note 9) with a cost in excess of a threshold amount are capitalized and depreciated or amortized over the estimated remaining useful lives using the straight-line method. Buildings, furniture, and equipment are depreciated over 30, 7, and 3 years, respectively. Software is amortized over 3 to 5 years.

Gains or losses arising from the sale of fixed assets are determined as the difference between sale proceeds and the carrying amount of those fixed assets and are recognized in the consolidated statement of comprehensive income.

Pension assets

The IMF has a defined benefit Staff Retirement Plan (SRP) that covers substantially all eligible staff, a Supplemental Retirement Benefits Plan (SRBP) for selected participants of the SRP, and the Retired Staff Benefits Investment

Account (RSBIA) to hold and invest resources set aside to fund the cost of the post-retirement benefits. The pension plans and other post-retirement assets are measured at fair value at the end of the reporting period. Pension costs and expected costs of the post-retirement medical and life insurance benefits are determined using the Projected Unit Credit Method (see Note 16).

Borrowings

The IMF can borrow to temporarily supplement its quota resources. The Executive Board has established guidelines on borrowing by the IMF to ensure that the financing of the IMF is managed in a prudent and systematic manner. The IMF’s main standing borrowing arrangement is the enlarged and expanded New Arrangements to Borrow (NAB). The IMF may also borrow under bilateral agreements, in particular loan and note purchase agreements (bilateral borrowing agreements), the General Arrangements to Borrow (GAB), and an associated agreement with Saudi Arabia (see Note 11).

Borrowings are denominated in SDRs, and currently carry the SDR interest rate. The drawings under borrowings are stated at amortized cost.

Reserves of the General Resources Account

The IMF’s reserves (retained earnings) consist of the General Reserve and the Special Reserve. The General Reserve may be used to meet capital losses or operational deficits or for distribution, and the Special Reserve can be used for the above purposes except distribution.

The IMF determines annually what part of its net income, if any, will be retained and placed in the General Reserve or the Special Reserve, and what part, if any, will be distributed. Net losses are charged against the Special Reserve under currently applicable Executive Board decisions.

Charges

The IMF earns interest, referred to as charges, on members’ use of IMF credit. The basic rate of charge is the SDR interest rate plus a margin expressed in basis points that is determined by the Executive Board. The SDR interest rate is determined weekly by reference to the weighted average yields on short-term instruments in the capital markets of the Euro area, Japan, the United Kingdom, and the United States.

Effective August 1, 2009, credit outstanding in excess of 300 percent of quota resulting from purchases in the credit tranches (including under the Stand-By, Flexible Credit Line (FCL), and Precautionary and Liquidity Line (PLL), formerly Precautionary Credit Line (PCL) arrangements) and under the Extended Fund Facility is subject to a surcharge of 200 basis points per annum above the basic rate of charge. Such holdings outstanding for more than three years after August 1, 2009, are subject to an additional surcharge of 100 basis points. Special charges are levied on members’ currency holdings that are not repaid when due and on overdue charges. Special charges do not apply to members that have overdue obligations to the Fund of six months or more. A service charge of 50 basis points is levied by the IMF on all purchases except reserve tranche purchases. A refundable commitment fee is charged on arrangements. Commitment fees are refundable if drawings are made under an arrangement and therefore income from the fees is only recognized at the cancellation or expiration of the arrangement, or to the extent access under an arrangement is reduced.

Remuneration

The IMF pays interest, referred to as remuneration, on a member’s reserve tranche position. A portion of the reserve tranche is unremunerated: that portion is equal to 25 percent of the member’s quota on April 1, 1978 (that part of the quota that was paid in gold prior to the Second Amendment of the Articles). For a member that joined the IMF after that date, its unremunerated reserve tranche is a percentage of its initial quota equivalent to the average percentage of unremunerated reserve tranche positions of all other members of the IMF in relation to their quotas when the new member joined the IMF.

