IMF Policy Paper: FY 2021-FY 2023 Medium-Term Budget
Author: International Monetary Fund. Office of Budget and Planning
Publication Date:
29 May 2020
eISBN:
9781513545813
Language:
English
Keywords:
PP; IMF's budget deflator; budget; capital investment; fund; capital investment framework; work program; fund remains; video conferencing capability; CD operation; budget process; fund member; Budget planning and preparation; Capital budget; Climate change; Global; budget risk; budget paper; fund income; Medium-Term Budget
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FY 2021-FY 2023 Medium-Term Budget

Abstract

FY 2021-FY 2023 Medium-Term Budget

Overview

1. The FY 21 budget is set in a fast-moving and exceptionally uncertain global context.

  • The ongoing Covid-19 outbreak, and the related impact on real activity and markets, have injected extraordinary uncertainty into the global outlook. This is particularly challenging for countries with weaker health systems and response capacity, including those with vulnerable external, fiscal, and financial sector balance sheets. The Fund, working together with other international bodies, is mobilizing to respond to members’ needs in an agile way, including with financing, where needed.

  • The global economy is characterized by increased uncertainty beyond the crisis, with the membership facing challenges on various fronts, including rapid technological change, rising inequality and social tensions, and the increasingly urgent call to address climate change. A re-examination of fundamental macroeconomic relationships continues a decade after the global financial crisis in the context of a sustained low interest rate environment and rising debt, with the need for attention to deep structural trends that present risks for the longer term.

2. The baseline FY 21 budget reflects evolving priorities defined by the membership. Recognizing the need to remain agile in addressing the needs from the crisis, the FY 21 budget takes as its starting point the membership’s priorities as laid out in the Managing Director’s Fall 2019 Global Policy Agenda, the Fall 2019 IMFC Communiqué, and the Executive Board’s December 2019 Work Program to:

  • Turn evidence-based analysis into actionable policy recommendations to make economies more resilient and inclusive,

  • Contribute to improving the multilateral system and upgrading international cooperation to bring the benefits of integration to all,

  • Modernize the Fund’s policy toolkits to meet the challenges of a fast-changing world, and

  • Safeguard the Fund’s financial strength and undertake an ambitious internal modernization agenda.

3. The Fund has maintained a flat real budget for the past eight years—excluding a $6 million security related increase in FY 17—supported by robust efforts to identify savings to fund new spending priorities.1 At the same time, enhanced budgetary procedures have increased execution to near 100 percent of approved budgets since FY 18. Ambitious internal modernization efforts are expected to yield further efficiency gains and savings over the medium term, creating room to take on new challenges. In the short term, more resources are needed to support related transition costs.

4. Recognizing that the budget impact of the crisis will require further time to assess, the baseline FY 21 budget proposal maintains a flat real envelope.

  • The proposed net FY 21 administrative budget of $1,158 million in constant FY 20 dollars (Table 1) represents a continued flat real resource envelope.2 In nominal terms, the proposed net administrative budget is $1,186 million. The nominal budget reflects a change in the calculation of the Fund’s Global External Deflator (GED) to equal projected U.S. CPI inflation as published in the most recent World Economic Outlook.3

  • While also subject to an unusual level of uncertainty, the FY 20 budget outturn is projected to remain within the approved structural level (Appendix III). As such, the maximum carry forward of $32.3 million—and an additional $15.1 million for the Office of Executive Directors (OED) and $0.3 million for the Internal Evaluation Office—would remain available.4 In addition, as part of streamlining efforts, the Executive Board has decided that an amount equivalent to the OED FY 2020 central carry forward shall be made available for the Fund’s general administrative budget. This amount is currently estimated to be $4.7 million, raising the total carry forward for the general administrative budget to $37 million. Final amounts will be established as part of the year-end closure of the financial books.5

Table 1.

Administrative and Capital Budget Envelopes, FY 21–23

(Millions of U.S. dollars, unless otherwise noted)

article image
Source: Office of Budget and PlanningNote: Numbers may not add to totals due to rounding.

Includes travel to the Annual Meetings held abroad.

Carry forward is subject to actual spending in the preceding year and therefore not projected for FY 22-FY 23.

Starting in FY 21, GED is equal to the most recently published WEO projection for U.S. CPI. See Appendix II.

5. Some capacity development (CD) needs are met by external financing sources. Donor support is proposed to finance $206 million in capacity development (CD) activities—in addition to $143 million in Fund financing for CD—aligned with the Fund’s strategic priorities. Together with other receipts, this would bring the gross administrative budget to $1,429 million in nominal terms.

6. The capital budget is expected to be broadly in line with that projected in the FY 20–22 budget. For FY 21, the proposed capital budget is $98½ million in current U.S. dollars. This paper also proposes an update to the Fund’s Capital Investment Framework.

  • Facilities: The proposed budget of $42½ million supports mainly end-of-life-cycle replacements, including for furniture, audio-visual equipment, and HQ1 building equipment.

  • IT: The proposed budget of $56 million supports 1HR and the Capacity Development Management and Administration Program (CDMAP) implementation, replacement of the Fund’s document management system, the start of iDATA’s implementation, and preliminary work on the integrated digital workplace (IDW), as well as enhanced Information security and a portfolio of smaller projects focusing on critical replacement and targeted upgrades.

7. The budget is fully funded by operating income. The Fund’s operational income is currently projected at $2,654 million, well above budgeted spending in FY 21 (these figures will be updated in the forthcoming Review of the Fund’s Income Position for FY 2020 and FY 2021–2022 paper).

Budget Evolution Over the Last Decade

8. Over the last decade, the Fund’s budget has evolved to meet changing needs, while fostering spending efficiency and safeguarding financial sustainability. Since FY 12, the Fund’s structural budget has been kept flat in real terms. This followed a period of budgetary consolidation prior to the global financial crisis, and one of measured increase thereafter to address the crisis and support the Fund’s enhanced role in safeguarding global economic and financial stability. Overall, the Fund’s budget today is about 7 percent lower in FY 20 dollars than its pre-crisis level in FY 07.

Net administrative budget and outturn, FY 03–20

(in millions of FY 20 U.S. dollars)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: FACTS, Office of Budget and Planning.

9. Within the flat real budget envelope, Fund activities have shifted in a rapidly changing world (Figure 1). Reflecting lessons from the global financial crisis, the Fund introduced the External Sector Report, deepened its spillover work, and strengthened the underpinnings of policy advice on macro-financial issues. It took on new emerging macro-critical issues, in particular, macrostructural policies to foster growth, fiscal space, and governance, climate change, inequality, and digitalization. In addition, the Fund has increased its focus on fragile and conflict-affected states (FCS) and expanded its CD delivery significantly, increasingly supported by donor financing. Internal support activities have also increased, reflecting greater investment in knowledge and risk management, upgrading of data management tools, as well as pressures from IT and physical security. The Fund also enhanced and expanded its communication efforts, to understand better the concerns of members and stakeholders, and to convey the IMF’s advice in a more impactful way. As the Fund responded to these evolving priorities, it continued to improve its tools to report on activities, with tracking work on specific topics often being done through ad-hoc surveys (Appendix IV).

Figure 1.
Figure 1.

Doing More Within a Flat Real Budget Envelope

(FY 12-FY 20, in millions of FY 20 U.S. dollars, unless otherwise noted)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: Office of Budget ad Planing.1/ Includes additional resources for Annual Meetings held abroad.2/ Includes 55 million earmarked for security.

10. Staffing has grown by around 250 FTEs since FY 12, including externally financed positions. Close to 100 additional staff positions were financed through administrative measures, e.g., real erosion in travel budgets, release of central margins, and other savings from efficiencies in departments. Over 50 additional positions were funded by donors, helping to support expansion in CD activities. Moreover, 120 FTEs were added in FY 16–18 through implementation of the Categories of Employment (CoE) reform for work previously staffed by contractual employees, with a small number of positions added in FY 19–20. In parallel, the Fund has increased its field presence. Since FY 12, the number of resident representatives, experts, and staff in regional capacity development centers has increased over 40 percent. Combined with local staff, the Fund has some 900 staff in 114 offices, more than half of which are in low-income countries and fragile states.

11. The Fund’s ability to respond nimbly to changing needs has been supported by:

  • Strengthened execution. Utilization of the Fund’s administrative budget has increased to near 100 percent, supported by enhanced budget procedures. This includes provisions to carry forward a portion of unspent resources into future years, providing a buffer that has facilitated high execution in recent years.

  • Increased donor funding. External funding has doubled since FY 12, now supporting about 60 percent of the Fund’s CD operations. This funding, coupled with an increase of the Fund’s own resources, has underpinned the ramp up in CD to about a third of Fund activities.

  • Modernization and streamlining. Reprioritization efforts have been supported through centralized streamlining exercises. A $20 million package of measures, agreed as part of the FY 16 medium-term budget, focused on streamlining a range of multilateral surveillance outputs, moving most regular policy reviews to five-year cycles, reducing the frequency of country program reviews and post-program monitoring, and reducing funding for technical assistance available to advanced economies. In mid-2018, a follow-up modernization and streamlining review proposed measures across a wide range of Fund activities, most of which have been implemented or folded into ongoing modernization efforts (Appendix V).

