Developing Countries
U.S. Financing for Multilateral Debt Relief Initiative Currently Experiencing a Shortfall Gao ID: GAO-08-888R July 24, 2008A buildup of foreign debt throughout the 1970s and 1980s--combined with low growth, falling commodity prices, and other economic difficulties--left many poor countries with significantly more debt than they could repay. International efforts to provide debt relief to 41 such heavily indebted poor countries have been ongoing for over a decade, and these efforts culminated in the Multilateral Debt Relief Initiative (MDRI), which was announced in 2005. MDRI eliminates eligible debt that countries owe to four international financial institutions--the World Bank's International Development Association (IDA), the International Monetary Fund (IMF), the African Development Bank's African Development Fund (ADF), and the Inter-American Development Bank (IaDB). To receive MDRI debt relief, countries must first complete the Heavily Indebted Poor Countries (HIPC) Initiative, which the World Bank and IMF created in 1996 to relieve the debt burden of poor countries. In response to concerns over the continuing vulnerability of these countries, the World Bank and IMF enhanced the initiative to provide additional debt relief in 1999. Recognizing that recipient countries needed further assistance, MDRI was created to help accelerate countries' progress toward achieving the United Nations Millennium Development Goals. Of the 41 eligible countries, 23 countries have received debt relief under both the MDRI and HIPC Initiatives, and another 10 countries are receiving debt relief under just the HIPC Initiative. Donor governments (including the U.S. government) have agreed to help fund multilateral debt relief. Donor governments and each institution agree to the amount of MDRI costs each donor is to fund. To fund MDRI, governments may (1) provide funding in addition to their regular contributions or replenishments to the institutions, (2) provide their regular contributions early and generate credits through an approach known as early encashment, or (3) do both. If a government uses these early encashment credits to fully fund its share of MDRI, it is not required to provide additional funding for MDRI. The U.S. Department of the Treasury (Treasury) is currently using early encashment to fund the U.S. MDRI commitment. If the U.S. government provides full funding for IDA and ADF, then the early encashment approach will generate sufficient funding to cover MDRI during the current replenishment periods. However, in past replenishments, the U.S. government has not fully funded its replenishment contributions to international financial institutions on time, resulting in arrears to IDA and ADF totaling more than $400 million as of the end of fiscal year 2007. We have previously reviewed the HIPC Initiative and other debt-related issues. In response to a Congressional request for this report, GAO (1) estimated the overall cost of MDRI for four international financial institutions (IDA, IMF, ADF, and IaDB), and (2) evaluated the United States' approach to funding its share of MDRI costs.
We estimate that IDA, IMF, ADF, and IaDB will provide, in present value dollars, almost $29 billion in MDRI debt relief for 41 countries over the next several decades, with the U.S. government contributing about 15 percent of this amount. IDA is to provide the most debt relief, accounting for about $18.5 billion or about 64 percent, of the total. IMF is to provide about $4 billion in MDRI debt relief, and ADF and IaDB are to provide about $3.7 billion and $2.4 billion, respectively. As of the end of 2007, the 23 countries that were eligible for MDRI had realized about $1.7 billion (6 percent) of total planned debt relief from the four international financial institutions. The amount of debt relief realized to date is small compared to the total planned amount of MDRI debt relief because MDRI has only been operational since 2006 and because countries will only realize benefits over the next several decades as annual debt obligations that were irrevocably cancelled would have come due. Donor governments have agreed to fully fund MDRI debt relief on a "dollar-for-dollar" basis to IDA and ADF. We project that the U.S. government will provide about $3.8 billion to fund IDA MDRI costs and over $400 million for ADF MDRI debt relief, which represents about 19 percent of MDRI debt relief provided by these two institutions and almost 15 percent of all MDRI debt relief provided. Based on our projections, Treasury's early encashment approach does not fully fund the U.S. share of IDA MDRI costs, and may not fully fund the U.S. share of ADF MDRI costs by 2013. We project that the U.S. government will face a shortfall of approximately $142 million in its existing IDA MDRI commitments by 2009 if it does not clear $152 million of accumulated payments not yet provided to IDA during the current replenishment period. Based on our assumptions about the growth of future U.S. commitments, and if the U.S. government fully funds its future IDA replenishment contributions and continues to use only early encashment, it could experience an IDA MDRI shortfall of $108 million by 2014. This shortfall would begin to decrease by 2026 as U.S. MDRI commitments begin to decline. By 2044, when all IDA MDRI loans are expected to have expired, we project that the U.S. government would have generated a surplus in that replenishment period. In addition, we project that the U.S. government would face a shortfall to ADF for its MDRI commitment by 2013 that would increase until 2025 when, as with IDA, it would begin to decrease. By 2054, when all ADF MDRI loans are expected to have expired, we project that the U.S. government would have generated a surplus in that replenishment period. If the U.S. government does not pay its future contributions to IDA and ADF in full and on time, projected shortfalls in its IDA and ADF MDRI commitments could increase further. To offset these shortfalls, Treasury may need to request new appropriations, accelerate the early encashment schedule, or do both.
GAO-08-888R, Developing Countries: U.S. Financing for Multilateral Debt Relief Initiative Currently Experiencing a Shortfall
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GAO-08-888R:
United States Government Accountability Office:
Washington, DC 20548:
July 24, 2008:
Congressional Requesters:
Subject: Developing Countries: U.S. Financing for Multilateral Debt
Relief Initiative Currently Experiencing a Shortfall:
A buildup of foreign debt throughout the 1970s and 1980s--combined with
low growth, falling commodity prices, and other economic difficulties-
-left many poor countries with significantly more debt than they could
repay. International efforts to provide debt relief to 41 such heavily
indebted poor countries have been ongoing for over a decade, and these
efforts culminated in the Multilateral Debt Relief Initiative (MDRI),
which was announced in 2005. MDRI eliminates eligible debt that
countries owe to four international financial institutions--the World
Bank's International Development Association (IDA), the International
Monetary Fund (IMF), the African Development Bank's African Development
Fund (ADF), and the Inter-American Development Bank (IaDB).[Footnote 1]
To receive MDRI debt relief, countries must first complete the Heavily
Indebted Poor Countries (HIPC) Initiative, which the World Bank and IMF
created in 1996 to relieve the debt burden of poor countries. In
response to concerns over the continuing vulnerability of these
countries, the World Bank and IMF enhanced the initiative to provide
additional debt relief in 1999. Recognizing that recipient countries
needed further assistance, MDRI was created to help accelerate
countries' progress toward achieving the United Nations Millennium
Development Goals.[Footnote 2] Of the 41 eligible countries, 23
countries have received debt relief under both the MDRI and HIPC
Initiatives, and another 10 countries are receiving debt relief under
just the HIPC Initiative.