The rate of remuneration is equal to the SDR interest rate. The rate of remuneration is the same for all members and (after taking into account burden sharing adjustments) cannot be less than 80 percent of the SDR interest rate.

Special Disbursement Account

Loans under the SAF are at concessional interest rates of ½ of 1 percent per annum. The last SAF loan disbursement was made in 1995 and currently one member (Somalia) has overdue SAF repayment obligations. Repayments of SAF loans to the SDA are transferred to the PRG Trust when received. Allowances for loan losses would be established if and when there is objective evidence that an impairment loss on loans has been incurred. No impairment losses have been recognized in the financial years ended April 30, 2012, and 2011, and there are no allowances against the overdue positions.

Provisions

Provisions are recognized when the IMF has a current legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Provisions are measured at the present value of the amounts that are expected to be paid to settle the obligations.

Risk management framework

The Executive Board of the IMF has overall responsibility for the establishment and oversight of the IMF’s risk management framework. The risk management framework encompasses primarily strategic, financial, and operational risks. As part of this framework, the Advisory Committee on Risk Management (ACRM) has been established to analyze, synthesize, and report risks. Annual assessments of risks are conducted to (i) appraise risks and efforts to mitigate these risks; (ii) report on the assessment of residual risks, after taking account of mitigation measures in place; and (iii) bring to the attention of the ACRM areas of residual risk. Financial risks are also reviewed as part of the annual comprehensive risk assessment exercise and on an ongoing basis in the context of specific policies.

Credit risk

Credit outstanding

Credit risk refers to potential losses on credit outstanding owing to the inability or unwillingness of member countries to make repurchases. Credit risk is inherent in the IMF’s unique role in the international monetary system since the IMF has limited ability to diversify its loan portfolio and generally provides financing when other sources are not available to a member. In addition, the IMF’s credit concentration is generally high.

The use of credit in the GRA by the largest users was as follows at April 30:

	2012		2011
	(In millions of SDRs and as a percentage of total GRA credit outstanding)
Largest user of credit	18,941	20.1%	12,736	19.4%
Three largest users of credit	48,723	51.7%	32,555	49.7%
Five largest users of credit	68,167	72.4%	45,425	69.3%

View Table

	2012		2011
	(In millions of SDRs and as a percentage of total GRA credit outstanding)
Largest user of credit	18,941	20.1%	12,736	19.4%
Three largest users of credit	48,723	51.7%	32,555	49.7%
Five largest users of credit	68,167	72.4%	45,425	69.3%

The five largest users of GRA credit at April 30, 2012, in descending order, were Greece, Portugal, Ireland, Romania, and Ukraine (Greece, Romania, Ukraine, Hungary, and Pakistan at April 30, 2011).

The concentration of GRA outstanding credit by region was as follows at April 30:

¹During the financial year ended April 30, 2012, certain minor changes were made to align members’ regional groupings with the IMF’s internal classifications.

		2012		2011
		(In millions of SDRs and as a percentage of total GRA credit outstanding) 1
Africa		885	0.9%	708	1.1%
Asia and Pacific		1,579	1.7%	1,372	2.1%
Europe		82,984	88.1%	54,570	83.3%
Western Hemisphere		1,426	1.5%	1,283	1.9%
Middle East and Central Asia		7,308	7.8%	7,606	11.6%
	Total	94,182	100%	65,539	100%

¹During the financial year ended April 30, 2012, certain minor changes were made to align members’ regional groupings with the IMF’s internal classifications.

View Table

		2012		2011
		(In millions of SDRs and as a percentage of total GRA credit outstanding) 1
Africa		885	0.9%	708	1.1%
Asia and Pacific		1,579	1.7%	1,372	2.1%
Europe		82,984	88.1%	54,570	83.3%
Western Hemisphere		1,426	1.5%	1,283	1.9%
Middle East and Central Asia		7,308	7.8%	7,606	11.6%
	Total	94,182	100%	65,539	100%

¹During the financial year ended April 30, 2012, certain minor changes were made to align members’ regional groupings with the IMF’s internal classifications.