  • Reprioritization. The discipline of a flat real budget environment has also driven a multi-pronged effort to identify opportunities for efficiencies. As part of the broader strategic planning framework (Box 1), a structured annual exercise was introduced in FY 16 to identify savings, leading to a broad range of measures across departments (Box 2).

12. Shifts in the Fund’s priorities have been reflected in reallocations across departments (Figures 2 and 3). Since the global financial crisis, Fund-financed resources have stabilized in area departments as program work eased, and have grown in functional departments (SPR, RES, FIN, and COM).6 Since FY 12, the share of CD-delivering functional departments in total resources has increased significantly (particularly FAD), mainly driven by the significant growth in CD financed by donors. The share of the four main support departments (CSF, HRD, ITD, SEC) has risen over this time, reflecting spending pressures on physical and information security, and provision of support services that are more integrated with business needs (e.g. creative services, enhanced campus facilities, annual and spring meetings).

The Fund’s Budget Process

Strategic Framework: The budget process is part of a broader strategic planning framework incorporating activities on strategic prioritization, risk management, and financial and budget management. The starting point for the annual budget exercise is the membership’s priorities as expressed in the Managing Director’s Global Policy Agenda, the IMFC Communiqué, and the Board Work Program. Together, these priorities guide the focus of bilateral and multilateral surveillance, policy and analytical work, CD, and internal reforms. The budget process also takes on board input from periodic policy reviews and evaluations.

Strategic planning cycle

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Reallocating resources: Redirection of resources mainly takes place within departments and existing workstreams. The budget process itself translates priorities into reallocations across departments and outputs as needed. This is conducted through a “savings and demands” exercise. Departments, in consultation with OBP and management, identify where additional resources are needed to respond to the membership’s needs and management’s guidance. In recent years, these gross reallocations, along with central savings and modernization, have amounted to about 2–4 percent of the administrative budget. For FY 21, departments identified further measures—in addition to the savings and demand process—as contingency savings that could be tapped as needed.

Link to other budget-related issues: In parallel, the Board reviews the income and expenditure position, staff compensation, and the capital budget. In FY 21 the Fall Committee on Capacity Building (CCB) established stronger links with the budget process and a Board briefing on the implementation of CD priorities has been added.

Transitional Funding: New priorities are often initially accommodated through transitional resources and absorbed into structural resources in subsequent years. For example, a small amount in transitional resources was provided for anti-corruption/governance work beginning in FY 18. As the enhanced governance framework was adopted, resources were increased in FY 19 with a 60–40 percent mix between structural and transitional. In FY 20, the share of resources for anti-corruption/governance provided on a structural basis was increased further to 80 percent. This approach allows new priorities to be absorbed into the structural base over time, as savings in other areas create room.

Examples of Departmental Savings Measures

Departments have undertaken measures from fundamental changes in the way they work to more targeted one-off measures with small impact individually but significant cumulative effects. Examples include:

Country work/Analytics:

  • Strengthened rigor in shifting country-by-country resourcing (numbers and levels) in line with changing circumstances (e.g., vulnerability; program status).

  • Reduced field presence where program engagement has wound down (e.g., consolidation or closure of European field offices post crisis), with increased field presence where new programs were being put in place or to support CD (e.g., RTAC serving Central Asia, Caucasus and Mongolia, CCAM).

  • More selective and focused use of Selected Issues Papers, as well as Staff Discussion Notes, with a stronger link to Fund and member priorities.

  • Cross-departmental coordination on analysis and operationalization of work on emerging issues to avoid overlap and ensure knowledge and experience sharing. Interdepartmental working groups and committees, as well as country piloting, play a key role in this regard (e.g., Surveillance Committee; CD-Surveillance Integration Working Group; Gender; Fiscal Space; Macro-structural; and Inequality Pilots).

  • Continued shift to more focused country review, e.g., covering a narrower set of vulnerable or systemic countries, focusing on key topics, or lighter review for staff reports after full review of policy notes.

  • Reduced travel through more targeted missions, greater remote engagement, and advanced ticketing.

Policy:

  • Sequenced policy reviews on related topics to minimize bunching for relevant staff.

  • Paced policy reforms consistent with available resources (e.g., standard five-year cycle for policy reviews, paced CD-Strategy review implementation agenda).

Services:

  • Outsourced or reduced services (e.g., ground transportation; reduced direct overseas residential real estate support; switch from print to online publications); rationalization of data subscriptions and contract renegotiations (e.g., mail services).

Figure 2.
Figure 2.

Change in Structural Budgets and FTEs by Department Type, FY 12–20

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: Office of Budget and Planning.Includes donor financing.Resources in area departments and functional CD (MCM) adjusted by about $14.5 million during FY12–16due to a shift in payment of overseas allowances to central accounts that happened in FY17.Support departments include TGSfrom FY12–16 {split into CSF and ITD starting in FY17), HRD, SEC, OBP, OIA, and, from FY15,ORM.
Figure 3.
Figure 3.

Change in Budgetary Resources by Output, FY 12–201/

(Millions of FY 20 U.S. dollars)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: Office of Budget and Planning, ACES.1/ Excludes support and governance costs.

13. Maintaining a flat real budget has supported the IMF’s long-term financial sustainability. Fund income has fluctuated, reflecting changes in the use of Fund resources. In FY 20, operational income remains well above administrative expenses. Looking ahead, a conservative scenario of low program engagement implies that the income position will not be a binding constraint in the medium term. The scenario in Figure 4, demonstrates how income would evolve based on scheduled disbursements (and lending income) related to current arrangements, but with no new arrangements as a conservative exercise to assess financial sustainability. In this scenario, the fall in operational income reflects mainly the sharp rise and size of scheduled repurchases in coming years and the corresponding drop in average credit outstanding from about SDR 68 billion in FY 21 to SDR 33 billion by FY 24. In light of the ongoing uncertainties staff will update the income projections in the forthcoming Review of the Fund’s Income Position for FY 2020 and FY 2021–2022 paper, which will also provide additional information on the sensitivity of income to changes in program and interest rate assumptions.

Figure 4.
Figure 4.

Income and Expenses: Low-lending Scenario

(FY 08-FY 30, in millions of U.S. dollars)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: Finance department1/ Operational income including surcharges excludes IAS 19 gains and losses, and includes investment income from the Fixed-Income Subaccount and payouts from the Endowment Subaccount. The endowment payout is indicative and assumes a constant payout of 1 percent of the NAV (in US$] starting in FY 2021, adjusted for inflation in the following years.2/ Assumes that the net administrative budget is held constant in real terms.3/ The illustrative scenarios in FY 2C3C assumes SDR interest rate of 2 to 3 percent and payouts of 1 to 1.5 percent of the NAV, credit outstanding to be SDR 2D billion, precautionary balances at SDR ‘5 billion, and the premium on investment return equal to 50 basis points.

14. Implementation of the FY 20 budget was broadly on track through end-February (Appendix III). Resource reallocation in FY 20 supported work on the enhanced governance framework and macro-financial surveillance, as well as support for key policy and analytical initiatives (i.e., trade, digital economy, public debt, and international taxation). Spending through the first half of the financial year relative to the same period last year suggests a shift from bilateral surveillance to lending, with program-related work intensifying in AFR and WHD. An increase in externally financed CD spending is also envisaged through strengthened utilization of available resources, within the approved gross limit. Activity on flagships is projected to increase, as is broader analytical work, partly driven by spending on fintech and cybersecurity related projects, as well as work on monetary and financial policy. Internal support spending is expected to be slightly higher than budgeted, driven by institutional change and modernization, including the now-completed Comprehensive Compensation and Benefits Review (CCBR). Spending on personnel, buildings, and other services is projected to be higher than budgeted but has been offset by a considerable underspend on travel.

15. The ongoing Covid-19 outbreak will affect the FY 20 budget outturn. Some cost reductions will result from the decision to hold the Fund-Bank Spring Meetings on a virtual basis and due to cancellation of staff travel, with a projected reduction in travel by some 500 missions (Fund-financed) as of mid-March. These budgetary savings will be at least partially offset by a temporary increase in evacuation costs for field-based staff, intensification of Covid-19 related work, support for remote working, and an increase in resourcing for IT and broader institutional reforms. The baseline projection has shifted to suggest some underspend, though this remains uncertain. The full carry forward is expected to remain available for FY 21.

16. Area and functional departments account for about 80 percent of budgeted resources in FY 20, including externally financed funding (Figure 5).7 Area departments represent around 25 percent of the budgeted resources. The 35 percent share of functional CD departments (FAD, ICD, LEG, MCM, STA) reflects in part the growth of CD, which now accounts for about 40 percent of overall spending in these departments. In this context, external financing now accounts for a significant share of functional CD department budgets—e.g., 57 percent in FAD—and 16 percent of the total Fund budget. Non-CD functional departments (SPR, RES, FIN, COM) account for 16 percent of the Fund’s budget. The four main support departments (CSF, HRD, ITD, SEC) represent about a quarter of budgeted resources.

Figure 5.
Figure 5.

