## _032609

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### Executive Summary
- Proposals for Executive Board approval:
  - FY 10–12 medium-term administrative budget (MTB).
  - FY 10 capital budget in context of FY 10–12 capital plan.
  - Carry forward of up to six percent of unspent FY 09 administrative budget to help finance increased costs associated with the global financial crisis.
- Budget crafted in an unusually uncertain environment due to the global financial crisis and potential added responsibilities under a new global financial architecture.
- Administrative costs of the financial crisis to be met by internal redeployment and carry forward of the FY 09 budget underrun; these are temporary resources for temporary crisis demands, preserving the three-year structural budget envelope approved last year.
- Planned budget consolidation:
  - Fund personnel costs cut by 13 percent in real terms to levels broadly prevailing prior to the Asian crisis.
  - $100 million in annual structural budget savings is on track for FY 11.
- Main challenge: ensure full financing for crisis needs while delivering promised savings in the structural budget; adequacy to be assessed in the six month budget review in December 2009. Any supplementary budget would be temporary and not add to structural steady-state budget.

### Background and Preliminary FY 09 Outturn
- Objective of FY 09–11 MTB: reshape the Fund to deliver more focused outputs cost-effectively by shifting administrative resources from non-core activities to priority core-business outputs and activities.
- Structural steady state (indicative budget for FY 11): leaner institution with budgeted expenditures cut by $100 million in real terms and budgeted staff positions reduced by 380 relative to the FY 08–10 MTB.
- Key budget figures (millions of FY08 dollars):
  - FY 08: FY 08-10 MTB = 922.
  - FY 09: FY 08-10 MTB rolled forward = 913; Approved FY 09-11 MTB = 835.
  - FY 10: FY 08-10 MTB = 913; FY 08-10 MTB rolled forward = 910; Approved FY 09-11 MTB = 813; Proposed FY 10-12 MTB = 813.
  - FY 11: FY 08-10 MTB = 910; FY 08-10 MTB rolled forward = 896; Approved FY 09-11 MTB = 796; Proposed FY 10-12 MTB = 796.
  - FY 12: Proposed FY 10-12 MTB = 796.
- Comparing budget cuts (millions and percent):
  - FY 09-11 to FY 08-10: -78, -97, -100 (in millions); percent: -9, -11, -11.
  - FY 09-11 to FY 08: -87, -109, -126 (in millions); percent: -9, -12, -14.
- Memorandum items:
  - Budgeted staff positions: 2,901 (FY08); 2,681 (FY09); 2,579 (FY10); 2,521 (FY11).
  - Cumulative reduction in staff positions: n.a., 220, 322, 380.
  - (in percent): n.a., 8, 11, 13.
- Operational context and FY 09 developments:
  - Restructuring progressed rapidly; almost 200 vacancies in first year of MTB due to voluntary separations, implying lower-than-budgeted personnel expenditures and an underrun in FY 09 administrative budget.
  - Lending increased more than fourteen-fold in FY 09 with almost a dozen new multi-year financial arrangements.
  - Surveillance intensified with increased focus on early warning and international regulatory/supervisory frameworks.
  - Technical assistance shifted toward countries most affected by the crisis.

### The FY 10–12 Medium-Term Budget (MTB)
- Rolling forward the FY 09–11 MTB:
  - Real budget envelopes for FY 10 and FY 11 identical to those agreed last year; real budget envelope for FY 12 held constant relative to FY 11.
  - $100 million savings target to be delivered as planned and sustained.
  - Real figures translated into nominal terms using FY 10–12 global external deflator (4 percent). Nominal envelopes unchanged from last year.
- Selected figures (millions; deflator where shown):
  - Approved FY 08-10 MTB, rolled forward one year: FY 08 = 922; FY 09 = 913; FY 10 = 910; FY 11 = 896; FY 12 = 896.
  - Approved FY 09-11 MTB: FY 09 = 835; FY 10 = 813; FY 11 = 796.
  - Savings relative to FY 08-10 MTB: 78, 97, 100 (in millions).
  - Proposed FY 10-12 MTB: FY 10 = 813; FY 11 = 796; FY 12 = 796.
  - FY 10-12 Global External Deflator: FY 10 = 4.0; FY 11 = 4.0; FY 12 = 4.1.
  - Approved FY 09-11 MTB (nominal): FY 10 = 868; FY 11 = 880; FY 12 = 895.
  - Proposed FY 10-12 MTB (nominal): FY 10 = 880; FY 11 = 895; FY 12 = 932.

- Measuring consolidation:
  - By FY 11, the Fund will be saving $100 million per year in real terms relative to the FY 08–10 MTB—a savings of $2.5 billion in present value terms (present value calculated as a perpetual annuity at 4 percent).
  - Real budgets in FY 11–12 will be 14 percent lower than the FY 08 budget.
  - Staffing in FY 11–12 will be 13 percent lower than the FY 08 budgeted positions.
  - Fund-financed personnel expenditures will decline by 13 percent in real terms over FY 08–12.

### Impact of the Global Financial Crisis on MTB Financing and Strategic Implications
- Central MTB scenario aims to finance the Fund’s crisis response within the resource envelope already agreed; if crisis expands or is more protracted, additional temporary budget resources may be requested.
- Temporary expenditures (e.g., limited-term staff) could be financed by temporary increases in income resulting from surge in lending; structural steady state budget preserved.
- Carry forward policy and contingency reallocation are central instruments:
  - Carry forward limited to unspent appropriations, up to 6 percent of the FY 09 net administrative budget, and up to 3–5 percent of the net administrative budget in FY 10 and beyond.
  - About one-half of the contingency provisions for FY 10 and FY 11 in the FY 09–11 MTB will be released for reallocation to crisis work; this step will add $14 million to the crisis response.

### Crisis-Related Costs, Outputs, and Staff Burden
- Estimated additional crisis-related costs: $32 million in each of FY 10 and FY 11.
  - $32 million estimate derived from recalibrated staffing levels, assessment of Resident Representative offices, and increased missions/updated travel budgets.
- Departments’ rough FY 10 KOA intensity estimates and cost implications:
  - Valuing intensity ranges at their midpoint suggests total cost of crisis-related outputs will be in the neighborhood of $120 million in FY 10.
  - About 25 percent of the total would come from temporary resources and 75 percent from internal reallocation.
- Staff burden indicators:
  - Sharp rise in uncompensated overtime in affected departments; Figure 3 FY 08–09 values include: 11.9, 16.6, 5.0, 15.0.
  - Initial heavy workload borne chiefly by staff as uncompensated overtime and volunteers who delayed departure dates.
- Assessment of need for supplementary budget:
  - To be evaluated during the six month budget review considering whether annual crisis costs are likely to exceed the current $32 million estimate and whether new global architecture demands can be accommodated by near-term efficiency gains.

