## _033007

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### Executive Summary — Overview and budget stance
- Proposals: FY2008–FY2010 medium-term administrative budget (MTB) and medium-term capital budget; Board approval sought for FY2008 annual net administrative budget.
- MTB policy: envisage a 1 percent real reduction each year—measured against the external deflator—in the Fund’s net administrative budget.
- External deflator used to set the nominal budget: 2.7 percent.
  - The 1 percent real cut relative to the deflator implies a 1.7 percent nominal increase in net administrative resources each year (external deflator held constant over the medium term).
  - Because a special addition for Annual Meetings abroad was included in FY2007, the budget-to-budget increase proposed for FY2008 is 1.1 percent.
- External deflator context:
  - 2.7 percent is 0.3 percentage points lower than the estimate given in the February 2007 COB paper.
  - 2.7 percent is 0.8 percentage points lower than the figure used last year in setting the FY2007–FY2009 MTB.
  - Lower deflator reduces proposed nominal net administrative budget: FY2008 net administrative budget figure is $2.7 million lower than presented to the COB in February; indicative net budget envelopes for FY2009 and FY2010 are reduced by $5.5 million and $8.5 million respectively.

### Resource and real-impact implications
- Internal cost trends and real resource cuts:
  - Fund’s internal costs have tended to rise about 1 percent faster than the external deflator in recent years.
  - Under the MTB, this implies a reduction in real administrative resources (staff numbers, travel volumes and level of support services) of about 2 percent each year.
  - By FY2010 the real administrative budget will have been cut by some 6 percent on this basis.
- Personnel and costs:
  - Personnel costs account for more than 70 percent of gross administrative expenditures.
  - Unit personnel costs are estimated at around 4 percent in FY2008.
  - Staff estimate that the lower deflator will moderate the rise in internal costs by about $0.8 million at most.
- MTS delivery cost gap:
  - Cost of delivering the MTS on current policies in FY2008 is now estimated at $20 million higher than the proposed budget envelope (versus $18 million estimated in February).
  - Actions to reduce administrative expenditures by some $20 million must be taken to align business and administrative policies with the proposed FY2008 budget; larger actions will be required for FY2009 and FY2010.

### FY2008 budget totals, capital, and Board requests
- Executive Board operational requests:
  - Appropriate $922.3 million for FY2008 net administrative expenditures.
  - Approve an upper limit on gross expenditures of $998.2 million (based on an upper estimate for receipts).
  - Approve $46.6 million for capital projects beginning in FY2008.
  - Take note of the medium-term capital plan totaling $138 million and indicative budgets for FY2009 and FY2010.
- Indicative net administrative budgets:
  - FY2009 indicative net administrative budget: rise by 1.7 percent.
  - FY2010 indicative net administrative budget: rise by 2.3 percent.

### Delivering the MTS under constraint — measures and departmental impacts
- MTB approach: deliver the MTS (approved April 2006) while cutting back real administrative resources; reallocate resources to new needs/priorities fully offset by raising cost-effectiveness and scaling back lower priority activities.
- Measures to achieve cuts and reallocation:
  - Targeted reductions in input costs, particularly support services, to shift resources from “back office” to “front line” work.
  - Align Fund business practices and policies with best practices of other International Financial Institutions, as appropriate.
  - Tighter budget constraints on, and enhanced monitoring of, all Fund departments and offices.
- Departmental business plan initial FY2008 directions:
  - Increase in share of administrative resources devoted to global monitoring.
  - Small increase in resources allocated to capacity building, with Central AFRITAC coming fully into operation.
  - Some reduction in share devoted to Fund-supported financial programs and near program arrangements.
  - After classification changes, share devoted to country and regional surveillance projected to remain broadly flat.
- FY2009–FY2010 assumptions:
  - Increased share to country and regional surveillance offset by smaller share to capacity building (driven by conservative assumptions on external financing).
  - Small reduction in share to global monitoring reflecting a peaking of quotas and voice work in FY2008.
  - Increasingly large planning reserves held in both FY2009 and FY2010.

### Reserves, contingency, and planning reserves
- Reserves rise over the MTB:
  - Reserves increase from 1 percent of the net budget in FY2008 to 1.6 percent in FY2009 and 2.2 percent in FY2010.
- FY2008 specific reserves:
  - Contingency reserve: $4.6 million (against $3 million last year); contingency reserve set at 0.5 percent of the net administrative budget.
  - Central reserve for MTS-related initiatives: $5 million (vis-à-vis last year’s $3 million).
- Planning reserves:
  - Planning reserves created for FY2009 and FY2010 to cope with larger uncertainty in outer years.

### External deflator, historical values, and budget rolling
- External deflator applied to all three years and updated each January on a rolling basis.
- Deflator composition: personnel component (weighted average of U.S. public sector salaries, financial sector total compensation, private industrial sector total compensation) and nonpersonnel component (year-on-year change in Washington-Baltimore CPI).
- Deflators applied:
  - FY2007–FY2009 envelope: 3.5 percent.
  - Proposed FY2008–FY2010 envelope: 2.7 percent.
- Selected historical external deflator values (percent):
  - 1999: 3.0
  - 2000: 3.2
  - 2001: 4.4
  - 2002: 3.9
  - 2003: 3.7
  - 2004: 4.1
  - 2005: 4.6
  - 2006: 3.4
  - 2007: 3.5
  - 2008: 2.7

### Budget figures and envelopes (selected exact figures)
- Approved FY2007–FY2009 MTB (A), net budget (millions of U.S. dollars):
  - FY2007: 911.9
  - FY2008: 929.6
  - FY2009: 952.8
  - Percent increase on previous financial year: FY2008 4.1; FY2009 1.9; FY2010 2.5
  - Central receipts estimate: FY2007 68.3; FY2008 70.7; FY2009 73.2
  - Gross expenditures: FY2007 980.2; FY2008 1,000.3; FY2009 1,026.0
  - Overseas Annual Meetings: FY2007 5.0; FY2008 0.0; FY2009 0.0
- Rolling forward FY2007–FY2009 to FY2008–FY2010 (B):
  - Estimated net budget in February 2007: FY2008 925.0; FY2009 943.5; FY2010 967.9
  - Adjustment for revised deflator: FY2008 -2.7; FY2009 -5.5; FY2010 -8.5
- FY2008–FY2010 MTB (C), net budget (millions of U.S. dollars):
  - FY2008: 922.3
  - FY2009: 938.0
  - FY2010: 959.4
  - Percent increase on previous financial year: FY2008 1.1; FY2009 1.7; FY2010 2.3
  - Revised central receipts estimate: FY2008 71.4; FY2009 71.7; FY2010 71.7
  - Gross expenditures: FY2008 993.8; FY2009 1,009.7; FY2010 1,031.1
  - Overseas Annual Meetings: FY2008 0.0; FY2009 0.0; FY2010 5.4
  - Upper receipts estimate: FY2008 75.9; FY2009 76.1; FY2010 76.2
  - Upper limit on gross expenditures: FY2008 998.2; FY2009 1,014.1; FY2010 1,035.6
- Allocation of gross expenditures and reserves (selected):
  - Gross expenditures estimate: FY2007 980.2; FY2008 993.8; FY2009 1,009.7; FY2010 1,031.1
  - Reserves total: FY2007 6.0; FY2008 9.6; FY2009 15.4; FY2010 21.4
    - Contingency reserve: FY2007 3.0; FY2008 4.6
    - Central reserve: FY2007 3.0; FY2008 5.0
    - Planning reserve: FY2009 15.4; FY2010 21.4
  - Gross expenditures allocated to outputs/departments: FY2007 974.2; FY2008 984.1; FY2009 994.3; FY2010 1,009.7
- Top-down envelope squeeze and FY2008 tightening:
  - Overall top-down envelope squeeze relative to estimated cost of continuing current policies estimated at $20 million for FY2008.
  - Additional tightening needed to make room for $3.6 million addition to reserves.
  - Cost reducing measures totaling $23.6 million had to be found for FY2008.

