## Projected Regular Income––FY06

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### Introduction and Purpose
- Basis for Executive Board’s annual review of the Fund’s income position, burden-sharing mechanism, and system of special charges; proposals for rate of charge in FY07 as required under Rule I-6(4).
- Follow-up to March 6 Board discussion on medium-term income outlook given a sharp decline in credit outstanding; two-pronged strategy endorsed: immediate steps to address FY07 shortfall and a broader work plan for a sustainable income base.

### Review of FY06 Income Position — Key Findings
- Regular net income for FY06: projected at SDR 115 million.
- Shortfall versus net income target: SDR 75 million below the target of SDR 188 million.
- Primary causes of shortfall:
  - Lower-than-expected use of Fund resources (advance repurchases by Argentina and Brazil; advance repurchases by Algeria, Bulgaria, and Uruguay had smaller impact).
  - Higher administrative expenses (in SDR terms).
  - Partially offset by higher SDR interest rate.
- Table 1 variance components (in millions of SDRs):
  - Regular net income as projected at beginning of the year: 188
  - Lower use of Fund resources: -82
  - Higher SDR interest rate: 27
  - Higher GRA administrative expenses net of reimbursement (in SDR terms) 1/: -18
  - Regular net income: updated projection: 115
- Notes:
  - Total administrative expenses (GRA and PRGF-ESF) about SDR 13 million more than projected; PRGF-ESF component estimated about SDR 5 million less than projected; GRA net of reimbursement about SDR 18 million more than projected.
  - Average use of Fund credit decreased from projected SDR 44.2 billion to realized SDR 35.6 billion.
  - SDR interest rate: initial assumed 2.45 percent; actual average projected around 2.81 percent (about 36 basis points higher).
  - U.S. dollar appreciation against the SDR since FY06 start: about 4 percent.

### Other Income and Reserve Accumulation — FY06
- Projected other income (Table 2, in millions of SDRs):
  - Surcharge Income: 294
  - Less: Cost of administering the PRGF-ESF Trust: -51
  - Net Surcharge Income (to be transferred to the General Reserve): 243
  - Less: IAS 19 post-retirement expenses (to be charged against the "earmarked portion” of the Special Reserve): -136
  - Other income: updated projection: 107
- Notes:
  - Surcharge income projected lower than anticipated by some SDR 108 million primarily because of advance repurchases by Argentina and Brazil.
  - Other income comprises income from surcharges, net of PRGF-ESF administration cost, and costs associated with post-retirement benefits under IAS 19.
- Reserve accumulation:
  - Overall reserve growth on current projections: grow by over SDR 220 million to around SDR 5.9 billion in FY06.
  - Board decision (beginning of FY06): place surcharge income for FY06, net of PRGF-ESF trust cost, to the General Reserve.
  - Proposal: place actual regular income to the Special Reserve after the financial year close (Decision No. 1).
  - By financial year-end: accumulated further SDR 94 million in the SCA-1, bringing total precautionary balances to SDR 7.6 billion.

### Executive Board Decisions in Effect Related to FY06 Income Position (Key Items)
- Net Income Target:
  - Target based on Rule I-6(4): SDR 282 million (5 percent of reserves at beginning); since FY01 reduced by SDR 94 million for off-market gold transactions; target set at SDR 188 million.
  - To offset reduction, Board decided to raise SDR 94 million under burden sharing and place to the SCA-1.
- Rate of Charge:
  - Margin for the rate of charge set at 108 basis points above the SDR interest rate for FY06.
- Disposition of Excess Income:
  - Excess over SDR 188 million to be returned to members paying charges through retroactive reduction in rate of charge after year-end.
- Income from Surcharges and IAS 19 Expense:
  - For determining net income target and rate of charge, exclude income from certain surcharges and the IAS 19 pension adjustment.
  - Income from surcharges, after PRGF-ESF administration cost, to be placed to the General Reserve after year-end.
- PRGF-ESF Trust Expenses:
  - GRA will forgo reimbursements from the SDA for expenses incurred in conducting PRGF-ESF business.
- Burden Sharing:
  - SDR 94 million placement to SCA-1 generated by equal contribution by debtor and creditor members under burden sharing.
  - Income losses from unpaid charges shared equally between debtor and creditor members for as long as arrears persist.

### IAS 19 Accounting — Treatment and Implications
- Objective: ensure the net asset (or liability) for future benefits is properly reflected in the employer’s balance sheet with periodic adjustments reflected as expense or income.
- Nature of IAS 19 adjustment:
  - Annual change in the net asset/liability, after employer contributions, determines the annual IAS 19 accounting adjustment; generally an expense but can be a net gain depending on investment performance, discount rate, and actuarial gains or losses.
- Accounting vs. funding:
  - IAS 19 applies to measurement in the Fund’s financial statements (IFRS accrual basis); administrative budget is largely cash basis (only annual cash contribution included).
  - Over the life of the pension plan, accounting adjustments must equal amount funded in administrative budget, but timing differences arise.
- Treatment in Fund finances:
  - Annual IAS 19 adjustment recognized in the GRA income statement as an expense (or income).
  - Board decisions: IAS 19 adjustment excluded from computation of the rate of charge and offset against an “earmarked” portion of the Special Reserve.
  - The earmarked portion of the Special Reserve has been fully utilized in FY06; going forward either the IAS 19 adjustment or budgetary funding needs to be covered by the Fund’s income.
- IAS 19 amounts (selected FY00–FY06, in millions of SDRs):
  - IAS 19 (expense)/income recognized in income statement 1/ A: FY00 (21); FY01 90; FY02 (5); FY03 (79); FY04 (39); FY05 (160); FY06 (136)
  - Current year funding B: FY00 32; FY01 20; FY02 44; FY03 44; FY04 47; FY05 70; FY06 82
  - Ending IAS 19 net asset: FY00 223; FY01 431; FY02 470; FY03 435; FY04 443; FY05 353; FY06 299
  - IAS 19 timing difference A+B: FY00 11; FY01 110; FY02 39; FY03 (35); FY04 8; FY05 (90); FY06 (54)
  - Cumulative timing difference: FY00 11; FY01 121; FY02 160; FY03 125; FY04 133; FY05 43; FY06 (11)
  - Notes: 1/ Excludes home leave.