### Key Quantitative Consolidations and Metrics
- Personnel:
  - Fund-financed personnel expenditures decline by 13 percent in real terms over FY 08–12.
  - Personnel outlays account for almost three-quarters of the budget.
- Staffing:
  - Cumulative reduction in staff positions of 380 relative to FY 08–10 MTB.
  - Budgeted staff positions: 2,901 (FY08); 2,681 (FY09); 2,579 (FY10); 2,521 (FY11).
  - (in percent): n.a., 8, 11, 13.
- Savings:
  - $100 million per year in real terms by FY 11 relative to FY 08–10 MTB.
  - Present value of these savings = $2.5 billion (perpetual annuity at 4 percent).
- Global external deflator values used: FY 10 = 4.0; FY 11 = 4.0; FY 12 = 4.1.

### Major Expenditure Categories (structural budget by major category; amounts in millions of U.S. dollars)
- I. Personnel: 723, 697, 710, 731, 764.
  - Of which: Fund-financed: 692, 653, 664, 681, 708.
- II. Travel: 101, 98, 99, 94, 96.
- III. Building and other expenditures: 161, 163, 168, 170, 174.
- IV. Annual Meetings: 5, 0, 0, 0, 5.
- V. Contingency Reserves: 10, 9, 7, 9, 19.
- Gross Expenditures: 994, 967, 979, 1,004, 1,053.
- VI. Receipts: -71, -99, -100, -109, -121.
- Net Administrative Budget (Structural): 922, 868, 880, 895, 932.

### Receipts, Capital Spending, and Restructuring Execution
- Receipts performance drivers:
  - Receipts expected to end the year below budget due to new accounting treatment of travel rebates, lower drawdown of donor financing, lower-than-anticipated sales of Fund publications, and slower phasing-in of parking rate structure.
  - Two main receipt types: external donor funding (~75 percent of receipts) and general receipts (~25 percent).
- FY 10–12 receipts assumptions:
  - Significant growth in receipts driven by Board-endorsed TA strategy and externally-financed expansion of TA activities.
  - Plans to open four new RTACs in addition to six existing centers; CAPTAC scheduled to open at beginning of FY 10.
  - Work financed by a new AML/CFT trust fund will commence in FY 10.
  - Beginning FY 10, airline travel rebates budgeted as credits to travel expenditures rather than as receipts.
- Capital projects FY 09 planned vs projected (millions of U.S. dollars):
  - Building Facilities: Planned 26; Projected 18.
  - Information Technology (IT): Planned 33; Projected 34.
  - Total Building Facilities and IT: Planned 59; Projected 52.
- Restructuring expenditures and projections:
  - Executive Board approval: up to $185 million in restructuring expenditures.
  - Total recorded restructuring expenditures (May–Jan): $57.6 million charged to restructuring budget; additional $6.0 million charged to administrative budget; total May–Jan restructuring and refocusing expenses = $63.6 million.
  - Of 444 volunteers covered by restructuring budget, 110 will have left the Fund by end-FY 09.
  - A total of 492 voluntary separations were accepted (above targeted reduction of 380); total cost estimated at $200 million (composed of $128 million for SBF payments; $72 million for delay period costs).
  - Detailed cost items (millions of U.S. dollars):
    - Provision for OED: 8.
    - Available to Staff: 177.
    - A. Cost of Volunteer Separations total: 193 (Salary: 127; Benefits: 56).
    - Contribution to the SRP: 23.
    - Tax Allowance (U.S. Nationals): 18.
    - Medical Benefits Plan: 7.
    - Home Leave: 5.
    - Spouse and Child Allowance and Group Life: 1.
    - Education Allowance: 2.
    - Outplacement and Other Services: 7.
    - Retooling and Retraining: 4.
    - B. Cost of outsourcing: 11.
    - C. Total Costs (A + B): 204.
    - D. Charged to the administrative budget: 18 (Salary: 10; Benefits: 3; Contribution to the SRP: 2; Tax Allowance: 1; Excess Annual leave: 5).
    - E. Assumed savings: 8.
    - F. Net Costs (C - D - E): 177.
  - Current assumptions indicate a projected gap of some $8 million in total cost of separations; projections assume the gap can be closed with savings.

### Staff Retirement Plan (SRP) and RSBIA
- SRP funding/design:
  - Fund agreed to pay 14 percent of the pensionable gross remuneration (PGR) on an annual basis; any difference between required contribution and 14 percent added to/withdrawn from the reserve account.
  - Actuary estimated a zero percent contribution rate for FY 10 based on asset valuation as of May 2008, but the Fund will continue to make the 14 percent contribution with the entire amount added to the reserve account in FY 10.
  - If valuation decline is not reversed, a contribution rate higher than 14 percent would be required in FY 11, and there will be a partial drawdown from the reserve account.
- RSBIA:
  - Actuary’s recommendations for FY 10–12 remain in the $22-28 million range (based on asset valuation as of May 2008).
  - Recommendation: prefunding be stepped up with an additional contribution from the FY 09 budget of about $15 million.
  - For FY 10–12, MTB assumes continued funding in the $37–38 million range established last year.