### Cost-reducing measures and efficiency initiatives (selected savings and sources)
- Support services and IT measures:
  - OIA zero-based review identified scope for cost reduction mostly in non-staff costs (contractual services and procurement) while broadly maintaining current service levels next year.
  - Offshoring certain IT services already outsourced within the United States will start reducing support service costs next year, with greater savings in outer years.
  - Cost reductions from past and ongoing IT investments (mainly STA and TGS, and OBP) yielding lower numbers of clerical/administrative staff needed.
  - Aggregate support services savings: about $8 million in FY2008, with larger savings in outer years.
- Management efficiency initiatives:
  - Travel Policy Working Group to recommend changes; some FY2008 per diem changes envisaged; substantive savings mainly FY2009 and beyond.
  - FY2008 budget for cost of staff separations set at $5 million (down from $9.7 million in FY2007 after expiration of Staff Restructuring Initiative).
  - Aggregate savings from these sources: about $6.5 million in FY2008; larger savings expected in outer years.
- Departmental downward pressure expected to yield $9 million in FY2008 (exclusive of support services savings).

### Departmental allocations, staffing impacts, and performance monitoring
- All departmental and office budgets agreed for FY2008; varying cuts in real administrative resources across groups.
- Likely reduction in staff years or Full-Time Equivalents (FTEs) in FY2008 as in prior two years.
- Area departments: nominal budget increase set just below levels needed to sustain existing real resource base (after technical adjustment devolving certain resident representative expenses).
- Support departments: nominal budgets fall.
- Functional departments: FIN and RES budgets grow in real terms for quotas and voice and multilateral surveillance; PDR nominal budget remains flat in FY2008 with a decline in FTEs due to OIA zero-based review and MTS implementation.
- Introduction of performance measures in FY2008 to enhance budget monitoring and comparative analysis of departmental business plans.

### Task forces and major reviews (selected)
- Task Force on the Reform of the MBP:
  - Chaired by a Deputy Managing Director; addressing Employment, Compensation and Benefits Review (ECBR) recommendations and MBP financial fluctuations; plans to complete work during 2007 and start implementing some recommendations in FY2008.
- Travel Policy Working Group:
  - Comprehensive review of travel policies and business model against best practices.
- Task Force on SRP Reform:
  - Reviewing retirement benefits; expected completion by this fall; will review SRP remuneration base and payment of pensions (gross vs net-of-tax salary basis and tax allowance payment for income tax on pensions).
- Further zero-based reviews and management task forces to improve program design and long-run financial sustainability.

### Reallocation by Key Output Area (KOA) and performance indicators
- New performance indicators introduced from FY2008; specific proposals to be described in a companion paper.
- Reallocations within declining real envelope: shift from support departments to area and functional departments.
- KOA shares (percent share of total gross expenditures, excluding reserves), selected FY2007 outturn and FY2008 budget:
  - Global Monitoring: FY2007 Outturn 14.1; FY2008 Budget 17.4
    - Oversight of the international monetary system: FY2007 Outturn ...3.8; FY2008 Budget 5.0
    - Multilateral surveillance: ...4.0; 4.6
    - General outreach: ...3.1; 4.3
  - Country specific and regional monitoring: FY2007 Outturn 33.9; FY2008 Budget 33.7
    - Bilateral surveillance: ...30.6; 27.7
    - Regional surveillance: ...2.6; 2.8
    - Standards and codes and financial sector assessments: ...3.6; 3.2
  - Country programs and financial support: FY2007 Outturn 27.2; FY2008 Budget 24.4
  - Capacity Building: FY2007 Outturn 24.8; FY2008 Budget 24.5
    - Technical assistance: ...20.0; 17.4
    - External training: ...3.9; 7.1
- Note: Because of reclassifications, FY2007 and FY2008 figures are not directly comparable.

### Administrative budget by major expenditure category (selected exact figures)
- I. Personnel (millions of U.S. dollars; percent share of gross expenditures)
  - FY2007 Outturn: 712.1; 73.1 percent
  - FY2008 Budget: 700.2; 71.9 percent
  - FY2009 Projected: 723.1; 73.5 percent
  - FY2010 Projected: 735.5; 74.0 percent
  - Salaries FY2008 Budget: 407.5; 41.8 percent
  - Benefits FY2008 Budget: 292.7; 30.0 percent
- II. Travel FY2008 Budget: 97.0; 10.0 percent
- III. Building and other expenditures FY2008 Budget: 171.9; 17.6 percent
- IV. Annual Meetings FY2008 Budget: 5.0; 0.5 percent
- V. Reserves FY2008 Budget: 6.0; 0.6 percent
- Gross Expenditures FY2008 Budget: 974.5; 100.0 percent
- Receipts FY2008 Budget: -66.9; -6.9 percent
- Net Administrative Budget (selected):
  - FY2007 Outturn: 911.9; 93.6 percent
  - FY2008 Budget: 907.6; 93.1 percent
  - FY2009 Projected: 922.3; 93.7 percent
  - FY2010 Projected: 938.0; 94.3 percent

### Standard costs for staff resources
- Standard cost concept introduced in FY2003 to budget personnel in dollar terms and provide flexibility across resource categories.
- Computation steps: project average salary for groups A1-A8, A9-A15, B1-B5; determine average benefits relative to salaries in each group; escalate by assumed increases.