Distribution of Budgetary Resources by Department, FY 201/

(in percent of total Fund- and donor financed budgets)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: Office of Budget and Planning.1/ Departmental spending, including donor financed, as a share of total, excluding central resources, OED, and IEO.2/ ICD also includes the Joint Vienna Institute and Singapore Training Institute.3/ Includes for IMF01: Office and Budget and Planning, Office of Risk Management, overseas offices, Office of Internal Audit, Administrative Tribunal Office, Secretarial Support, Office for Asia and the Pacific, Office in Europe, the Ombudsman, the Mediator, Ethics, Grievance, Economic Data Team, Investment, HQ1 Task Force, Knowledge Management, Innovation Lab, and the Independent Investigator. For IMF02: some overseas offices and training institutes not included In ICD (see footnote 2).

Proposed FY 21 Administrative Budget

A. Priorities

17. The FY 21 budget continues to redirect resources to meet the Fund’s priorities, including the near-term exigencies related to the Covid-19 outbreak. Some lower priority areas will be rephased, depending on the demands on the Fund to assist members with managing the evolving crisis.

  • Country operations: The top priority is to support member countries as they work to manage the impact of the Covid-19 outbreak and the related economic and financial market turbulence, in particular, but not only, in countries with weak external, fiscal, and financial sector balance sheets. In addition, the Fund will continue its work to enhance resilience and address social and development challenges to secure sustainable and inclusive growth and employment. Priorities include fragile and conflict-affected states (FCS), the enhanced governance framework, and financial surveillance. A complementary prioritization exercise is undertaken for the Fund’s CD operations (Box 3).

  • Analytical and policy work: Continued focus on the global economic and financial impact of Covid-19. Increased recognition of the macroeconomic and macro-financial impact of climate change; fintech (including digital currencies), cybersecurity, and inequality; the impact of sustained low interest rates; trade; and development of an Integrated Policy Framework. Work in these areas will be supported through reallocation of departments’ existing budgets, as well as new resources provided in the FY 21 budget.

  • Key reviews planned for FY 21 include: data provision for surveillance purposes, delayed Article IVs, the Catastrophe and Containment and Relief Trust (CCRT), Debt Sustainability for Market Access Countries (MAC DSA), and debt limits. These reviews are primarily financed by reallocating resources from completed/near completed reviews (e.g. Comprehensive Surveillance Review, or CSR, conditionality) to new reviews.

  • Modernizing the Fund: The CCBR, completed in December 2019, introduces reforms to ensure that the Fund’s compensation and benefits package can attract, motivate, and retain a high-caliber international staff.8 The reforms are expected to be broadly budget neutral in FY 21. Work on other large modernization projects will continue. Most of these projects are in early stages, with temporary costs in the short term but with significant savings expected in the medium term.

CD Prioritization and Budgeting1

The framework for CD budgeting and prioritization continues to mature. Following the 2018 CD Strategy Review, it has been further strengthened and streamlined in the current cycle by developing high-level resource envelopes as part of the CD budget process. This framework will guide the more detailed resource allocation process and a separate discussion on fundraising implications.

The process has the following main features:

  • The budget process establishes total resources for CD, including an envelope for externally financed activities and resources made available by CD departments within their Fund-financed budgets.

  • In the fall, the CCB reviews CD priorities and areas targeted for growth for the coming three-year period; discusses indicative allocations to workstreams, regions and these “growth areas”; and sets the departmental spending limits on externally financed CD activities.

  • In the spring, the CCB considers fundraising needs to support implementation of agreed priorities and budgets.

  • CD and Area Departments agree detailed delivery plans, in line with priorities. Resulting medium-term projections are discussed by Department Heads and approved by Management early in the financial year.

CD Spending, FY 16–23

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: OBP FACTS data, Analytic Costing and Estimation System (outturns), and staff estimates based on medium-term resource allocation plan discussions (budgeted), as of December 2019.Note: Fund-financed and externally financed spending, excluding support and governance (indirect costs).

This annual cycle is to be underpinned by the implementation of CDMAP which is scheduled to go live during FY 21 and to complete roll-out during FY 22.

The prioritization framework ensures that the Fund delivers CD in its core areas of expertise. Thus, these areas will continue to represent the bulk of the Fund’s CD spending. The indicative medium-term allocations discussed by the CCB, which integrate existing commitments, expected new country demands, as well as changing institutional and area department priorities, show some changes in delivery composition between FY 19–23. Notably:

  • In revenue mobilization, a shift from revenue administration towards tax policy.

  • A shift in delivery to AFR and MCD countries, given the focus on low-income and fragile states.

Planned CD Spending, FY 23

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Change in Share of Direct CD Delivery, FY 19–23

(percentage points)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

The fall 2019 CCB reviewed the set of narrower CD “growth areas” within these core areas where an increase in the share of CD over the medium term is being targeted. Almost all topical and country groupings areas are planned to grow over the medium term. The CCB also added climate change as a “growth area”, reflecting its importance to members.

Planned Increase in Share of CD on “Growth Areas”, FY 23

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: Staff estimates based on ACES/TRACES (FY 19 outturn) and medium-term resource allocation plan discussions (FY 23 plan), as of December 2019.1/ Prepared by ICD.

B. FY 21 is a Year of Transition

18. The proposed baseline FY 21 net administrative budget is flat in real terms. Gross new demands of $81.2 million (structural and transitional) would be funded through reallocating within and across departments, holding the travel budget constant in nominal terms (as has been done for the past six years), and other streamlining efforts. Transitional demands would be accommodated through a higher upfront allocation of carry forward resources, as well as other one-off central resources. At the same time, $5 million of the available carry forward for the general budget will be reserved.

Figure 6.
Figure 6.

Gross New Spending by Themes

(structural and transitional resources, $81.2 million)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Note: In some areas, there is a natural overlap across priority areas. e.g., the Fund looks at climate change as well as the financial sector in fragile states. In cases of overlap, the demand is allocated to the respective priority area.

19. FY 21 can be characterized as a year of uncertainty and transition. The uncertain impact of the Covid-19 related crisis will require a nimble response and close budget monitoring (Box 4). At the same time, resource costs of HR reforms, the ITD Service Delivery Model and large modernization projects entail large transitional costs in FY 21, accounting for some 53 percent of gross new spending. However, the associated structural savings from the HR reforms offset these costs on a net basis and have been allocated largely to new priority topics and country operations. Indeed, significant new spending is programmed for core activities to address direct needs of the membership. On the capital side, substantial investment is needed to support modernization projects in the short term, along with investment in the risk and information security infrastructure. Work continues to ensure that risk mitigation efforts are appropriately coordinated and resourced and that budget risks are also fully recognized.

Impact of Covid-19 Outbreak on the Budget

The budgetary impact of the Covid-19 outbreak in FY 21 remains difficult to forecast. Departments are redirecting resources within existing envelopes to address urgent needs arising from the crisis on the global economy and member countries, as well as operational impacts, such as increased reliance on remote work.

The Managing Director’s Global Policy Agenda details the Fund’s comprehensive response to the crisis, in collaboration with members and other partners. To date, functional departments have refocused resources on Covid-19 related analytical and policy work. SPR has taken the lead on macroeconomic and debt implications, as well as the policy response. RES is looking at global economic impacts, including effects on trade and global value chains, as well as low-income countries. MCM is focusing on the overall market impact, the appropriate supervisory response, and business continuity in financial institutions. FAD has initiated work on tax and expenditure policy and administration issues to help countries manage the Covid-19 impact. area departments, regional and country-specific analysis of the economic repercussions of the outbreak are underway, with emphasis on working with members to meet their needs. ORM and departments are updating and monitoring related risks, and support and service departments are rechanneling efforts to address operational and financial impacts of the crisis on the Fund.

The Fund has begun to receive requests for additional financial support. Following the Managing Director’s statement regarding available financial support to Covid-19 affected countries, a significant number of member countries have expressed interest. Some of these cases would be augmentations of existing programs, and the remainder are requests for new, mainly short-term liquidity financing. Depending on the course of the crisis, more prolonged financing engagements may become necessary to assist member countries manage sustained fiscal, financial, and external fallout from the crisis.

Experience from past crisis periods demonstrates that resource implications will depend on the duration, severity and breadth of the crisis. Initially, new and substantial demands have been met through overtime of existing teams and temporary reallocation of staff. In the current case, for example, ICD is releasing economists with prior review experience to assist SPR with the expected increased review load for new programs. In country work, teams dealing with new program requests may receive support from other economists not involved in intensive surveillance or program engagements (as was the case in addressing the 2014–15 Ebola crisis in AFR and functional departments, when there was a temporary spike related to provision of emergency liquidity). Deferral of non-essential activities is also underway.

To the extent that resource needs are sustained, as was the case in the context of the global financial crisis, resources will need to be shifted to the new program cases and analytical/policy areas in a more structural manner. In this context, while there is significant variation, program countries on average have 2 additional full-time FTEs and, depending on the specific circumstances, direct part-time economist support from functional departments—mainly SPR, FAD, and MCM. Moreover, the Fund may need to set up a field presence and step up CD delivery related to core program needs. To the extent needs are broad-based, more forceful measures would be needed, including more significant delay of non-urgent work and, if other measures are exhausted, a call for additional resources. For CD, a sustained impact on travel could reduce delivery where virtual delivery is not feasible, potentially leading to lower-than-expected external financing of staff and reduced Trust Fund Management Fees. In sum, the current exceptional circumstances will require close, ongoing monitoring and agility in use of budgetary resources.