### The Income Outlook — FY06–FY09 Projections (Summary from Table 3)
- A. Income sources (in millions of SDRs):
  - FY06: 761
  - FY07: 625
  - FY08: 581
  - FY09: 512
- Margin for the rate of charge (incl. service charge and commitment fees):
  - FY06: 410
  - FY07: 206
  - FY08: 157
  - FY09: 117
- Investment income (implicit return on reserves and additional Income Account items):
  - FY06: 166
  - FY07: implicit return 205 and additional Investment Account income 30
  - FY08: implicit return 242 and additional Investment Account income 30
  - FY09: implicit return 248 and additional Investment Account income 30
- Surcharges:
  - FY06: 51
  - FY07: 118
  - FY08: 79
  - FY09: 49
- Other:
  - FY06: 134
  - FY07: 66
  - FY08: 73
  - FY09: 68
- B. Administrative and capital expenses (in millions of SDRs):
  - FY06: 646
  - FY07: 684
  - FY08: 685
  - FY09: 701
  - Administrative budget component: FY06 602; FY07 633; FY08 645; FY09 662
  - Capital budget not capitalized: FY06 25; FY07 30; FY08 17; FY09 15
  - Depreciation expense: FY06 19; FY07 21; FY08 23; FY09 24
- C. Income surplus/shortfall (A–B, in millions of SDRs):
  - FY06: 115
  - FY07: -59
  - FY08: -104
  - FY09: -189
- Memorandum items:
  - Fund credit outstanding (average, in millions of SDRs): FY06 35,600; FY07 17,300; FY08 13,500; FY09 10,700
  - SDR interest rate path (in percent): FY06 2.8; FY07 3.5; FY08 4.1; FY09 4.2

### FY07 Projections, Assumptions, and Sensitivities
- FY07 treatment per March Board guidance: treat FY07 as transitional; temporary measures supported by Directors include suspension of the net income target and use of surcharge income (after PRGF-ESF administration costs) to defray GRA administrative expenses.
- Directors generally agreed increasing the margin further could be counter-productive; projections assume constant margin of 108 basis points (Decision No. 4 proposed).
- Projections reflect establishment of Investment Account and use of surcharge income to pay GRA administrative expenses.
- Central scenario for credit outstanding: current users repay as scheduled and remaining scheduled disbursements occur under existing arrangements, other than precautionary ones.
- Total FY07 income (after paying remuneration): currently estimated around SDR 625 million comprising:
  - Income from Charges: around SDR 187 million from rate of charge (margin 108 bps) and about SDR 19 million from service charges (50 basis points on purchases).
  - Investment Income: around SDR 235 million gross (implicit return SDR 205 million; additional SDR 30 million from Investment Account). Potential SDR 5.9 billion could be placed in Investment Account based on reserves at April 30, 2006.
  - Staff estimate for Investment Account return: 50 basis points over the SDR interest rate for FY07.
  - Income from Surcharges: estimated at SDR 118 million in FY07.
  - Other Income: projected at SDR 66 million for FY07 (primarily implicit return on remaining net interest-free resources, bulk being SCA-1 balance of SDR 1.7 billion).
- Sensitivities (effect on projected income for FY 2007, in millions of SDRs):
  - Change in SDR interest rate by 10 basis points: 7.8
  - Credit tranche purchases/repurchases by SDR 1 billion 1/: 5.4
  - U.S. Dollar vis-à-vis SDR by 1 percent: 6.6
  - Investment income margin by 10 basis points: 6.0
  - Note: 1/ Excludes commitment fees and service charges.

### Expenditure Projections and Projected Shortfalls
- The Fund’s main expenses (combined net administrative budget and accounting expense for capital budget): estimated at SDR 684 million for FY07.
- Cost of administering the PRGF-ESF Trust in FY07: estimated at SDR 58 million.
- Reimbursement of the costs of administering the SDR department (SDR 1.3 million) is included in other income.
- Over the medium-term, income shortfall projected to widen even after medium-term budgetary proposals (which incorporate cuts of one percentage point in real terms in the administrative budget in FY08 and FY09).
- Projected FY07 income shortfall: on the order of SDR 60 million.
- Maximum potential income shortfall (assuming all credit outstanding repaid on May 1, 2006): in the order of SDR 380 million, or around 6 percent of reserves.

### Staff Proposals and Board Discussions for FY07 Financing (Options and Decisions)
- Initial staff package to close the SDR 60 million gap: substitute further SCA-1 accumulations through burden-sharing with offsetting adjustments in the rate of remuneration and an increase in the margin. A majority of the Board at the March 6 discussion did not favor the package.
- Many Directors could not support reducing the rate of remuneration; most Directors supported suspending SCA-1 accumulations for gold mitigation.
- Reimbursement option: reintroduction of reimbursement from the PRGF-ESF Trust for the expenses of administering that Trust would largely cover the projected FY07 shortfall. In the absence of a decision to forego reimbursement, the reimbursement would be made out of the resources of the Reserve Account of the PRGF-ESF Trust.
- Most Directors support using surcharge income to pay PRGF-ESF Trust expenses to maximize availability of resources for low-income countries; staff proposes that the Board decide again not to seek reimbursement of these expenses (Decision No. 6).
- Use of burden-sharing and SCA-1 accumulation:
  - In absence of additional income sources, the projected FY07 shortfall would lead to a drawdown of the Fund’s reserves. Proposed alternative: use the burden-sharing mechanism to accumulate an equivalent amount in the SCA-1, keeping overall precautionary balances unchanged.
  - A decision to accumulate further balances in the SCA-1 requires a seventy percent majority of the total voting power.
  - Historical SCA-1 contributions: since FY01, an annual amount of SDR 94 million has been contributed, shared equally between users of Fund resources and creditor member countries.
  - Staff proposal for FY07: collect SDR 60 million in the SCA-1 (consistent with the transitional approach for FY07).
  - Projected burden-sharing rate impact: collecting SDR 60 million would require average adjustments to the rate of charge of around 17 basis points in FY07, compared with average adjustments of about 15 basis points for FY06 as a whole.
  - Foregoing the two basis points increase in burden-sharing adjustments would result in an SCA-1 accumulation of about SDR 52 million, less than the current FY07 projection for the income shortfall.
  - Burden-sharing adjustments are calculated and collected at quarter-end, based on average balances for that quarter.
  - SCA-1 refunds: payments are refundable to contributors in line with provisions governing dissolution of the SCA-1.

### Income Disposition, Investment Account, and Rule I-6(4) Amendment
- Historical practice: ex ante decision at the start of the year that surcharge income, after PRGF-ESF expenses, would be placed to the General Reserve; regular net income to the Special Reserve decided at year-end.
- FY07 expectation: surcharge income after PRGF-ESF expenses is expected to be fully used in FY07 to help defray GRA administrative expenses; no ex ante decision proposed for surcharge income.
- Staff proposes ex post decisions for FY07 on:
  - (i) the earnings of the Investment Account, once established;
  - (ii) the actual income (shortfall) realized by end-FY07 in the GRA, which can be placed (charged) to the Special Reserve or the General Reserve.
- Under the Articles, investment income can either be retained in the Investment Account or used to meet the expenses of conducting the business of the Fund.
- Rule I-6(4) amendment proposal:
  - Existing Rule I-6(4) links the margin for the rate of charge to estimated income and expenses and a net income target (5 percent of reserves or other percentage determined by the Board).
  - Under FY07 proposals (unchanged margin), the rate of charge would not be determined on the basis of income and expenses and a net income target, implying a necessary amendment to Rule I-6(4).
  - Staff proposes amending clause (a) of Rule I-6(4) to permit, in exceptional circumstances, the margin for the rate of charge to be set on a basis other than estimated income and expenses and a net income target (Decision No. 3).
  - For clause (b): when the margin is set on a basis other than income and expenses and a net income target, the Board will decide at the midyear review whether a change in the level of the margin is warranted, based on income developments (reflected in Decision No. 3).
  - Decision on FY07 rate of charge: set at 108 basis points over the SDR interest rate (Decision No. 4), effective May 1, 2006.