### Receipts, externally financed technical assistance, and drivers of FY2008 receipts
- Total receipts (millions of U.S. dollars):
  - FY2007 Central Estimate: 68.3
  - FY2008 Central Estimate: 71.4
  - FY2008 Upper Limit: 75.9
  - FY2009 Central Estimate: 71.7
  - FY2010 Central Estimate: 71.7
- Externally financed technical assistance (millions of U.S. dollars):
  - FY2007 Central Estimate: 40.1
  - FY2008 Central Estimate: 44.5
  - FY2008 Upper Limit: 48.9
  - FY2009 Central Estimate: 44.6
  - FY2010 Central Estimate: 44.8
  - Direct Costs FY2008 Central: 39.4; Support Costs FY2008 Central: 5.0
- Drivers of FY2008 receipts increase to $71.4 million (a 4.5 percent increase over last year’s budget central estimate):
  - Full operation of the third AFRITAC in FY2008 with associated administrative expenditures of some $5 million, of which $4.5 million will be externally financed by donors and the host country.
  - New India Training Program expected to add to external receipts.
  - Other receipts items (travel commissions, Concordia apartments) projected to be less buoyant in FY2008.
  - Over the remainder of the MTB period, receipts from all sources projected to remain broadly flat in nominal terms.

### Medium-term capital budget and capital program governance
- Executive Board approval sought for capital appropriation of $46.6 million for capital projects beginning in FY2008.
- FY2008 capital appropriation continues downward trend from FY2007; three-year capital plan FY2008–FY2010 reflects nominal reduction of 2.1 percent, or $3.0 million, relative to FY2007–FY2009 plan.
- Capital budget composition: building facilities, information technology, and major building works.
- IT capital program governed by CIO and Committee on Business and Information Technology.
- Project appraisal and limits:
  - Project duration/funds limited to three years; funds lapse if not spent within this time frame.
  - CBA required for major building works and major IT system development projects with value in excess of $500,000.
- Selected capital plan figures (millions of U.S. dollars):
  - Table 7 Current Plan totals (FY2007–FY2010): FY2007 $48.1; FY2008 $46.6; FY2009 $46.3; FY2010 $141.0 (total)
  - Table 7 Requested Plan totals (FY2007–FY2010): FY2007 $46.6; FY2008 $46.7; FY2009 $44.7; FY2010 $138.0 (total)
  - Table 8 selected annual totals:
    - Total Capital Expenditures: FY2000 $39.5; FY2001 $34.7; FY2002 $61.5; FY2003 $52.3; FY2004 $88.2; FY2005 $126.0; FY2006 $54.9; FY2007 $49.1; FY2008 $55.9; FY2009 $54.1; FY2010 $51.7

### Capital benchmarks, vetting, and administrative accounting implications
- Capital benchmarks since FY2003:
  - Building facility capital projects capped at 3 percent (moving average) of HQ1 asset value.
  - Total IT expenditures capped at 11 percent of aggregate net administrative and capital budgets.
  - Both benchmarks under review in FY2008 due to addition of HQ2 and industry changes affecting IT spending.
- IT project vetting and reduction example:
  - Of $102.6 million in IT capital projects submitted for FY2008—FY2010, review reduced the request to $84.0 million.
  - CBA and payback/net present value analysis applied depending on project size.
- Administrative expenses and capital treatment (selected FY2007 figures, millions of U.S. dollars):
  - Net administrative budget (estimated outturn) FY2007: $908
  - Capital budget items not capitalized: $26
  - Depreciation expense: $33
  - Administrative expenses after capital-related adjustments (A): $967
  - Income sources (B): $806
    - Income from lending operations: $358
    - Investment and other income: $448
  - Income surplus/shortfall (B−A): −$161
  - Capital expenditures (budget definition): $49
  - Capital-related expenses (accounting definition): $59
  - Assumed U.S. dollar/SDR exchange rate: 1.49
- Projected under proposed administrative and capital budget: administrative expenses projected to increase at an average annual rate of 2.1 percent.

### Trust and other administration costs (selected SDR figures)
- Estimated cost of administering the MDRI-I in FY2007: SDR 2.3 million (budget estimate: SDR 1.7 million); projected cost for FY2008: SDR 1.6 million.
- Estimated cost of administering the PRGF-ESF Trust in FY2007: SDR 48.4 million (budget estimate: SDR 58.0 million); projected for FY2008: SDR 50.2 million.
- Estimated costs of administering the SDR Department in FY2007: SDR 1.0 million (budget estimate: SDR 1.3 million); projected for FY2008: SDR 1.3 million.

### Proposed Board decisions (excerpts, exact wording summarized)
- Decision No. 1 — Administrative Budget for Financial Year 2008:
  1. Appropriations for net administrative expenditures for FY2008 are approved in the total amount of $922,300,000.
  2. A limit on gross administrative expenditures is approved in the total amount of $998,200,000.
  3. Any commitment going beyond the above amounts will be submitted to the Executive Board for approval.
- Decision No. 2 — Capital Budget for Projects Beginning in Financial Year 2008:
  1. Appropriations for capital projects beginning in FY2008 are approved in the total amount of $46,600,000 and are applied to the following project categories:
     - I. Building facilities $20,600,000
     - II. Information technology $26,000,000

*Source: Executive Summary and selected excerpts, _033007 - Executive Summary, FY2008–FY2010 Medium-Term Budget and Capital Plan.*

### Executive Summary ......................................................................................................

### Executive Summary

### Overview and budget stance
- Presents proposals for the FY2008–FY2010 medium-term administrative budget (MTB) and the medium-term capital budget, and seeks Board approval for the FY2008 annual net administrative budget.
- MTB policy: envisage a 1 percent real reduction each year—measured against the external deflator—in the Fund’s net administrative budget.
- External deflator used to set the nominal budget: 2.7 percent.
  - The 1 percent real cut relative to the deflator implies a 1.7 percent nominal increase in net administrative resources each year (external deflator held constant over the medium term).
  - Because a special addition for Annual Meetings abroad was included in FY2007, the budget-to-budget increase proposed for FY2008 is 1.1 percent.
- The external deflator at 2.7 percent is:
  - 0.3 percentage points lower than the estimate given in the February 2007 COB paper.
  - 0.8 percentage points lower than the figure used last year in setting the FY2007–FY2009 MTB.
- The lower deflator reduces the proposed nominal net administrative budget:
  - The FY2008 net administrative budget figure is $2.7 million lower than that presented to the COB in February.
  - The indicative net budget envelopes for FY2009 and FY2010 are reduced by $5.5 million and $8.5 million respectively.

### Resource and real-impact implications
- The Fund’s internal costs have tended to rise about 1 percent faster than the external deflator in recent years.
  - Under the MTB, this implies a reduction in real administrative resources (staff numbers, travel volumes and level of support services) of about 2 percent each year.
  - On this basis, by FY2010 the real administrative budget will have been cut by some 6 percent.
- Personnel costs account for more than 70 percent of gross administrative expenditures.
  - Unit personnel costs are estimated at around 4 percent in FY2008.
  - Staff estimate that the lower deflator will moderate the rise in internal costs by about $0.8 million at most.
- The cost of delivering the MTS on current policies in FY2008 is now estimated at $20 million higher than the proposed budget envelope (versus $18 million estimated in February).
  - Actions to reduce administrative expenditures by some $20 million must be taken to align business and administrative policies with the proposed FY2008 budget; larger actions will be required for FY2009 and FY2010.

