Chapter

PRG Trust, PRG-HIPC Trust and Related Account, and MDRI-II Trust

Author(s):
International Monetary Fund
Published Date:
October 2010
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Statements of financial position at April 30, 2010, and 2009

(In millions of SDRs)

PRG TrustPRG-HIPC Trust and Related AccountMDRI-II Trust
201020092010200920102009
Assets
Cash and cash equivalents330330361832843
Interest and other receivables1622
Investments (Note 5)4,9274,86958743530
Loans receivable (Note 6)5,0374,125
Total assets10,3109,3469481,2673843
Liabilities and resources
Interest payable and other liabilities24381
Accrued MDRI grant assistance (Note 7)510
Borrowings (Note 8)5,1274,324294581
Total liabilities5,1514,362294582510
Resources5,1594,9846546853333
Total liabilities and resources10,3109,3469481,2673843
The accompanying notes are an integral part of these financial statements.The financial statements were approved by the Managing Director and the Director of Finance on June 25, 2010.
The accompanying notes are an integral part of these financial statements.The financial statements were approved by the Managing Director and the Director of Finance on June 25, 2010.
/s/ Andrew Tweedie/s/ Dominique Strauss-Kahn
Director, Finance DepartmentManaging Director

Statements of comprehensive income and changes in resources for the years ended April 30, 2010, and 2009

(In millions of SDRs)

PRG TrustPRG-HIPC Trust and Related AccountMDRI-II Trust
201020092010200920102009
Resources, beginning of year4,9844,7646856563323
Investment income (Note 9)12129613431
Interest income on loans1619
Interest expense(39)(119)(1)(2)
Operational income9819612411
Contributions
Bilateral donors7724516
Special Disbursement Account38
Administered Account for Liberia15
Debt Relief
MDRI grant assistance (Note 7)9
HIPC assistance(48)(43)
Transfer through the Special
Disbursement Account(38)
Other comprehensive income
Net comprehensive income/changes in resources175220(31)2910
Resources, end of year5,1594,9846546853333
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.

Statements of cash flows for the years ended April 30, 2010, and 2009

(In millions of SDRs)

PRG TrustPRG-HIPC Trust and Related AccountMDRI-II Trust
201020092010200920102009
Cash flows from operating activities
Net comprehensive income/(loss)175220(31)2910
Adjustments to reconcile net comprehensive income/(loss) to cash generated by operations
Interest income on investments(130)(160)(13)(34)(1)
Interest income on loans(16)(19)
Interest expense3911912
68160(43)(3)9
Change in accrued MDRI grant assistance(5)(9)
Changes in other liabilities2
Loan disbursements(1,401)(720)
Loan repayments489468
Cash used in operations(844)(90)(43)(3)(5)
Interest received15219113391
Interest paid(53)(139)(2)(2)
Net cash (used in)/provided by operating activities(745)(38)(32)34(5)1
Cash flows from investment activities
Net (acquisition)/disposition of investments(58)(27)(158)490(30)39
Net cash (used in)/provided by investment activities(58)(27)(158)490(30)39
Cash flows from financing activities
Borrowings1,4167266
Repayment of borrowings(613)(668)(288)(25)
Net cash provided by/(used in) financing activities80358(288)(19)
Net (decrease)/increase in cash and cash equivalents(7)(478)505(35)40
Effect of exchange rate changes on cash and cash equivalents7(5)
Cash and cash equivalents, beginning of year330337832332433
Cash and cash equivalents, end of year330330361832843
Supplemental disclosure
Change in ending balances resulting from exchange rate fluctuations:
Investments(6)(16)
Borrowings1(21)
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.

Notes to the financial statements for the years ended April 30, 2010, and 2009

1. Nature of operations

The Poverty Reduction and Growth Facility (PRGF) and Exogenous Shocks Facility (ESF) Trust (the PRGF-ESF Trust) and the Trust for Special Poverty Reduction and Growth Operations for the Heavily Indebted Poor Countries and Interim PRGF Subsidy Operations (the PRGF-HIPC Trust) have been renamed the Poverty Reduction and Growth Trust (the PRG Trust) and the Trust for Special Poverty Reduction and Growth Operations for the Heavily Indebted Poor Countries and Interim Extended Credit Facility (ECF) Subsidy Operations (PRG-HIPC Trust), respectively. The IMF is the Trustee of the PRG Trust, the PRG-HIPC Trust and the related account, or Umbrella Account for HIPC Operations (the Umbrella Account), and the Multilateral Debt Relief Initiative-II Trust (the MDRI-II Trust), collectively referred to as the Trusts, whose purposes are to provide loans on concessional terms and debt relief to low-income members.