### Activity-Based Costing (ABC): Role, Benefits, and Implementation
- Objectives and benefits:
  - Assign expenses to core products and model cost drivers to measure and monitor cost of outputs and analyze resource implications of shifting priorities.
  - Highlight spending on low-value, relatively high-cost activities to inform debate on continuing or reducing such activities.
  - Provide framework for costing new mandates and investigating trade-offs for introducing them.
  - Identify potential inefficiencies and processes that can be reformed or eliminated.
  - Operationalize the MTB framework by transparently accounting for efficiency gains and policy changes and explicitly addressing changes in spending priorities.
- Implementation features:
  - ABC to complement MTB and support the new income model, including external financing for TA projects and charge-back costs for PRGF resources.
  - Avoid overburdening the system with detail; early ABC applications showed complexity and high maintenance costs.
  - Management appointed an external expert advisory panel and selection of ABC operational consultants underway; external advisory panel members: Ian Campbell, Gary Cokins, Ian Clark, and Robert Kaplan (advising pro bono).
- Budget roll-forward equation (representation used in MTB):
  - Budget_{t+1} = (Budget_t – Old_t) (1 + p_{t+1} – div_{t+1}) + New_{t+1},
    - where p_{t+1} is percentage change in global external deflator and div_{t+1} are efficiency gains/dividends explicitly imposed.
- ABC limitations:
  - Does not remove value judgment from budgeting; it illuminates relative costs and cost anomalies and provides a framework for “what-if” questions to inform Board choices.

### IT Portfolios, Facilities Planning, and Budget Reforms
- IT project portfolios (four major portfolios):
  - Enterprise Information portfolio: strengthen data collection and management; provide analytical and crisis response tools; enhance collaboration and knowledge leverage.
  - Financial and Administrative portfolio: enable capture of savings from modernization and automation such as travel and TA reforms; support HR and administrative financial reengineering.
  - Infrastructure and Connectivity portfolio: life cycle replacements of computing, printing, communications assets; ensure modern, cost-effective, secure, robust IT environment.
  - IT Planning and Management portfolio: strengthen processes and practices underlying application development affecting entire IT function.
- Facilities capital planning methodology:
  - Facilities Condition Index (FCI) used as ratio of outstanding deficiencies to total building replacement value and as input to 10-year capital investment plans.
  - Physical assessments by third party experts on a three- to five-year cycle; component-level inspections logged and costed.
- Capital financing and review:
  - Multi-year funding approach introduced in FY 03 with approved funds available for three consecutive years; unused funds lapse.
  - IT capital projects reviewed by steering committee for alignment, outcomes, ROI, and cost-benefit analysis; building projects evaluated on need and urgency.
- Budget reforms and measures:
  - Introduce carry forward provisions (max 6 percent of FY 09 net administrative budget in FY 10).
  - Introduce more granular standard costs for personnel (move to a standard cost for each grade).
  - Introduce activity-based costing (ABC).
  - Carry forward will not affect structural budget baselines and to be reviewed comprehensively by end of FY 11.

*Source: IMF Office of Budget & Planning; contents drawn from the FY 10–12 MTB document excerpt provided.*

### 1. Restructuring Indicators, FY 08–11 ............................................................................ 5

### _032609 - 1. Restructuring Indicators, FY 08–11 ............................................................................ 5

### Executive Summary
- Proposals for Executive Board approval: FY 10–12 medium-term administrative budget (MTB), FY 10 capital budget in context of FY 10–12 capital plan, and carry forward of up to six percent of unspent FY 09 administrative budget to help finance increased costs associated with the global financial crisis.
- Budget crafted in an unusually uncertain environment due to the global financial crisis and potential added responsibilities under a new global financial architecture.
- Administrative costs of the financial crisis to be met by internal redeployment and carry forward of the FY 09 budget underrun; these are temporary resources for temporary crisis demands, preserving the three-year structural budget envelope approved last year.
- Planned budget consolidation: Fund personnel costs cut by 13 percent in real terms to levels broadly prevailing prior to the Asian crisis; $100 million in annual structural budget savings is on track for FY 11.
- Main challenge: ensure full financing for crisis needs while delivering promised savings in the structural budget; adequacy to be assessed in the six month budget review in December 2009. Any supplementary budget would be temporary and not add to structural steady-state budget.

### Background and Preliminary FY 09 Outturn
- Objective of FY 09–11 MTB: reshape the Fund to deliver more focused outputs cost-effectively by shifting administrative resources from non-core activities to priority core-business outputs and activities.
- Structural steady state (indicative budget for FY 11): leaner institution with budgeted expenditures cut by $100 million in real terms and budgeted staff positions reduced by 380 relative to the FY 08–10 MTB.

Key figures from Table 1 (in millions of FY08 dollars):
- FY 08: FY 08-10 MTB = 922
- FY 09: FY 08-10 MTB rolled forward = 913; Approved FY 09-11 MTB = 835
- FY 10: FY 08-10 MTB = 913; FY 08-10 MTB rolled forward = 910; Approved FY 09-11 MTB = 813; Proposed FY 10-12 MTB = 813
- FY 11: FY 08-10 MTB = 910; FY 08-10 MTB rolled forward = 896; Approved FY 09-11 MTB = 796; Proposed FY 10-12 MTB = 796
- FY 12: Proposed FY 10-12 MTB = 796
- Comparing budget cuts:
  - FY 09-11 to FY 08-10: -78, -97, -100 (in millions)
  - (in percent): -9, -11, -11
  - FY 09-11 to FY 08: -87, -109, -126 (in millions)
  - (in percent): -9, -12, -14
- Memorandum items:
  - Budgeted staff positions: 2,901 (FY08), 2,681 (FY09), 2,579 (FY10), 2,521 (FY11)
  - Cumulative reduction in staff positions: n.a., 220, 322, 380
  - (in percent): n.a., 8, 11, 13
- Source: Office of Budget & Planning.

Operational context and FY 09 developments:
- Restructuring progressed rapidly; number of staff volunteering to separate exceeded expectations, implying personnel expenses charged to the FY 09 administrative budget will be lower than budgeted.
- Structure redesign: smaller front offices, fewer but larger divisions, re-engineered review process.
- Fund response to global financial crisis in FY 09:
  - Lending increased more than fourteen-fold with almost a dozen new multi-year financial arrangements (Table 2 summary: number of programs and amounts committed across FY 08 and FY 09 phases; specific table entries provided in source).
  - Surveillance intensified, increased focus on early warning and international regulatory/supervisory frameworks.
  - Technical assistance shifted toward countries most affected by the crisis.

Box 1 — The Underrun in the FY 09 Net Administrative Budget:
- Unexpectedly high number of staff accepted voluntary early retirement, resulting in almost 200 vacancies in first year of MTB and lower-than-budgeted personnel expenditures.
- Excess personnel appropriations implied contingency reserve did not need to be tapped even for unbudgeted crisis-related expenditures.
- Hiring to restore staffing levels intensified; staffing expected to reach target by early-FY 10, so underrun not anticipated in FY 10 or beyond.
- Figures include Fund-financed activities only.