### Budget totals and capital
- Executive Board is asked to appropriate $922.3 million for FY2008 net administrative expenditures.
  - This is an increase of 1.1 percent over last year’s budget (1.7 percent on an underlying basis)—the lowest such increase in the last decade, and below the 2.7 percent increase in the Fund’s external deflator.
- Executive Board is asked to take note of indicative budgets:
  - FY2009 indicative net administrative budget: rise by 1.7 percent.
  - FY2010 indicative net administrative budget: rise by 2.3 percent.
- Executive Board is asked to approve an upper limit on gross expenditures of $998.2 million, based on an upper estimate for receipts.
- Capital approvals requested:
  - $46.6 million for capital projects beginning in FY2008.
  - Executive Board asked to take note of the medium-term capital plan totaling $138 million (a small nominal reduction in planned capital spending over the medium term relative to the FY2007 capital plan).

### Delivering the Medium-Term Strategy (MTS) under constraint
- The MTB has been formulated to deliver the MTS (approved April 2006) while cutting back real administrative resources.
  - MTS envisages reallocating resources to meet new needs/priorities, fully offset by raising cost-effectiveness of existing operations and scaling back or eliminating lower priority activities.
- Measures incorporated in the proposed MTB to achieve cuts and reallocation:
  - Targeted reductions in input costs, particularly in support services, to shift resources from “back office” activities to “front line” work.
  - Measures to ensure Fund business practices and policies are in line with best practices of other International Financial Institutions, as appropriate.
  - Tighter budget constraints on, and enhanced monitoring of, all Fund departments and offices.
- Departmental business plans (initial FY2008 figures):
  - Increase in share of administrative resources devoted to global monitoring.
  - Small increase in resources allocated to capacity building, with Central AFRITAC coming fully into operation.
  - Some reduction in share devoted to Fund-supported financial programs and near program arrangements.
  - After classification changes, the share devoted to country and regional surveillance is projected to remain broadly flat.
- For FY2009 and FY2010:
  - Most significant change is an increased share of resources to country and regional surveillance, offset by a smaller share to capacity building (driven largely by conservative assumptions on external financing availability/application).
  - Small reduction in share going to global monitoring reflecting a peaking of work on quotas and voice in FY2008.
  - Increasingly large planning reserves, not allocated to specific departments or outputs, are held in both FY2009 and FY2010 to allow for changes in program numbers and further MTS implementation.

### Key operational requests to the Executive Board
- Appropriate $922.3 million for FY2008 net administrative expenditures.
- Approve an upper limit on gross expenditures of $998.2 million.
- Approve $46.6 million for capital projects beginning in FY2008.
- Take note of the medium-term capital plan totaling $138 million and the indicative budgets for FY2009 and FY2010.

*Source: Executive Summary, _033007 - Executive Summary, FY2008–FY2010 Medium-Term Budget and Capital Plan.*

### 10.      This year marks the implementation of a full medium-term administrative

### _033007 - 10.      This year marks the implementation of a full medium-term administrative

### Medium-Term Budget Overview
- Implementation of a full medium-term administrative budget with three-year business plans for Fund departments and offices.
- External deflator held flat throughout the MTB period as a simplifying assumption so outer-year budget figures reflect real changes.
- MTB must allow for uncertainty: price and demand (volume) factors, further implementation of the MTS, completion/downgrading of current exercises, and emergence of new priorities and initiatives.

### Reserves and Contingency
- Provision for centrally held reserves that increase in size over the three-year period to reflect rising uncertainty.
- First step in allocating the proposed MTB: make provision for contingency and central reserve for the forthcoming financial year, and planning reserves for the two outer years.
- The reserves rise from 1 percent of the net budget in FY2008 to 1.6 percent in FY2009 and 2.2 percent in FY2010.
- FY2008 contingency reserve: $4.6 million (against $3 million last year); contingency reserve is set at 0.5 percent of the net administrative budget.
  - Contingency reserve designed to meet higher expenditures generated by exogenous demand or price changes (e.g., if overall number of Fund programs increase).
- Central reserve for MTS-related initiatives: $5 million (vis-à-vis last year’s $3 million).
  - Central reserve introduced in FY2007; for FY2008 available to departments on a demonstrated need basis for follow-up on Malan Committee, CEP, multilateral surveillance, and other MTS-related initiatives.
- Planning reserves for FY2009 and FY2010 created to cope with larger uncertainty in outer years.

### External Deflator
- External deflator used in setting nominal administrative budgets; applied to all three years in setting MTB envelope and updated each January on a rolling basis.
- Composition:
  - Personnel component: weighted average of most recent percentage changes in U.S. public sector salaries, financial sector total compensation, and private industrial sector total compensation.
  - Nonpersonnel component: latest year-on-year change in the Washington-Baltimore Consumer Price Index.
- Deflators applied:
  - FY2007–FY2009 envelope: 3.5 percent.
  - Proposed FY2008–FY2010 envelope: 2.7 percent.
- Historical external deflator values (selected rows from table):
  - 1999: External Deflator 3.0
  - 2000: External Deflator 3.2
  - 2001: External Deflator 4.4
  - 2002: External Deflator 3.9
  - 2003: External Deflator 3.7
  - 2004: External Deflator 4.1
  - 2005: External Deflator 4.6
  - 2006: External Deflator 3.4
  - 2007: External Deflator 3.5
  - 2008: External Deflator 2.7

### Budget Figures and Allocations (Table 2 and Table 3 extracts)
- Approved FY2007–FY2009 MTB (A):
  - Net budget: FY2007 911.9; FY2008 929.6; FY2009 952.8 (in millions of U.S. dollars)
  - percent increase on previous financial year: FY2008 4.1; FY2009 1.9; FY2010 2.5
  - Central receipts estimate: FY2007 68.3; FY2008 70.7; FY2009 73.2
  - Gross expenditures: FY2007 980.2; FY2008 1,000.3; FY2009 1,026.0
  - Overseas Annual Meetings: FY2007 5.0; FY2008 0.0; FY2009 0.0
- Rolling forward FY2007–FY2009 to FY2008–FY2010 (B):
  - Estimated net budget in February 2007: FY2008 925.0; FY2009 943.5; FY2010 967.9
  - percent increase on previous financial year: FY2008 1.4; FY2009 2.0; FY2010 2.6
  - Adjustment for revised deflator: FY2008 -2.7; FY2009 -5.5; FY2010 -8.5
- FY2008–FY2010 MTB (C):
  - Net budget: FY2008 922.3; FY2009 938.0; FY2010 959.4
  - percent increase on previous financial year: FY2008 1.1; FY2009 1.7; FY2010 2.3
  - Revised central receipts estimate: FY2008 71.4; FY2009 71.7; FY2010 71.7
  - Gross expenditures: FY2008 993.8; FY2009 1,009.7; FY2010 1,031.1
  - Overseas Annual Meetings: FY2008 0.0; FY2009 0.0; FY2010 5.4
  - Upper receipts estimate: 75.9, 76.1, 76.2 (FY2008–FY2010)
  - Upper limit on gross expenditures: FY2008 998.2; FY2009 1,014.1; FY2010 1,035.6
- Allocation of gross expenditures and reserves (Table 3):
  - Gross expenditures estimate: FY2007 980.2; FY2008 993.8; FY2009 1,009.7; FY2010 1,031.1
  - Reserves total: FY2007 6.0; FY2008 9.6; FY2009 15.4; FY2010 21.4
    - Contingency reserve: FY2007 3.0; FY2008 4.6; FY2009 n.a.; FY2010 n.a.
    - Central reserve: FY2007 3.0; FY2008 5.0; FY2009 n.a.; FY2010 n.a.
    - Planning reserve: FY2007 n.a.; FY2008 n.a.; FY2009 15.4; FY2010 21.4
  - Gross expenditures allocated to outputs/departments (and offices): FY2007 974.2; FY2008 984.1; FY2009 994.3; FY2010 1,009.7
  - Overseas Annual Meetings within allocations: FY2007 5.0; FY2008 0.0; FY2009 0.0; FY2010 5.4
- Overall top-down envelope squeeze relative to estimated cost of continuing current policies estimated at $20 million for FY2008.
  - Additional tightening needed to make room for $3.6 million addition to reserves.
  - Cost reducing measures totaling $23.6 million had to be found for FY2008.