The resources of the Trusts are held separately from the assets of all other accounts of, or administered by, the IMF and may not be used to discharge liabilities or to meet losses incurred in the administration of other accounts. Resources not immediately needed in operations are invested in fixed-term deposits or fixed-income securities, as allowed by the instruments establishing the Trusts. The Trusts’ investment objective is to generate returns that exceed the SDR interest rate over time while minimizing the frequency and extent of negative returns and underperformance.

As part of the IMF’s response to the global economic crisis, the Executive Board approved measures that are expected to sharply increase resources available to low-income member countries. On July 23, 2009, the Executive Board approved a new architecture of facilities for low-income countries and reform of the IMF’s concessional financing framework. The reform became effective on January 7, 2010, when all lenders and contributors of subsidies to the former PRGF-ESF Trust consented to the amendment of the Trust Instrument. The new architecture also established special loan and subsidy accounts for each of the new facilities to enable earmarking of loans and contributions for particular purposes. In addition, a general loan account and a general subsidy account were established to receive and provide financing for all facilities under the PRG Trust, which can be drawn upon after exhaustion of the aforementioned earmarked resources.

PRG Trust

Established as the ESAF Trust in December 1987, the PRG Trust provides loans on concessional terms to qualifying low-income country members. Under the new reform, the PRG Trust provides financial assistance tailored to the diverse needs of low-income countries with higher concessionality of financial support. Financing is available under a new set of facilities, including: the ECF for medium-term balance of payments needs under three-year arrangements; the Standby Credit Facility (SCF) for short-term balance of payments needs under one- to two-year arrangements; and, for urgent balance of payments needs, the Rapid Credit Facility (RCF), which provides financial support in outright disbursements with limited conditionality. The repayment terms are 5½ to ten years for the ECF, ESF, and RCF and four to eight years for the SCF, in equal semi-annual installments.

PRGF arrangements and outstanding PRGF loans were converted to ECF arrangements and loans, respectively. No new commitments under the ESF were made after April 6, 2010, but the terms of outstanding ESF commitments and loans will continue to apply. From early-January 2010 to end-December 2011, interest on outstanding Trust loans has been waived. Thereafter, interest rates on all PRG Trust loans will be reset and reviewed every two years in light of developments in the SDR interest rate.

The operations of the PRG Trust are conducted through four Loan Accounts, the Reserve Account, and five Subsidy Accounts. The resources of the Loan Accounts consist of proceeds from borrowings, repayments of principal, and interest payments on loans extended by the Trust. The resources held in the Reserve Account consist of transfers by the IMF from the Special Disbursement Account (the SDA) and net earnings from investments. Reserve Account resources are to be used by the Trustee in the event that borrowers’ principal repayments and interest payments, together with the authorized interest subsidy, are insufficient to repay loan principal and interest on borrowings of the Loan Accounts. The resources held in the Subsidy Accounts consist of grant contributions, borrowings, transfers from the SDA, transfers of earnings from Administered Accounts, and net earnings from investments. The available resources in the Subsidy Accounts are drawn by the Trustee to pay the difference between the interest due from the borrowers under the PRG Trust and the interest due on Loan Account borrowings.

PRG-HIPC Trust and the Umbrella Account

The PRG-HIPC Trust (formerly PRGF-HIPC Trust) was established in February 1997 to provide assistance to low-income developing countries by making grants or loans for purposes of reducing their external debt burden to sustainable levels. The operations of the PRG-HIPC Trust are conducted through the PRG-HIPC Trust Account and the related Umbrella Account. The resources of the PRG-HIPC Trust Account consist of grant contributions, borrowings, transfers from the SDA, transfers of earnings from Administered Accounts, and net earnings from investments. The Umbrella Account receives and administers the proceeds of grants made by the PRG-HIPC Trust to the HIPC-eligible members for the purposes of repaying their debt to the IMF in accordance with the agreed upon schedule.