Staff burden and adjustments in FY 09:
- Initial heavy workload borne chiefly by staff as uncompensated overtime and volunteers who delayed departure dates.
- Hiring strategy initiated to restore staff to MTB structural levels.
- Lower-priority activities identified to be dropped or postponed.

Budgetary principle reiterated:
- Provision of resources for the crisis must first come from internal redeployment; if insufficient, temporary additional resources via supplementary budget could be requested. Any supplementary resources would be temporary and not add to structural steady-state budget.

### The FY 10–12 Medium-Term Budget (MTB)
A. Rolling forward the FY 09–11 MTB
- Central budgetary scenario starts from agreed net administrative budget envelopes in FY 09–11 MTB.
- Real budget envelopes for FY 10 and FY 11 identical to those agreed last year; real budget envelope for FY 12 held constant relative to FY 11.
- $100 million savings target to be delivered as planned and sustained.
- Real figures translated into nominal terms using FY 10–12 global external deflator (4 percent). Nominal envelopes unchanged from last year.

Selected figures from Table 3 (in millions of FY 08 dollars and nominal U.S. dollars where shown):
- Approved FY 08-10 MTB, rolled forward one year: FY 08 = 922; FY 09 = 913; FY 10 = 910; FY 11 = 896; FY 12 = 896
- Approved FY 09-11 MTB: FY 09 = 835; FY 10 = 813; FY 11 = 796
- Savings relative to FY 08-10 MTB: 78, 97, 100 (in millions)
- Proposed FY 10-12 MTB: FY 10 = 813; FY 11 = 796; FY 12 = 796
- FY 10-12 Global External Deflator: FY 10 = 4.0; FY 11 = 4.0; FY 12 = 4.1
- Approved FY 09-11 MTB (nominal): FY 10 = 868; FY 11 = 880; FY 12 = 895
- Proposed FY 10-12 MTB (nominal): FY 10 = 880; FY 11 = 895; FY 12 = 932
- Source: Office of Budget & Planning.

B. Measuring consolidation in the proposed MTB
- By FY 11, the Fund will be saving $100 million per year in real terms relative to the FY 08–10 MTB—a savings of $2.5 billion in present value terms.
- Present value calculated as a perpetual annuity at 4 percent.
- Real budgets in FY 11–12 will be 14 percent lower than the FY 08 budget.
- Staffing in FY 11–12 will be 13 percent lower than the FY 08 budgeted positions.
- Fund-financed personnel expenditures will decline by 13 percent in real terms over FY 08–12, largely reflecting the reduction in staff.

Box 2 — The Global External Deflator (methodology and assumptions)
- Deflator constructed as weighted average of estimated personnel costs (70 percent) and forecast nonpersonnel costs (30 percent).
- Personnel costs proxied by an external salary index aligned with comparator markets; three-year cycle with full review in first year and indexation in intervening years.
- For FY 10, increase in salary index (personnel component of deflator) = 5 percent; personnel component held constant in outer two years of MTB owing to lack of forecasts.
- Nonpersonnel expenditures proxied by U.S. CPI forecasts from October 2008 WEO for calendar years 2009, 2010, and 2011 for FY 10, FY 11, and FY 12 respectively.
- Policy: use only published forecasts to ensure transparency.

C. Impact of the global financial crisis on MTB financing (strategic implications)
- Central MTB scenario aims to finance the Fund’s crisis response within the resource envelope already agreed.
- If crisis expands, deepens, or is more protracted, additional temporary budget resources may be requested.
- Temporary expenditures (e.g., limited-term staff) could be financed by temporary increases in income resulting from surge in lending.
- Structural steady state budget approved last year to be preserved in either case.

### Key quantitative consolidations and metrics
- Personnel: Fund-financed personnel expenditures decline by 13 percent in real terms over FY 08–12.
- Staffing reductions: cumulative reduction in staff positions of 380 relative to FY 08–10 MTB; 13 percent lower staffing in FY 11–12 relative to FY 08.
- Savings: $100 million per year in real terms by FY 11 relative to FY 08–10 MTB; present value of these savings = $2.5 billion (perpetual annuity at 4 percent).
- Global external deflator values used: FY 10 = 4.0; FY 11 = 4.0; FY 12 = 4.1.

*Source: IMF Office of Budget & Planning; contents drawn from the FY 10–12 MTB document excerpt provided.*

### 10. The Fund’s work agenda is evolving to meet the demands of the financial crisis.

### 10. The Fund’s work agenda is evolving to meet the demands of the financial crisis.

### Overview and staffing/resource redeployment
- The FY 09–11 MTB assumed financial programs would be limited in number and mainly to PRGF cases; staff were expected to focus increasingly on macro-financial linkages in bilateral and multilateral surveillance and capacity building.
- As the financial crisis unfolded, initial demands were absorbed within affected departments’ resources, but this proved unworkable and "staff and travel budgets were redeployed across departments."
- The total impact of the crisis on Fund outputs is much higher than the additional budgetary costs estimated for crisis-related work.

### Budgetary impact and funding for crisis-related work
- Estimated additional crisis-related costs: $32 million in each of FY 10 and FY 11.
- The $32 million estimate was derived using the same methodology as the recent restructuring effort and reflects three main budgetary areas:
  - Recalibrated staffing levels for countries requiring increased engagement.
  - Assessment of Resident Representative offices (delays in scheduled closings and potential new openings).
  - Increased number of missions and updated travel budgets reflecting higher engagement.
- Strategy to meet the $32 million within proposed envelopes (with all margins reduced):
  - Carry forward policy (Board approval of carry forward policy endorsed by the COB in December 2008 and March 2009):
    - Carry forward limited to unspent appropriations, up to 6 percent of the FY 09 net administrative budget, and up to 3–5 percent of the net administrative budget in FY 10 and beyond.
  - Release of contingency provisions:
    - About one-half of the contingency provisions for FY 10 and FY 11 in the FY 09–11 MTB will be released for reallocation to crisis work.
    - This step will add $14 million to the crisis response.
  - Streamlining work practices and reducing low priority activities to ease staff burden during the crisis.