### Cost-Reducing Measures
- Objectives: ensure MTS priorities delivered despite tighter real resource envelope through targeted reductions and general budget squeeze to encourage efficiency.
- Shifting resources from “back office” (support activities) to “front line” work.
- Support services and IT measures:
  - OIA zero-based review of support services and internal TGS work identified scope for cost reduction mostly in non-staff costs (contractual services and procurement) while broadly maintaining current service levels for next year.
  - Offshoring certain IT services already outsourced within the United States will start reducing support service costs next year, with greater savings in outer years.
  - Cost reductions from past and ongoing IT investments (mainly STA and TGS, and OBP), yielding lower numbers of clerical/administrative staff needed.
  - Aggregate support services savings: about $8 million in FY2008, with larger savings in outer years.
- Management efficiency initiatives:
  - Travel Policy Working Group to recommend changes on airline ticketing, hotel booking, daily subsistence allowances (per diem), and other official travel elements; some FY2008 per diem changes envisaged; substantive savings mainly FY2009 and beyond.
  - Review of separation policies and financial provisions under Separation Benefits Fund:
    - FY2008 budget for cost of staff separations set at $5 million (down from $9.7 million in FY2007 after expiration of Staff Restructuring Initiative).
  - Aggregate savings from these sources: about $6.5 million in FY2008; larger savings expected in outer years.

### Departmental Impacts and Staffing
- All departmental and office budgets agreed for FY2008; groups face varying cuts in real administrative resources.
- Flexibility allowed in applying resources to different inputs; likely reduction in staff years or Full-Time Equivalents (FTEs) in FY2008 as in prior two years.
- Year-to-year nominal departmental budget changes driven by MTS priorities:
  - Area departments: nominal budget increase set just below levels needed to sustain existing real resource base (after a technical adjustment devolving certain resident representatives expenses).
  - Support departments: nominal budgets fall (figures provided in forthcoming companion paper).
  - Non-TA functional: FIN and RES budgets grow in real terms for quotas and voice and multilateral surveillance; PDR nominal budget remains flat in FY2008 with a decline in FTEs due to OIA zero-based review and MTS implementation.
- Introduction of performance measures in FY2008 to enhance budget monitoring and comparative analysis of departmental business plans.
- Downward pressure on departmental budgets in FY2008 expected to yield $9 million (exclusive of support services savings).

### Task Forces and Reviews (Box 2)
- Task Force on the Reform of the MBP:
  - Chaired by a Deputy Managing Director; addressing Employment, Compensation and Benefits Review (ECBR) recommendations and MBP financial fluctuations.
  - Considering projection/control of medical costs and ways to slow growth while maintaining coverage.
  - Plans to complete work during 2007 and start implementing some recommendations in FY2008.
- Travel Policy Working Group:
  - Comprehensive review of travel policies, administration, and business model against best practices.
  - Focus on leveraging purchasing power for airline tickets, systems for hotel accommodation purchase, and basis for setting per diem allowances.
- Task Force on SRP Reform:
  - Chaired by a Deputy Managing Director; reviewing retirement benefits to adapt defined benefit scheme to evolving staffing requirements.
  - Examining level and service-based accrual rates, potential complementing with a voluntary savings plan, facilitating benefits portability for short-term and mid-career appointments.
  - Expected completion by this fall; will review SRP remuneration base and payment of pensions (gross vs net-of-tax salary basis and tax allowance payment for income tax on pensions).
- Other reviews: further zero-based reviews of departments and additional management-established task forces/working groups to improve program design and long-run financial sustainability.

### Delivering the MTS within the MTB
- Allocation of FY2008 resources within the MTB designed to enable full delivery of MTS objectives.
- Principal MTS objectives summarized:
  - Modernize framework for surveillance and improve effectiveness: sharper, more focused surveillance; greater emphasis on financial sector; increased stress on external stability; better analysis of spillovers via multilateral and regional surveillance; streamlining Article IV reports.
  - Enhance crisis prevention in emerging market economies: strengthen diagnosis of vulnerabilities; greater focus on financial and capital markets; broaden CGER to include major emerging market currencies; consider a new liquidity instrument (Reserve Augmentation Line); strengthen crisis management preparedness.
  - More effective engagement in low-income countries (LICs): new instruments (Policy Support Instrument, Exogenous Shock Facility); debt relief (Heavily Indebted Poor Countries and Multilateral Debt Relief Initiative); better policy advice and program design; rigorous debt sustainability framework; clarify Fund role in LICs and interactions with donors; improved coordination with World Bank (Malan report).
  - More integrated approach to capacity building: better alignment within Fund and country priorities; enhanced role for area departments; better targeting of activities; full operation of Central AFRITAC.
  - Governance reforms: consider new quota formula and increase in basic votes; increase staffing resources for Executive Directors elected by a large number of members.
  - Put institution on a more stable financial basis: develop new income model following CEP report; implement real spending cuts as part of MTB/MTS and further budget reforms.

*Source: Office of Budget and Planning, IMF medium-term administrative budget and MTS implementation (excerpts).*

### introduction of Fund-wide performance indicators.

### introduction of Fund-wide performance indicators

### Overview and context
- The present activity indicators are being replaced by new performance indicators as from FY2008; specific proposals will be described in a companion paper.
- Departmental business plans for the next three years were not finalized at the time of this report; available information on planned changes is preliminary.
- A review of systems for allocating staff time and other resources led to changes in the allocation of certain resources to outputs (see Box 3); some FY2008 differences versus FY2007 reflect reclassifications, and some reflect genuine redeployments.