Measures to help mitigate the IMF’s credit risk include policies on access limits, program design, monitoring, pre-set qualification criteria, and conditionality attached to IMF financing; early repurchase policies; and preventative, precautionary, and remedial measures to cope with the financial consequences of protracted arrears.

The IMF has established limits on overall access to resources in the GRA. The annual limit is currently set at 200 percent of a member’s quota, with a cumulative limit of 600 percent of a member’s quota (net of scheduled repurchases), except for the FCL arrangements, which are not subject to these access limits. Two arrangements approved during the financial year ended April 30, 2012 had access in excess of these limits (five arrangements during the financial year ended April 30, 2011). Access in excess of these limits is granted in exceptional circumstances. There is no pre-specified maximum on exceptional access (except for PLL arrangements which have a cumulative cap of 1,000 percent of quota, net of scheduled repurchases), although the IMF assesses factors such as the size of balance of payment pressures, the member’s debt sustainability and its ability to regain access to financing from other sources, and the strength of policies to be adopted. Under such circumstances, disbursements tend to be front-loaded with smaller subsequent tranches. Access under a 6-month PLL arrangement is subject to a limit of 250 percent of quota per arrangement and, in exceptional circumstances where a member is experiencing or has the potential to experience larger short-term balance of payments needs due to the impact of exogenous shocks including heightened regional or global stress conditions, access is subject to a higher limit of 500 percent of quota, net of scheduled repurchases, per arrangement. A 500 percent of quota access cap applies to total access under 6-month PLL arrangements.

The IMF generally provides financial assistance to a member under an economic program adopted by the member to help it overcome its balance of payments difficulties. IMF financial assistance may be disbursed in tranches or the entire amount could be made available upfront. Apart from IMF arrangements, members can also have access to IMF financing through reserve tranche purchases, first credit tranche purchases, and outright purchases under policies on emergency assistance. Safeguards assessments of member central banks are normally undertaken to provide the IMF with reasonable assurance that each central bank’s legal structure, controls, and accounting, reporting, and auditing systems are adequate to ensure the integrity of their operations and help ensure that IMF resources are used for intended purposes. Misreporting by member countries may entail early repurchases for non-complying disbursements.

The IMF maintains precautionary balances consisting of its reserves (excluding any balances in the Special Reserve and General Reserve attributable to profits from gold sales during the financial years ended April 30, 2010, and 2011), and the SCA-1 that would be used to cover losses from possible overdue repurchase obligations. At April 30, 2012, precautionary balances amounted to SDR 9.5 billion, compared to SDR 8.1 billion at April 30, 2011. In addition, the burden sharing mechanism generates resources to offset the loss of income due to unpaid charges and thereby helps protect the IMF’s overall income and financial position.

The maximum credit risk exposure is the carrying value of the Fund’s credit outstanding and undrawn commitments (see Note 15), which amounted to SDR 215.8 billion and SDR 181.5 billion at April 30, 2012, and 2011, respectively.

Investments

Credit risk on investments represents the potential loss that the IMF may incur if obligors and counterparties default on their contractual obligations. Credit risk is managed through the conservative range of investments, which at present is limited to (i) domestic government bonds of countries in the Euro area, Japan, the United Kingdom, and the United States, that is, members whose currencies are included in the SDR basket; (ii) bonds of international financial organizations; (iii) claims on the Bank for International Settlements (BIS); and (iv) short-term deposits held at the BIS. Credit risk is currently further minimized by restricting investments to financial instruments rated A or higher by a major credit rating agency.

The credit risk exposure in the investments portfolio at April 30 was as follows:

¹Less than 0.1%.