20. The following three sections lay out details of the FY 21 savings and demand exercise, which allowed for funding of baseline net new demands (net structural plus transitional) totaling about 4 percent of the Fund’s administrative budget.9 The first section considers allocation by priority area, the second by thematic category, and the third by department. As noted, this does not incorporate Covid-19 related effects.

C. Proposed Spending on Priority Areas

21. Beyond the immediate crisis needs, the FY 21 administrative budget proposal provides resources to help fund the following priority areas (in gross terms, unless otherwise indicated) (Figure 7), reflecting, among other factors, the outcomes of recent policy reviews (Appendix VI). The Board will have the opportunity to review proposals under the Comprehensive Surveillance and FSAP Reviews, including related costing, in summer 2020. The FY 21 budget provides additional funding for related issues (e.g., financial surveillance/FSAPs and climate change), with the outcome of these reviews to drive future budget allocations. For FY 21, key areas include:

  • Financial surveillance/Financial Sector Assessment Program (FSAPs): $1.4 million, mainly to support related activities in MCM, addressing broadbased calls for more work in this area (including by the Independent Evaluation Office Report on Financial Surveillance, ongoing discussions on the FSAP Review, and the CSR). This amount also includes the recent ramp-up in funding for a monetary modeling unit in MCM. Current estimated direct spending on financial surveillance in functional departments is estimated at $47 million per year (average for FY 17–20, in FY 20 U.S. dollars). This does not include the significant financial surveillance work undertaken by area departments.10 Within this estimate, bilateral financial surveillance (including FSAPs) is around $30–33 million per year. Fund-wide direct spending on FSAPs varies depending on countries assessed in a given year, but has ranged from $20–25 million during this same period. Separately, the Financial Sector Stability Review (FSSR), a donor-funded, CD instrument helps low and lower-middle income countries diagnose financial sector vulnerabilities and prioritize financial sector reforms.11

  • Fintech, cybersecurity, and digital economy: $2.8 million to MCM, LEG, and SPR for analytical and policy work in these areas. Demand for the Fund to provide intellectual leadership, sound policy advice, and to organize opportunities for peer-to-peer learning in these areas has been growing strongly. Spending in these areas was estimated at $8 million in FY 19.

  • Climate change: Climate work has ramped up significantly in recent years, and an extensive agenda is planned for FY 21 (Box 5). In this context, $2.2 million in additional resources are being provided to increase expertise to support country work (e.g. Climate Change Policy Assessments, CCPA), and analytical and Fund policy work in several functional departments (RES, FAD, MCM, and SPR).12 CD departments are also planning to provide climate change CD to the membership using external financing e.g. to streamline climate change issues in macroeconomic and debt sustainability frameworks.

  • Anti-corruption/governance: $1.9 million, mostly to SPR, LEG, FAD, and FIN to help support country teams and review work. The enhanced governance framework in place since FY 19 now covers all countries, such that resource needs are stabilizing and are being regularized as part of structural budgets. The steady-state cost of implementing the enhanced governance framework was estimated in FY 20 at around $6 million.

  • Fragile and conflict-affected states: $4½ million, mostly to AFR, APD, and MCD to support country operations. About half these resources are provided on a transitional basis, reflecting a temporary ramp-up in engagement related to program work.13 Spending on fragile states is estimated at $100 million per year, of which around half is CD delivery.

Figure 7.
Figure 7.

Proposed Spending in Selected Priority Areas, FY 21

(Millions of FY 20 U.S. dollars)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: Office of Budget and Planning.

22. Other priority areas are addressed through internal reallocations, and resource implications from ongoing policy reviews remain to be determined. Priority areas for which there were only small or no new resource requests through the institutional budget process—e.g., ongoing work on social protection and inequality, and sustained low interest rates, respectively—will be addressed by reallocating existing departmental resources.

IMF’s Work on Climate Change

Reflecting the growing recognition across the membership of the need to understand better the impact of climate change on the global economy, the IMF has begun significantly ramping up its work in this area. In FY 20 and 21, spending by departments is expected to increase significantly, reaching around $12 million each year, driven by both new resources and refocusing of existing resources on these issues (See ¶21).

61 country teams have covered these issues in FY 20 and analytic and policy work focused on these issues has expanded. For example, the Fund has proposed a carbon price floor arrangement to scale up mitigation among large emitting countries (Fiscal Policies for Paris Climate Strategies—from Principle to Practice, Policy Paper 19/010). In addition, significant new policy efforts are planned. The Fund will assess how climate change is priced in financial assets in the GFSR and support efforts to encourage the adoption of climate-related financial disclosures. WEO chapters are planned for October 2020 and April 2021.

On a bilateral basis, the Fund is providing policy advice on mitigation strategies, designing fiscal policies such as carbon taxes and emission trading systems, and planning to review Climate Change Policy Assessments (CCPAs, jointly with the World Bank). About one in five FSAPs have already included climate risk stress testing. On Fund policy, SPR, FAD, MCM, and RES are developing a strategy on how to systematically integrate climate change into bilateral surveillance (including in FSAPs). The Fund will also facilitate the global dialogue, including through the Fall WEO climate chapter ahead of the COP26, and by engaging in multilateral fora such as the Coalition of Finance Ministers for Climate Action, the Network for Greening the Financial System to develop methodologies for measuring climate risks to financial stability, and international standard setters to promote quality climate-related financial disclosures.

Spreadsheet tools to provide guidance on carbon pricing and other policy instruments for meeting countries’ mitigation pledges for the Paris agreement, already routinely used in multilateral and bilateral surveillance reports, are being updated and expanded by FAD. STA, in cooperation with MCM, FAD and SPR, plan to develop a basic framework on climate change indicators and produce a dashboard including (i) carbons emissions and environmental damages, (ii) government expenditures for environmental policies, as well as taxes and subsidies and (iii) financing (Green bonds, carbon footprint of loans). The November 2020 IMF Statistical Forum will discuss international statistical efforts in this area.

FAD and ICD are also developing CD training curriculum and courses on climate change.

D. FY 21 Budget by Thematic Categories14

23. Country operations are projected at $471 million in FY 20 and will receive $13.9 million in additional resources (Figure 8). New structural resources of $10½ million and transitional resources of $10 million will support enhanced engagement. The allocations for lending and field presence reflect the current outlook for Fund engagement (Box 6). Scaling up or making structural resident representative offices in countries with increased engagement and establishing (CCAM) is partly offset by $6½ million in savings from reprofiling and closing of existing posts.

Figure 8.
Figure 8.

Proposed Changes in Resources, by Thematic Categories, FY 21

(Millions of FY 20 U.S. dollars)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: Office of Budget and Planning.1/ Includes price adjustments in commercial data subscriptions, adjustments related to the CCBR and HR Reorg and savings from holding the travel budget constant.

24. In FY 20, $253 million are expected to be spent on analytical work, multilateral surveillance and cooperation, and Fund policies, and the budget allocates another $8.3 million in these areas. In gross terms, $17.7 million will go to fund additional work in: fintech, digital currencies, cybersecurity, the digital economy, work on the Integrated Policy Framework, implementation of the CSR, review of the enhanced governance framework, continued work on FCS, debt sustainability, AML/CFT, gender, inequality, social protection, arrears, and safeguards. These gross demands are partly offset by $9½ million in savings from the conclusion of major reviews (e.g. FSAP and PRGT eligibility).

Outlook for Fund Engagement

The budget proposal provides resources for country teams in line with the anticipated intensity of FY 21 engagement prior to the Covid-19 related crisis. As of late 2019, departments expected the number of Fund programs (including non-financial arrangements such as PCI, PSI, or PPM) to increase relative to the current level (which is somewhat below long-term averages)—but to remain in line with the number of programs used when formulating the FY 20 resource allocation. Recognizing that demand for Fund programs is now expected to be higher, a first step will be to assess scope for reallocation of resources both within departments (e.g., from surveillance and analytical work to lending activities) and across departments. Larger resource needs could be met by in the short term by overtime, and also by drawing on the Fund’s budget contingency (see further discussion in the section on budget risks). However, more sustained and broader needs, which have become more likely, may require further consideration of the adequacy of resources.

Fund Arrangements, FY 00–201/

(Number of countries)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: MONA Database and staff calculations.1/ Blend GRA/PRGT arrangements are included as PRGT. Based on number of arrangements at end of period. For FY 20, includes current arrangements as of January 13, 2020.

25. Fund finances, governance, and internal support will receive $18 million in net additional resources on top of the $452 million projected in FY 20. $13.4 million go to Fund finances and governance, including staff work related to IEO evaluations, third party risk management, copyright issues and to cover revenue losses from making the Fund’s digital publications free of charge. In addition, $16½ million will go to transitional needs to support ITD’s new service delivery model, change management, the new video wall, as well as revenue shortfalls in the Concordia and parking fees collection. Savings of $12 million, e.g., from the completion of policy work on the CCBR, will offset some of these new spending demands.

26. Under the institutional needs category, $8 million in net structural savings are expected. These arise from the CCBR, HR reorganization, holding the travel budget flat in nominal terms, and other streamlining efforts. At the same time, there are $5 million in transitional funding needs, mainly related to the shift to the new HR service delivery model.