Donor governments (including the U.S. government) have agreed to help
fund multilateral debt relief. Donor governments and each institution
agree to the amount of MDRI costs each donor is to fund.[Footnote 3] To
fund MDRI, governments may (1) provide funding in addition to their
regular contributions or replenishments to the institutions,[Footnote
4] (2) provide their regular contributions early and generate credits
through an approach known as early encashment,[Footnote 5] or (3) do
both. If a government uses these early encashment credits to fully fund
its share of MDRI, it is not required to provide additional funding for
MDRI. The U.S. Department of the Treasury (Treasury) is currently using
early encashment to fund the U.S. MDRI commitment. If the U.S.
government provides full funding for IDA and ADF, then the early
encashment approach will generate sufficient funding to cover MDRI
during the current replenishment periods. However, in past
replenishments, the U.S. government has not fully funded its
replenishment contributions to international financial institutions on
time, resulting in arrears to IDA and ADF totaling more than $400
million as of the end of fiscal year 2007.
We have previously reviewed the HIPC Initiative and other debt-related
issues.[Footnote 6] In response to your request for this report, we (1)
estimated the overall cost of MDRI for four international financial
institutions (IDA, IMF, ADF, and IaDB), and (2) evaluated the United
States' approach to funding its share of MDRI costs. This is the first
of two products we plan to issue in response to your interest in debt
relief for poor countries. We plan to issue a report in early 2009 that
will address financing for HIPC and MDRI, resources available to
countries for spending on poverty-reducing activities, and tools to
promote debt sustainability. Our 2009 report will provide details
regarding debt relief provided under the HIPC Initiative, the U.S.
contribution to this effort, and past and present HIPC Initiative
funding tools.
To estimate the overall cost of MDRI, we compiled and analyzed data
from the October 2007 IMF and World Bank report Heavily Indebted Poor
Countries (HIPC) Initiative and Multilateral Debt Relief Initiative
(MDRI)--Status of Implementation. We supplemented this data with
information from documents provided by Treasury and the U.S. Executive
Director (USED) offices at the international financial institutions. To
identify U.S. contributions to MDRI costs, we reviewed data derived
from documents provided by Treasury and the World Bank and ADF, since
the U.S. government is helping to fund debt relief from these two
institutions. To evaluate the United States' approach to funding its
IDA and ADF MDRI costs, we reviewed data derived from Treasury, World
Bank, and ADF documents. We estimated future total U.S. commitments in
each IDA and ADF replenishment period and then used this amount in a
simulation model of the U.S. payment schedule in order to estimate the
amount of early payment credits that would be earned annually if
Treasury continued to use the early encashment approach. We compared
the estimated credits earned for fiscal years 2005 through 2054 to the
estimated U.S. MDRI commitments over the same period to determine if
credits earned would be sufficient to fund these commitments. All
figures provided in this report are expressed in end-2007 present value
dollars unless otherwise noted.[Footnote 7] We assessed the reliability
of the data analyzed and found the data to be sufficiently reliable for
the purposes of this report.
We conducted this performance audit from December 2007 through July
2008 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives. (See
enclosure I for more detailed information regarding our scope and
methodology.)
Results in Brief:
We estimate that IDA, IMF, ADF, and IaDB will provide, in present value
dollars, almost $29 billion in MDRI debt relief for 41 countries over
the next several decades, with the U.S. government contributing about
15 percent of this amount.[Footnote 8] IDA is to provide the most debt
relief, accounting for about $18.5 billion or about 64 percent, of the
total. IMF is to provide about $4 billion in MDRI debt relief, and ADF
and IaDB are to provide about $3.7 billion and $2.4 billion,
respectively.[Footnote 9] As of the end of 2007, the 23 countries that
were eligible for MDRI had realized about $1.7 billion (6 percent) of
total planned debt relief from the four international financial
institutions. The amount of debt relief realized to date is small
compared to the total planned amount of MDRI debt relief because MDRI
has only been operational since 2006 and because countries will only
realize benefits over the next several decades as annual debt
obligations that were irrevocably cancelled would have come due. Donor
governments have agreed to fully fund MDRI debt relief on a "dollar-
for-dollar" basis to IDA and ADF.[Footnote 10] We project that the U.S.
government will provide about $3.8 billion to fund IDA MDRI costs and
over $400 million for ADF MDRI debt relief, which represents about 19
percent of MDRI debt relief provided by these two institutions and
almost 15 percent of all MDRI debt relief provided.[Footnote 11]
Based on our projections, Treasury's early encashment approach does not
fully fund the U.S. share of IDA MDRI costs, and may not fully fund the
U.S. share of ADF MDRI costs by 2013. We project that the U.S.
government will face a shortfall of approximately $142 million in its
existing IDA MDRI commitments by 2009 if it does not clear $152 million
of accumulated payments not yet provided to IDA during the current
replenishment period.[Footnote 12] Based on our assumptions about the
growth of future U.S. commitments, and if the U.S. government fully
funds its future IDA replenishment contributions and continues to use
only early encashment, it could experience an IDA MDRI shortfall of
$108 million by 2014. This shortfall would begin to decrease by 2026 as
U.S. MDRI commitments begin to decline. By 2044, when all IDA MDRI
loans are expected to have expired, we project that the U.S. government
would have generated a surplus in that replenishment period. In
addition, we project that the U.S. government would face a shortfall to
ADF for its MDRI commitment by 2013 that would increase until 2025
when, as with IDA, it would begin to decrease. By 2054, when all ADF
MDRI loans are expected to have expired, we project that the U.S.
government would have generated a surplus in that replenishment period.
If the U.S. government does not pay its future contributions to IDA and
ADF in full and on time, projected shortfalls in its IDA and ADF MDRI
commitments could increase further. To offset these shortfalls,
Treasury may need to request new appropriations, accelerate the early
encashment schedule, or do both.