### Special Charges and Draft Decisions Proposed (Summary)
- Special charges review: no new considerations and proposes no changes to the existing system (special charges levied on overdue repurchases and charges in arrears for less than six months). No special charges have been collected during the financial year (Decision No. 7).
- Draft decisions proposed for adoption (summary):
  - Decision No. 1: Place actual net income (other than surcharge income) in FY06 to the Fund’s Special Reserve; charge IAS 19 cost in FY06 (SDR 136 million) against the “earmarked” portion of the Special Reserve.
  - Decision No. 2: Provide for assessment in the SDR Department to reimburse the General Department for SDR Department expenses (assessment rate specified in Decision No. 2).
  - Decision No. 3: Amend Rule I-6(4) to allow, in exceptional circumstances, flexibility in setting the rate of charge.
  - Decision No. 4: Set the rate of charge on the use of Fund resources for FY07 at 108 basis points over the SDR interest rate.
  - Decision No. 5: Renew implementation of the burden-sharing mechanism and place SDR 60 million to the SCA-1.
  - Decision No. 6: Waive the reimbursement to the GRA of the cost of administering the PRGF-ESF Trust for FY07.
  - Decision No. 7: Review the system of special charges.
  - Adoption thresholds: Decisions 1, 2, 3, 6, and 7 may be adopted by a majority of the votes cast. Decisions 4 and 5 may be adopted by a 70 percent majority of the total voting power.

### Burden Sharing — Principles and Mechanics (Selected Provisions)
- Principles:
  - Financial consequences from overdue financial obligations shall be shared between debtor and creditor member countries.
  - The sharing shall be applied in a simultaneous and symmetrical fashion.
- Determination and adjustment mechanisms:
  - The rate of charge referred to in Rule I-6(4) shall be adjusted in accordance with provisions of Section IV of this decision and Section IV of Executive Board Decision No. 12189-(00/45), adopted April 28, 2000.
  - Amount for Special Contingent Account-1 (Section IV): an amount of SDR 60 million shall be generated during financial year 2007 and placed to SCA-1.
  - Adjustments to rates and remuneration to generate SDR 60 million: adjustments to the rate of charge and the rate of remuneration (subject to limitations) rounded to two decimal places; no adjustment in the rate of remuneration shall reduce the average remuneration coefficient below 85 percent for an adjustment period.
  - Adjustment timing: as of May 1, 2006, August 1, 2006, November 1, 2006 and February 1, 2007 (with quarterly billings shortly after quarter-ends).
  - Distribution and loss allocation from SCA-1: distributions to contributors when no overdue charges and repurchases exist or earlier as the Fund decides; distributions proportional to amounts paid or not received; set-off rules and proportionality for losses specified.
- Review (Section V): operation of this decision shall be reviewed when adjustment in the rate of remuneration reduces the remuneration coefficient to the limit set in paragraph 2(b) of Section IV.

### Key Levels, Flows, and Rates (Selected Figures)
- Key flows and balances (levels and averages, series of figures preserved as presented):
  - Purchases (excl. reserve tranche purchases): 4.5 2.2 3.8 2.2 0.1
  - Repurchases: 15.5 32.8 8.0 4.8 3.4
  - Average balances subject to charges: 44.2 35.6 17.3 13.5 10.7
  - Average SDR holdings: 0.9 1.7 2.7 1.6 1.6
  - Average remunerated positions: 37.6 29.7 18.1 13.3 10.7
  - Average investment account assets: -- -- 5.9 5.9 5.9
- Average interest rates (in percent, series preserved):
  - SDR interest rate and basic rate of remuneration: 2.45 2.81 3.46 4.08 4.17
  - Basic rate of charge: 3.53 3.89 4.54 5.16 5.25
  - Margin of the rate of charge: 1.08 1.08 1.08 1.08 1.08
  - Return on investments: -- -- 3.96 4.58 4.67

### Administrative Expenses and Budgets (Selected Figures)
- Administrative budgets (in U.S. dollars and SDRs where indicated):
  - FY 2007 Administrative Budget 1/: 911.9
  - FY 2008 Administrative Budget 1/: 929.6
  - FY 2009 Administrative Budget 1/: 952.8
  - Capital Budget expenditures not capitalized: 42.9 24.3 21.5
  - Depreciation expense: 30.2 32.5 34.7
  - Total Administrative expense 2/: 985.0 986.4 1,009.0
  - Total Administrative expense in SDRs 3/: 684.0 685.0 700.7
- Notes:
  - 1/ Total budgetary expenses net of recovery and reimbursements of expenses.
  - 2/ Before IAS 19 timing differences.
  - 3/ Based on exchange rate of 1 SDR = $1.44.

### Updated Medium-Term Projections and Revisions (FY07–FY09)
- Updated medium-term projections (in millions of SDRs):
  - A. Income sources: updated projection: FY 2007 625, FY 2008 581, FY 2009 512
    - Change from previous projection due to higher projected SDR interest rate: 18 36 18
    - Change due to changes in projected Fund credit outstanding: -2 -2 7
    - Change due to lower projected surcharge income: -7 -1 -15
  - B. Administrative and capital expenses: updated projection: FY 2007 684, FY 2008 685, FY 2009 701
    - Change due to updated estimates of administrative budget: 8 5 6
    - Change due to updated estimates of capital expenses: 3 -10 -13
  - C. Income shortfall (updated A.1–B.1): FY 2007 -59, FY 2008 -104, FY 2009 -189
- Comparison with previous projections:
  - Previous projection income sources: FY 2007 616, FY 2008 548, FY 2009 502
  - Previous administrative and capital expenses: FY 2007 673, FY 2008 690, FY 2009 708
  - Previous income shortfall (A–B): FY 2007 -57, FY 2008 -142, FY 2009 -206

*Source: IMF staff paper "Projected Regular Income––FY06" (excerpt).*

### 1.  Projected Regular Income––FY06.................................................................................3

### 1.  Projected Regular Income––FY06

### Introduction
- Purpose: Basis for Executive Board’s annual review of the Fund’s income position, burden-sharing mechanism, and system of special charges; proposals for rate of charge in FY07 as required under Rule I-6(4).
- Context: Follow-up to March 6 Board discussion on medium-term income outlook in light of a sharp decline in credit outstanding; two-pronged strategy endorsed (immediate steps to address FY07 shortfall; broader work plan for sustainable income base).

### Review of the FY06 Income Position
- Regular net income for FY06: projected at SDR 115 million (Annex I).
- Shortfall versus net income target: SDR 75 million below the target of SDR 188 million.
- Primary causes of shortfall:
  - Lower-than-expected use of Fund resources (advance repurchases by Argentina and Brazil; advance repurchases by Algeria, Bulgaria, and Uruguay had smaller impact).
  - Higher administrative expenses (in SDR terms).
  - Partially offset by higher SDR interest rate.