### Reallocations by Key Output Area (KOA) and main developments
- Within a declining real administrative resource envelope, the FY2008 budget reallocates resources from back office activities to work on KOAs, implying a relative shift from support departments to area and functional departments.
- An increase in the share of administrative resources going to global monitoring (particularly oversight of the international monetary system) is envisaged in FY2008; this partly reflects reclassification and partly redeployment for quotas and voice and general outreach.
- The share of resources devoted to capacity building in FY2008 is expected to be slightly higher than in FY2007, then projected to fall a little over FY2009 and FY2010; FY2008 planned share takes account of the full operation of the Central AFRITAC.
- The figures for country specific and regional monitoring and country programs and financial support KOAs are more difficult to interpret and driven principally by reclassification; country programs and financial support remain broadly flat over the MTB by assumption.

### Further changes to allocation of administrative expenditures to outputs (Box 3)
- Reclassifications made following the Second Task Force on Performance Indicators and FY2008 departmental submissions:
  - Operational support to the Board of Governors and the IMFC reclassified from Governance to Global Monitoring (Oversight of the International Monetary System).
  - Administrative costs incurred by INS for Institute training reallocated from technical assistance to external training.
  - EXR reclassified some support costs (mainly publications) into general outreach.
  - Allocation of building and other expenses revised based on departmental budget submissions.
- Examples of departmental redeployments:
  - EXR is putting more resources into general outreach and less into country work and general support activities.
  - FIN is shifting resources into income and quota work.

### Estimated gross administrative expenditures by KOA and constituent outputs (Table 4, percent share of total gross expenditures, excluding reserves)
- Total, excluding reserves: FY2007 Outturn 100.0; FY2007 Outturn 100.0; FY2008 Budget 100.0; FY2009 Budget 100.0; FY2010 Budget 100.0
- Global Monitoring: FY2007 Outturn 14.1; FY2007 Outturn 14.2; FY2008 Budget 17.4; FY2009 Budget 17.2; FY2010 Budget 17.0
  - Oversight of the international monetary system: ...3.8; 5.0; 4.9; 4.8
  - Multilateral surveillance: ...4.0; 4.6; 4.6; 4.5
  - Cross-country statistical info. & methodologies: ...3.2; 3.0; 2.9; 2.9
  - General research: ...0.1; 0.4; 0.4; 0.4
  - General outreach: ...3.1; 4.3; 4.3; 4.3
- Country specific and regional monitoring: 33.9; 36.7; 33.7; 34.3; 34.5
  - Bilateral surveillance: ...30.6; 27.7; 28.1; 28.3
  - Regional surveillance: ...2.6; 2.8; 2.9; 3.0
  - Standards and codes and financial sector assessments: ...3.6; 3.2; 3.2; 3.3
- Country programs and financial support: 27.2; 25.1; 24.4; 24.5; 24.6
- Generally available facilities: ...13.7; 11.1; 11.1; 11.2
- Facilities specific to low-income countries: ...11.4; 13.3; 13.4; 13.5
- Capacity Building: 24.8; 24.0; 24.5; 24.0; 23.8
  - Technical assistance: ...20.0; 17.4; 16.9; 16.8
  - External training: ...3.9; 7.1; 7.1; 7.0
- Memorandum items (in millions of U.S. dollars):
  - Governance: 96.1; 92.6; 90.6; 93.2; 97.5
  - Reserves 3/: 3.0; n.a.; 9.6; 15.4; 21.4
  - Total gross expenditures: 980.2; 955.5; 993.8; 1,009.7; 1,031.1
- Note: Because of changes in Box 3, FY2007 and FY2008 figures are not directly comparable.

### Interpretation of outer-year allocations and budgetary constraints
- Departments faced a 3 percent real reduction in their budgets for FY2009 and FY2010 in developing business plans.
- The combined budget policy stance comprises: a 1 percent reduction against the external deflator; an assumed further 1 percent gap between the deflator and the rise in the Fund’s internal costs; and application of a 1 percent efficiency tax to create higher reserves—effectively squeezing departmental budgets by around 3 percent in each outer year.
- Release of resources from planning reserves as the MTB is rolled forward will likely lead to further changes in planned shares by output.

### Proposed MTB by input — administrative budget by major expenditure category (Table 5)
- I. Personnel (in millions of U.S. dollars; percent share of gross expenditures)
  - FY2008 Budget: 700.2; 71.9 percent
  - FY2007 Outturn: 712.1; 73.1 percent
  - FY2009 Projected: 723.1; 73.5 percent
  - FY2010 Projected: 735.5; 74.0 percent
  - Salaries:
    - FY2008 Budget: 407.5; 41.8 percent
    - FY2007 Outturn: 405.0; 41.6 percent
    - FY2009 Projected: 424.6; 43.1 percent
    - FY2010 Projected: 430.4; 43.3 percent
  - Benefits:
    - FY2008 Budget: 292.7; 30.0 percent
    - FY2007 Outturn: 307.1; 31.5 percent
    - FY2009 Projected: 298.5; 30.3 percent
    - FY2010 Projected: 305.1; 30.7 percent
- II. Travel
  - FY2008 Budget: 97.0; 10.0 percent
  - FY2007 Outturn: 91.6; 9.4 percent
  - FY2009 Projected: 100.5; 10.2 percent
  - FY2010 Projected: 100.4; 10.1 percent
- III. Building and other expenditures
  - FY2008 Budget: 171.9; 17.6 percent
  - FY2007 Outturn: 165.3; 17.0 percent
  - FY2009 Projected: 160.6; 16.3 percent
  - FY2010 Projected: 158.4; 15.9 percent
- IV. Annual Meetings
  - FY2008 Budget: 5.0; 0.5 percent
- V. Reserves 3/
  - FY2008 Budget: 6.0; 0.6 percent
  - FY2009 Projected: 9.6; 1.0 percent
  - FY2010 Projected: 15.4; 1.5 percent
- Gross Expenditures:
  - FY2007 Outturn: 980.2; 100.6 percent
  - FY2008 Budget: 974.5; 100.0 percent
  - FY2009 Projected: 993.8; 101.0 percent
  - FY2010 Projected: 1,009.7; 101.5 percent
  - FY2010 Projected (alternate line): 1,031.1; 102.1 percent
- Receipts:
  - FY2007 Outturn: -68.3; -7.0 percent
  - FY2008 Budget: -66.9; -6.9 percent
  - FY2009 Projected: -71.4; -7.3 percent
  - FY2010 Projected: -71.7; -7.2 percent
  - FY2010 Projected (alternate line): -71.7; -7.1 percent
- Net Administrative Budget:
  - FY2007 Outturn: 911.9; 93.6 percent
  - FY2008 Budget: 907.6; 93.1 percent
  - FY2009 Projected: 922.3; 93.7 percent
  - FY2010 Projected: 938.0; 94.3 percent
  - FY2010 Projected (alternate line): 959.4; 95.0 percent
- Note: Excludes the $3 million held in central reserves in FY2007 previously shown under Building and other expenditures. Excluding an additional contribution to the SRP Service Credit Program, the share of personnel in gross expenditures allocated to outputs is projected at 72.5 percent.