### Staff Retirement Plan (SRP) and Retired Staff Benefit Investment Account (RSBIA)
- SRP funding/design:
  - The Fund agreed to pay 14 percent of the pensionable gross remuneration (PGR) on an annual basis, with any difference between the required contribution and 14 percent added to/withdrawn from the reserve account.
  - The Actuary estimated a zero percent contribution rate for FY 10—on the basis of asset valuation as of May 2008—but the Fund would continue to make the 14 percent contribution, with the entire amount added to the reserve account in FY 10.
  - If the recent valuation decline is not reversed, a contribution rate higher than 14 percent would be required in FY 11, and there will be a partial drawdown from the reserve account.
- RSBIA funding and recommendations:
  - RSBIA is relatively new with a small asset base, a large liability, and no reserve fund; changes in market valuation have an immediate impact on contributions.
  - Actuary’s recommendations for FY 10–12 remain in the $22-28 million range (based on asset valuation as of May 2008).
  - Recommendation: prefunding be stepped up with an additional contribution from the FY 09 budget of about $15 million.
  - For FY 10–12, the MTB assumes continued funding in the $37–38 million range established last year.

### Adapting output plans and reallocation of work
- Broad outline of the Fund’s work mostly unchanged: surveillance and capacity building remain the largest key output areas (KOA).
- Resource shifts to accommodate crisis demands:
  - Increased resources for country programs and global monitoring; lower shares for surveillance and capacity building relative to previous MTB.
  - Some country work normally attributed to surveillance (e.g., macro forecasts) can be subsumed into program activities.
  - Departments are implementing efficiency measures such as a streamlined review process to reduce inputs to surveillance without affecting mission numbers or quality.
  - Capacity building output share reduced as technical assistance staff shift temporarily to surveillance and support in crisis countries; field delivery not expected to decline because of external financing, but inputs will be reduced through efficiency measures.
- Global monitoring will receive increased resources for work on the global financial architecture and governance reform, and multilateral surveillance will receive more resources for early warning systems and macro-financial linkages analysis.

### Crisis-related output intensity and estimated total cost
- Departments provided rough estimates of the share of each KOA devoted to crisis work in FY 10 (Table 6 categories: Moderate (10-25), Large (25-50), Very Large (50+)). Selected conclusions:
  - More than 50 percent of global monitoring effort likely related to the financial crisis (reflecting SPR work on global financial architecture).
  - A large share of country and regional monitoring linked to crisis work.
  - A very large share of GAF program resources devoted to the crisis (all crisis programs fall in GAF).
- Valuing intensity ranges at their midpoint suggests:
  - Total cost of crisis-related outputs will be in the neighborhood of $120 million in FY 10.
  - About 25 percent of the total would come from temporary resources and 75 percent from internal reallocation.
- Staff resources are being stretched, evidenced by a sharp rise in uncompensated overtime in affected departments; additional crisis needs could require supplementary resources.
  - (Figure 3 shows uncompensated overtime in crisis departments FY 08–09 with values: 11.9, 16.6, 5.0, 15.0 — indicating an increase.)

### Contingency and supplementary budget considerations
- The need for a supplementary budget will be evaluated during the six month budget review, considering:
  - The depth and complexity of the crisis and other institutional demands.
  - Whether annual crisis costs are likely to exceed the current $32 million estimate.
  - Whether demands from a new global financial architecture can be accommodated by near-term efficiency gains.
- The assessment will consider:
  - (i) the already-reduced contingency reserve for FY 10–11,
  - (ii) the six month estimated outturn,
  - (iii) the scope for further redeployment.

### Major expenditure categories and departmental staffing changes
- Personnel is the main driver of the decline in expenditures; personnel outlays account for almost three-quarters of the budget.
  - By end of the MTB period, real personnel expenditures financed from Fund resources are budgeted to be 13 percent lower than in FY 08.
  - Personnel expenditures financed by increased donor funding will help raise capacity building activities.
- Table 7 highlights (structural budget by major expenditure category, FY 08–12; amounts in millions of U.S. dollars):
  - I. Personnel: 723, 697, 710, 731, 764
    - Of which: Fund-financed: 692, 653, 664, 681, 708
  - II. Travel: 101, 98, 99, 94, 96
  - III. Building and other expenditures: 161, 163, 168, 170, 174
  - IV. Annual Meetings: 5, 0, 0, 0, 5
  - V. Contingency Reserves: 10, 9, 7, 9, 19
  - Gross Expenditures: 994, 967, 979, 1,004, 1,053
  - VI. Receipts: -71, -99, -100, -109, -121
  - Net Administrative Budget (Structural): 922, 868, 880, 895, 932
- Departmental staffing (FTEs and net budgets by department, FY 08–12) reflect staffing reductions overall with specific adjustments:
  - SPR and RES staff reduced by less than reported in the FY 09–11 MTB because of higher demand for multilateral surveillance and low-income country issues.
  - HRD staffing levels reduced further in FY 12 compared with FY 11 due to the streamlined HR business model and the Human Capital Management project.
  - Total FTEs and net budget indicators show net FTE reductions of 380.

### Other non-personnel savings and receipts
- Travel:
  - Travel budgets in FY 10 reduced by approximately 10 percent relative to FY 09.
  - Reduction reflects change in accounting treatment of travel rebates, average ticket price savings of about 10 percent from new designated airline program, and adoption of new travel policies.
- Building and other expenditures:
  - Efficiencies from global sourcing of some IT maintenance services, telecommunications, and renegotiation of HQ1 and HQ2 maintenance contracts.
- Annual Meetings:
  - An additional $5 million in real terms included in the FY 10 budget to cover additional costs of holding Annual Meetings overseas; translates to $5.4 million in FY 10 dollars.
- Receipts:
  - Projected to rise progressively in real terms over the MTB, reflecting donor-financed technical assistance, four new planned RTACs (one to open in early FY 09), revised TA charging policy timeframe, work of the AML/CFT trust fund starting in FY 2010, and possible other topical trust funds.