MDRI-II Trust

The IMF framework for debt relief to qualifying low-income countries under the Multilateral Debt Relief Initiative (MDRI) became effective in January 2006. Debt relief operations are conducted through two trusts: the MDRI-I Trust, for HIPC and non-HIPC members with annual per capita income of US$380 or less; and the MDRI-II Trust for HIPC members with annual per capita income above that threshold. Resources in the two MDRI Trusts consist of grant contributions and net earnings from investments. Since the IMF, through the SDA, has control over the MDRI-I Trust, the financial statements of the MDRI-I Trust are consolidated with those of the General Department.

2. Basis of preparation and measurement

The financial statements include the PRG Trust, the PRG-HIPC Trust (including the Umbrella Account), and the MDRI-II Trust. The financial statements of the Trusts are prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). They have been prepared under the historical cost convention, except for the revaluation of financial instruments at fair value through profit and loss. Specific accounting principles and disclosure practices, as set out below, are in accordance with and comply with IFRS and have been applied consistently for all periods presented.

New International Financial Reporting Standards and Interpretations

Amended IFRS 7, “Financial Instruments: Disclosures” requires disclosures of the methods and underlying assumptions applied in determining fair values of financial assets or financial liabilities. Amended IFRS 7 introduces a three-level hierarchy for fair value measurement disclosures and requires additional disclosures on the relative reliability of fair value measurement. An entity must also disclose the remaining contractual maturities for financial liabilities and how it manages the related liquidity risk. The amended IFRS 7, which became effective for annual periods beginning on or after January 1, 2009, was implemented during the financial year ended April 30, 2010, resulting in enhanced disclosures of the Trusts’ financial assets and financial liabilities. No comparative information is provided in the current year, as allowed for by the standard in the year of implementation.

IFRS 9, “Financial Instruments” was issued in November 2009 as the first step in replacing the IAS 39, “Financial Instruments: Recognition and Measurement” standard. Under IFRS 9, financial assets currently in 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 mandatory adoption of IFRS 9 is January 1, 2013, but early adoption will be permitted. As the Trusts and Related Account already measure financial assets at amortized cost or fair value, the implementation of IFRS 9 is not expected to have an impact on the Trust’s financial position or results of operations.

Unit of account

The 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, and the current composition of the SDR valuation basket became effective on January 1, 2006.

The currencies in the basket at April 30, 2010, and 2009, and their specific amounts, relative to one SDR, were as follows:

CurrencyAmount
Euro0.4100
Japanese yen18.4000
Pound sterling0.0903
U.S. dollar0.6320

At April 30, 2010, one SDR was equal to US$1.51112 (US$1.49783 at April 30, 2009).

Use of estimates and judgment

The preparation of the 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 significant areas of estimation, uncertainty, and critical judgments in applying accounting policies that have the most significant effect on the amount recognized in the financial statements are described in Notes 3 and 7.

3. Summary of significant accounting and related policies

The accounting policies set out below comply with IFRS and have been applied consistently for all periods presented.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits, and other highly liquid short-term investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Investments

Investments comprise fixed-term deposits and fixed-income securities, none of which include asset-backed securities, and are managed primarily by external investment managers. Investments and the related assets and liabilities in accounts managed solely for the Trusts and the net asset value of the Trusts’ share of pooled investment accounts are reported in the statements of financial position.

The Trusts have designated the investments in fixed-income securities, 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 on 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.

Recognition

Investments are recognized on the trade date at which the Trusts become a party to the contractual provisions of the instrument.

Derecognition

Investments are derecognized when the contractual rights to the cash flows from the asset expire, or in transactions where substantially all the risks and rewards of ownership of the investment are transferred.

Fair value measurement

Amendments to the IFRS 7 standard introduced a three-level fair value hierarchy under which financial instruments are categorized based on the priority of the inputs to the valuation technique used to determine fair value. The fair value hierarchy has the following levels: quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices) (Level 2); and inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement of the instrument in its entirety. Thus, a Level 3 fair value measurement may include inputs that are both observable and unobservable.

Investment income

Investment income comprises interest income, realized gains and losses, and unrealized gains and losses, including currency valuation differences arising from exchange rate movements against the SDR and net of management and custodian fees.

