The FY 2004 Budget and the Medium-Term Framework
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On April 26, 2003, the Executive Board of the International Monetary Fund (IMF) approved the administrative and capital budgets for FY 2004. The IMF's financial year runs from May 1 through April 30. As part of the IMF's ongoing policy of informing the public of its financial activities, the staff paper http://www.imf.org/external prepared for the Board's discussion is being published.
The IMF's Administrative Budget provides funds for personnel costs, the cost of travel, and other recurrent expenses. The budget is approved by the Board on both a gross and net basis. The gross budget includes expenditures funded from `"reimbursements," that consist mainly of external donor contributions towards capacity enhancement (technical assistance and training of officials in member countries). The net budget is funded solely from the Fund's internal resources—a small amount of revenues from publications, etc. and the bulk from the net income of Fund operations (see item No. 5 in Background section).
The Executive Board sets ceilings on both the gross and net budgets that cannot be exceeded without its approval. It also sets such a ceiling on full-time (i.e., open-ended and limited-term) staff positions. A separate capital budget, which cannot be exceeded, is also approved by the Board.
Executive Board Decisions on the FY 2004 Budget
Following established practice, the IMF's Executive Board adopted three decisions on April 26:
1. Administrative Budget for FY 2004
Under revised budget procedures, the starting point for formulation of the annual budget is the estimated cost of existing policies shown for the second year of the Medium-Term Estimates Framework, or MTE (see item No. 3 in Background section). This starting point is adjusted to take account of:
On this basis, the appropriation approved by the Executive Board was for a gross Administrative Budget of US$837.5 million (US$785.5 million net of estimated reimbursements), an increase of 5.4 percent in gross terms (5.2 percent in net terms) over the approved budget for the previous year. The ceiling on open-ended and limited-term staff positions was set at 2,799.5 persons, an increase of 11.5 positions or 0.4 percent on the previous year.1
In terms of inputs, the budget makes provision for a budget-to-budget increase of 5 percent in personnel expenses; 9.3 percent for travel; and 4.2 percent for other expenditures.
The increase in personnel expenditures in FY 2004 reflects a number of factors including the 4.0 percent structural salary increase approved by the Board in April and a further fall in the vacancy rate. The travel provision includes an allowance for the additional costs associated with holding the 2003 Annual Meetings in Dubai, United Arab Emirates.
A substantial reallocation of resources is incorporated, including a shift in personnel and other resources from departments performing intermediate and governance activities to those producing the Fund's primary outputs—policy development, research, and operation of the international monetary system; standard setting and the provision of statistical information; bilateral and regional surveillance; use of Fund resources; and capacity enhancement.
Although the share of resources among the Fund's primary outputs in FY 2004 does not differ significantly from that of earlier years, there remain considerable uncertainties—for example, about the number of Fund programs and hence use of Fund resources. Nonetheless, some important developments within the main output categories are planned. In particular, more resources will be devoted to work on vulnerability; on securing a fresh perspective on surveillance; and on trade and capital account issues. While the share of resources devoted to capacity enhancement from the Fund's net administrative budget is expected to be broadly similar to that in the FY 2003 budget, a projected 25 percent increase in external finance from donors should enable an overall increase in such activity.
2. Capital Budget for FY 2004
The capital budget is presented as a list of programs and projects grouped under two main headings—building facilities, and information technology (IT)—that are scheduled to commence in the coming year. The appropriation shows the total planned spending on these projects over the three fiscal years 2004 to 2006. The Executive Board approved a capital budget of US$39.6 million for projects starting in FY 2004. This comprises US$13.2 million for building facilities and US$26.4 million for IT projects.2
3. Medium-Term Expenditure Estimates (MTE)
The Board was also asked to take note of revised MTEs based on existing policies for administrative expenditures for FY 2005 and FY 2006. (As noted, the estimate shown for the second year of the MTE—adjusted for policy and cost changes—becomes the base for the following year's annual Administrative Budget.) On this basis, the projected costs of existing policies increase at an underlying rate of 4.3 percent over the period to FY 2006. These projections are consistent with management's view that the institution should be maintained at broadly its present size and, to the extent possible, should seek to accommodate any new tasks primarily by reductions in lower priority work and efficiency improvements.
4. Future budget reform
The IMF is engaged in substantial reform of its budgetary procedures, following an external review conducted in 2001. The reforms are designed to modernize the budget process and to move towards a more output-oriented system.
In FY 2003, the specific reforms undertaken have focused on introducing a top-down budget constraint for use in departmental planning; adoption of total resource or dollar budgeting, while preserving a limit on staff positions; and enhancing the content of departmental business plans. A revised output structure has been developed for use in the FY 2004 and subsequent budgets.
In the year ahead, three technical improvements are planned: measurement of the costs of outputs which, in turn, will require better staff activity time reporting; enhancement of the MTE estimates framework to facilitate consideration of the future pattern of desired outputs; and the development of additional information and reports on performance.
5. The funding of the budget
As noted, the net administrative budget is funded from the IMF's internal resources. The impact of the FY 2004 administrative and capital budgets on the Fund's projected net income and the rate of charge depends on a number of factors, including the level of outstanding use of Fund credit, members' remunerated positions, the timing of disbursements, and the U.S. dollar/SDR exchange rate.
1 This included 20.5 positions that arose from a change of status for existing contractual appointments.
2 No new main building projects are included in the FY 2004 budget; an appropriation for the ongoing construction of the Headquarters 2 building was included in the FY 2003 capital budget.
IMF EXTERNAL RELATIONS DEPARTMENT