### Projected Regular Income – FY06 (Table 1)
- Regular net income as projected at beginning of the year: 188 (in millions of SDRs)
- Variance due to:
  - Lower use of Fund resources: -82
  - Higher SDR interest rate: 27
  - Higher GRA administrative expenses net of reimbursement (in SDR terms) 1/: -18
- Regular net income: updated projection: 115

Notes:
- 1/ Total administrative expenses (GRA and PRGF-ESF) about SDR 13 million more than projected; PRGF-ESF component estimated about SDR 5 million less than projected; GRA net of reimbursement about SDR 18 million more than projected.
- Average use of Fund credit decreased from projected SDR 44.2 billion to realized SDR 35.6 billion.
- SDR interest rate: initial assumed 2.45 percent; actual average projected around 2.81 percent (about 36 basis points higher).
- U.S. dollar appreciation against the SDR since FY06 start: about 4 percent.

### Projected Other Income – FY06 (Table 2)
- Surcharge Income: 294 (in millions of SDRs)
- Less: Cost of administering the PRGF-ESF Trust: -51
- Net Surcharge Income (to be transferred to the General Reserve): 243
- Less: IAS 19 post-retirement expenses (to be charged against the "earmarked portion” of the Special Reserve): -136
- Other income: updated projection: 107

Notes:
- Surcharge income projected lower than anticipated by some SDR 108 million primarily because of advance repurchases by Argentina and Brazil.
- Other income comprises income from surcharges, net of PRGF-ESF administration cost, and costs associated with post-retirement benefits under IAS 19.

### Reserve Accumulation
- Overall reserve growth on current projections: grow by over SDR 220 million to around SDR 5.9 billion in FY06.
- Board decision (beginning of FY06): place surcharge income for FY06, net of PRGF-ESF trust cost, to the General Reserve.
- Proposal: place actual regular income to the Special Reserve after the financial year close (Decision No. 1 in Section V).
- By financial year-end: accumulated further SDR 94 million in the SCA-1, bringing total precautionary balances to SDR 7.6 billion (see Annex III).

### Executive Board Decisions in Effect Related to FY06 Income Position (Box 1 — key items)
- Net Income Target:
  - Target based on Rule I-6(4): SDR 282 million (5 percent of reserves at beginning); since FY01 reduced by SDR 94 million for off-market gold transactions; target set at SDR 188 million.
  - To offset reduction, Board decided to raise SDR 94 million under burden sharing and place to the SCA-1.
- Rate of Charge:
  - Margin for the rate of charge set at 108 basis points above the SDR interest rate for FY06.
- Disposition of Excess Income:
  - Excess over SDR 188 million to be returned to members paying charges through retroactive reduction in rate of charge after year-end.
- Income from Surcharges and IAS 19 Expense:
  - For determining net income target and rate of charge, exclude income from certain surcharges and the IAS 19 pension adjustment.
  - Income from surcharges, after PRGF-ESF administration cost, to be placed to the General Reserve after year-end.
- PRGF-ESF Trust Expenses:
  - GRA will forgo reimbursements from the SDA for expenses incurred in conducting PRGF-ESF business.
- Burden Sharing:
  - SDR 94 million placement to SCA-1 generated by equal contribution by debtor and creditor members under burden sharing.
  - Income losses from unpaid charges shared equally between debtor and creditor members for as long as arrears persist.

### The Income Outlook (Summary of Section III and Table 3)
- March Board guidance: treat FY07 as a transitional year; temporary measures supported by Directors include suspension of the net income target and use of surcharge income (after PRGF-ESF administration costs) to defray GRA administrative expenses.
- Directors generally agreed that increasing the margin for the rate of charge further could be counter-productive; projections assume constant margin of 108 basis points (Decision No. 4 proposed).
- Support for establishment and funding of the Investment Account.
- Staff updated medium-term projections (Table 3) using analytical framework from The Fund’s Medium-Term Income—Outlook and Options.

Key projected figures (Table 3; in millions of SDRs except where indicated):
- A. Income sources (FY06 FY07 FY08 FY09):
  - FY06: 761
  - FY07: 625
  - FY08: 581
  - FY09: 512
- Margin for the rate of charge (incl. service charge and commitment fees):
  - FY06: 410
  - FY07: 206
  - FY08: 157
  - FY09: 117
- Investment income: implicit return on reserves and additional income from Investment Account:
  - FY06: 166 (–; table shows 166 for FY06)
  - FY07: -- and 205 and 30 (presented as implicit return 205 and additional IA income 30)
  - FY08: 242 and 30
  - FY09: 248 and 30
- Surcharges:
  - FY06: 51
  - FY07: 118
  - FY08: 79
  - FY09: 49
- Other:
  - FY06: 134
  - FY07: 66
  - FY08: 73
  - FY09: 68
- B. Administrative and capital expenses:
  - FY06: 646
  - FY07: 684
  - FY08: 685
  - FY09: 701
  - Administrative budget (component): FY06 602; FY07 633; FY08 645; FY09 662
  - Capital budget not capitalized: FY06 25; FY07 30; FY08 17; FY09 15
  - Depreciation expense: FY06 19; FY07 21; FY08 23; FY09 24
- C. Income surplus/shortfall (A–B):
  - FY06: 115
  - FY07: -59
  - FY08: -104
  - FY09: -189

Memorandum items:
- Fund credit outstanding (average):
  - FY06: 35,600
  - FY07: 17,300
  - FY08: 13,500
  - FY09: 10,700
- SDR interest rate path (in percent):
  - FY06: 2.8
  - FY07: 3.5
  - FY08: 4.1
  - FY09: 4.2

Notes on FY07 projections and assumptions:
- Projections reflect establishment of Investment Account and use of surcharge income to pay GRA administrative expenses.
- Central scenario for credit outstanding: current users repay as scheduled and remaining scheduled disbursements occur under existing arrangements, other than precautionary ones.
- Total FY07 income (after paying remuneration): currently estimated around SDR 625 million comprising:
  - Income from Charges: around SDR 187 million from rate of charge (margin 108 bps) and about SDR 19 million from service charges (50 basis points on purchases).
  - Investment Income: around SDR 235 million gross (implicit return SDR 205 million; additional SDR 30 million from Investment Account). Potential SDR 5.9 billion could be placed in Investment Account based on reserves at April 30, 2006.
  - Staff estimate for Investment Account return: 50 basis points over the SDR interest rate for FY07.
  - Income from Surcharges: estimated at SDR 118 million in FY07.
  - Other Income: projected at SDR 66 million for FY07 (primarily implicit return on remaining net interest-free resources, bulk being SCA-1 balance of SDR 1.7 billion).

- Sensitivities and annexes: Annex VI details assumptions; Annex VIII outlines income sensitivity to changes in underlying variables; Annex IX summarizes changes from previous estimates.