		2012		2011
		Rating	Percentage	Rating	Percentage
Government bonds
	Austria	—	—	AAA	—1
	Belgium	AA	—1
	France	—	—	AAA	—1
	Germany	AAA	5.0%	AAA	7.1%
	Japan	AA–	2.4%	AA	2.1%
	United Kingdom	AAA	1.6%	AAA	1.8%
	United States	AA+	10.2%	AAA	8.5%
Non-governmental bonds
	Bank for International Settlements	Not rated	25.4%	Not rated	23.8%
	Other international financial institutions	AAA	5.6%	AAA	3.5%
		AA+	0.2%	—	—
Fixed-term deposits and other Bank for International Settlements		Not rated	49.6%	Not rated	53.2%
			100%		100%

¹Less than 0.1%.

View Table

		2012		2011
		Rating	Percentage	Rating	Percentage
Government bonds
	Austria	—	—	AAA	—1
	Belgium	AA	—1
	France	—	—	AAA	—1
	Germany	AAA	5.0%	AAA	7.1%
	Japan	AA–	2.4%	AA	2.1%
	United Kingdom	AAA	1.6%	AAA	1.8%
	United States	AA+	10.2%	AAA	8.5%
Non-governmental bonds
	Bank for International Settlements	Not rated	25.4%	Not rated	23.8%
	Other international financial institutions	AAA	5.6%	AAA	3.5%
		AA+	0.2%	—	—
Fixed-term deposits and other Bank for International Settlements		Not rated	49.6%	Not rated	53.2%
			100%		100%

¹Less than 0.1%.

Market risk

Credit outstanding

Interest rate risk is the risk that future cash flows will fluctuate because of changes in market interest rates. Interest rate risk is managed through the use of a floating market interest rate (the SDR interest rate) to determine the rate of charge. Interest rate fluctuations do not affect lending income because the IMF links the rate of charge directly, by means of a fixed margin, to the cost of financing (which is equal to the SDR interest rate).

Investments

The investment portfolio is exposed to market risk due to interest rate movements. The interest rate risk is mitigated by limiting the duration of the portfolio to a weighted average of 1-3 years.

The following sensitivity analysis assumes a 10 basis point change in yields reflecting the low global interest rate environment. The gold profits currently held in short-term deposits (see Note 7) are excluded from the sensitivity analysis. A 10 basis point increase in the average effective yields of the remaining IMF portfolio at April 30, 2012, would result in a loss of SDR 13.6 million or approximately 0.19 percent of the portfolio (SDR 11.2 million or 0.18 percent at April 30, 2011). A 10 basis point decrease would result in a gain of SDR 13.7 million or approximately 0.19 percent of the portfolio (SDR 11.1 million or 0.18 percent at April 30, 2011).

Borrowings

Interest rate risk related to bilateral borrowings, issued notes, and borrowings under the enlarged and amended NAB, is limited since drawings are currently subject to the SDR interest rate. The proceeds from the borrowings are used to extend credit to member countries, at the rate of charge, which is based on the SDR interest rate plus a margin, or to repay borrowings under bilateral agreements, note purchase agreements, and the enlarged and amended NAB. Under certain circumstances, higher interest rates can apply, in some cases requiring the agreement of the IMF.

Financial assets and liabilities other than investments

Exchange rate risk is the exposure to the effects of fluctuations in foreign currency exchange rates on an entity’s financial position and cash flows. The IMF has no exchange rate risk exposure on its holdings of members’ currencies in the GRA since, under the Articles of Agreement, members are required to maintain the value of such holdings in terms of the SDR. Any depreciation/appreciation in a member’s currency vis-à-vis the SDR gives rise to a currency valuation adjustment receivable or payable that must be settled promptly after the end of the financial year or at other times as requested by the IMF or the member. The IMF has other assets and liabilities, such as trade receivables and payables, denominated in currencies other than SDRs and makes administrative payments largely in U.S. dollars, but the exchange rate risk exposure from these other assets and liabilities is limited.