### Strengthening budget planning: Activity-Based Costing (ABC)
- Next round of budget reforms will center on introducing activity-based costing (ABC) to complement the MTB.
- ABC assigns expenses (salaries, travel) to core products (Article IV consultations, the WEO, technical assistance programs, etc.) and models cost drivers.
- Purposes and benefits:
  - Measure and monitor the cost of the Fund’s various outputs.
  - Analyze resource implications of shifting priorities in the Fund’s work program.
  - Track costs of key processes (conducting analysis, reviewing work, writing reports) to develop cost norms for producing outputs.
  - Illuminate trade-offs when budget reallocations are needed and provide a more informed basis for resource reallocations as priorities change or as more countries move closer to crisis.
- Caution:
  - Avoid overburdening the system with detail; early ABC applications showed complexity, high maintenance/management costs, onerous reporting, and diminishing returns.

*Source: _032609 - 10. The Fund’s work agenda is evolving to meet the demands of the financial crisis.*

### 28. A number of specific benefits would flow from introducing an activity-based

### A number of specific benefits would flow from introducing an activity-based costing system

### Activity-Based Costing (ABC): benefits and role in budgeting
- ABC would move the Fund’s budget management systems in a direction consistent with the new income model, where more accurate information on what specific outputs cost is now required to support external financing for TA projects and to calculate charge-back costs for use of PRGF resources.
- ABC would highlight spending on low-value, relatively high-cost activities, prompting debate on whether to continue such activities or reduce their cost.
- ABC would provide a framework for costing new mandates and investigating trade-offs for introducing them, helping to evaluate options for generating necessary savings in other activities.
- ABC would help identify potential inefficiencies within the organization, particularly processes that could be reformed or eliminated, potentially reducing work burdens or creating budget space.
- ABC would help operationalize the MTB framework by transparently accounting for efficiency gains and policy changes and by explicitly addressing changes in spending priorities—“New” initiatives that the Board endorses and “Old” ones that are to be dropped or scaled back.
- The MTB-style budget roll-forward is represented by the equation:
  - Budget_{t+1} = (Budget_t – Old_t) (1 + p_{t+1} – div_{t+1}) + New_{t+1}
    - p_{t+1} is the percentage change in the global external deflator.
    - div_{t+1} are efficiency gains/dividends explicitly imposed.
- ABC does not remove value judgment from budgeting; it illuminates relative costs and cost anomalies and provides a framework for “what-if” questions to bring objectivity to Board choices.

*Source: _032609 - 28. A number of specific benefits would flow from introducing an activity-based*

### 7. Receipts are expected

### 7. Receipts are expected

### Overview of receipts performance and drivers
- Receipts are expected to end the year below budget, reflecting:
  - the new accounting treatment of travel rebates (rebates budgeted as credits to travel expenditures beginning in FY 10 rather than as receipts);
  - a lower drawdown of donor financing due to a slow start on externally-financed projects during the first half of the year that was not fully outweighed by increased momentum in the second half;
  - lower-than-anticipated sales of Fund publications;
  - a slower-than-planned phasing-in of the new parking rate structure.

### Key outputs and resource shifts (FY 09)
- The effects of the financial crisis became more apparent as the year progressed, with notable developments:
  - Country programs and financial support activities from the GRA increased by ½ percentage points in the third quarter alone.
  - Eight new stand-by arrangements totaling $30 billion in commitment were approved in Q3, compared to six arrangements with $2 billion in commitment in Q2.
  - Global monitoring: resources shifted from general outreach to multilateral surveillance and oversight of the international monetary system, reflecting a refocusing on global financial architecture and governance reform.
  - Country specific and regional monitoring: resources declined in all constituent activities over the year; many surveillance-related activities are being subsumed into program work despite intensified surveillance in a number of crisis-affected countries.
  - Capacity building: TA delivery and external training started FY 09 slowly due largely to staff turnover related to restructuring; momentum reversed beginning in Q3 aided by increased hiring of contractual experts, but redeployment of staff from TA to surveillance and program work on crisis countries intensified. On balance, the share of resources devoted to capacity building is likely to be slightly lower than planned for the year as a whole.

- Selected operational indicators (cumulative FY 09, May–Jan examples from tables):
  - Number of policy and analytical papers prepared/distributed (Oversight of IMS): 25 annual; 32 May–Jan.
  - Number of statistical manuals and guides published: 2 annual; 2 May–Jan.
  - Number of research papers issued or published (Total research): 26 annual; 18 May–Jan.
  - Number of dissemination events (press conferences and speeches): 60 annual; 39 May–Jan.
  - Regular general publications (F&D, IMF Survey, Annual Report): 22 annual; 16 May–Jan.
  - Non-streamlined Article IV consultations concluded: 147 annual; 136 May–Jan.
  - Streamlined Article IV consultations concluded: 69 annual.
  - Number of regional surveillance reports completed (formal regional surveillance): 5 annual; 2 May–Jan.
  - Number of Regional Economic Outlooks prepared: 10 annual; 4 May–Jan.
  - FSAP assessments initiated: 9 annual; 10 May–Jan.
  - Stand-alone Fiscal and Statistical ROSCs assessments completed: 9 annual; 6 May–Jan.
  - AML/CFT assessments and updates completed: 10 annual; 8 May–Jan.
  - Participant training weeks (INS) annual: 8,960; May–Jan: 6,748.
  - Number of TA reports annual: 270; May–Jan: 178.

### Capital projects and FY 09 execution (Table I.4)
- Planned FY 09 vs Projected FY 09 (in millions of U.S. dollars):
  - Building Facilities: Planned 26; Projected 18.
  - Information Technology (IT): Planned 33; Projected 34.
  - Total Building Facilities and IT: Planned 59; Projected 52.
- The FY 09 capital spending outturn is projected to be within plan.
  - Execution on IT is expected to slightly exceed planned levels, while remaining within budget.
  - Building facilities expenditures are lower than estimated in last year’s plan because some projects were paused pending a review of the benchmark.