*Source: IMF staff paper "Projected Regular Income––FY06" (excerpt). *

### 11.      On the expenditure side, the projections incorporate the most recent budget proposals.

### _041206 - 11.      On the expenditure side, the projections incorporate the most recent budget proposals.

### Expenditure and expense projections
- The Fund’s main expenses reflect the combined impact of the net administrative budget and the accounting expense for the capital budget, which are estimated at SDR 684 million for FY07.
- The cost of administering the PRGF-ESF Trust in FY07 is estimated at SDR 58 million.
- The reimbursement of the costs of administering the SDR department (SDR 1.3 million) is included in other income.

### Income outlook and projected shortfalls
- Over the medium-term, the income shortfall is projected to widen even after the latest medium-term budgetary proposals, which incorporate cuts of one percentage point in real terms in the administrative budget in FY08 and FY09.
- Projected FY07 income shortfall: on the order of SDR 60 million.
- Maximum potential income shortfall (assuming all credit outstanding repaid on May 1, 2006): in the order of SDR 380 million, or around 6 percent of reserves.

### Staff proposals and Board discussions for FY07 financing
- Staff initial package to close the SDR 60 million gap: substitution of further SCA-1 accumulations through the burden-sharing mechanism with offsetting adjustments in the rate of remuneration and an increase in the margin. A majority on the Board at the March 6 discussion did not favor the package.
- Many Directors could not support reducing the rate of remuneration at this time; most Directors supported suspending SCA-1 accumulations for gold mitigation.
- Reimbursement option: reintroduction of reimbursement from the PRGF-ESF Trust for the expenses of administering that Trust would largely cover the projected FY07 shortfall. In the absence of a decision to forego reimbursement, the reimbursement would be made out of the resources of the Reserve Account of the PRGF-ESF Trust.
- Most Directors continue to support using surcharge income to pay PRGF-ESF Trust expenses to maximize availability of resources for low-income countries; staff proposes that the Board decide again not to seek reimbursement of these expenses (Decision No. 6).

### Use of burden-sharing and SCA-1 accumulation
- In absence of additional income sources, the projected FY07 shortfall would lead to a drawdown of the Fund’s reserves. Proposed alternative: use the burden-sharing mechanism to accumulate an equivalent amount in the SCA-1, keeping overall precautionary balances unchanged.
- A decision to accumulate further balances in the SCA-1 requires a seventy percent majority of the total voting power.
- Historical SCA-1 contributions: since FY01, an annual amount of SDR 94 million has been contributed, shared equally between users of Fund resources and creditor member countries.
- Staff proposal for FY07: collect SDR 60 million in the SCA-1 (consistent with the transitional approach for FY07).
- Projected burden-sharing rate impact: collecting SDR 60 million would require average adjustments to the rate of charge of around 17 basis points in FY07, compared with average adjustments of about 15 basis points for FY06 as a whole.
- Foregoing the two basis points increase in burden-sharing adjustments would result in an SCA-1 accumulation of about SDR 52 million, less than the current FY07 projection for the income shortfall.
- Burden-sharing adjustments are calculated and collected at quarter-end, based on average balances for that quarter.
- SCA-1 refunds: these payments are refundable to contributors in line with the provisions governing the dissolution of the SCA-1.

### Income disposition and Investment Account treatment
- Historical practice: ex ante decision at the start of the year that surcharge income, after PRGF-ESF expenses, would be placed to the General Reserve; regular net income to the Special Reserve decided at year-end.
- FY07 expectation: surcharge income after PRGF-ESF expenses is expected to be fully used in FY07 to help defray GRA administrative expenses; no ex ante decision proposed for surcharge income.
- Staff proposes ex post decisions for FY07 on:
  - (i) the earnings of the Investment Account, once established;
  - (ii) the actual income (shortfall) realized by end-FY07 in the GRA, which can be placed (charged) to the Special Reserve or the General Reserve.
- Under the Articles, investment income can either be retained in the Investment Account or used to meet the expenses of conducting the business of the Fund.

### Rule I-6(4) amendment and rate of charge
- Existing Rule I-6(4) links the margin for the rate of charge to estimated income and expenses and a net income target (5 percent of the Fund's reserves or other percentage determined by the Board).
- Under FY07 proposals (unchanged margin), the rate of charge would not be determined on the basis of income and expenses and a net income target, implying a necessary amendment to Rule I-6(4).
- Staff proposes amending clause (a) of Rule I-6(4) to permit, in exceptional circumstances, the margin for the rate of charge to be set on a basis other than estimated income and expenses and a net income target (Decision No. 3). This preserves transitional flexibility while structural changes are examined.
- Concerns about clauses (b)–(d) of Rule I-6(4):
  - Clause (b) provides an automatic safeguard (mid-year) increasing the margin if actual net income for the first six months is below target by at least two percent of reserves unless the Board decides otherwise.
  - In exceptional circumstances where the margin is set on a different basis, the presumption that margin adjustments should bear income variations would not necessarily hold, suggesting clauses (b)–(d) need not be replicated.
  - However, absence of a mid-year safeguard could be imprudent if income deteriorates further.
- Staff proposal for clause (b): when the margin is set on a basis other than income and expenses and a net income target, the Board will decide at the midyear review whether a change in the level of the margin is warranted, based on income developments (reflected in Decision No. 3).
- Decision on FY07 rate of charge: set at 108 basis points over the SDR interest rate (Decision No. 4), effective May 1, 2006.

### Special charges review
- The annual review of special charges on overdue financial obligations in the General Resources Account and the Trust Fund finds no new considerations and proposes no changes to the existing system (special charges levied on overdue repurchases and charges in arrears for less than six months). No special charges have been collected during the financial year (Decision No. 7).

### Draft decisions proposed for adoption (summary)
- Decision No. 1: Place actual net income (other than surcharge income) in FY06 to the Fund’s Special Reserve; charge IAS 19 cost in FY06 (SDR 136 million) against the “earmarked” portion of the Special Reserve.
- Decision No. 2: Provide for assessment in the SDR Department to reimburse the General Department for SDR Department expenses (assessment rate specified in Decision No. 2).
- Decision No. 3: Amend Rule I-6(4) to allow, in exceptional circumstances, flexibility in setting the rate of charge.
- Decision No. 4: Set the rate of charge on the use of Fund resources for FY07 at 108 basis points over the SDR interest rate.
- Decision No. 5: Renew implementation of the burden-sharing mechanism and place SDR 60 million to the SCA-1.
- Decision No. 6: Waive the reimbursement to the GRA of the cost of administering the PRGF-ESF Trust for FY07.
- Decision No. 7: Review the system of special charges.
- Adoption thresholds: Decisions 1, 2, 3, 6, and 7 may be adopted by a majority of the votes cast. Decisions 4 and 5 may be adopted by a 70 percent majority of the total voting power.