Loans

Loans in the PRG Trust are initially recorded at the amount disbursed, provided that the present value of the cash flows from stated interest due and the Subsidy Accounts is equal to or exceeds the disbursed amount. Thereafter, the carrying value of the loans is amortized cost (see Note 1 for repayment and interest terms).

It is the PRG Trust’s policy to exclude from income interest on loans that are six months or more overdue. At the end of each reporting period, the loans are reviewed to determine whether there is objective evidence of loan impairment. If any such evidence exists, an impairment loss would be recognized to the extent that the present value of estimated future cash flows falls below the carrying amount. No impairment losses have been recognized in the financial years ended April 30, 2010, and 2009.

Borrowings

The PRG and PRG-HIPC Trusts borrow on such terms and conditions as agreed between the Trustee and the lenders. The repayment periods for PRG Trust borrowings are either 5½ to ten years or four to eight years, in equal semi-annual installments, depending upon the lending for which the borrowing finances. PRG-HIPC Trust borrowings are repayable in one installment at their maturity dates. Borrowings are recorded and subsequently stated at amortized cost. As part of the 2009 reforms, additional modifications to the financing framework include lending to the PRG Trust that allows encashment of outstanding claims and note issuances similar to those issued under the IMF’s General Resources Account.

Foreign currency translation

Foreign currency transactions are recorded at the rate of exchange on the date of the transaction. At the end of the reporting period, monetary assets and liabilities denominated in foreign currencies are reported using the closing exchange rates. Exchange differences arising from the settlement of transactions at rates different from those at the originating date of the transaction and unrealized foreign exchange differences on unsettled foreign currency monetary assets and liabilities are included in the determination of net comprehensive income.

Contributions

Contributions are reflected as increases in resources after the achievement of specified conditions and are subject to bilateral agreements stipulating how the resources are to be used.

4. Financial risk management

In providing financial assistance to member countries, conducting its operations, and investing its resources, the Trusts are exposed to various types of operational and financial risks, including credit, market, and liquidity risks.

Credit risk

PRG Trust Lending

Credit risk refers to potential losses on loans receivable owing to the inability, or unwillingness, of member countries to repay loans. Measures to help mitigate credit risk include policies on access limits, program design, monitoring, and conditionality attached to PRG Trust financing.

The PRG Trust has established limits on overall access to its resources. Total access to concessional financing under the PRG Trust is normally limited to 100 percent of the member’s IMF quota per year, with a cumulative limit of 300 percent of quota (net of scheduled loan repayments). Facility based limits may also apply to RCF and SCF financing. Under the RCF, access is normally limited to 25 percent of quota per year, with a cumulative limit of 75 percent of quota (net of scheduled loan repayments); under the SCF, access is normally limited to 50 percent of quota per year. In each individual case, the amount of access granted will depend on relevant factors such as the country’s balance of payments need, the strength of its adjustment program, and its previous and outstanding use of IMF credit. The IMF may approve access in excess of these limits in exceptional circumstances.

Most disbursements under PRG Trust arrangements are made in tranches and subject to conditionality in the form of performance criteria and periodic reviews. Safeguards assessments of member central banks are undertaken to provide the Trustee with reasonable assurance that the banks’ legal structure, controls, accounting, reporting, and auditing systems are adequate to ensure the integrity of their operation and ensure that PRG Trust loan resources are used for intended purposes. Misreporting by member countries on performance criteria and other conditions may entail early repayment for non-complying borrowers.

The maximum credit risk exposure is the carrying value of the PRG Trust’s outstanding loans and the undrawn commitments (see Notes 6 and 10, respectively), and amounted to SDR 6.6 billion and SDR 4.9 billion at April 30, 2010, and 2009, respectively.

At April 30, use of credit in the PRG Trust by the largest users was as follows:

20102009
(In millions of SDRs and percent of total PRG Trust credit)
Largest user of credit56911.3%72417.5%
Three largest users of credit1,35526.9%1,58838.5%
Five largest users of credit1,86537.0%1,99748.4%

The five largest users of credit at April 30, 2010, in descending order, were Pakistan, Democratic Republic of the Congo, Bangladesh, Kenya, and Liberia. Outstanding credit by member is provided in Schedule 1.