Table 2.

Gross Administrative Fund-Financed Resources: Estimated Allocation by Activity, FY 20–21

(Millions of FY 20 U.S. dollars)

article image
Source: Office of Budget and Planning, Analytic Costing and Estimation System (ACES). Mapping based on staff estimates.Note: Numbers may not add to totals due to rounding.

Includes price adjustments in commercial data subscriptions, adjustments related to the CCBR and HR Reorg and savings from holding the travel budget constant.

The “Miscellaneous” classification covers expenditures that currently cannot be allocated within the ACES model.

Includes the contingency for staff, OED, and IEO.

E. FY 21 Budget by Departments

27. The proposed shift in resources across outputs is mirrored in shifts in departmental budgets. On a structural basis, area and functional departments will see an increase, while support departments will remain flat. The overall net structural increase for departments is funded from savings from streamlining HR service delivery, holding the travel budget constant in nominal terms, and other streamlining efforts. Transitional resources will help departments meet short-term needs, including those arising from the transition to the new HR service delivery model. Key departmental highlights are summarized below and in Tables 3 and 4. The impact of the HR reforms is shown as central savings. The final FY 21–23 medium-term budget paper will show in detail how the savings from the HR reforms will translate into structural and temporary adjustments in individual departmental budgets.

Table 3.

Budget Adjustments by Departments, FY 20–21

(Millions of FY 20 U.S. dollars)

article image
Source: Office of Budget and Planning.

Ex-ante, in line with FY 20–22 Medium-Term Budget paper; actual transfers may vary.

Pre HR Reorganization.

Includes the Offices of the Managing Director and Deputy Managing Directors, Innovation Lab, Knowledge Management, Office for Asia and the Pacific, Office in Europe, Overseas Trainining Offices, Economic Data Team, HQ1 Task Force, Mediator, Ethics Office, Office of Internal Investigation, Secretarial Support Group.

Includes price adjustments in commercial data subscriptions, loss of revenue due to free data, and other small reallocations.

Includes savings from holding the travel budget constant and OED’s structural streamlining.

Includes OED’s central carry forward of estimated 4.7 million, proposed to be made available to the Fund’s general budget.

Table 4.

FTE Changes by Departments, FY 20–21

(FTEs)

article image
Source: Office of Budget and Planning.

Figures may not add to total due to rounding.

Reflecting HRD reorganization (gross FTE savings of 40 offset by 19 increase in the new HRD structure) and other savings derived from the 1HR project (FIN (1) and ITD (3.5)). Other savings in ITD are in steady state.

Ex-ante, in line with FY 20–22 Medium-Term Budget paper; actual transfers may vary.

Includes 26 transitional FTEs to bridge departments to the new HR structure.

28. The budget provides for intensified country engagement in area departments, consistent with needs as of end-February. AFR will receive structural and transitional resources to support work on programs and FCS, including the upsizing of the RR post in Ethiopia. APD will receive structural and transitional resources to finance intensified surveillance work and to support work on climate change and fragile and small states. EUR will continue its structural consolidation with the support of transitional resources; savings will accrue from the closure of the RR post in Greece. MCD will receive resources for increased engagement with vulnerable countries and analytical work, and field-based resources for CCAM and a local coordinator in Morocco to support preparation of the 2021 Annual Meetings. WHD will receive structural resources for RR posts previously funded on a transitional basis, and transitional funding for intensified surveillance and program work.

29. Allocations to non-CD functional departments are in line with new policy and review work at that time. FIN, which plans significant internal reallocation of its resources to meet new needs, will receive a small amount in transitional resources for the safeguards review and noncapital IT development on mandated policy. RES will receive structural resources to regularize financing for the Common Surveillance Database team and the Structural Reforms Unit, as well as transitional resources to support work on climate change. SPR will receive structural and transitional resources to support work on climate change, FCS, CSR, IPF, the Integrated Digital Workplace, and the G20 presidencies. COM will provide net savings from modernizing the Fund’s publications and moving to free digital publications and will receive transitional resources for a secondment from the World Bank.

30. The resource mix in functional CD departments is aligned with thematic and country groupings priorities. FAD will receive transitional resources mainly for work on climate change, the Sustainable Development Goals, and enhanced governance framework. ICD will receive transitional resources to lead the CDMAP Project. LEG will receive structural and transitional resources for work on the enhanced governance framework and on fintech. MCM will receive significant structural and transitional resources, including for financial surveillance/FSAPs, cybersecurity, fintech (including digital currencies), the IPF, and the Monetary Policy Modelling Unit. STA will receive a small amount in transitional resources to support the iDATA project and will initially fund work on climate change through internal reallocation of resources.

31. Support departments (excluding HRD) will receive transitional resources for risk management and modernization efforts. CSF will receive transitional resources to cover the new third-party risk management framework, enhanced capabilities in the Global Security Operations Center (GSOC), copyright issues, revenue shortfalls in Concordia and parking fees, and for work on the Fund’s climate footprint. ITD will receive transitional resources to move towards an improved service delivery model based on managed-service providers. Moving to a new service delivery model will generate savings over time and help both contain the overall level of IT spending and direct it towards the key priorities.

32. HRD will receive significant structural budget increase, reflecting the move of all HR functions from departments to HRD. The structural budgetary impact of this reform on each department, as well as resource needs during the transition to the new model are reflected in Tables 3 and 4.

Capital Budget

A. Capital Investment Framework

33. Recent changes in the investment landscape have prompted revisions to the Capital Investment Framework (CIF). Details are set out in Appendix VIII and include the following key elements:

  • Appropriation of annual capital needs rather than the total estimated costs of a project, while maintaining the 3-year lapsing rule. Information on total project costs and the medium-term capital plan would still be submitted alongside the budget request.

  • Codifying the recent practice of seeking Board endorsement for large, transformational projects prior to implementation. This would require engagement to present ex-ante project justification, including a business case and cost-benefit analysis (CBA). Follow up engagement will take place as needed to provide progress updates.

  • All other projects will be presented to the Board for approval as part of a portfolio during the annual budget process with improved reporting on numbers and types of projects and total estimated project costs.

Other proposed revisions to the CIF clarify roles and responsibilities, refine capital project taxonomy, strengthen the investment decision-making process and integrate risk and change management into the project governance structure.

B. FY 21 Capital Budget Proposal

34. The capital budget proposal for FY 21 is $98.7 million. It covers investment, maintenance, and improvements in the Fund’s building facilities, information technology (IT) and other fixed assets. The proposed appropriation for FY 21 is in line with estimates in the FY 20–22 Medium-Term Budget (MTB), albeit with reductions in Facilities projects offset by higher needs in IT capital (Table 5). The presentation of the capital budget is in line with the new capital investment framework.

Table 5.

Medium-term Capital Budget, FY 20–23

(Millions of U.S. Dollars)

article image
Sources: Office of Budget and Planning, and departments for Corporate Services and Facilities and Information Technology.Note: Figures have been recategorized to align with new defined groupings in the Capital Investment Framework. Totals may not add due to rounding.

Long-term plans included in Appendix X.

Projections for FY 22 – 23 are indicative at this stage and reflect continued focus on modernization.

Facilities Capital

35. The proposed FY 21 appropriation for facilities capital is $42.4 million, $7 million lower than the estimate used in the FY 20–22 MTB. Most of the investment is needed to replace facilities and building systems which have reached end-of-life.

  • $32 million, including to update furniture in HQ1 ($14 million), audio-visual life-cycle replacements ($6 million), and the start of a cycle of replacement of aging HQ1 building equipment and systems ($11 million). The HQ1 replacements (mainly air conditioning chillers and electrical substations) were not included in the HQ1 Renewal project because the original completion date of the renovation was well before the end-of-life of these systems.

  • $11 million for smaller projects, including office renovations, staff moves, contingency funds, and the establishment of a planning reserve for the facilities portfolio of projects.

  • A previously planned project to install bollards around the HQ1 building perimeter has been assessed as no longer needed. Following feasibility assessments and consultation with DC government authorities, it has been determined that the complexity and cost of the project outweigh the added security benefits. The current barriers provide adequate protection in line with U.S. Government standards and the Fund’s security objectives.

36. Projects to improve the headquarters buildings are expected over the medium term (Appendix IX). Current proposals include improvements to the visitor’s entrances and the HQ1 auditorium (which will be restored to a large meeting space suitable for townhalls and spring and annual meeting events).

HQ1 Renewal

37. The HQ1 Renewal project was substantially completed, as expected, in September 2019. Construction was completed six months ahead of schedule and within budget with projected expenditures through April 2019 of $548 million against a budget of $563 million. Important project close-out and transition activities remain. Lessons learned have been documented.

IT Capital

38. The proposed IT capital budget appropriation for FY 21 is $56.3 million, $10 million more than last year’s estimate for FY 21. Most of the budget will fund continued work on modernization projects and provide funding for other critical systems development and upgrades, such as the Fund’s system for member lending activities which has reached end-of-life. The remaining proposed funding will provide resources for information security, and normal lifecycle replacements for IT infrastructure.