Investments

In accordance with current IA rules and regulations, exchange rate risk on investments is managed by investing in financial instruments denominated in SDRs or in constituent currencies of the SDR with the relative amount of each currency matching its weight in the SDR basket. In addition, the portfolio is regularly rebalanced to match the currency weights in the SDR basket.

The value of the SDR is the sum of the market values, in U.S. dollar equivalents, of the predetermined amounts of the four currencies in the SDR valuation basket. The effective share of each currency in the valuation of the SDR fluctuates daily and depends on the prevailing exchange rate in the London market at noon against the U.S. dollar on that day. Since the proportionate share of a currency in the SDR valuation basket is determined by reference to the market value against the U.S. dollar, the exchange rate risk can be measured indirectly using the exchange rate movements between that basket currency and the U.S. dollar. The net effect on the investment portfolio of a 10 percent increase in the market exchange rates of the basket currencies against the U.S. dollar, at April 30, would be as follows:

	2012		2011
	Net loss		Net gain/(loss)
	In millions of SDRs	As a percent of investments not denominated in SDRs	In millions of SDRs	As a percent of investments not denominated in SDRs
Euro	(0.76)	0.01%	(2.16)	0.04%
Japanese yen	—	—	(0.76)	0.01%
Pound sterling	(0.29)	—	(0.75)	0.01%

View Table

	2012		2011
	Net loss		Net gain/(loss)
	In millions of SDRs	As a percent of investments not denominated in SDRs	In millions of SDRs	As a percent of investments not denominated in SDRs
Euro	(0.76)	0.01%	(2.16)	0.04%
Japanese yen	—	—	(0.76)	0.01%
Pound sterling	(0.29)	—	(0.75)	0.01%

The net effect of a 10 percent decrease in the market exchange rate of the basket currencies against the U.S. dollar, at April 30, would be as follows:

	2012		2011
	Net gain/(loss)		Net gain/(loss)
	In millions of SDRs	As a percent of investments not denominated in SDRs	In millions of SDRs	As a percent of investments not denominated in SDRs
Euro	0.81	0.01%	0.77	0.01%
Japanese yen	(0.01)	—	(0.75)	0.01%
Pound sterling	0.28	—	(0.76)	0.01%

View Table

	2012		2011
	Net gain/(loss)		Net gain/(loss)
	In millions of SDRs	As a percent of investments not denominated in SDRs	In millions of SDRs	As a percent of investments not denominated in SDRs
Euro	0.81	0.01%	0.77	0.01%
Japanese yen	(0.01)	—	(0.75)	0.01%
Pound sterling	0.28	—	(0.76)	0.01%

Borrowings

The IMF has no exchange rate exposure from its borrowing arrangements since all drawings are denominated in SDRs.

Liquidity risk

Liquidity risk is the risk to the IMF of nonavailability of resources to meet the financing needs of members and its own obligations. The IMF must have usable resources available to meet members’ demand for IMF financing. While the IMF’s resources are largely of a revolving nature, uncertainties in the timing and amount of credit extended to members during financial crises expose the IMF to liquidity risk. Moreover, the IMF must also stand ready to meet potential demands from members drawing upon their reserve tranche positions, which have no fixed maturity and are part of members’ reserves, and for encashment of creditor claims under bilateral borrowing agreements or the NAB in case of balance of payments need of the relevant creditor member.

The IMF manages its liquidity risk not by matching the maturity of assets and liabilities, but by closely scrutinizing developments in its liquidity position. Long-term liquidity needs are addressed by reviewing the adequacy of quota-based resources. General reviews of members’ quotas are conducted at intervals of no more than five years in order to evaluate the adequacy of quota-based resources to meet members’ demand for IMF financing. The last general review was completed in December 2010 with a proposal for doubling quotas. Moreover, the bilateral borrowing agreements, and the enlarged and amended NAB, allow for drawings under these agreements/ arrangements in certain circumstances to meet requests for encashment by creditor members, or their institutions, in case of balance of payments needs.