Background:
MDRI expands upon the HIPC Initiative and represents the most recent
effort to provide debt relief to heavily indebted poor countries. To
receive MDRI debt relief, a country must meet all HIPC Initiative
criteria. At a country's "decision point," IDA and IMF use certain
criteria[Footnote 13] to determine whether a country qualifies for HIPC
Initiative debt relief. If a country is determined to qualify, it can
begin to receive interim HIPC debt relief. Subsequently, at the
"completion point," when IDA and IMF determine that the country has met
additional criteria,[Footnote 14] the country can begin to receive full
and irrevocable HIPC debt relief as well as additional debt relief
under MDRI. As of June 2008, of the 41 countries that may benefit from
debt relief efforts, 23 have reached the completion point,[Footnote 15]
and 10 more have reached the decision point.[Footnote 16] An additional
eight countries are considered "predecision point" countries and have
not yet qualified for debt relief.[Footnote 17] In addition, IMF has
determined that it will provide MDRI debt relief to member countries
with debt outstanding to IMF and a per capita income below $380 per
year that do not otherwise qualify for debt relief.[Footnote 18]
IDA, IMF, ADF, and IaDB Are Estimated to Provide almost $29 Billion in
MDRI Debt Relief:
We estimate that IDA, IMF, ADF, and IaDB will provide almost $29
billion in MDRI debt relief to eligible countries over the next several
decades, with IDA providing almost two-thirds of this amount. As of the
end of 2007, countries that had met program eligibility requirements
had realized about $1.7 billion in debt relief, or almost 6 percent of
the estimated total amount, from the four international financial
institutions. Donor governments have agreed to provide funding on a
dollar-for-dollar basis to IDA and ADF to fully cover their MDRI costs.
We project that the U.S. government will provide about $3.8 billion to
fund IDA debt relief costs and about $400 million for ADF debt relief,
which represents about 19 percent of total IDA and ADF MDRI debt relief
and almost 15 percent of all MDRI debt relief.
Four International Financial Institutions Are Estimated to Provide
almost $29 Billion in MDRI Debt Relief to Eligible Countries; Countries
Have Already Realized $1.7 Billion:
We estimate that IDA, IMF, ADF, and IaDB will provide, in present value
dollars, a total of almost $29 billion in debt relief under MDRI over
the next several decades. IDA is to provide about 64 percent, or about
$18.5 billion, of the total amount. IMF is to provide the second-
largest share, at approximately $4 billion. ADF is to provide about
$3.7 billion, and IaDB, $2.4 billion (see fig. 1).
Figure 1: Four International Financial Institutions' Shares of $29
Billion in MDRI Debt Relief:
[See PDF for image]
This figure is a pie-chart depicting the following data:
Four International Financial Institutions' Shares of $29 Billion in
MDRI Debt Relief:
IDA: $18.5 billion;
IMF: $4.0 billion;
ADF: $3.7 billion;
IaDB: $2.4 billion.
Source: GAO analysis of World Bank and IMF documents.
Notes:
(1) Amounts do not add to precisely $29 billion due to rounding.
(2) This amount includes IMF debt relief provided for Cambodia and
Tajikistan.
(3) Amounts are in billions of end-2007 present value dollars.
[End of figure]
The total nominal dollar amount of MDRI debt relief is about $55
billion, with IDA accounting for $37.6 billion, IMF providing $4.3
billion, ADF providing $8.4 billion, and IaDB providing $4.4 billion.
By the end of 2007, the 23 countries that had reached the completion
point had realized debt relief of almost $1.7 billion (6 percent of
total planned debt relief) as their cancelled debt payments came due.
IMF provided over half, or about $940 million of MDRI debt relief,
while IDA provided over $560 million. ADF and IaDB provided $82 million
and $90 million, respectively, in debt relief.
Because MDRI has only been operational since 2006, the amount of annual
loan payments that would otherwise have already been due if the debts
had not been forgiven under MDRI has been small compared to the overall
amount of debt that has been cancelled. Furthermore, debt payments were
originally structured so that countries were scheduled to make payments
in limited amounts over many years. Therefore, although the four
international institutions have already irrevocably cancelled all
eligible debt, countries will only realize benefits as annual debt
obligations would have come due over the next several decades.
Donor Governments to Pay IDA and ADF Debt Relief under MDRI:
Governments that provide funding to the international financial
institutions have agreed to fund MDRI costs. IDA and ADF will receive
such support, and donor governments have agreed to provide funding that
will cover all MDRI costs on a dollar-for-dollar basis, in addition to
their regular contributions to these two institutions. IMF and IaDB are
currently using existing internal resources to fund MDRI and have not
requested donor support. IMF has placed internal resources, including
the profits from its 1999 and 2000 off-market gold sales, into trust
funds to provide funding for MDRI debt relief. In order to obtain
sufficient internal resources to fund debt relief, IaDB created a
blended loan product made up of concessional funds and nonconcessional
funds, according to Treasury officials. This blended product allows
IaDB to continue to provide concessional lending while allowing
borrowing countries to meet the concessional borrowing requirements set
by IMF. Furthermore, Treasury officials noted that IaDB took other
measures to obtain additional resources, such as canceling undisbursed
portions of nonperforming concessional loans, to gain access to
additional funding.
We project that the U.S. government will provide, in present value
terms, about $3.8 billion to fund IDA MDRI costs and over $400 million
for ADF MDRI costs. Our total projected U.S. contribution of $4.2
billion is about 19 percent of the $22.2 billion in planned debt relief
for these two institutions and is to be provided over multiple decades
to IDA and ADF.[Footnote 19] The U.S. contribution represents almost 15
percent of total MDRI debt relief to be provided by all four
institutions.
U.S. Government Currently Has a Funding Shortfall for IDA MDRI and
Could Experience Future Shortfalls:
Treasury currently plans to fund U.S. commitments for MDRI by paying
its regular contributions to IDA and ADF early. However, under this
early encashment approach, the United States may have a $142 million
shortfall in IDA MDRI obligations by 2009 and may not fully fund its
share of ADF MDRI costs by 2013. The IDA shortfall is due to the U.S.
government not fully funding its commitments to IDA, thus limiting its
ability to earn sufficient credits to meet its MDRI commitments. Based
on our projections, even if the U.S. government funds its future IDA
and ADF replenishment contributions in full and on time and continues
to use early encashment, MDRI shortfalls for both institutions could
continue for over 20 years. If the U.S. government does not pay its IDA
and ADF contributions in full and on time, its projected shortfalls in
MDRI commitments would increase further. To offset these shortfalls,
Treasury may need to request new appropriations, accelerate the early
encashment schedule, or do both.
Treasury Currently Funds MDRI Commitments by Paying Regular
Contributions Early:
Treasury currently funds U.S. commitments to MDRI using credits earned
from paying its regular replenishment contributions to IDA and ADF
early, through a process known as accelerated or early encashment.