39. The large modernization projects will account for roughly $31 million (Box 7, Table 6). The projects are at various stages: (i) 1HR and CDMAP are in the implementation phase, (ii) KM, which draws together a collection of targeted projects that will support the IDW, is starting work on its final and largest element (replacement of the document management system), and (iii) the Integrated Digital Workplace (IDW) and iDATA are conducting scoping and design work.Total estimated costs (where available), budget approvals to-date and expected spending through year-end are shown in Table 6.

Key Modernization Projects

The Fund has embarked on a modernization agenda to upgrade internal operations to be more nimble and agile in the face of rapid geopolitical, technological, and demographic shifts, as well as evolving demands from our member countries. A key pillar of this modernization is a portfolio of key transformation programs to improve processes and upgrade aging platforms.

This includes the transformation of the HR system and operating model (1HR), reformed Capacity Development Management and Administration Processes (CDMAP), development of an Integrated Digital Workplace (IDW), a next generation economic data platform (iDATA), and knowledge management (KM) capital projects. The programs provide the opportunity to redesign and streamline work processes and practices to take advantage of automation and other productivity enhancements.

  • 1HR will modernize, simplify, and transform the way the Fund delivers its HR services, through streamlined business practices, best in class cloud software, and enhanced controls, providing flexibility to accommodate future policy, practice or regulatory changes (e.g., HR Strategy and CCBR).

  • CDMAP will transform CD operations, supporting more efficient and transparent implementation of the CD governance framework. It will address process and systems weaknesses, support better decision-making, and help strengthen the integration with surveillance and lending in line with the CD strategy.

  • IDW will provide a modern user interface where staff have improved access to knowledge, applications, and other platforms to do their work. The goal is to address the pain points experienced from existing fragmented content, information silos, and obsolete technology.

  • KM provides a framework for efficiently capturing, storing and sharing knowledge, thereby enabling staff to more easily draw lessons and insights from the Fund’s rich cross-country experience and subject-matter expertise. This includes a new document management system and enterprise search systems, as well as underlying work on content classification.

  • iDATA seeks to mitigate the operational risks stemming from the Fund’s current aging data management platform. The project will deliver a modern economic data lifecycle management platform that can be further extended to meet the growing business needs for creating and maintaining databases for multilateral surveillance and economic research.

Table 6.

Estimated IT Capital Needs for Key Modernization Projects

(Millions of U.S. dollars)

article image
Note: Totals may not add due to rounding.Source: IT Project Management Office

IDW figures represent the scoping and design work. Project is still in early stages and estimates of total cost and projected needs are not yet available.

Additional projected needs for FY 22–23 do not include projections for IDW which is still in scoping and design phase.

Includes the Identity and Access Management system, Corporate Data Warehouse and cloud development platforms which support the modernization projects.

40. The governance for key modernization projects allows for significant Board oversight.

  • As part of the established governance of the key modernization projects, 1HR and CDMAP have presented business cases and cost benefit analyses to their respective Steering Committees, the CBIT, and the Board as a requirement to proceed with implementation.15

  • The KM capital projects replace an aging infrastructure (enterprise search and the document management system), provide an innovative tagging tool, and have delivered an upgrade to KE country pages.16 All projects except Document Management are under implementation. The Document Management project team has prepared a robust business case and financial plan that has undergone CBIT review. Direct capturable savings have not been assigned to the project, but will be integrated into the iDW project, recognizing that the primary benefits of the specific KM objectives will be qualitative (better information accessibility) and risk mitigation. Staff are working to finalize the Document Management licensing and implementation contracts with the goal of starting implementation at the end of Q1 2020.

  • The IDW and iDATA projects are scheduled to submit their proposals during FY 21. Funding in FY 21 will be conditional on development and presentation of a business case and CBA. Should IDW and iDATA get approval to begin implementation work in FY 21 as currently scheduled and resequencing or adjusting existing budget space is not possible, a supplemental capital appropriation may be sought.

  • Information security projects will have a total cost of almost $16 million, with about $8 million falling in FY 21. Security-related projects requesting new or additional funds in FY 21 include replacement and upgrade of the security events logging and monitoring system, cloud migration of the offsite business continuity center and other application controls (Box 8).

  • IT infrastructure end-of-life replacements total $10 million for FY 21. In addition to funding upgrades of the remote office infrastructure, network equipment, servers and storage capacity, mobile devices and a portion of the personal computers will also be replaced in FY 21. Medium-term needs are estimated to remain at this level, mainly due to the personal computer refresh schedule. This aligns with the long-term plan for IT infrastructure, as detailed in Appendix IX.

Information Security and the Medium-term Budget

The level of administrative budget resources devoted to Information Security in FY 20 is approximately $10 million. These resources fund (i) the activities of the Information Security Group in the IT department, which include Information security services for IT projects, Fund-wide security awareness program, security compliance program for financial systems, application security program, penetration testing, ongoing independent assurance of security control effectiveness, security risk metrics reporting, and security incident investigations; and (ii) Operational information security services, which include vulnerability management, identity and access management, privileged access management, endpoint security management tools for PCs and mobile devices, network and perimeter security, security monitoring, security event correlation, proactive threat detection and prevention, and security incident response.

Additionally, the capital budget request for FY 21 is $8 million. Capital investments have averaged about $4 million a year since FY 16. These investments were targeted at improving access management, remediation of vulnerabilities, and upgrading the security and incident monitoring system.

Often, after the main objectives of the capital project are achieved, there is a recurring administrative expense to maintain the investment. The information security projects in progress or proposed are estimated to result in an administrative budget impact in the range of $4–5 million. An increase of this size, and the resulting administrative impacts from other capital investments, will require careful planning to accommodate under a flat budget constraint.

Medium-Term Budget Prospects

41. The Fund will need to reassess resourcing requirements as the full impact of the Covid-19 crisis are better understood. New demands will need to be addressed, while the Fund continues to look for scope for efficiencies and reallocation to fund new priorities in the future. This will include finding space for some activities currently funded through transitional resources in the FY 21 budget that may need to become structural in future years (e.g., new field offices which are treated as transitional in the first year of operation). Moreover, some of the new initiatives in the FY 21 budget, such as work on climate change, will likely have to be ramped up further in coming years, while the Fund will need to maintain its agility to be able to respond to global emergencies such as the ongoing Covid-19 outbreak. Major policy reviews—including the to-be completed CSR and FSAP reviews, and forthcoming reviews (data provision) and IEO evaluations (e.g. capital flows, small states)—are likely to require a rebalancing and may imply an increase of resources over time for these activities.

42. Pressures will also likely arise from changes in the way capital projects are structured. Until recently, capital projects—not just at the Fund—implied an upfront investment that was then recouped over time. However, in particular for IT projects, there is a trend towards cloud-based solutions that are based on a subscription fee combined with a lower upfront investment. Conceptually, the subscription fee could be viewed as corresponding to the accrued depreciation in a traditional capital project. However, the Fund budget has so far not reflected depreciation.17 As a result, all else equal, future capital budgets would be lower as upfront costs are reduced, but administrative needs will be higher given subscription costs. The Fund will need to consider the appropriate treatment of this change in the way capital projects are structured in its real flat budget framework.

43. Savings from modernization projects will create some budget space (Figure 9). CCBR savings are projected to accrue over time from the rationalization of some benefits and efficiency gains in managing human resource processes. The scheduled adjustment of the grossing-up formula for the staff retirement plan which the Board will discuss in the next financial year is also expected to generate savings as income tax rates are lower than those underlying the existing grossing-up formula. As these savings materialize, part of them can be used to bolster the Fund’s competitiveness, for example through targeted measures to support recruitment of specialized skills and/or from underrepresented regions, higher salary increases at promotion to reward performance and support retention, and increased funding for training. Work is underway to elaborate a framework to support investment in such measures in future budgets. Other modernization projects have yet to develop their cost-benefit analysis and could also generate savings over the medium-term.

Figure 9.
Figure 9.

Medium-term Total Resource Savings1/

(Millions FY 20 U.S. dollars)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: HRD and OBP1/ Takes into account transitional costs associated with the reforms.

44. With full budget utilization and continued elevated transitional needs, it is increasingly likely that some of the existing carry forward will be used. The next few years represent a transition period as modernization projects are being implemented, many with significant transitional costs. At the same time, the need for the Fund to take extraordinary measures to address the current crisis will call for an agile and timely response that may require use of these resources. Even though portions of the carry forward have been allocated upfront in past years, it has on aggregate remained intact. This is because drawdowns on carry forward resources in some departments have been offset by underspending in others. Going forward, with the full budget utilization we have seen for the past few years, it cannot be ruled out that the carry forward will be used over time, in particular, given that the carry forward will partly be needed to finance the transition costs of the large modernization projects and other short-term crisis response measures. If and when the carry forward has been used, transitional needs would have to be accommodated within the structural budget envelope. As such, a key consideration for allocating available carry forward balances is to protect against full utilization in a single year and avoid the sharp rebasing of expenditures that this would require in the next budget.