Short-term liquidity needs for lending activities are reviewed and approved by the Executive Board on a quarterly basis through a financial transactions plan (FTP) for quota resources and borrowed resources under bilateral borrowing agreements, and the resource mobilization plan (RMP) for use of resources under the NAB. The IMF also monitors its short-term liquidity position using objective criteria such as the forward-commitment capacity. (Schedule 2 provides the GRA’s available resources and liquidity position.)

Income risk

The IMF has been relying principally on income from charges levied on outstanding credit to meet its operating costs. Due to its role in the world economy, the level of IMF lending fluctuates significantly, and in light of the current global crisis and increased lending activities, the IMF’s income risk has subsided in the current environment.

In 2008, the Executive Board proposed new and sustainable income and expenditure frameworks to close the then projected income shortfall. The proposals were based on the recommendations of a committee of well-known experts, appointed by the IMF’s Managing Director in 2006, to study sustainable financing options for the IMF. Key elements of the new income model include establishing an endowment using the profits from the limited sale of 12.97 million ounces (403.3 metric tons) of post-Second Amendment gold holdings, expanding the investment authority to enhance the expected return on the IMF’s investments, and reinstating the practice of reimbursing the IMF for the cost of administering the PRG Trust. The expenditure framework proposal included significant expenditure cuts over the medium term. In May 2008, the IMF’s Board of Governors endorsed these proposals and adopted the related resolution on the amendment of the Articles of Agreement. The gold sales were completed in December 2010, and in February 2011 the amendment to expand the investment authority of the IMF entered into effect after the required majority of IMF members had accepted it. The Executive Board is considering new rules and regulations to implement the broadened investment authority.

Operational risk

Operational risk includes risk of loss attributable to errors or omissions because of failures in executing or processing transactions, inadequate controls, human factors, and/or failures in underlying support systems.

The IMF mitigates operational risk by (i) identifying key operational risks, (ii) maintaining a system of internal controls, (iii) documenting policies and procedures on administrative and accounting and reporting processes, and (iv) conducting internal audits to provide independent reviews of the effectiveness of the control processes and risk management. The design and effectiveness of controls are evaluated continuously and improvements implemented periodically as needed. In addition, results of the internal audits are reported by the Office of Internal Audit and Inspection (OIA) both to the Managing Director and the External Audit Committee (EAC), which also exercises oversight on financial reporting controls, and the external audit of the IMF’s accounts. The OIA also provides periodic reports to the Executive Board.

Contributions to Administered Accounts

Assets in the SDA can be used for special purposes authorized in the Articles of Agreement, including providing financial assistance on special terms to low-income member countries.

Proceeds from the payments of SAF loans, Trust Fund loans, and excess resources from the Supplementary Financing Facility Subsidy Account are transferred from the SDA to the Reserve Account of the PRG Trust as contributions. During the financial year ended April 30, 2012, there were no contributions from the Supplementary Financing Facility Subsidy Account to the Reserve Account of the PRG Trust as contributions (SDR 0.1 million in excess resources were contributed during the financial year ended April 30, 2011).

For the financial year ended April 30, 2012, the IMF Executive Board waived the reimbursement of expenses incurred in administering the PRG Trust, and decided to transfer SDR 63.1 million (SDR 46.4 million for the financial year ended April 30, 2011), which would otherwise have been reimbursed to the GRA from the PRG Trust Reserve Account, through the SDA, to the PRG Trust General Subsidy Account.

Trust Fund

The IMF is the Trustee of the Trust Fund, which was established in 1976 to provide balance of payments assistance on concessional terms to eligible members that qualified for such assistance. The Trust Fund is in liquidation following its termination in 1981. Since that date, the activities of the Trust Fund have been confined to the conclusion of its affairs. The Trust Fund has no assets other than loans and interest receivable from Somalia and Sudan amounting to SDR 89 million at April 30, 2012, and 2011, respectively. All interest income is deferred.