### Standard costs for staff resources (Box 4)
- Standard cost concept introduced in FY2003 to budget personnel in dollar terms and provide flexibility across resource categories.
- Rationale: ensures no financial incentive to differentiate staff by salary level, gender, nationality, or benefit entitlement.
- Computation involves:
  - Projecting average salary for three groups: A1-A8, A9-A15, and B1-B5 (with a separate calculation within B1-B5 for Fund Executive Director employees).
  - Determining average benefits relative to salaries in each group.
  - Average salary: total estimated salary paid to each group divided by assessed full-time equivalent, escalated by assumed increase in salaries for coming year.
  - Average benefit: estimated cost of main benefits and allowances divided by assessed FTEs, escalated by projected increase in cost of benefits.

### Receipts and externally financed technical assistance (Table 6)
- Total receipts (in millions of U.S. dollars):
  - FY2007 Central Estimate: 68.3
  - FY2008 Central Estimate: 71.4
  - FY2008 Upper Limit: 75.9
  - FY2009 Central Estimate: 71.7
  - FY2010 Central Estimate: 71.7
- Externally Financed Technical Assistance:
  - FY2007 Central Estimate: 40.1
  - FY2008 Central Estimate: 44.5
  - FY2008 Upper Limit: 48.9
  - FY2009 Central Estimate: 44.6
  - FY2010 Central Estimate: 44.8
  - Direct Costs: FY2007 35.6; FY2008 39.4; FY2008 Upper 43.3; FY2009 39.6; FY2010 39.6
  - Support Costs 1/: FY2007 4.5; FY2008 5.0; FY2008 Upper 5.5; FY2009 5.1; FY2010 5.1
- Scholarships (including administrative fees): FY2007 5.1; FY2008 5.1; FY2008 Upper 5.1; FY2009 5.1; FY2010 5.2
- Fund-sponsored sharing agreements 2/: FY2007 6.6; FY2008 6.3; FY2008 Upper 6.3; FY2009 6.0; FY2010 5.9
- Publications income: FY2007 4.0; FY2008 4.0; FY2008 Upper 4.0; FY2009 4.1; FY2010 4.1
- Concordia apartment: FY2007 2.7; FY2008 2.1; FY2008 Upper 2.1; FY2009 2.4; FY2010 2.6
- Travel commissions: FY2007 5.0; FY2008 5.0; FY2008 Upper 5.0; FY2009 5.0; FY2010 5.0
- Other miscellaneous reimbursements 3/: FY2007 2.6; FY2008 2.4; FY2008 Upper 2.4; FY2009 2.4; FY2010 2.2
- Parking: FY2007 2.1; FY2008 2.0; FY2008 Upper 2.0; FY2009 2.0; FY2010 2.0
- Drivers of FY2008 receipts increase to $71.4 million (a 4.5 percent increase over last year’s budget central estimate):
  - Full operation of the third AFRITAC in FY2008 with associated administrative expenditures of some $5 million, of which $4.5 million will be externally financed by donors and the host country.
  - New India Training Program expected to add to external receipts.
  - Other receipts items (travel commissions, Concordia apartments) projected to be less buoyant in FY2008.
  - Over the remainder of the MTB period, receipts from all sources projected to remain broadly flat in nominal terms.
  - External finance figures for FY2009 and FY2010 estimated after consultations with OTM and TA departments and are subject to considerable uncertainty.

### Medium-term capital budget
- Executive Board approval sought for a capital appropriation of $46.6 million for capital projects beginning in FY2008.
- The FY2008 capital budget appropriation continues the downward trend that began in FY2007; three-year capital plan FY2008–FY2010 reflects a nominal reduction of 2.1 percent, or $3.0 million, relative to the FY2007–FY2009 plan.
- Table and figure information on capital expenditures over the last ten years provided in the source.

*Source: introduction of Fund-wide performance indicators.*

### Box 5.  The Fund’s Capital Budget: An Overview

### Box 5.  The Fund’s Capital Budget: An Overview

### Capital budget composition
- The capital budget comprises projects under three categories: building facilities, information technology, and major building works.
- Building facilities comprise regulatory, replacement, and new facility projects.
  - Regulatory projects: mandated by changes to building codes or industry regulations (e.g., changes in the fire code for office buildings), or essential for the protection of Fund staff and property.
  - Replacement projects: replacement of building structures or equipment at the end of their useful life.
  - New facility projects: provide new functions or capacity within the existing headquarters building (example: FY2002 reconfiguration for the child care center).
- Information technology capital includes microcomputers, servers and other infrastructure equipment; major software development projects have been included since FY2000.
- Major building works: the construction of HQ2 was the only major building works project in recent years; none is planned looking forward.

### IT capital program structure and governance
- The IT capital program is overseen by the Chief Information Officer (CIO).
- The CIO is supported by the Committee on Business and Information Technology, chaired by management, assisting in review and prioritization of projects.
- The IT capital budget comprises four categories:
  - Enterprise Information Program: economic data management, document management and production, publications and information services (including communications), economic and other data transfer with member countries.
  - Administrative and Financial Information Program: administrative, financial and human resource application systems.
  - Infrastructure and Connectivity Program: network, remote access capabilities, overseas IT connectivity, purchase of new and replacement desktop and network computing equipment and communications links.
  - IT Planning and Management Program (Strategic projects): projects affecting the entire IT function or fundamentally shifting IT delivery.

### Capital budget procedures and project appraisal
- Project duration and funds are limited to three years; funds lapse if not spent within this time frame. Projects extending longer than three years require separate appropriations.
- Cost benefit analysis (CBA) and related requirements apply to both major building works and major IT system development projects with a value in excess of $500,000.
- Inclusion in the capital plan is subject to the resource envelope even after satisfactory appraisal.