Although one replenishment funds 3 years of commitments for IDA and ADF
operations, governments may pay their share of a replenishment over a
longer period of time. For example, the standard payment (or
encashment) schedule allows governments to pay their share of the
current IDA replenishment (known as IDA14) over 9 years and the current
ADF replenishment (known as ADF-10) over 10 years.[Footnote 20] To fund
its MDRI commitments, Treasury decided to pay the U.S. share of its
replenishments over 4 years, rather than over the standard 9 to 10
years, beginning with IDA14 and ADF-10.[Footnote 21] Based on the
methodology agreed upon by Treasury and IDA, an encashment credit is
earned if the present value of the cumulative early encashment payment
exceeds the present value of the cumulative standard encashment amount
due in a replenishment period.[Footnote 22] Treasury expects the
credits earned from early encashment to fully fund U.S. MDRI
commitments for IDA14 ($232 million), IDA15 ($356 million), ADF-10 ($15
million), and ADF-11 ($26 million).[Footnote 23] Treasury committed to
financing MDRI over its full implementation period but has not
identified a financing approach that extends beyond these replenishment
periods. Treasury told us that financing future U.S. MDRI commitments
through early encashment or other means would require new discussions
with the Office of Management and Budget and possibly IDA and ADF.
Current IDA MDRI Shortfall Due to U.S. Payments Not Provided to IDA:
During the current IDA replenishment period (IDA14), which covers
fiscal years 2006 through 2008, the U.S. government took several
actions that have resulted in smaller payments to IDA than planned,
thus contributing to its current shortfall to IDA for MDRI. A
rescission of 1 percent reduced the fiscal year 2006 enacted
appropriation of $950 million (the full amount pledged by the U.S.
government) for IDA to $940.5 million.[Footnote 24] Additionally, the
fiscal year 2006 appropriations law contained a requirement that 20
percent of the appropriated funds to IDA be withheld from disbursement
until Treasury could certify that the World Bank had met anticorruption
provisions related to procurement.[Footnote 25] Since Treasury could
not certify that the World Bank had met all the provisions, the
subsequent fiscal year 2007 continuing resolution rescinded $31.35
million from the fiscal year 2006 appropriation.[Footnote 26] The total
fiscal year 2006 appropriation therefore totaled $909.15 million,
$40.85 million less than IDA would consider due for that year. For
fiscal year 2007, the foreign operations appropriation passed under a
continuing resolution and set IDA funding at the fiscal year 2006 post
rescission level, which was $940.5 million, adding $9.5 million to the
arrears owed to IDA.[Footnote 27] The fiscal year 2008 appropriations
law provides $950 million to IDA but includes a rescission of $7.7
million. Together, these three amounts totaled about $58 million in
reduced IDA funding. In addition, the 2008 appropriation law contains
certain transparency and anticorruption provisions that the World Bank
must meet or 20 percent of the funds must be withheld from
disbursement.[Footnote 28] Under its current obligations, Treasury is
withholding about $94 million (10 percent) from disbursement until the
World Bank meets certain performance requirements. As a result,
Treasury has not provided a total of about $152 million to IDA during
the current replenishment period. We project a U.S. MDRI shortfall to
IDA of about $142 million by July 2009[Footnote 29] if this funding is
not provided.[Footnote 30]
Credits Earned from Early Payments Are Insufficient to Fully Fund
Future U.S. MDRI Commitments:
If the United States provides its future payments to IDA in full and on
time and only uses early encashment to finance MDRI, we project that
credits earned from early encashment would be insufficient to fully
fund U.S. MDRI obligations to IDA by 2014 and to ADF by 2013.
Shortfalls to IDA would increase with each replenishment period, rising
to $288 million by 2023, as shown in figure 2.[Footnote 31]
Figure 2: Credits Earned from U.S. Early Encashment for IDA14 through
IDA26:
[See PDF for image]
This figure is a line graph depicting the following data:
Replenishment: IDA 14, 2006-2008;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
-$142.
Replenishment: IDA 15, 2009-2011;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars: $1.
Replenishment: IDA 16, 2012-2014;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
-$108.
Replenishment: IDA 17, 2015-2017;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
-$149.
Replenishment: IDA 18, 2018-2020;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
-$170.
Replenishment: IDA 19, 2021-2023;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
-$288;
Replenishment: IDA 20, 2024-2026;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
-$269.
Replenishment: IDA 21, 2027-2029;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
-$214.
Replenishment: IDA 22, 2030-2032;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
-$108.
Replenishment: IDA 23, 2033-2035;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
%1.
Replenishment: IDA 24, 2036-2038;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
$92.
Replenishment: IDA 25, 2039-2041;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
$143.
Replenishment: IDA 26, 2042-2044;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
$168.
Source: GAO analysis of Treasury and IDA data.
Notes:
(1) To project whether credits earned from early encashment would fully
fund annual U.S. MDRI commitments, we used conservative assumptions
regarding the growth rate of future U.S. replenishment obligations to
IDA and assumed the U.S. government would continue meeting its funding
obligations in full and on time under an early encashment schedule. We
assumed that U.S. IDA commitments would grow at the same rate as
corresponding projected total IDA commitments for IDA16 through IDA20.
For the remaining replenishments, since projected total IDA commitments
were not available, we estimated an average increase in nominal dollar
replenishment of about 7.1 percent, the average growth rate of the
prior five IDA commitments and projected U.S. IDA commitments for IDA21
through IDA26. The discount rate is 3.5 percent for IDA14 and 4 percent
for all other replenishments. Treasury's funding approach for IDA14
involves a percentage breakdown of 80 percent-20 percent for each of
the 3 years of replenishment funding. Under this approach, 80 percent
of 1 year's funding is provided in the first year of the early
encashment schedule and 20 percent in the second year. Under this
funding stream, it will take 4 years to fully fund the United States' 3-
year replenishment contribution to IDA. For IDA15 and all future
replenishment periods, the funding approach accelerates further to 90
percent-10 percent over 4 years.
(2) Treasury staff have emphasized that total IDA requirements could
grow more slowly or decrease as countries graduate from IDA assistance
or other events reduce IDA needs. This would have an impact on the
amount of early encashment credits generated and could lead to higher
level of shortfalls or reduction in surpluses.
(3) Amounts are in millions of end-2007 present value U.S. dollars.
[End of figure]
The projected shortfalls in a replenishment period would begin to
decrease by 2026 as U.S. MDRI obligations started to decline (based on
the established contribution schedule). The United States would
generate a surplus of $92 million during the 2036-2038 replenishment
period. Furthermore, by 2044 (when all relevant IDA loans are expected
to have expired for eligible countries), we project that the U.S.
government would have generated a surplus of almost $168 million in the
final replenishment period covering MDRI.