*Source: IMF staff paper excerpt (FY06–FY07 financial policy and draft decisions).*

### Section I. Principles of Burden Sharing

### Section I. Principles of Burden Sharing

### Principles of burden sharing
- The financial consequences for the Fund that stem from the existence of overdue financial obligations shall be shared between debtor and creditor member countries.
- The sharing shall be applied in a simultaneous and symmetrical fashion.

### Determination of the Rate of Charge (Section II)
- The rate of charge referred to in Rule I-6(4) shall be adjusted in accordance with the provisions of Section IV of this decision and Section IV of Executive Board Decision No. 12189-(00/45), adopted April 28, 2000.

### Adjustment for Deferred Charges (Section III)
- Notwithstanding paragraph 1(a) of Section IV of Executive Board Decision No. 12189-(00/45), adopted April 28, 2000, the rate of charge and the rate of remuneration determined under that Section shall be rounded to two decimal places.

### Amount for Special Contingent Account-1 (Section IV)
- An amount of SDR 60 million shall be generated during financial year 2007 in accordance with the provisions of this Section and shall be placed to the Special Contingent Account-1 referred to in Decision No. 9471-(90/98), adopted June 20, 1990.

- Adjustments to rates and remuneration to generate SDR 60 million:
  - In order to generate the amount to be placed to the Special Contingent Account-1 in accordance with paragraph 1 of this Section, notwithstanding Rule I-6(4)(a) and (b) and Rule I-10, the rate of charge referred to in Rule I-6(4) and, subject to the limitation in (b), the rate of remuneration prescribed in Rule I-10 shall be adjusted in accordance with the provisions of this paragraph.
  - Adjustments to the rate of charge and the rate of remuneration under this paragraph shall be rounded to two decimal places.
  - No adjustment in the rate of remuneration under this paragraph shall be carried to the point where the average remuneration coefficient would be reduced below 85 percent for an adjustment period.
  - The adjustments under this paragraph shall be made as of May 1, 2006, August 1, 2006, November 1, 2006 and February 1, 2007; shortly after July 31 for the period May 1 to July 31; shortly after October 31 for the period from August 1 to October 31; shortly after January 31 for the period from November 1 to January 31; shortly after April 30 for the period from February 1 to April 30.

- Distribution and loss allocation from Special Contingent Account-1:
  - Subject to paragraph 3 of Decision No. 8780-(88/12), adopted January 29, 1988, the balances held in the Special Contingent Account-1 shall be distributed in accordance with the provisions of this paragraph to members that have paid additional charges or have received reduced remuneration as a result of the adjustment when there are no outstanding overdue charges and repurchases, or at such earlier time as the Fund may decide.
  - Distributions shall be made in proportion to the amounts that have been paid or have not been received by each member because of the respective adjustments.
  - If a member that is entitled to a payment under this paragraph has any overdue obligation to the Fund in the General Department at the time of payment, the member's claim under this paragraph shall be set off against the Fund's claim in accordance with Decision No. 8271-(86/74), adopted April 30, 1986, or any subsequent decision of the Fund.
  - Subject to paragraph 4 of Decision No. 8780-(88/12), adopted January 29, 1988, if any loss is charged against the Special Contingent Account-1, it shall be recorded in accordance with the principles of proportionality set forth in (b).

### Review (Section V)
- The operation of this decision shall be reviewed when the adjustment in the rate of remuneration reduces the remuneration coefficient to the limit set forth in paragraph 2(b) of Section IV of this decision and Section IV of Executive Board Decision No. 12189-(00/45), adopted April 28, 2000.

### Decision No. 6 — Cost of Administering the PRGF Trust
- For FY 2007, no reimbursement shall be made to the General Resources Account from the Reserve Account of the PRGF-ESF Trust (through the Special Disbursement Account, SDA) for the cost of Administering the PRGF-ESF Trust.

### Decision No. 7 — Review of the System of Special Charges
- The Fund has reviewed the system of special charges applicable to overdue obligations to the General Resources Account, the Structural Adjustment Facility, and the Trust Fund.

### ANNEX I — Projected Income and Expense, Financial Year 2006 (in millions of SDRs)
- Regular Income — Operational Income
  - 1. Operational Income
    - a. Periodic charges, including burden sharing
      - Initial Projections 1/: 1,558
      - Midyear Projections 2/: 1,363
      - Updated Projections: 1,379
    - b. Interest on SDR holdings
      - Initial Projections 1/: 22
      - Midyear Projections 2/: 25
      - Updated Projections: 58
    - c. Service and stand-by charges
      - Initial Projections 1/: 23
      - Midyear Projections 2/: 21
      - Updated Projections: 22
    - Total operational income
      - Initial Projections 1/: 1,603
      - Midyear Projections 2/: 1,409
      - Updated Projections: 1,459

- 2. Operational Expense
  - Remuneration, including burden sharing
    - Initial Projections 1/: 920
    - Midyear Projections 2/: 789
    - Updated Projections: 831

- 3. Net operational income
  - Initial Projections 1/: 683
  - Midyear Projections 2/: 620
  - Updated Projections: 629

- 4. Administrative expense
  - Initial Projections 1/: 551
  - Midyear Projections 2/: 570
  - Updated Projections: 564
  - Less: estimated cost of administering the PRGF Trust
    - Initial Projections 1/: (56)
    - Midyear Projections 2/: (58)
    - Updated Projections: (51)
  - After deduction
    - Initial Projections 1/: 495
    - Midyear Projections 2/: 512
    - Updated Projections: 513

- 5. Regular net income
  - Initial Projections 1/: 188
  - Midyear Projections 2/: 108
  - Updated Projections: 115

- Other Income
  - 6. Surcharges
    - Initial Projections 1/: 402
    - Midyear Projections 2/: 296
    - Updated Projections: 294
    - Less: estimated cost of administering the PRGF Trust
      - Initial Projections 1/: (56)
      - Midyear Projections 2/: (58)
      - Updated Projections: (51)
    - After deduction
      - Initial Projections 1/: 346
      - Midyear Projections 2/: 238
      - Updated Projections: 243

  - 7. Other - IAS 19 3/
    - Initial Projections 1/: --
    - Midyear Projections 2/: 136
    - Updated Projections: 136

  - 8. Total other income
    - Initial Projections 1/: --
    - Midyear Projections 2/: 102
    - Updated Projections: 107