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

20102009
(In millions of SDRs and percent of total PRG Trust credit outstanding)
Africa3,02160.0%2,04149.5%
Asia and Pacific99619.8%1,21029.3%
Europe3917.8%4039.8%
Latin America and Caribbean3707.3%2355.7%
Middle East and Central Asia2595.1%2365.7%
Total5,037100%4,125100%

To protect the lenders to the PRG Trust, resources are accumulated in the Reserve Account and are available to repay the lenders in the event of delays in repayment or nonpayment by borrowers. At April 30, 2010, and 2009, available resources in the Reserve Account amounted to SDR 3.9 billion.

Investments

Credit risk on investment activities represents the potential loss that the Trusts may incur if obligors and counterparties default on their contractual obligations. Credit risk is managed through the conservative range of eligible investments including (i) domestic government bonds of countries in the Euro area, Japan, the United Kingdom and the United States, i.e., members whose currencies are included in the SDR basket; (ii) obligations of international financial organizations, including the Bank for International Settlement (BIS); and (iii) deposits with national official financial institutions, international financial institutions, or, with respect to non-SDA resources, commercial banks. Credit risk is further minimized by limiting eligible investments to marketable securities rated AA or higher by a major credit rating agency, and for deposits, the Trusts may invest in obligations issued by institutions with a credit rating of A or higher. Compliance controls are enforced to ensure that the portfolio does not include a security whose rating is below the minimum rating required.

The MDRI-II Trust’s investments consist of fixed-term deposits with the BIS. The credit risk exposure in the PRG Trust and PRG-HIPC Trust and Related Account portfolios at April 30 was as follows:

20102009
PRG TrustPRG-HIPC

Trust
PRG TrustPRG-HIPC

Trust
RatingPercentageRatingPercentage
Government bonds
FranceAAA0.20.1
GermanyAAA15.216.5AAA15.012.4
JapanAA5.76.6AA5.54.6
SpainAA0.21AA+0.20.1
United KingdomAAA2.62.1AAA2.31.6
United StatesAAA14.416.7AAA12.615.0
Non-government bonds
Bank for International SettlementsNot rated53.3Not rated51.5
Other international financial institutionsAAA6.35.2AAA7.53.2
Fixed-term deposits
Bank for International SettlementsNot rated2.150.1Not rated5.262.9
Other financial institutionsAAA10.4
AA10.4
AA-11.2
A+0.20.8
A0.1
100100100100

Less than 0.1%.

Less than 0.1%.

The Trustee previously engaged its custodian in a securities lending program, in which marketable securities were lent temporarily to other institutions in exchange for a fee and collateral, to enhance the return on the Trusts’ investments. This program was suspended during the financial year ended April 30, 2009.

Market risk

Interest rate risk

PRG Trust lending

Interest rate risk is the risk that future cash flows will fluctuate because of changes in market interest rates. The PRG Trust accumulates subsidy resources through contributions and investment earnings to cover the interest shortfall arising from the difference between the market-based interest rate paid on borrowings and the concessional rate, if any, applicable to outstanding loans. Should such resources be deemed inadequate for this purpose, the PRG Trust instrument allows an increase in the interest rate levied on outstanding loans.

Investments

The investment portfolios are exposed to market interest rate fluctuations. The interest rate risk is mitigated by limiting the duration of the portfolios to a weighted-average of 1–3 years.

A 50 basis point change in the average effective yields of the Trusts’ portfolios at April 30 would result in the following:

20102009
Net (loss)/gainNet (loss)/gain
In millions of SDRsAs a percentage of the portfolioIn millions of SDRsAs a percentage of the portfolio
PRG Trust
50 basis point increase(45.7)0.87%(44.3)0.85%
50 basis point decrease46.40.88%45.00.87%
PRG-HIPC Trust
50 basis point increase(3.4)0.35%(4.3)0.34%
50 basis point decrease3.40.36%4.40.35%

Exchange rate risk

Lending and borrowing

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 PRG Trust has no exchange rate risk on its loans and borrowings as receipts, disbursements, repayments, and interest payments are denominated in SDRs. The PRG-HIPC Trust has no exchange rate risk on borrowings as receipts, repayments, and interest payments are either denominated in SDRs or, if denominated in currency, are invested and maintained in the same currency.