### Restructuring expenses and execution
- Executive Board approval: up to $185 million in restructuring expenditures (approved March 21, 2008), of which $7.6 million for restructuring initiatives in OED.
- Restructuring budget execution (May–Jan, in millions of U.S. dollars):
  - Total recorded restructuring expenditures: $57.6 million charged to the restructuring budget (Table I.5).
  - Additional $6.0 million charged to the administrative budget, for total May–Jan restructuring and refocusing expenses of $63.6 million.
  - Components recorded May–Jan: Total 58; Delay costs 36; Separation benefit payments 20; Retooling and Outplacement 1.
- Key restructuring metrics and projections:
  - Average delay period is about 8.5 months; majority of volunteers will have moved from delay status to Separation and Benefit Fund leave status by end-FY 09.
  - Delay costs are expected to be about $50 million by end-FY 09.
  - Of the 444 volunteers covered by the restructuring budget, 110 will have left the Fund by the end of FY 09.
- Appendix III restructuring budget summaries and assumptions:
  - A total of 492 voluntary separations were accepted by management as part of the restructuring and refocusing initiative (above the targeted reduction of 380 budgeted positions).
  - The total cost of 492 separations was estimated at $200 million, comprised of:
    - $128 million for SBF payments;
    - $72 million for costs associated with the delay period.
  - Three adjustments charged to the administrative budget (amounts stated where given):
    - about $12 million in separation costs for departmental Directors and LWOP volunteers;
    - $2 million cost of salary delays for staff opting for the Rule of 50;
    - $5 million cost of staff leave in excess of 60 days earned prior to May 1, 2009.
  - Projected outturn and funding:
    - Restructuring Budget Ceiling: 185 (Table III.1 heading).
    - Total restructuring costs will be reflected in Fund accounts for up to four financial years consistent with IFRS: separation payments charged to FY 08 on an accrual basis; delay-period costs charged to the financial year in which expenditures are incurred (mostly FY 09, but also FY 10 and FY 11).
    - Total restructuring and refocusing expenses recorded May–Jan 2009: $63.6 million ($57.6 million charged to the restructuring budget and $6.0 million to the administrative budget).
    - Current assumptions indicate a projected gap of some $8 million in the total cost of separations; projections assume the gap can be closed with savings (e.g., earlier than planned departures of volunteers while on separation leave, and lower retooling and outplacement costs).
  - Detailed cost table (selected items, in millions of U.S. dollars):
    - Provision for OED: 8.
    - Available to Staff: 177.
    - A. Cost of Volunteer Separations total: 193, comprising:
      - Salary: 127;
      - Benefits: 56.
    - Contribution to the Staff Retirement Plan (SRP): 23.
    - Tax Allowance (U.S. Nationals): 18.
    - Medical Benefits Plan: 7.
    - Home Leave: 5.
    - Spouse and Child Allowance and Group Life: 1.
    - Education Allowance: 2.
    - Outplacement and Other Services: 7.
    - Retooling and Retraining: 4.
    - B. Cost of outsourcing: 11.
    - C. Total Costs (A + B): 204.
    - D. Charged to the administrative budget: 18, comprising:
      - Salary: 10;
      - Benefits: 3;
      - Contribution to the SRP: 2;
      - Tax Allowance (U.S. Nationals): 1;
      - Excess Annual leave: 5.
    - E. Assumed savings (e.g., early departures, lower retooling/outplacement costs): 8.
    - F. Net Costs (C - D - E): 177.

### Receipts composition and medium-term projections (Appendix II and Table II.1)
- Two main types of receipts contributing to the administrative budget:
  - (i) external donor funding, representing about 75 percent of total receipts;
  - (ii) general receipts (revenues from cost-sharing agreements, publications, parking and office leases), comprising about 25 percent of the total.
- FY 10–12 MTB assumptions:
  - The FY 10–12 MTB assumes significant growth in receipts, driven by the Board-endorsed strategy for technical assistance and an externally-financed expansion of TA activities.
  - Increased donor funding is assumed for:
    - Regional technical assistance centers (RTACs): plans to open four new centers in addition to six existing centers. A new technical assistance center for Central America (CAPTAC) is scheduled to open at the beginning of FY 10; RTACs in Central Asia, Western Africa, and Southern Africa are in the planning stages.
    - Topical trust funds to finance high-demand areas of Fund TA: work financed by a new AML/CFT trust fund will commence in FY 10.
- Reforms facilitating increased donor financing (impacting the budget):
  - Improved costing of technical assistance activities via new modalities to ensure TA costing is more comprehensive and transparent, to be implemented through the new Framework Administered Account for Selected Fund Activities (SFA), replacing the administrative fee for subaccounts with a lower trust fund management fee.
  - Strengthened country ownership of technical assistance: a charging policy to be introduced in FY 10, with charges graduated according to country income.
- Treatment change for travel rebates:
  - Beginning in FY 10, expected airline travel rebates will be budgeted as credits to travel expenditures rather than as receipts.
- Receipts table highlights (Table II.1, in millions of U.S. dollars; totals based on central estimates):
  - FY 08-10 MTB (Total row): Total 71-76; FY 09 central 72; FY 10 central 72; Total 217 (aggregate shown).
    - Externally-financed capacity building total row examples: 50-54 (FY 08–10 MTB), with Technical assistance 45-49; Scholarships 5.
    - General receipts: 22 (with Fund-sponsored sharing agreements 6; Publications income 4; Travel commissions and rebates 5).
  - FY 09-11 MTB (Total row): FY 09 central -; FY 10 99; FY 11 102-111; FY 12 106-119; Total 319.
    - Externally-financed capacity building: 65-74 (FY 09 central -; FY 10 68-81; FY 11 – etc.); Technical assistance lines 60-69.
    - General receipts: FY 10 33; FY 11 38; FY 12 39; Total 110 (with travel commissions and rebates 10 each year FY10-FY12; HQ2 leasing 2/5/5; Publications 4/4/4).
  - FY 10-12 MTB (Total row): FY 10 central -; FY 11 100; FY 12 109-119; FY 13 121-126; Total 335.
    - Externally-financed capacity building: FY 11 72; FY 12 79-89; FY 13 85-95; Total 246.
    - Technical assistance: FY 11 67; FY 12 75-85; FY 13 80-90; Total 232.
    - General receipts: FY 11 28; FY 12 30; FY 13 31; Total 89 (with Fund-sponsored sharing agreements FY11–FY13: 5/5/5; Publications income 4/4/4; HQ2 leasing 3/4/5).
- General receipts are expected to remain broadly in line with the FY 09–11 MTB projections, subject to the revised accounting treatment for airline travel rebates beginning FY 10.