Similarly, we project that the United States would experience a
shortfall to ADF by 2013, if it continues to use an early encashment
approach, although its $22 million accumulated surplus from previous
replenishment periods could offset the shortfall. Nonetheless, the
shortfalls would increase during subsequent replenishment periods,
rising to almost $19 million by 2025, as shown in figure 3.[Footnote
32]
Figure 3: Credits Earned from U.S. Early Encashment for ADF-10 through
ADF-26:
[See PDF for image]
This figure is a line graph depicting the following data:
Replenishment: ADF-10, 2005-2007;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
$9.
Replenishment: ADF-11, 2008-2010;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
$13.
Replenishment: ADF-12, 2011-2013;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
-$9.
Replenishment: ADF-13, 2014-2016;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
-$15.
Replenishment: ADF-14, 2017-2019;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
-$16.
Replenishment: ADF-15, 2020-2022;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
-$17.
Replenishment: ADF-16, 2023-2025;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
-$19.
Replenishment: ADF-17, 2026-2028;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
-$17.
Replenishment: ADF-18, 2029-2031;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
-$11.
Replenishment: ADF-19, 2032-2034;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
-$7.
Replenishment: ADF-20, 2035-2037;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
-$3.
Replenishment: ADF-21, 2038-2040;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
$2.
Replenishment: ADF-22, 2041-2043;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
$6.
Replenishment: ADF-23, 2044-2046;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
$8.
Replenishment: ADF-24, 2047-2049;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
$9.
Replenishment: ADF-25, 2050-2052;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
$10.
Replenishment: ADF-26, 2053-2055;
Surplus/Shortfall in millions of end-2007 present vaue U.S. dollars:
$10.
Source: GAO analysis of Treasury and IDA data.
Notes:
(1) To project whether credits earned from early encashment would fully
fund annual U.S. MDRI commitments, we used conservative assumptions
regarding the growth rate of future U.S. obligations to ADF and assumed
the U.S. government would continue meeting its funding obligations in
full and on time under an early encashment schedule. For ADF, we
estimated an average increase in nominal dollar replenishment of 6.1
percent, and used it to project U.S. ADF commitments from ADF-12
through ADF-26. The discount rate is 3.1 percent for ADF-10 and 4.69
percent for all other replenishments. The funding approach for ADF-10
and ADF-11 involves a percentage breakdown of 60 percent-40 percent for
each of the 3 years of replenishment funding. Under this approach, 60
percent of 1 year's funding is provided in the first year of the early
encashment schedule and 40 percent in the second year. Under this
funding stream, it will take 4 years to fully fund the United States' 3-
year replenishment contribution to ADF.
(2) Treasury staff have emphasized that total ADF requirements could
grow more slowly or decrease as countries graduate from ADF assistance
or other events reduce ADF needs. This would have an impact on the
amount of early encashment credits generated, and could lead to higher
level of shortfalls or reduction in surpluses.
(3) Amounts are in millions of end-2007 present value U.S. dollars.
[End of figure]
The projected shortfalls in a replenishment period would then begin to
decrease as U.S. MDRI obligations start to decline (based on the
established contribution schedule). By 2040, the U.S. MDRI obligation
shortfalls would end and, by 2054 (when all relevant ADF loans are
expected to have expired for eligible countries), we project that the
U.S. government would have generated a surplus of approximately $10
million during the final replenishment period covering MDRI.
The United States' Financing Shortfall for MDRI Could Increase If It
Does Not Meet the Early Encashment Schedule:
If the United States does not fully fund its early encashment schedules
for IDA and ADF, its projected shortfalls for MDRI could increase
further. For example, if the U.S. government were to pay 5 percent less
than its annual committed amounts for IDA15, its IDA MDRI shortfall
would be $176 million; if rescissions were to continue and exceed 8.8
percent of the annual committed amount there would be no encashment
credits generated to fund IDA MDRI obligations for that replenishment
period. If the U.S. government were to pay 5 percent less than its
annual committed amounts for ADF-11, its ADF MDRI surplus would be
reduced to $11 million by 2010.[Footnote 33] To offset these
shortfalls, Treasury may need to request new appropriations, accelerate
the early encashment schedule, or do both.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Department of the Treasury.
In its written comments, Treasury said it appreciated GAO's analysis of
and contribution to this issue. Treasury also emphasized the analysis
showing that continued arrears to the development banks jeopardize the
ability of the United States to meet its commitments to debt relief.
Treasury made two technical points stressing that (1) U.S. commitments
to MDRI have been made in nominal dollars, and (2) U.S. contributions
to IDA and ADF are negotiated on a replenishment-by-replenishment
basis. In our report, we provide amounts in both present value and
nominal value dollars where relevant. Since donor financing for MDRI
debt relief will be provided over a 50-year period, we found it useful
to take into consideration the time value of money and express costs in
comparable present value dollars. We also note that contributions are
negotiated for each replenishment. Treasury's letter is reprinted in
enclosure II. Treasury staff also provided us with technical comments
that we incorporated into the report as appropriate.
We are sending copies of this report to other interested Members of
Congress, the Secretary of the Treasury, the World Bank, IMF, AfDB, and
IaDB. We will also provide copies to others on request. In addition,
the report will be available at no charge on the GAO Web site at
[hyperlink, http://www.gao.gov]. If you or your staffs have any
questions about this report, please contact me at (202) 512-9601 or
melitot@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. GAO staff who made major contributions to this report include
Cheryl Goodman, Assistant Director; Leslie Holen; Bruce Kutnick;
Farahnaaz Khakoo; and Debbie Chung.
Signed by:
Thomas Melito:
Director, International Affairs and Trade:
List of Requesters:
The Honorable Joseph R. Biden, Jr.
Chairman:
Committee on Foreign Relations:
United States Senate:
The Honorable Barney Frank:
Chairman:
The Honorable Spencer Bachus:
Ranking Member:
Committee on Financial Services:
House of Representatives:
The Honorable Luis Gutierrez:
Chairman:
Subcommittee on Domestic and International:
Monetary Policy, Trade, and Technology:
Committee on Financial Services:
House of Representatives:
The Honorable Donald Payne:
Chairman:
Subcommittee on Africa and Global Health:
Committee on Foreign Affairs:
House of Representatives:
The Honorable Maxine Waters:
House of Representatives:
The Honorable Barbara Lee:
House of Representatives:
Enclosure I: Objectives, Scope and Methodology:
Our objectives were to (1) estimate the overall cost of the
Multilateral Debt Relief Initiative (MDRI) for four international
financial institutions: the World Bank's International Development
Association (IDA), the International Monetary Fund (IMF), the African
Development Bank's African Development Fund (ADF), and the Inter-
American Development Bank (IaDB); and (2) evaluate the United States'
approach to funding its share of MDRI costs.