Investments

In accordance with current guidelines, 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 portfolios are regularly rebalanced to reflect 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 (see Note 2). The effective share of each currency in the valuation of the SDR depends on the prevailing exchange rate at noon in the London market 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 risk can be measured indirectly by the exchange rate movements between a basket currency and the U.S. dollar. The net effect on the investment portfolios 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:

PRG Trust
Net loss
20102009
In millions

of SDRs
As a percentage of

investments not

denominated

in SDRs
In millions

of SDRs
As a percentage of

investments not

denominated

in SDRs
Euro(4.22)0.09%(4.19)0.09%
Japanese yen(2.41)0.05%(2.26)0.05%
Pound sterling(2.89)0.06%(2.68)0.06%
PRG-HIPC Trust
Net loss
20102009
In millions

of SDRs
As a percentage of

investments not

denominated

in SDRs
In millions

of SDRs
As a percentage of

investments not

denominated

in SDRs
Euro(0.57)0.13%(0.31)0.07%
Japanese yen(0.17)0.04%(0.29)0.07%
Pound sterling(0.34)0.08%(0.11)0.02%

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:

PRG Trust
Net loss
20102009
In millions

of SDRs
As a percentage of

investments not

denominated

in SDRs
In millions

of SDRs
As a percentage of

investments not

denominated

in SDRs
Euro(1.00)0.02%(0.97)0.02%
Japanese yen(2.89)0.06%(2.96)0.06%
Pound sterling(2.44)0.05%(2.61)0.06%
PRG-HIPC Trust
Net gain/(loss)
20102009
In millions

of SDRs
As a percentage of

investments not

denominated

in SDRs
In millions

of SDRs
As a percentage of

investments not

denominated

in SDRs
Euro0.100.02%(0.16)0.04%
Japanese yen(0.31)0.07%(0.20)0.05%
Pound sterling(0.15)0.03%(0.37)0.09%

The Trusts have other assets and liabilities denominated in currencies other than SDRs, such as interest payable and receivable, but the amount of such other assets and liabilities (and hence the exchange rate risk exposure) is minimal.

Liquidity risk

Liquidity risk is the risk of nonavailability of resources to meet the Trusts’ financing needs and obligations. The IMF, as Trustee, conducts semiannual reviews to determine the adequacy of resources in the Trusts to provide financial assistance to eligible IMF members and to meet the Trust’s obligations.

The PRG Trust must have usable resources available to meet members’ demand for credit, and uncertainties in the timing and amount of credit extended to members expose the PRG Trust to liquidity risk. However, all new lending agreements are subject to the availability of uncommitted resources in the PRG Trust. In the financial years ended April 30, 2010, and 2009, resources in the Subsidy Accounts are expected to meet the estimated needs based on the level of loans outstanding. In light of the global economic crisis and the PRG Trust reforms, additional resources are being mobilized from bilateral contributors for the Loan and Subsidy Accounts to meet the estimated needs based on the projections of new lending and the costs associated with the interest waiver. In addition, the Reserve Account may transfer up to SDR 620 million to the Subsidy Accounts if no other resources are available to subsidize lending. Resources held in the PRG-HIPC and MDRI-II Trusts are adequate to provide debt relief under the HIPC and the MDRI Initiatives to members, except those in protracted arrears to the IMF, that are likely to qualify for such relief.

To minimize the risk of loss from liquidating the investments, the Trusts hold resources in readily marketable short-term financial instruments to meet anticipated liquidity needs.

5. Investments

The fair value of investments, based on the quoted market prices or dealer quotes on the last business day of the financial year, consisted of the following at April 30:

PRG TrustPRG-HIPC TrustMDRI-II Trust
201020092010200920102009
(In millions of SDRs)
Fixed-term deposits7113517530
Fixed-income securities4,8564,734412435
Total4,9274,86958743530

The following table presents the fair value hierarchy used to determine the fair value of investments at April 30, 2010. Fixed-income securities comprise primarily domestic government bonds of member countries whose currencies are included in the SDR basket, i.e., Germany, Japan, Spain, the United Kingdom, and the United States, and obligations of international financial organizations, including the BIS.

PRG TrustPRG-HIPC TrustMDRI-II Trust
Level 1Level 2Level 3Level 1Level 2Level 3Level 1Level 2Level 3
(In millions of SDRs)
Fixed-term deposits7117530
Fixed-income securities4,856412
Total4,92758730

The maturities of the investments are as follows:

Financial year ending April 30PRG TrustPRG-HIPC Trust
(In millions of SDRs)
2011254310
20122,44291
20132,174162
2014235
2015333
2016 and beyond116
Total4,927587

6. Loans receivable

At April 30, 2010, and 2009, the resources of the Loan Account included net cumulative transfers from the Reserve Account of SDR 73 million, related to the nonpayment of principal by Zimbabwe.