### Appendix IV: capital budget additional information (summary)
- Building facilities are categorized into:
  - Facility improvement programs (creation of new facilities within the existing campus or upgrades to improve work environment, functionality, efficiencies);
  - Regulatory (including security) programs (mandated by building codes or regulations, essential for staff and property protection);
  - Replacement programs (replacement of building structures or equipment for life–cycle reasons, business requirements, or to increase reliability; the Facilities Condition Index (FCI) is one methodology to help establish funding levels);
  - Revenue generating programs (develop new business opportunities to earn income on a sustainable basis, e.g., lease of space to external restaurant and book binding store).

*Source: _032609 - 7. Receipts are expected*

### 3. IT projects are grouped into four major initiatives:

### _032609 - 3. IT projects are grouped into four major initiatives:

### IT project portfolios and objectives
- Four major IT portfolios:
  - Enterprise Information portfolio
    - Improve efficiency and address reputational risks through strengthened data collection and management.
    - Provide tools that enhance analytical and crisis response capabilities.
    - Enable staff to more effectively collaborate with internal and external colleagues and leverage the Fund’s expertise and knowledge base.
  - Financial and Administrative portfolio
    - Enable capture of savings from major modernization and automation initiatives such as travel and TA reforms.
    - Support reengineering of human resource and administrative financial activities.
  - Infrastructure and Connectivity portfolio
    - Deal with life cycle replacements of computing, printing, and communications assets.
    - Ensure a modern, cost-effective, secure, and robust IT environment.
  - IT Planning and Management portfolio
    - Enable and strengthen the processes and practices underlying application development work that affect the entire IT function.

### Facilities capital planning methodology (Box IV.1)
- Facilities Condition Index (FCI)
  - FCI defined as the ratio of outstanding building system deficiencies to the total building replacement value.
  - FCI is one component of an assessment-based methodology used to calculate capital investment needed to replace existing building systems approaching end of useful lives.
  - The FCI does not address new facilities, enhancements, or other improvements.
- Physical assessments
  - Detailed assessments performed by third party experts on a three- to five-year cycle.
  - Assessments consist of component-level architectural and engineering inspections.
  - Identify current and future deficiencies based on estimated remaining useful life of each component or system, adjusted based on inspector’s observation of actual condition.
  - Results are logged, prioritized, and assigned an industry standard cost/repair value.
- Development of the Life-Cycle Replacement Work Program
  - Refined data are used as basis for generating 10-year capital investment plans.
  - Alternative medium-term budget scenarios can be modeled.

### Capital budget financing and project review
- Financing procedures
  - Multi-year funding approach introduced in FY 03: approved funds available to projects for a period of three consecutive years.
  - Funds unused by end of the three-year period lapse.
  - Projects extending longer than three years require Executive Board approval of new funding appropriations.
- Project scrutiny
  - All capital projects are subject to careful scrutiny before funding approval.
  - All IT capital projects reviewed by a steering committee that assesses:
    - Project alignment with business needs.
    - Anticipated business outcomes.
    - Return on investment.
    - Cost-benefit analysis (CBA).
  - Building facility capital projects are evaluated based on need, urgency, and contribution to the life of the building and are not generally subject to CBA.

### Budget reforms and related measures (Appendix V)
- Overall aim
  - Modernize budgetary practices toward an output-based medium-term budget system.
- FY 10–12 MTB proposals (Committee on the Budget support on December 2, 2008)
  - Introduce carry forward provisions in the Fund’s administrative budget.
  - Introduce more granularity in standard costs used for personnel budgeting.
  - Introduce activity-based costing (ABC).
- Carry forward
  - Designed to bring greater flexibility by facilitating redeployment of resources across time.
  - Particularly relevant for implementing restructuring and refocusing in FY 09–11 MTB and responding to global financial crisis.
  - Will not affect the structural budget or enter budget baselines.
  - To be implemented first in FY 10 with a proposed maximum set at 6 percent of the FY 09 net administrative budget.
  - Carry forward rate expected to be lower in FY 11–12; comprehensive review by end of FY 11.
- More granular standard costs
  - Move from three standard costs (REG1, REG2, and REG3) to a standard cost for each grade.
  - Salary portion of standard cost based on average salaries paid to staff in each grade; benefits portion based on a single benefit ratio.
  - Proposed monitoring:
    - FY 10–12 MTB formulated and monitored on same basis as past but with new monitoring reports for each department reflecting impact of standard costs by grade introduced in FY 10.
    - FY 11–13 MTB to be formulated and monitored on basis of a standard cost for each grade and the existing three-tiered standard costs discontinued, subject to resolution of outstanding human resource issues, including workforce planning.
- Box V.1. Main Budget Reforms, FY 06–09 (high-level points)
  - FY 06: Adoption of a new medium-term budget framework (MTBF) with a focus on net budget and link to operational income; three-year medium-term budget (MTB) with indicative budgets for outer years and departmental business plans updated annually on a three-year rolling basis.
  - FY 07: Further devolution of budgetary responsibility to departments; introduction of indicative dollar budgets for Offices of the Executive Directors (OED); further use of zero-based reviews; enhanced budget monitoring through quarterly reports.
  - FY 08: Adoption of a new output structure; alignment of TRS and TIMS with new structure; introduction of performance indicators; introduction of integrated Budgeting and Business Intelligence System (iBBIS).
  - FY 09: Managing Director’s Statement anchored departmental business plans and FY 09-11 MTB; institutional restructuring entailing reduction of 380 full-time equivalents (FTEs) and structural annual savings of $100 million in real terms by FY 11, relative to the FY 08 budget; Executive Board reforms to allow separate and binding administrative budget appropriations and establishment of a restructuring budget.
- Activity-Based Costing (ABC)
  - ABC intended to:
    - Assign costs to institution’s outputs and services more accurately.
    - Allocate overheads and shared services costs robustly.
    - Identify lower value-added activities to inform trade-offs and redeployment.
    - Streamline delivery processes and measure efficiency savings.
    - Reduce unnecessary burdens on staff, including unpaid overtime.
  - Implementation steps:
    - Management appointed a panel of four external experts to advise throughout the ABC initiative.
    - Selection of ABC operational consultants underway, supported by an independent firm.
    - External expert advisory panel comprises Ian Campbell, Gary Cokins, Ian Clark, and Robert Kaplan (advising pro bono).
    - Panel convened for first time at headquarters on March 16–17 and held discussions with management, Executive Directors, department heads, and Senior Budget Managers across Fund departments.

*Source: _032609 - 3. IT projects are grouped into four major initiatives:*

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