To estimate the overall cost of MDRI, we compiled and analyzed data
from the October 2007 IMF and World Bank report Heavily Indebted Poor
Countries (HIPC) Initiative and Multilateral Debt Relief Initiative
(MDRI)--Status of Implementation. We also incorporated data from the
October 2007 International Development Association Resource
Mobilization report Multilateral Debt Relief Initiative (MDRI): Second
Update on Debt Relief Costs and Donor Financing, as of September 30,
2007. We supplemented these data with information from documents
provided by the U.S. Department of the Treasury (Treasury) or the U.S.
Executive Director's offices at the international financial
institutions. Since debt relief will be delivered over 50 years, we are
expressing all costs in end-2007 present value dollars. This process
takes into consideration the time value of money and uses a discount
rate of 4.6 percent. We used this discount rate because World Bank and
IMF documents have used this rate for similar calculations. To estimate
the U.S. contribution to MDRI costs, we reviewed data derived from
documentation provided by Treasury as well as the World Bank and ADF
since the U.S. government is helping to fund debt relief from these two
institutions. Total U.S. costs are estimated by applying the projected
U.S. share of total donor costs (20.3 percent for IDA and 11.8 percent
for ADF) and are expressed in end-2007 present value dollars. We
assessed the reliability of data analyzed and found the data to be
sufficiently reliable for purposes of this report.
To evaluate the United States' approach to funding these costs, we
reviewed data derived from World Bank and ADF documentation provided by
Treasury. In order to estimate credits earned from early U.S. payments,
we needed to know the total U.S. replenishment commitment to IDA and
ADF for this period; however, data on total U.S. commitments are not
available beyond fiscal year 2011. Therefore, we estimated future total
U.S. IDA commitments by applying the projected growth rate of total IDA
commitments during the same period, assuming that they both grow at the
same rate. However, total IDA commitment estimates were not available
beyond 2026 (replenishment period IDA20); therefore, for all future
replenishment periods we applied a projected growth rate of 7.1
percent, the average increase in the nominal dollar replenishment of
IDA16 through IDA20. We assumed that future U.S. ADF commitments would
remain constant in real terms to that of ADF-12. We estimated future
total U.S. ADF commitments would increase by 6.1 percent in every
replenishment period.[Footnote 34] After estimating the total U.S.
commitment to IDA and ADF, we used this amount in a simulation model of
the U.S. payment schedule in order to determine the amount of credits
that would be earned during each replenishment period. In estimating
the credits, we used a 3.5 percent discount rate for IDA14 and 4
percent for all other IDA replenishments, and a 3.1 percent discount
rate for ADF-10 and 4.69 percent for all other ADF replenishments.
Treasury provided us with the discount rates for IDA14 and IDA15, as
well as ADF-10 and ADF-11. For future replenishments, we used the
discount rates from the most current models (IDA15 and ADF-11).
Treasury and IDA agreed upon an encashment method, whereby encashment
credits are calculated by multiplying the credit face value percentage
by the actual total U.S. payment for that replenishment period. The
credit face value is equal to the difference between the present value
of the total actual early encashment payments and the present value of
the total standard schedule payment amount, divided by the present
value of the total standard schedule payment amount. Treasury and ADF
have agreed upon a similar method for calculating encashment credits
with a subtle difference in the calculation of the credit face value.
The credit face value is equal to the difference between the present
value of the annual actual U.S. payment expressed in percentages of the
total actual U.S. payment and the present value of the annual regular
encashment schedule expressed in percentages of the total commitment,
divided by the present value of the annual regular encashment schedule
expressed in percentages of the total commitment. We compared the
credits earned from fiscal years 2006 through 2044 (for IDA) or through
2054 (for ADF) to the U.S. MDRI commitment over the same period to
determine if credits earned are sufficient to fund U.S. MDRI costs.
According to Treasury, encashment credits would be more than
proportionately reduced if there are arrears in payments to IDA using
this methodology. Additionally, we estimated future credits earned
under a 5 percent rescission in the early encashment payments during
IDA15 and ADF-11, and for IDA15 we estimated the level of rescission,
which will lead to no early encashment credits. We assumed that for all
other replenishment periods, the U.S. government fully funds its
commitments to the institutions. The U.S. model was developed by the
World Bank and provided by Treasury and the USED offices at the World
Bank and ADF. All costs for these simulations are expressed in end-2007
present value dollars. We assessed the reliability of data analyzed and
found the data to be sufficiently reliable for purpose of this report.
We conducted this performance audit from December 2007 through July
2008 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
[End of enclosure]
Enclosure II: Comments from the Department of the Treasury:
Department Of The Treasury:
Washington, D.C. 20220:
July 10, 2008:
Thomas Melito:
Director, International Affairs and Trade:
Government Accountability Office:
441 G Street N.W.
Washington, DC 20548:
Dear Mr. Melito:
Thank you for the opportunity to comment on your recent report
regarding U.S. financing for the Multilateral Debt Relief Initiative.
The United States has consistently provided strong international
leadership on debt relief for the world's most heavily-indebted poor
countries. In 2005, with strong bipartisan congressional support, the
Administration initiated and negotiated the landmark Multilateral Debt
Relief Initiative (MDRI), and continued this work through a related
agreement in the Inter-American Development Bank. However, for the
United States to provide credible leadership -- both on debt relief and
more broadly within the international financial institutions -- we must
fulfill our commitments to help finance these initiatives. As this
report describes, continued arrears to the development banks jeopardize
the ability of the United States to meet its commitments to debt relief
We agree with your assessment that the risk of a near-term shortfall is
greatest at the World Bank, where we anticipate the United States will
have $385 million in arrears to the International Development
Association (IDA) and up to $94 million in withheld payments by the end
of fiscal year 2008.
The findings of the report illustrate the importance of full funding of
Treasury's budget requests for IDA and the African Development Fund
(AfDF), not only because of the valuable new development assistance
that these institutions provide, but also for the United States to meet
its commitments to help finance debt relief. In fact, our fiscal year
2009 budget request for payment of IDA arrears is specifically targeted
at helping to fulfill our MDRI commitments. However, if the necessary
appropriations are not made, the United States risks falling short on
its commitments to MDRI, less than four years after this landmark
international initiative began.