*Source: Section I. Principles of Burden Sharing (PDF).*

### 9. Total net income                  --

### _041206 - 9. Total net income                  --

### IAS 19 Accounting — objectives, treatment, and implications
- Objective: ensure the net asset (or liability) associated with the obligation to provide future benefits is properly reflected in the employer’s balance sheet, with resultant periodic adjustments reflected as an expense or income.
- Nature of IAS 19 adjustment:
  - The annual change in the net asset (or liability), after taking account of employer contributions, determines the amount of the annual IAS 19 accounting adjustment.
  - Though generally an expense (pension obligation grows with increased service), the IAS 19 adjustment fluctuates and can be a net gain, depending on:
    - investment performance,
    - the discount rate used for the calculation of defined benefit obligation,
    - actuarial gains or losses.
- Accounting vs. funding:
  - IAS 19 requirements apply to measurement in the Fund’s financial statements (accounting requirement).
  - The actuarial method to determine the Fund’s annual contribution for pension plans is the funding requirement.
  - Financial statements: prepared under accrual estimates (IFRS); administrative budget: largely cash basis (only annual cash contribution included).
  - Over the life of the pension plan, accounting adjustments must equal amount funded in administrative budget, but timing differences arise in individual periods.
- Treatment in Fund finances:
  - The annual IAS 19 adjustment is recognized in the GRA income statement as an expense (or income).
  - Board decisions: IAS 19 adjustment excluded from computation of the rate of charge and offset against an “earmarked” portion of the Special Reserve.
  - Budgetary funding for post-retirement plans excluded from administrative expenses used for computing the rate of charge.
  - The earmarked portion of the Special Reserve has been fully utilized in FY06; going forward either the IAS 19 adjustment or budgetary funding needs to be covered by the Fund’s income.
- Historical IAS 19 implementation note:
  - The implementation of IAS 19 in FY 2000 resulted in a net windfall gain of SDR 268 million, which was placed in the Special Reserve.

### IAS 19 Expense and Funding Summary FY00–FY06 (selected data and timing differences)
- Table headings and values (in millions of SDRs) as presented:
  - Beginning IAS 19 net (liability)/asset:
    - FY00: (56)
    - FY01: 223
    - FY02: 431
    - FY03: 470
    - FY04: 435
    - FY05: 443
    - FY06: 353
  - IAS 19 transitional gain recognized in income statement:
    - FY00: 268
  - IAS 19 (expense)/income recognized in income statement 1/ A:
    - FY00: (21)
    - FY01: 90
    - FY02: (5)
    - FY03: (79)
    - FY04: (39)
    - FY05: (160)
    - FY06: (136)
  - Current year funding B:
    - FY00: 32
    - FY01: 20
    - FY02: 44
    - FY03: 44
    - FY04: 47
    - FY05: 70
    - FY06: 82
  - Funding from accrued budgetary expenditures:
    - FY01: 104 2/
  - Actuarial adjustment:
    - FY01: (6)
  - Ending IAS 19 net asset:
    - FY00: 223
    - FY01: 431
    - FY02: 470
    - FY03: 435
    - FY04: 443
    - FY05: 353
    - FY06: 299
  - IAS 19 timing difference A+B:
    - FY00: 11
    - FY01: 110
    - FY02: 39
    - FY03: (35)
    - FY04: 8
    - FY05: (90)
    - FY06: (54)
  - Cumulative timing difference:
    - FY00: 11
    - FY01: 121
    - FY02: 160
    - FY03: 125
    - FY04: 133
    - FY05: 43
    - FY06: (11)
- Notes from table:
  - 1/ Excludes home leave.
  - 2/ In March 2001, Executive Board approved an amendment that expanded range of benefits funded through RSBIA; special allocation of $128 million was made, primarily funded through previously accrued budgetary expenditures.

### The Fund’s Precautionary Balances in the GRA, 2000–2006 (selected balances and ratios)
- Precautionary balances (in billions of SDRs):
  - 2000: 4.0
  - 2001: 4.2
  - 2002: 4.6
  - 2003: 5.4
  - 2004: 6.4
  - 2005: 7.2
  - 2006 (projected as at end-April 2006): 7.6
- Reserves (in billions of SDRs):
  - Total reserves:
    - 2000: 2.9
    - 2001: 2.9
    - 2002: 3.3
    - 2003: 4.0
    - 2004: 4.9
    - 2005: 5.6
    - 2006: 5.9
  - General:
    - 2000: 0.9
    - 2006: 3.5
  - Special 2/:
    - 2000: 1.9
    - 2006: 2.4
  - SCA-1:
    - 2000: 1.1
    - 2006: 1.7
- Free reserves 3/ (in billions of SDRs):
  - 2000: 3.0
  - 2001: 3.3
  - 2002: 3.7
  - 2003: 4.7
  - 2004: 5.6
  - 2005: 6.5
  - 2006: 7.0
- Memorandum items (in billions of SDRs):
  - Credit Capacity 4/:
    - 2000: 120.6
    - 2006: 136.4
  - Credit Outstanding:
    - 2000: 44.0
    - 2006: 19.8
  - Credit in good standing:
    - 2000: 43.0
    - 2006: 19.2
  - Arrears:
    - 2000: 1.9
    - 2006: 1.6
    - Principal component (2006): 0.6
    - Charges component (2006): 1.0
- Selected ratios (in percent):
  - Precautionary balances to credit capacity:
    - 2000: 3.3
    - 2006: 5.6
  - Precautionary balances to credit outstanding:
    - 2000: 9.0
    - 2006: 38.5
  - Free reserves to credit capacity:
    - 2000: 2.5
    - 2006: 5.2
  - Free reserve to credit in good standing:
    - 2000: 7.0
    - 2006: 36.6
- Notes:
  - 1/ 2006 projected as at end-April 2006.
  - 2/ After adjusting for IAS 19 related accounting gains.
  - 3/ Precautionary balances (excluding SCA-2) in excess of arrears on principal.
  - 4/ Quotas of members in the FTP, excluding prudential level of uncommitted usable resources (i.e., 20 percent of FTP member quotas).

### GRA Credit Outstanding and Remunerated Positions as of February 28, 2006 — key totals and member highlights
- Aggregate totals (as presented):
  - Outstanding Credit (total): 20,200.5 (100.00)
  - Remunerated Position (total): 16,156.6 (100.0)
- Selected large Outstanding Credit amounts and percentages of total:
  - Indonesia: 5,351.3 (26.49)
  - Turkey: 9,114.6 (45.12)
  - Ukraine: 823.7 (4.08)
  - Uruguay: 1,609.3 (7.97)
  - Somalia: 96.7 (0.48)
  - Sudan: 299.9 (1.48)
  - Iraq: 297.1 (1.47)
  - Russia: listed as "-" for outstanding credit in the member table (no outstanding credit shown)
- Selected large Remunerated Position amounts and percentages of total:
  - United States: 3,647.8 (22.58)
  - Germany: 1,427.7 (8.84)
  - Saudi Arabia: 1,159.8 (7.18)
  - Japan: 1,232.5 (7.63)
  - United Kingdom: 531.0 (3.29)
  - China: 716.5 (4.44)
  - Italy: 689.6 (4.27)
  - France: 598.1 (3.70)
  - Netherlands: 473.6 (2.93)
- Notes:
  - Values of 0.0 represent balances of less than SDR 0.1 million; "-" denotes zero balance.