Risks to the Budget

45. With the Covid-19 outbreak, risks to the budget have risen sharply. With virtually full budget utilization and increases in the upfront allocation of the carry forward, the Fund’s budgetary buffers have been reduced in recent years. Internal risk exercises assessed budget risks as moderate, but above tolerance, given diminished budgetary slack. The Covid-19 crisis has, however, increased uncertainty as the extent of demand for new Fund financing has yet to become clear, and the Fund’s operations themselves have to be adjusted in response to the Covid-19 outbreak itself. This highlights the need for strong prioritization processes, and for close budget monitoring and controls. To that end, staff has improved risk analysis and worked on a systematic plan for managing budget risks.

46. In staff’s view, the key budget risks are (Figure 10 and Box 9):

  • Covid-19: As highlighted above and in Box 4, the outbreak is a rapidly evolving situation which makes quantification difficult. OBP will be working closely with departments to ensure regular review and monitoring of budget needs in the coming period.

  • Unanticipated large and sustained demands for Fund programs. Internal risk assessments provided illustrative estimates of the budgetary impact of larger-than-expected demand for Fund programs, with additional resources potentially needed ranging from $9 to $23 million annually under downside scenarios of varying severity. These downside scenarios consider larger numbers of countries simultaneously entering into Fund-supported arrangements relative to the baseline, and the likelihood associated with these scenarios prior to the Covid-19 outbreak was assessed to be low but is now higher, and a scenario beyond the upper boundary also cannot be ruled out, in particular if the growing economic and financial dislocations rise further and/or become entrenched.

  • Information security risks. An information security breach would trigger costs of investigation, development of new procedures, and the potential sourcing of alternative service providers. These costs correlate to a moderate budgetary impact. The Fund’s Information Security Roadmap will reduce the Fund’s risk profile to an acceptable level. However, as information security risks evolve and become more sophisticated, investment needs in this area will be periodically reassessed.

  • Delays or not realizing efficiency gains in the modernization projects. The cost-benefit analysis for 1HR and CDMAP envisage savings of about $10 million. This compares to earlier preliminary estimates of about $12 million with the difference due to final realized savings for 1HR. For the other large modernization projects, cost-benefit analyses are forthcoming. A project delay could have a moderate impact because of the number of staff resources involved. Moreover, there are risks that the envisaged savings may not be realized in full. Robust mitigation measures are being incorporated including through rigorous planning, oversight from the Project Management Office and interdepartmental Steering Committees, as well as support from a dedicated Change Management function. At the same time, the modernization projects should result in a significant risk reduction for the Fund over the medium-term, for example of risks associated with outdated legacy systems requiring manual processes.

Figure 10.
Figure 10.

FY 21–23 Budget Risks: Impact and Likelihood

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: Office of Budget and Planning.

Classification of Impact of Risks and Mitigating Actions

  • Minor Risks (<$3 million): Departments make internal reallocations and trade-offs. As a second line of defense, draw on Fund-wide contingency.

  • Moderate Risks ($3–10 million): In addition to internal reallocation and contingency, some interdepartmental reallocations would be made. Departments would work to identify areas of under spending within the year to facilitate reallocation.

  • Major Risks ($10–32 million): Should this level of risk materialize, the Fund would request that, in addition to seeking internal tradeoffs from departments, that departments deliver 2 percent of identified contingency measures for reallocation to the affected areas.

  • Critical Risks (>$32 million): Risk events with an impact greater than the available carry forward resource pool would require a request to the Board for increased budgetary resources. Such a request would only be made if other efforts to manage budget impact prove insufficient

  • Donor financed activities. The Fund has improved the management and oversight of donor resources in recent years, reducing the risks association with external funding. Nonetheless, the scale of donor funding poses inherent risks. This budget risk is mitigated by the Fund’s up-front financing model for new initiatives, and the nature of externally financed activities. A large proportion of these funds finance contractual experts whose activities can be readily scaled back. Staff considers this type of donor-financing risks to be low. However, a sustained low-travel environment due to the Covid-19 outbreak could reduce delivery of externally financed CD depending upon the degree to which virtual delivery is feasible. The lower activity could impact the Fund’s budget, as set out in Box 4, and services to member countries. The Fund will consult with external partners as the situation evolves.

47. There are other risk factors that, while present, are considered to have either low probability or a very limited impact.

  • Price factors. The impact of oil prices on travel costs and of increases in subscription prices on commercial data costs remain risks which staff deem to have a more minor impact. As such, the risks have been excluded from the impact/likelihood chart.

  • Risks to the Fund’s income position. Within the medium-term budget horizon, a significant reduction to the Fund’s income, exerting pressure on the institution’s administrative budget is considered improbable, as highlighted above. However, in a lower-for-longer environment, and assuming non-repayment by large debtors and/or limited uptake of new GRA programs, pressures could arise. These risks are carefully monitored, and a conservative approach to projecting income mitigates these risks and potentially provides lead time to put in place offsetting measures.

  • Risks arising from the Fund’s compensation mechanism: The CCBR has adopted the U.S. CPI as the Fund’s external deflator. It is conceivable that wage increases in the Fund’s comparator markets exceed the deflator and the space from wage erosion (Appendix II). This would imply real cuts in non-personnel spending. Funding modalities would be discussed by the Board as part of the budget proposal, consistent with the new compensation framework.

48. The FY 21–23 budget process enhances the use of risk-based tools as a means of reducing budget risks.

  • Tracking of funding for key risk mitigation efforts. Beginning in FY 21, OBP has collated the funding requests submitted by departments which relate to risk mitigation efforts identified in internal risk assessments. In the coming year, risk mitigation areas which received incremental funding include work on Core Risk Areas, Key Modernization Projects, improvements to Third Party Risk Management, and changes made to ensure that the benefits of modernization projects were captured.

  • Risk-based assessment of country needs. Efforts continue to incorporate country-level risk assessments into the budget planning process, particularly a country’s vulnerability and the potential impact on Fund engagement.

  • Improvements to the Capital Investment Framework. Appendix VIII describes staff’s proposed enhanced capital investment framework, which will support strengthened management of associated risks, including those related to modernization of the Fund’s systems.

Risk Preparedness Matrix (FY 21)

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Summary Proposal for FY 21

Within the total administrative appropriations, separate appropriations and expenditure ceilings are proposed for the Offices of the Executive Directors (OED), the Independent Evaluation Office (IEO), and other administrative expenditure in the Fund (Table 7). The capital budget is made up of two components: building facilities and information technology.

Table 7.

Proposed Appropriations, FY 21

(Millions of U.S. dollars, unless otherwise noted)

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Source: Office of Budget and Planning.Note: Figures may not add to totals due to rounding.

The actual amount that can be carried forward is the lesser amount of the underspend in the current year or the specified ratio (shown in the table) of the current year’s net administrative budget.

Available carry forward to increase by an estimated $4.7 million from OED central carry forward. Precise amount will be determined when end-year financial books are closed.

Proposed Decisions

The following decisions, which may be adopted by a majority of the votes cast, are proposed for adoption by the Executive Board:

Decision No. 1: Administrative Budget for the Fund, FY 2021

A. Appropriations for net administrative expenditures for Financial Year 2021 are approved in the total amount of US$1,186.2 million, of which: (a) up to US$74.7 million may be used for the administrative expenditures of the Offices of Executive Directors, (b) up to US$6.7 million may be used for the administrative expenditures of the Independent Evaluation Office, and (c) up to US$1,104.7 million may be used for the other administrative expenditures of the Fund.

B. In addition to the amounts for net administrative expenditures appropriated under paragraph A, amounts appropriated for net administrative expenditures for Financial Year 2020 that have not been spent by April 30, 2020 are authorized to be carried forward and used for administrative expenditures in Financial Year 2021 in a total amount of up to US$47.7 million, with sub limits of (a) US$15.1 million for the Offices of Executive Directors, (b) US$0.3 million for the Independent Evaluation Office, and (c) US$32.3 million for the other administrative expenditures of the Fund.

C. A limit on gross administrative expenditures in Financial Year 2021 is approved in the total amount of US$1,476.6 million, with sub limits of (a) US$91.2 million for the administrative expenditures of the Offices of Executive Directors, (b) US$7.0 million for the administrative expenditures of the Independent Evaluation Office, and (c) US$1,378.4 million for the other administrative expenditures of the Fund.

D. The appropriations for “other administrative expenditures of the Fund” and the “limit on gross administrative expenditures” for FY 21 set out in paragraphs A and C above will be increased by the amount of the OED FY 20 central carry forward as determined in the FY 20 year-end closure of the Fund’s financial books.

Decision No 2: Capital Investment Framework

The key elements of the Fund’s updated Capital Investment Framework are approved as set out in paragraph 1 of Appendix VIII.