There are two technical points that we would like to highlight
regarding the report. First, it is important to note that while the
report frequently uses "present value" dollars, U.S. funding
commitments for MDRI are in nominal terms. The United States has
committed to provide $7.6 billion for IDA and $1 billion for AfDF over
four decades in order to help support approximately $55 billion in debt
relief under MDRI. We understand your economic rationale for using
present value terms, but focusing on the nominal amounts is extremely
important as we seek to concretely meet U.S. commitments.
A second point is regarding your assumptions on the growth rates of
U.S. contributions to the IDA and AfDF replenishments. The United
States determines its contributions to IDA and the AfDF on a
replenishment-by-replenishment basis, based on an assessment of the
needs and the policy frameworks in place at the time of replenishment
negotiations (every three years). We realize that you needed to select
certain assumptions in order to produce the long-term projections
contained in this report. However, we must stress that the
replenishment projections should not be viewed as a U.S. commitment or
as prejudicing the outcome of future replenishment negotiations.
We appreciate GAO's analysis and contribution to this issue, and look
forward to continued work with Congress to ensure that the United
States meets its commitments to debt relief.
Sincerely,
Signed by:
Kenneth L. Peel:
Deputy Assistant Secretary:
Development Finance and Debt:
[End of enclosure]
Related GAO Products:
Developing Countries: Challenges in Financing Poor Countries' Economic
Growth and Debt Relief Targets. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-04-688T]. Washington, D.C.: April 20, 2004.
Developing Countries: Achieving Poor Countries' Economic Growth and
Debt Relief Targets Faces Significant Financing Challenges. [hyperlink,
http://www.gao.gov/cgi-bin/getrpt?GAO-04-405]. Washington, D.C.: April
14, 2004.
Developing Countries: Switching Some Multilateral Loans to Grants
Lessens Poor Country Debt Burdens. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-02-593]. Washington, D.C.: April 19, 2002.
Developing Countries: Challenges Confronting Debt Relief and IMF
Lending to Poor Countries. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-01-745T]. Washington, D.C.: May 15, 2001.
Developing Countries: Debt Relief Initiative for Poor Countries Faces
Challenges. [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-00-
161]. Washington, D.C.: June 29, 2000.
Developing Countries: Status of the Heavily Indebted Poor Countries
Debt Relief Initiative. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/NSIAD-98-229]. Washington, D.C.: September 30, 1998.
Footnotes:
[1] IaDB was not included in MDRI but decided in 2007 to provide
equivalent debt relief under a similar initiative. IaDB's Fund for
Special Operations is the entity responsible for providing debt relief.
For the purpose of this report, references to MDRI also include the
IaDB initiative. IMF, ADF, and IaDB plan to cancel all eligible debt
that countries owed to them as of the end of 2004. IDA plans to cancel
all eligible outstanding debt as of the end of 2003.
[2] The United Nations Millennium Development Goals, which have a
target completion date of 2015, are to (1) eradicate extreme poverty
and hunger; (2) achieve universal primary education; (3) promote gender
equality and empower women; (4) reduce child mortality; (5) improve
maternal health; (6) combat HIV/AIDS, malaria, and other diseases; (7)
ensure environmental sustainability; and (8) develop a global
partnership for development.
[3] Treasury officials have noted that the amount of funding each donor
government actually provides may differ from the original estimates due
to changes during MDRI implementation. For example, if fewer countries
receive debt relief than projected in a particular year, MDRI costs
will be lower for that year.
[4] Replenishment refers to periodic contributions by member countries
that are agreed upon by the institution's board of governors to fund
concessional, or below market, lending operations over a specified
period of time, normally every 3 years.
[5] According to Treasury officials, the United States and Japan are
the only donors that use early encashment of their regular
replenishment contributions to pay their share of MDRI-related costs at
the World Bank.
[6] See Related GAO Products at the end of this report. Our previous
work identified funding shortfalls associated with the HIPC Initiative.
[7] The present value of debt is a measure that takes into account the
concessional terms that underlie most of these countries' loans.
Present value debt is defined as the sum of all future debt-service
obligations (interest and principal) on existing debt, discounted at
the market interest rate. The nominal value of the debt is greater than
the present value.
[8] IDA and IaDB loans are repaid over a period of up to 40 years. ADF
and IMF loans are repaid over a period of up to 50 and 10 years,
respectively.
[9] The total nominal dollar amount of planned MDRI debt relief is
almost $55 billion, with IDA accounting for $37.6 billion, IMF
providing $4.3 billion, ADF providing $8.4 billion, and IaDB providing
$4.4 billion. These nominal dollar amounts do not take into
consideration the time value of money.
[10] IMF and IaDB have used internal resources or made program
alterations in order to fund all MDRI costs and, therefore, have not
requested additional funding from donor countries for MDRI.
[11] In nominal dollars, the U.S. government will provide about $7.6
billion and $1 billion for IDA and ADF MDRI costs, respectively, for a
total of $8.6 billion.
[12] The U.S. government has accumulated almost $58 million in arrears
to the current IDA replenishment period, which covers fiscal years 2006
through 2008. Furthermore, under fiscal year 2008 obligations, Treasury
is withholding about $94 million until the World Bank meets certain
transparency and anticorruption requirements contained in U.S. law. If
Treasury is unable to report that the World Bank has met the
performance requirements, U.S. funding not yet provided to IDA could
rise to $152 million. Treasury officials are holding discussions with
the World Bank on meeting the established requirements in fiscal year
2009. According to Treasury officials, while the U.S. government
considers this funding to be "withheld payments," the World Bank
considers it to be "arrears," as these payments are considered part of
the expected U.S. commitment that has not been paid. IDA14 arrears and
withholdings are expressed in nominal dollars.
[13] These criteria are: (1) eligibility only for concessional
financing from the World Bank and IMF, (2) an unsustainable debt
burden, (3) a track record of reform and sound policies, and (4)
development of a poverty reduction strategy paper.
[14] These criteria are: (1) a further track record of good performance
under IMF-and IDA-supported programs, (2) implementation of key reforms
agreed upon at the decision point (known as floating completion point
triggers), and (3) adoption and implementation of the poverty reduction
strategy paper for at least 1 year.
[15] Completion-point countries are Benin, Bolivia, Burkina Faso,
Cameroon, Ethiopia, the Gambia, Ghana, Guyana, Honduras, Madagascar,
Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Sao
Tome and Principe, Senegal, Sierra Leone, Tanzania, Uganda, and Zambia.