Scheduled repayments of loans by borrowers, including Zimbabwe’s overdue obligations, are summarized below:

Financial year ending April 30
(In millions of SDRs)
2011519
2012550
2013494
2014467
2015566
2016 and beyond2,368
Overdue73
Total5,037

At April 30, 2010, scheduled repayments of loans include ECF loans totaling SDR 338 million due from members that are potentially eligible for MDRI debt relief assistance.

7. MDRI assistance

Total MDRI assistance, including disbursements from MDRI-I, MDRI-II, and PRG-HIPC Trusts, are provided by member in Schedule 5. During the financial year ended April 30, 2010, the MDRI-II Trust disbursed SDR 5 million in assistance to one member after reaching its completion point (there were no MDRI-II Trust disbursements during the financial year ended April 30, 2009). Related PRG Trust loans were repaid in full, and no impairment loss has been recognized in the PRG Trust Loan Accounts.

All remaining MDRI-eligible members will qualify for MDRI debt relief upon reaching the completion point under the HIPC Initiative. MDRI grant assistance to the remaining eligible members is subject to the availability of resources and is accrued when it is probable that a liability has been incurred and the amount of such grant assistance can be reasonably estimated. The amount of liability recorded for the MDRI-II Trust (SDR 5 million and SDR 10 million at April 30, 2010, and 2009, respectively) is based on the evaluation of currently available facts with respect to each individual eligible member and includes factors such as progress made toward reaching the completion point under the HIPC Initiative, and the capacity to meet the macroeconomic performance and other objective criteria. As the qualification of members for MDRI debt relief is assessed, the amounts recorded are reviewed periodically and adjusted to reflect the additional information that becomes available.

Since the stock of debt owed to the IMF at December 31, 2004, decreases over time, the actual debt eligible for MDRI assistance for the remaining potentially eligible members depends on the timing of their completion points. There is no comparable cut-off date for HIPC Initiative assistance; rather, the Trustee commits a specific amount of debt relief at the decision point, and delivers this relief as conditions are being met.

The reconciliation of accrued MDRI grant assistance for the financial years ended April 30 is as follows:

20102009
(In millions of SDRs)
Beginning of year1019
Additions6
Amount utilized(5)
Reversals(15)
End of year510

8. Borrowings

The PRG and PRG-HIPC Trusts borrow on such terms and conditions as agreed between the Trusts and the lenders. The weighted average interest rate on PRG Trust borrowings was 0.80 percent and 2.83 percent for financial years ended April 30, 2010, and 2009, respectively. During the same periods, interest rates on PRG-HIPC Trust borrowings varied between 0 percent and 2 percent per annum, which had a weighted average interest rate of 0.21 percent for the financial year ended April 30, 2010 (0.25 percent for the financial year ended April 30, 2009). Current borrowing agreements are shown in Schedule 3.

The PRG Trust made early repayments of SDR 28 million and SDR 61 million during the financial year ended April 30, 2010, and 2009, respectively, to lenders following the repayment of PRG Trust loans by members that either received HIPC Initiative and MDRI grant assistance or returned non-complying disbursements.

Scheduled repayments of borrowings are summarized below:

Financial year ending April 30PRG TrustPRG-HIPC Trust
(In millions of SDRs)
201161771
201259626
20135046
201445312
2015 and beyond2,957179
Total5,127294

The following summarizes the undrawn balances of the PRG Trust borrowing agreements in effect at April 30 (all available PRG-HIPC Trust borrowing arrangements have been fully drawn):

20102009
(In millions of SDRs)
Loan Accounts2,3862,013
Subsidy Accounts104110

9. Investment income

Investment income comprised the following for the financial years ended April 30:

PRG TrustPRG-HIPC Trust

and Related

Account
MDRI-II Trust
201020092010200920102009
(In millions of SDRs)
Interest income13016013341
Realized gains (losses), net7570(3)14
Unrealized (losses) gains, net(83)673(5)
Other, net(1)(1)
Total12129613431

10. Commitments under PRG Trust loan arrangements

An arrangement under the PRG Trust is a decision that gives a member the assurance that the IMF as Trustee stands ready to provide foreign exchange or SDRs during a specified period and up to a specified amount in accordance with the terms of the decision. Upon approval by the Trustee, resources of the Loan Accounts of the PRG Trust are committed to qualifying members for a three-year period for ECF arrangements or a one- to two-year period for SCF arrangements. At April 30, 2010, undrawn balances under 30 loan arrangements amounted to SDR 1,546 million (SDR 806 million under 28 arrangements at April 30, 2009). Undrawn balances by member are provided in Schedule 2.