### Cumulative Burden Sharing Adjustments as of January 31, 2006 — summary totals and notable entries
- Aggregate totals (as presented):
  - Adjustments for Deferred Charges (Charges + Remuneration = Total): 416.3 + 418.7 = 835.0 (100.00)
  - Adjustments for SCA-1 (Charges + Remuneration = Total): 861.0 + 832.3 = 1,693.3 (100.00)
- Representative member entries (selected examples, in millions of SDRs and percentages as shown):
  - United States:
    - Adjustments for Deferred Charges — Remuneration: 124.0; Total: 124.0; Percentage of total: 14.85
    - Adjustments for SCA-1 — Remuneration: 227.2; Total: 227.2; Percentage of total: 13.42
  - Mexico:
    - Deferred Charges — Charges: 47.9; Remuneration: 0.3; Total: 48.3; Percentage: 5.78
    - SCA-1 — Charges: 84.3; Remuneration: 1.4; Total: 85.7; Percentage: 5.06
  - Japan:
    - Deferred Charges — Remuneration: 48.0; Total: 48.0; Percentage: 5.75
    - SCA-1 — Remuneration: 92.8; Total: 92.8; Percentage: 5.48
  - China:
    - Deferred Charges — Charges: 5.1; Remuneration: 8.4; Total: 13.5; Percentage: 1.62
    - SCA-1 — Charges: 5.2; Remuneration: 22.6; Total: 27.8; Percentage: 1.64
  - Russia:
    - Deferred Charges — Charges: 31.2; Total: 31.2; Percentage: 3.73
    - SCA-1 — Charges: 90.4; Total: 90.4; Percentage: 5.34
  - Turkey:
    - Deferred Charges — Charges: 14.6; Total: 14.8; Percentage: 1.77
    - SCA-1 — Charges: 60.9; Remuneration: 0.5; Total: 61.4; Percentage: 3.63
  - India:
    - Deferred Charges — Charges: 30.0; Remuneration: 2.7; Total: 32.7; Percentage: 3.92
    - SCA-1 — Charges: 42.4; Remuneration: 4.6; Total: 46.9; Percentage: 2.77
- Notes:
  - Values of 0.0 represent amounts of less than SDR 0.1 million; "-" denotes no adjustments.
  - 1/ Adjustments to charges and remuneration are billed quarterly; the most recent billing was for the quarter ending January 31, 2006.
  - 2/ Adjustments for deferred charges, shown net of refunds, compensate for loss of income resulting from deferred charges related to arrears cases.

### Assumptions Underlying the Projections FY 2006 to FY 2009
- The document includes a section titled "Assumptions Underlying the Projections FY 2006 to FY 2009" with columns for:
  - FY2006 Preliminary (Initial Projections 1/ and Revised Projections),
  - FY2007 Projections,
  - FY2008 Projections,
  - FY2009 Projections,
  - and values expressed in billions of SDRs for Regular Facilities.
- (No further numeric details for the FY2006–FY2009 assumptions were provided in the supplied excerpt.)

*Italic: IMF document excerpt as provided in the supplied content unit.*

### 1.  Purchases (excl. reserve tranche purchases) 4.5 2.2      3.8 2.2 0.1

### _041206 - 1.  Purchases (excl. reserve tranche purchases) 4.5 2.2      3.8 2.2 0.1

### Key flows and balances (levels and averages)
- Purchases (excl. reserve tranche purchases): 4.5 2.2 3.8 2.2 0.1
- Repurchases: 15.5 32.8 8.0 4.8 3.4
- Average balances subject to charges: 44.2 35.6 17.3 13.5 10.7
- Average SDR holdings: 0.9 1.7 2.7 1.6 1.6
- Average remunerated positions: 37.6 29.7 18.1 13.3 10.7
- Average investment account assets: -- -- 5.9 5.9 5.9

### Average interest rates (in percent)
- SDR interest rate and basic rate of remuneration: 2.45 2.81 3.46 4.08 4.17
- Basic rate of charge: 3.53 3.89 4.54 5.16 5.25
- Margin of the rate of charge: 1.08 1.08 1.08 1.08 1.08
- Return on investments: -- -- 3.96 4.58 4.67

### Administrative expenses reconciliation (in millions of U.S. dollars and SDRs as indicated)
- FY 2007 Administrative Budget 1/: 911.9
- FY 2008 Administrative Budget 1/: 929.6
- FY 2009 Administrative Budget 1/: 952.8
- Capital Budget expenditures not capitalized: 42.9 24.3 21.5
- Depreciation expense: 30.2 32.5 34.7
- Total Administrative expense 2/: 985.0 986.4 1,009.0
- Total Administrative expense in SDRs 3/: 684.0 685.0 700.7

Notes:
- 1/ Total budgetary expenses net of recovery and reimbursements of expenses.
- 2/ Before IAS 19 timing differences.
- 3/ Based on exchange rate of 1 SDR = $1.44.

### Effect on projected income for FY 2007 of changes in selected assumptions (in millions of SDRs)
- Change in SDR interest rate by 10 basis points: 7.8
- Credit tranche purchases/repurchases by SDR 1 billion 1/: 5.4
- U.S. Dollar vis-à-vis SDR by 1 percent: 6.6
- Investment income margin by 10 basis points: 6.0

Note:
- 1/ Excludes commitment fees and service charges.

### Updated medium-term projections (in millions of SDRs)
- A. Income sources: previous projection 2/: FY 2007 616, FY 2008 548, FY 2009 502
  - Change due to Higher projected SDR interest rate 3/: 18 36 18
  - Change due to Changes in projected Fund credit outstanding 4/: -2 -2 7
  - Change due to Lower projected surcharge income 4/: -7 -1 -15
- A.1 Income sources: updated projection: FY 2007 625, FY 2008 581, FY 2009 512

- B. Administrative and capital expenses: previous projection 5/: FY 2007 673, FY 2008 690, FY 2009 708
  - Change due to Updated estimates of the administrative budget 6/: 8 5 6
  - Change due to Updated estimates of capital expenses 7/: 3 -10 -13
- B.1 Administrative and capital expenses: updated projection: FY 2007 684, FY 2008 685, FY 2009 701

- C. Income shortfall: previous projection (A-B): FY 2007 -57, FY 2008 -142, FY 2009 -206
- C.1 Income shortfall: updated projection (A.1-B.1): FY 2007 -59, FY 2008 -104, FY 2009 -189

Notes:
- 1/ This table explains the changes in the medium-term income and expense projections from the previous estimates presented in The Managing Director’s Report on Implementing the Fund’s Medium-Term Strategy.
- 2/ As estimated in The Fund’s Medium-Term Income—Outlook and Options and in The Managing Director’s Report on Implementing the Fund’s Medium-Term Strategy (paragraph 47), and also reflected in US dollars (US$ 888 million) in the budget paper (Table 8).
- 3/ Updated for latest WEO-based projections.
- 4/ Updated using monthly projected purchase and repurchase data (previously annual).
- 5/ As estimated in the medium-term strategy report (paragraph 47).
- 6/ Updated for additional costs of the Annual Meetings and the FY06 budget base (previously the FY06 outturn base).
- 7/ Updated for HQ2 depreciation expense and revised projections of medium-term capital expenditures from TGS.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2006/_041206.pdf*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2006/_041206.pdf_