Decision No 3: Capital Budget Appropriations for Financial Year 2021

Appropriations for capital projects underway or beginning in Financial Year 2021 are approved in the total amount of US$98.7 million and are applied to the following project categories:

  • (i) Information Technology: US$56.3 million

  • (ii) Building Facilities: US$42.4 million

Appendix I. Key Budget Concepts

Financial year(t): May 1(t-1) to April 30(t) E.g., FY 21 = May 1, 2020 to April 30, 2021

Administrative budget:

Gross (total spending envelope)

- (minus)

Receipts (donor funding + revenue)

=

Net (spending that needs funding)

Total Available Resources= Net + Carry Forward

Carry forward:

The right to spend budget allocations beyond the period for which budgetary authority is normally granted (12 months). The amount that can be carried forward (CF) in any given financial year is capped at 3 percent of the net administrative budget for staff, 5 percent for IEO, and 20 percent for OED. The CF can be the minimum of the underspend in the current year or the specified ratio (i.e. x = 3, 5, or 20%) of the current year’s approved net administrative budget. Specifically:

CFt = min (Ut, x Bt)

Where:

  • Ut = underspend in current FY (Bt + CFt-1 – Et)

  • Bt = net administrative budget in current FY

  • CFt-1 = carry forward from previous FY

  • Et = net expenditures in current FY

  • x = ratio limit of CF

FY 20 Administrative Budget

(Millions USD)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: Office of Budget and Planning

Global external deflator:

Starting in FY 21, the global external deflator will be the U.S. CPI projection as published in the most recent WEO.

Previously, global external deflator was calculated based on two components:

  • Personnel component (70 percent)—Board approved structure adjustment for Fund salaries. It is determined exogenously as the outcome of the Fund’s rules-based compensation system endorsed by the Board.

  • Non-personnel component (30 percent)—based on an index that reflects most closely the Fund’s non-staff related costs (travel, facilities, and IT). This is measured by the projected U.S. CPI in the most recently published World Economic Outlook (WEO).

Capital budget:

Used to finance investments in information technology and building improvements and repairs. Given the long-term nature of these projects, capital budgets are available for a period of three years, after which time unspent appropriations lapse.

A project is included in the capital budget if it is for:

  • the acquisition of building or IT equipment;

  • construction, major renovation, or repairs;

  • major IT software development or infrastructure projects.

Composition of Gross Spending, FY 20

(Millions USD)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Appendix II. Revision of the Global External Deflator

1. As part of the reforms adopted under the CCBR, the Fund’s Global External Deflator (GED) has been modified and will now equal the projected U.S. CPI inflation as published in the most recent World Economic Outlook (WEO). Previously, the GED was set as the weighted average of the structural salary increase (70 percent) and projected U.S. CPI inflation (30 percent). As such, the CPI will have a much bigger impact on the nominal budget than it has historically.

2. Recognizing this greater impact and the need for predictability in budget planning and prioritization, staff will utilize the U.S. CPI inflation forecast underlying the January WEO Update (instead of the April WEO figure used under the old methodology) as the operational deflator for the Fund’s budget process going forward. This recognizes that CPI forecast revisions late in the budget cycle, as are possible with use of the April WEO figure, could require potentially significant revisions to the budget, even after the budget paper has been issued to the Board for approval, severely complicating planning.

3. Historically, the January and April projection have differed in some years, but over time, these differences have evened out. The January and April projections also have a similar degree of forecast accuracy.

4. If forecast errors are one-sided for a prolonged period of time, the actual budget could diverge from the flat real concept, as forecast errors compound. This is independent of which CPI forecast—January or April—is used in the budget process. Staff will report in the annual budget outturn paper the inflation forecast errors from previous budgets and their cumulative impact, if any, on the budget envelope.

US CPI Projections: January vs April WEO

(January less April in percentage points)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

US CPI: Actuals vs WEO projections

(Actuals less January/April projections, in percentage points)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Appendix III. Projected FY 20 Outturn

End-February projections assumed the FY 20 structural budget was fully utilized, with the carry forward intact and available for short-term needs in FY 21. As highlighted in paragraph 15 of the main report, this assumption is subject to significant uncertainty given the evolving circumstances related to the net impact of the Covid-19 outbreak impact on spending. Data in this Appendix reflects the status as of mid-February and does not project possible shifts between the main expense categories of personnel, travel, and building and other expenses, that could occur due to the above circumstances.

Budget utilization has steadily improved, supported by increased upfront allocation of carry-forward resources to departments in recent years. Better budget utilization has also contributed to improvements in workload indicators.

Net Underspend, FY 12–20

(Percent of budget)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: Office and Budget and Planning.Note: Excludes additional contributions to the RSBIA in FY 12, FY 13, FY 16 and FY 17.

Budget and Carry Forward, FY 12–20

(Millions of U.S. dollars)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: Office of Budget and Planning.Note: Excludes additional contributions to the RSBIA in FY 12, FY 13, FY 16, and FY 17.1/ Includes travel to Annual Meetings abroad.

A. Spending by Activity

1. The FY 20 budget provided increased resources for country work, Fund policies and internal support. Set within a flat structural budget and an upfront allocation of $25 million in transitional funding, the budget aimed to increased country engagement with the membership, including on the enhanced governance framework and macro-financial surveillance, as well as support the various policy and analytical initiatives throughout the Fund (e.g. trade, digital economy, public debt, international taxation). Resources were also provided to carry out the Comprehensive Compensation and Benefit Review (CCBR) and other key modernization initiatives, including 1HR, Digital Workplace, knowledge management, and systems and platform infrastructure improvements. Additionally, the budget reflected reallocation within and across departments of about $33 million (about 3 percent of total spending), including modest savings from departmental efficiencies and central savings, such as holding the travel budget constant in nominal terms.

2. Relative to estimated structural resources, spending on outputs is expected to be broadly as envisaged with Fund-financed resources projected to shift mainly towards country operations and internal support (Table 1 and Appendix VII). As envisaged, within country work, there has been a leveling off in budgeted CD spending, although spending on other aspect of country operations are projected to increase. Planned spending in area departments suggests a shift from bilateral surveillance to lending as work on intensified programs continue in AFR and WHD. Spending on internal support is projected to be higher than budgeted structural resources due to continued efforts on the modernization projects. Slightly higher spending relative to budget on multilateral cooperation reflects increased activities on flagships and general research. Analytical work is seeing an uptick, partly driven by spending on cyber security-related projects (e.g. fintech) and monetary and financial policy work. Fund governance is predicted to come lower than budget due to underspend in governance departments (SEC, OED, OMD), although broadly in line with previous year’s level.

Table 1.

Gross Administrative Fund-Financed Resources: Allocation by Output (direct costs), FY 18–20

(millions of FY 20 U.S. dollars)

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Source: Office of Budget and Planning, Analytic Costing and Estimation System (ACES). Mapping based on staff estimates.

Governance and membership encompasses work supporting the Board of Governors, the Executive board, Management, and internal functions such as risk management and internal audit; it also covers work on quota and voice.

The “Miscellaneous” classification covers expenditures that currently cannot be allocated to specific outputs within the ACES model.

Reconciliation to gross administrative expenditures as per the Fund’s financial system.

B. Spending by Inputs

3. The overall high utilization is reflected in the main budget categories (Table 2). Spending on personnel and buildings and other services is projected to be higher than the structural budget but can be offset by the projected underspend in travel.1 At the aggregate, carry forward funds will remain available to meet transitional needs in FY 21. Externally funded activities, symmetrically captured in receipts and expenses, are estimated to end the year above FY 19 outturn ($175 million), and slightly below the established operational target for FY 20.

Table 2.

Net Administrative Budget: Estimated Outturn, FY 19–20

(Millions of U.S. dollars)

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Sources: Office of Budget and Planning and PeopleSoft Financials.Note: Figures may not add to totals due to rounding.

Represents the contingencies for staff, OED and IEO.

Personnel

4. Spending on Fund-financed personnel is projected to slightly exceed the structural budget. Vacancies have continued to decline and similar to last year, at the aggregate, departments are projected to end FY 21 with an average vacancy rate of zero percent and some usage of transitional positions. Vacancies vary by department type: while area and functional departments are projected to slightly exceed their approved structural FTEs, CD departments are projected to be close to and support departments below structural levels.

Vacancy Rate, FY 12–20

(Percent)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: Office of Budget and Planning, Relative to approved Fund-financed positions.

Fund-financed Budgeted Staff Positions vs Projected Outturn, by Department Type, FY 20

(FTEs)

Citation: Policy Papers 2020, 030; 10.5089/9781513545813.007.A001

Source: Office of Budget and planing.

5. Better budget utilization and increased resources have contributed to improvements in workload indicators. Fund-wide quarterly moving average overtime rate for staff declines to 10.2 percent, with the median rate trending significantly lower than average rates. Also, the Fund-wide average uncompensated overtime rate (staff and contractuals) dropped to 10.2 percent in the first nine months of FY 20 relative to same period last year.

Sources: TRACES and HRPROD.1/ Data excludes regional offices. Expressed as a percentage of actual hours worked (i.e., regular hours minus leave).

Travel

6. Utilization of the travel budget is projected to be about 85 percent, before considering the possible impact of travel restrictions due to the Covid-19 outbreak (text table). The decline in volume of travel (lower relative to last year and considering the recent health-related concerns and travel restrictions) together with departments’ continuous efforts to improve travel management practices is contributing to lower travel spending. The cost per mile for the first eight months of the year is similar to last year, at about $0.38 (text table). Airline contracts are being extended, aiming to retain current discounts but with enhancements in regions where carrier mix could be more favorably aligned with the Fund’s footprint. Changes are expected to go into effect early FY 21. The travel budget will again be held constant in nominal terms in FY 21.

Travel, FY 19–20

(Fund-financed, millions of U.S. dollars)

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Source: Office of Budget and Planning.

FY 19 budget includes $6 million for travel to the Annual Meetings in Indonesia.