11. Related party transactions

For the financial years ended April 30, 2010, and 2009, the Executive Board of the IMF decided to forgo the reimbursement by the PRG Trust to the General Resources Account for the cost of administering the Trust, amounting to SDR 38 million and SDR 41 million, respectively. The reimbursements shall instead be transferred from the Reserve Account, through the Special Disbursement Account, to one of the Subsidy Accounts beginning with the financial year ended April 30, 2010, through the financial year ending April 30, 2012. The expenses of conducting the business of the PRG-HIPC and MDRI-II Trusts were paid by the General Resources Account of the IMF.

The IMF’s cumulative contributions, via the Special Disbursement Account, to the PRG and the PRG-HIPC Trusts were as follows at April 30:

20102009
(In millions of SDRs)
PRG Trust Reserve Account2,8932,893
PRG Trust Subsidy Accounts908870
PRG-HIPC Trust1,2391,239
Total5,0405,002

The PRG Trust Subsidy Accounts and the PRG-HIPC Trust receive contributions from member countries that had placed deposits in Administered Accounts at low interest rates. No net investment income was transferred from those Accounts to the PRG Trust Subsidy Account for the financial year ended April 30, 2010 (SDR 0.06 million for the financial year ended April 30, 2009). Net investment income amounting to SDR 0.06 million was transferred from those Accounts to the PRG-HIPC Trust for the financial year ended April 30, 2010 (SDR 0.5 million for the financial year ended April 30, 2009). During the financial year ended April 30, 2010, the PRG-HIPC Trust received no additional contributions from the Administered Account for Liberia (SDR 15 million during the April 30, 2009, financial year).

12. Combining statements of financial position and statements of comprehensive income and changes in resources

The statements of financial position and statements of comprehensive income and changes in resources of the PRG Trust and the PRG-HIPC Trust (including the Umbrella Account) are presented below:

Note 12: Combining statements of financial position at April 30, 2010, and 2009

(In millions of SDRs)

PRG-HIPC Trust and Related Account
2010
PRG TrustUmbrella

Account

for HIPC

Operations
2010PRG-HIPC Trust Account

Subaccounts
2009
Loan

Accounts
Reserve

Account
Subsidy

Accounts
2009Combined

total
Combined

total
TotalTotalECF-HIPCPRGHIPCTotal
Assets
Cash and cash equivalents14658126330330361426731744361832
Interest and other receivables16111622111111
Investments3,8091,1184,9274,86944131115587587435
Loans receivable5,0375,0374,125
Accrued account transfers(42)60(18)
Total assets5,1573,9271,22610,3109,34647745382904449481,267
Liabilities and resources
Interest payable and other liabilities24124381111
Borrowings5,060675,1274,324294294294581
Total liabilities5,084675,1514,362294294294582
Resources733,9271,1595,1594,9841834538261044654685
Total liabilities and resources5,1573,9271,22610,3109,34647745382904449481,267
Resources, beginning of the year743,8701,0404,9844,7641684445266421685656
Investment income1952612129611111311343
Interest income on loans161619
Interest expense(39)1(39)(119)(1)(1)(1)(2)
Operational (loss) income(23)95269819610111211241
Contributions
Bilateral donors77772455516
Special Disbursement Account3838
Administered Account for Liberia15
HIPC grants(71)(71)71
Transfer through the Special Disbursement Account(38)(38)
HIPC disbursements(48)(48)(43)
Transfers between:
Loan and Reserve Accounts11
Loan and Subsidy Accounts22(22)
Net comprehensive income (loss)/changes in resources(1)57119175220151(70)(54)23(31)29
Resources, end of the year733,9271,1595,1594,9841834538261044654685

Less than SDR 500,000.

Less than SDR 500,000.

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