### Historical and projected capital expenditures (selected figures)
- Table 7 medium-term capital plans (FY2007–FY2010) — Current Plan:
  - Building Facilities: FY2007 $19.8; FY2008 $20.6; FY2009 $14.3; FY2010 $54.7 (total)
  - Information Technology: FY2007 $28.3; FY2008 $26.0; FY2009 $32.0; FY2010 $86.3 (total)
  - Total: FY2007 $48.1; FY2008 $46.6; FY2009 $46.3; FY2010 $141.0 (total)
- Table 7 medium-term capital plans — Requested Plan:
  - Building Facilities: FY2007 $20.6; FY2008 $15.2; FY2009 $19.0; FY2010 $54.8 (total)
  - Information Technology: FY2007 $26.0; FY2008 $31.5; FY2009 $25.7; FY2010 $83.2 (total)
  - Total Requested: FY2007 $46.6; FY2008 $46.7; FY2009 $44.7; FY2010 $138.0 (total)
- Table 8 outturn and projected capital expenditures, selected annual figures (in millions of U.S. dollars):
  - Building Facilities (estimated/projected): FY2000 $12.4; FY2001 $15.9; FY2002 $22.9; FY2003 $14.0; FY2004 $14.3; FY2005 $30.6; FY2006 $21.0; FY2007 $18.8; FY2008 $26.4; FY2009 $22.4; FY2010 $21.7
  - Information Technology (IT): FY2000 $18.6; FY2001 $15.8; FY2002 $30.7; FY2003 $24.8; FY2004 $21.5; FY2005 $34.2; FY2006 $26.9; FY2007 $25.4; FY2008 $29.4; FY2009 $31.7; FY2010 $30.0
  - Total Building Facilities and IT: FY2000 $31.0; FY2001 $31.7; FY2002 $53.6; FY2003 $38.8; FY2004 $35.8; FY2005 $64.8; FY2006 $47.9; FY2007 $44.2; FY2008 $55.8; FY2009 $54.1; FY2010 $51.7
  - Major Building (includes HQ1 Phase III and HQ2), selected: FY2000 $8.5; FY2001 $3.0; FY2002 $7.9; FY2003 $13.5; FY2004 $52.4; FY2005 $61.2; FY2006 $7.0; FY2007 $4.9; FY2008 $0.1; FY2009 $0.0; FY2010 $0.0
  - Total Capital Expenditures: FY2000 $39.5; FY2001 $34.7; FY2002 $61.5; FY2003 $52.3; FY2004 $88.2; FY2005 $126.0; FY2006 $54.9; FY2007 $49.1; FY2008 $55.9; FY2009 $54.1; FY2010 $51.7

### Drivers of the medium-term capital outlook and benchmarks
- The lower planned level of capital expenditures over the medium term reflects near completion of security-related capital projects authorized after the September 11 2001 attacks, including:
  - (i) physical building security; and
  - (ii) the IT High Availability program.
- No further budget appropriation will be sought beyond that included in the FY2007–FY2009 medium-term capital plan for these initiatives.
- Since FY2003, capital appropriations have been capped relative to two benchmarks:
  - Building facility capital projects (largely capital maintenance): capped at 3 percent (on a moving average basis) of the asset value for HQ1.
  - Total IT expenditures: capped at 11 percent of the Fund’s aggregate net administrative and capital budgets.
- Both benchmarks are under review in FY2008 due to:
  - Addition of the HQ2 building to the Fund’s physical asset base (necessitating reexamination of the 3 percent benchmark).
  - Industry changes affecting IT spending (e.g., increasing offshoring), necessitating review of the 11 percent benchmark.
- Benchmarks will be revised in FY2008 and a new approach will guide the FY2009–FY2011 medium-term capital plan; proposals for FY2009 and FY2010 are provisional.

### Assessment and prioritization of individual capital projects (Box 6)
- Resource envelopes for IT and building facilities have been derived with reference to benchmarks; benchmarks establish upper limits, not precise budget sizes.
- A valid business case must be established for each project.
- IT project vetting:
  - All proposed IT projects reviewed by relevant IT committee on costs and benefits before inclusion.
  - Of $102.6 million in IT capital projects submitted for FY2008—FY2010, review reduced the request to $84.0 million.
  - All IT projects (excluding equipment replacement) are subject to CBA as follows:
    - (i) estimate of all costs by financial year over useful life (including administrative, staffing, and capital costs) less estimated terminal value;
    - (ii) estimate of all quantifiable benefits;
    - (iii) statement of all nonquantifiable or non-financial benefits;
    - (iv) statement of key assumptions, including calculations and price increase assumptions;
    - (v) discounting (net present value) of costs and benefits for projects of $1 million and greater, and payback analysis for projects under $1 million;
    - (vi) sensitivity analysis by varying key assumptions and applying different discount rates.
- Building facilities project vetting:
  - TGS (Fund’s facilities manager) identifies scale and nature of proposed project (regulatory, security, capital maintenance or equipment redundancy).
  - Priorities established in consultation with OBP.
- Vetting at time of funds release:
  - Approved projects receive financing in tranches matched to project needs and efficient budgetary use.
  - Financing releases require up-to-date information to OBP on project status, including revised CBA where necessary.

### Administrative expenses, capital treatment, and budget implications
- Administrative expenses reported under IFRS require adjustments to the administrative budget:
  - Include depreciation expenses for capitalized assets: major buildings (e.g., HQ2) depreciated over 30 years; IT equipment depreciated over 3-5 years.
  - Certain capital budget items not capitalized under the Fund’s accounting treatment are expensed directly in administrative expenses in the year of disbursement (examples include some repair work and items below a threshold of $100,000).
- Selected FY2007 figures (in millions of U.S. dollars):
  - Net administrative budget (estimated outturn) FY2007: $908
  - Capital budget items not capitalized: $26
  - Depreciation expense: $33
  - Administrative expenses after capital-related adjustments (A): $967
    - Percent change over previous year: 3.5 percent
  - Income sources (B): $806
    - Income from lending operations: $358
    - Investment and other income: $448
  - Income surplus/shortfall (B−A): −$161
- Memorandum items:
  - Capital expenditures (budget definition): $49
  - Capital-related expenses (accounting definition): $59
  - Assumed U.S. dollar/SDR exchange rate: 1.49
- Key FY2007 points on capital-related administrative expenses:
  - FY2007 estimated outturn for capital budget expenditures: $49 million; of this, $23 million will be capitalized; $26 million will be expensed directly.
  - Depreciation charge related to previously capitalized assets: $33 million.
  - Capital element included in administrative expenses in FY2007: $59 million.
  - With projected net administrative budget of $908 million, administrative expenses including capital-related adjustments are estimated at $967 million.
- Under the proposed administrative and capital budget, the Fund’s administrative expenses are projected to increase at an average annual rate of 2.1 percent.

### Trust and other administration cost estimates
- Estimated cost of administering the MDRI-I in FY2007: SDR 2.3 million (budget estimate: SDR 1.7 million); projected cost for FY2008: SDR 1.6 million.
- Estimated cost of administering the PRGF-ESF Trust in FY2007: SDR 48.4 million (budget estimate: SDR 58.0 million); projected for FY2008: SDR 50.2 million.
- Estimated costs of administering the SDR Department in FY2007: SDR 1.0 million (budget estimate: SDR 1.3 million); projected for FY2008: SDR 1.3 million.

### Proposed Board decisions (excerpts)
- Decision No. 1 — Administrative Budget for Financial Year 2008:
  1. Appropriations for net administrative expenditures for FY2008 are approved in the total amount of $922,300,000.
  2. A limit on gross administrative expenditures is approved in the total amount of $998,200,000.
  3. Any commitment going beyond the above amounts will be submitted to the Executive Board for approval.
- Decision No. 2 — Capital Budget for Projects Beginning in Financial Year 2008:
  1. Appropriations for capital projects beginning in FY2008 are approved in the total amount of $46,600,000 and are applied to the following project categories:
     - I. Building facilities $20,600,000
     - II. Information technology $26,000,000

*Source: Office of Budget and Planning (content as provided in the supplied PDF excerpt).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2007/_033007.pdf_