[16] Decision-point countries are Afghanistan, Burundi, Central African
Republic, Chad, Republic of Congo, Democratic Republic of the Congo,
Guinea, Guinea-Bissau, Haiti, and Liberia.
[17] Predecision point countries are Comoros, Cote d'Ivoire, Eritrea,
Kyrgyz Republic, Nepal, Somalia, Sudan, and Togo.
[18] Using this criterion, IMF has identified two non-HIPC Initiative
countries, Cambodia and Tajikistan, as eligible for MDRI debt relief.
As of the end of September 2007, IMF had canceled $82 million and $100
million of MDRI-eligible debt to these two countries, respectively.
[19] For IDA MDRI, the U.S. share is 20.3 percent; for ADF MDRI, the
U.S. share is 11.8 percent.
[20] During the 3-year replenishment period, donors can provide their
contributions by depositing promissory notes in three equal
installments, though IDA and ADF withdraw (encash) these funds on a
separate and longer schedule known as the standard encashment schedule.
[21] In previous replenishment periods, Treasury followed a 6-year
encashment schedule.
[22] The United States has an agreement with IDA whereby credits from
early encashment can be estimated on an annual basis; however, credits
can only be realized at the end of each replenishment period. The
surplus can generate credit by earning interest. The interest rate is
the agreed-upon replenishment discount rate, which reflects the income
earned by the international financial institutions as they invest the
surplus funds. In general, the discount rate equals the projected
inflation rate plus the real interest rate.
[23] MDRI commitment amounts are expressed in nominal dollars.
[24] Foreign Operations, Export Financing, and Related Programs
Appropriations Act, fiscal year 2006, Pub. L. No. 109-102, 119 Stat.
2172, 2193 (Nov. 14, 2005); Department of Defense, Emergency
Supplemental Appropriations to Address Hurricanes in the Gulf of
Mexico, and Pandemic Influenza Act, 2006, Pub. L. No. 109-148, sec.
3801, 119 Stat. 2680, 2791 (Dec. 30, 2005). Amounts are expressed in
nominal dollars.
[25] Foreign Operations, Export Financing, and Related Programs
Appropriations Act, fiscal year 2006.
[26] Revised Continuing Appropriations Resolution, 2007, Pub. L. No.
110-5, 121 Stat. 8, 24 (Feb. 15, 2007). Amounts are expressed in
nominal dollars. Treasury noted that Congress withheld these funds from
disbursement but also amended the fiscal year 2006 requirement by
striking the word "certify" and requiring instead that Treasury give a
report to Congress, which was submitted, on the extent to which the
World Bank had completed the anticorruption provisions detailed in the
previous year's appropriations law.
[27] Revised Continuing Appropriations Resolution, fiscal year 2007.
[28] Consolidated Appropriations Act, 2008, Pub. L. No. 110-161, 121
Stat. 1844, 2311, 2352 (Dec. 26, 2007).
[29] Since Treasury has chosen an early encashment schedule that goes
beyond the 3-year replenishment period, the replenishment shortfall or
surplus can accrue outside this 3-year time frame. For IDA14, Treasury
staff confirmed that any shortfall or surplus would be accrued by 2009
rather than 2008. The additional year is a result of the 4-year early
encashment schedule, whereby the U.S. government would still be
encashing a payment in the last year. For all other IDA replenishment
periods, and for ADF as well, there is some uncertainty with regard to
when MDRI shortfalls or surpluses occur. Therefore, throughout this
report we will refer to the MDRI shortfall or surplus as accruing at
the end of the 3-year replenishment period rather than at the end of
the payment period. However, in our calculations we assume that all
future total IDA shortfalls or surpluses accrue by the fourth year, as
in IDA14, and by the fifth year of the ADF early encashment schedule,
unless otherwise noted. Because the U.S. government begins its 4-year
early encashment schedule for ADF in the second year of the
replenishment period, we assume that the total ADF shortfall or surplus
is accrued by the fifth year.
[30] Treasury and the World Bank are currently discussing a fiscal year
2008 congressional requirement to withhold $94 million from the World
Bank. Treasury staff told us that although these provisions are
difficult to implement quickly, they expect some of the provisions to
be met by the World Bank in fiscal year 2009. For fiscal year 2009,
Treasury has requested new appropriations to cover $42 million in
arrears to IDA14. If this amount of funding is provided and if Treasury
reports the World Bank's full compliance with the performance
requirements and pays the full $94 million, the United States'
remaining IDA14 arrears would total $16 million. In this case, the
United States would not earn sufficient encashment credits to fully
finance its MDRI obligations for IDA14 and experience a shortfall of
about $7 million. Treasury and IDA agreed upon an encashment
methodology for IDA14 whereby the United States is expected to fully
fund its IDA commitment of $2.85 billion; otherwise, encashment credits
would be more than proportionately reduced. IDA15 MDRI encashment
credits would be totally eliminated if U.S. replenishment arrears were
to exceed about 9 percent. Alternatively, the ADF has an encashment
method whereby encashment credits are proportionately reduced if the
United States has across the board rescissions.
[31] For IDA, the baseline analysis shown in figure 2 assumes a 90
percent-10 percent funding approach for IDA15 and onwards over a 4-year
period. Under this approach, 90 percent of one year's funding is
provided in the first year and 10 percent in the second year. Even if
Treasury accelerated the early encashment schedule during IDA16 and
subsequent replenishment periods to 100 percent over the 3-year
replenishment period, it would still experience a shortfall of $99
million that would rise to almost $288 million by 2023. The shortfall
accrues on the third year under a 3-year early encashment schedule.
[32] For ADF, the baseline analysis shown in figure 3 assumes a 60
percent-40 percent funding approach for ADF-10 and onwards over a 4-
year period. Even if Treasury accelerated this approach to 80 percent-
20 percent (over 4 years) and then to 100 percent (over 3 years) during
ADF-13 and subsequent replenishment periods, it would still experience
shortfalls of $12 million under the 80 percent-20 percent approach and
$9 million under the 100 percent approach during ADF-13. The shortfalls
would rise by 2025 to almost $17 million under the 80-20 approach and
$15 million under the 100 percent approach. The shortfall accrues on
the fourth year under a 3-year early encashment schedule.
[33] In this scenario, we estimate a 5 percent across the board
rescission of U.S. contributions during IDA15 and ADF-11. In both
cases, we assume all future replenishments periods are fully funded.
[34] ADF assumes that baseline donor contributions will increase with
inflation at the rate of 2 percent annum.
[End of enclosure]
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