The World Bank Annual Report 2003 Volume 2 Financial Statements THE WORLD BANK and Appendixes The World Bank Annual Report 2003 Volume 2 Financial Statements and Appendixes THE WORLD BANK Washington, D.C. Note The World Bank Annual Report 2003: Volume 1, Year in Review is published as a separate volume and is available on the Internet at www.worldbank.org. Copyright © 2003 The International Bank for Reconstruction and Development / THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, USA Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved The boundaries, colors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank any judgment of the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions All queries on rights, licenses, and permissions should be addressed to the Office of the Publisher,World Bank, 1818 H Street NW, Washington D.C., 20433, fax 202-522-2422, e-mail pubrights@worldbank.org. ISSN 0252-2942 ISBN 0-8213-5595-3 Contents Letter of Transmittal v Management's Discussion and Analysis 1 International Bank for Reconstruction and Development Financial Statements and Internal Control Reports 37 Special Purpose Financial Statements and Internal Control Reports of the International Development Association 87 IBRD/IDA Appendixes 121 Letter of Transmittal This Annual Report, which covers the period from July 1, 2002, to June 30, 2003, has been prepared by the Executive Directors of both the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) in accordance with the respective bylaws of the two institutions. James D. Wolfensohn, President of the IBRD and IDA, and Chairman of the Board of Executive Directors, has submitted this report, together with the accompanying administrative budgets and audited financial statements, to the Board of Governors. Annual reports for the International Finance Corporation, the Multilateral Investment Guarantee Agency, and the International Centre for Settlement of Investment Disputes are published separately. Executive Directors Alternates Carole Brookins Robert B. Holland, III Yuzo Harada Masanori Yoshida Eckhard Deutscher Eckhardt Biskup Tom Scholar Rosemary B. Stevenson Pierre Duquesne Emmanuel Moulin Kurt Bayer Gino Alzetta Per Kurowski Maria Jesus Fernandez Ad Melkert Tamara Solyanyk Marcel Masse Sharon Weber Amaury Bier Gil S. Beltran Franco Passacantando Helena Cordeiro Neil F. Hyden Dong-Soo Chin Louis K. Kasekende J. Mills Jones Chander Mohan Vasudev Akbar Ali Khan Tanwir Ali Agha Sid Ahmed Dib Finn Jønck Inkeri Hirvensalo Pietro Veglio Jakub Karnowski Zhu Guangyao Wu Jinkang Yahya Abdulla M. Alyahya Abdulrahman M. Almofadhi Alexey G. Kvasov Eugene Miagkov Mahdy Ismail Aljazzaf Mohamed Kamel Amr Rapee Asumpinpong Hadiyanto Alieto Guadagni Alfonso C. Revollo Paulo F. Gomes Louis Philippe Ong Seng As of June 30, 2003 I N T E R N A T I O N A L B A N K F O R R E C O N S T R U C T I O N A N D D E V E L O P ME N T M A N A G E ME N T ' S D I S C U S S I O N A N D A N A L Y S I S J U N E 3 0 , 2 0 0 3 Section 1: Overview 3 Section 2: Basis of Reporting 5 Section 3: Development Activities 8 Loans 8 Guarantees 14 Other Activities 14 Section 4: Liquidity Management 15 Section 5: Funding Resources 16 Equity 16 Borrowings 19 Section 6: Financial Risk Management 20 Credit Risk 21 Market Risk 24 Liquidity Risk 26 Operational Risk 28 Section 7: Critical Accounting Policies 28 Section 8: Results of Operations 29 Section: 9 Governance 31 Section: 10 Reconciliation of Prior Year Current Value Financial Statements to Reported Basis 33 Glossary of Terms 35 IBRD Management's Discussion and Analysis: June 30, 2003 1 Throughout Management's Discussion and Analysis, terms in boldface type are defined in the Glossary of Terms on page 35. The Management Discussion and Analysis contains forward looking statements which may be identified by such terms as "anticipates", "believes", "expects", "intends" or words of similar meaning. Such state- ments involve a number of assumptions and estimates that are based on current expectations, which are subject to risks and uncertainties beyond IBRD's control. Consequently, actual future results could differ materially from those currently anticipated. Acronyms for Regions AFR Africa EAP East Asia and Pacific ECA Europe and Central Asia LCR Latin America and the Caribbean MNA Middle East and North Africa SAR South Asia 2 The World Bank Annual Report 2003 1. OVERVIEW of major currencies compared to IBRD's reporting currency, the U.S. dollar. Since IBRD matches the The International Bank for Reconstruction and currencies of its equity with those of its loans, the Development (IBRD) is an international fluctuations captured in the cumulative translation organization established in 1945 and is owned by its adjustment for purposes of financial statement member countries. IBRD's main goals are promoting reporting do not significantly impact IBRD's risk- sustainable economic development and reducing bearing capacity. poverty. It pursues these goals primarily by providing loans, guarantees and related technical assistance for Lending commitments in FY 2003 were $11.2 billion, projects and programs in its developing member which was slightly lower than the FY 2002 level of countries. IBRD's ability to intermediate funds from $11.5 billion. international capital markets for lending to its FY 2003 operating income was $3,021 million, developing member countries is an important $1,097 million higher than for FY 2002, thereby element in achieving its development goals. IBRD's increasing IBRD's return on equity and net return on objective is not to maximize profit, but to earn average earning assets before the effects of FAS 133.a adequate net income to ensure its financial strength and to sustain its development activities. Box 1 During FY 2003, provisioning requirements were presents selected financial data for the last five fiscal reduced by $709 million due to a net improvement in years. borrowers' risk ratings, and negative net disbursements, including $6,972 million of The financial strength of IBRD is based on the prepayments. In addition, in FY 2003, IBRD support it receives from its shareholders and on its reclassified an amount related to loans to the former array of financial policies and practices. Shareholder Socialist Federal Republic of Yugoslavia (SFRY), for support for IBRD is reflected in the capital backing it which Bosnia and Herzegovina (BiH) and Serbia and has received from its members and in the record of Montenegro (SAM) undertook responsibility, from its borrowing members in meeting their debt-service Deferred Loan Income to Accumulated Provision for obligations to it. IBRD's financial policies and Loan Losses to better reflect its nature. Subsequent practices have led it to build reserves, to diversify its to this reclassification, the provision requirements funding sources, to hold a large portfolio of liquid for BiH and SAM were reassessed, resulting in an investments, and to limit a variety of risks, including additional $591 million of income. See discussion in credit, market and liquidity risks. Section 6, Financial Risk Management ­ Country IBRD's principal assets are its loans to member Credit Risk. Taking these factors together, changes in countries. The majority of IBRD's outstanding loans the accumulated provision for losses on loans and are priced on a cost pass-through basis, in which the guarantees accounted for $1,300 million of the net cost of funding the loans, plus a lending spread, is income in FY2003. passed through to the borrower. In the context of assessing changes in IBRD's To raise funds, IBRD issues debt securities in a operating environment, it is management's practice variety of currencies to both institutional and retail to recommend each year the allocation of net income investors. These borrowings, together with IBRD's to augment reserves, waivers of loan charges to equity, are used to fund its lending and investment benefit eligible borrowers, and allocation of net activities, as well as general operations. income to support developmental activities. IBRD holds its assets and liabilities primarily in U.S. dollars, euro and Japanese yen. IBRD mitigates its exposure to exchange rate risks by matching the a. For the purposes of this document, FAS 133 refers to Statement currencies of its liabilities and equity with those of its of Financial Accounting Standards No. 133, "Accounting for assets. However, the reported levels of its assets, Derivative Instruments and Hedging Activities", along with its liabilities, income and expense in the financial related amendments, and International Accounting Standard statements are affected by exchange rate movements No. 39, "Financial Instruments: Recognition and Measurement." IBRD Management's Discussion and Analysis: June 30, 2003 3 Box 1: Selected Financial Data As of or for the Year Ended June 30 In millions of U.S dollars, except ratio and return data in percentages Reported Basis 2003 2002 2001 2000 1999 Loan Income 5,742 6,861 8,143 8,153 7,649 Provision for Losses on Loans and Guaran- tees 1,300 15 (676) 166 (246) Investment Income 418 734 1,540 1,589 1,684 Borrowing Expenses (3,594) (4,903) (7,152) (7,128) (6,846) Net Noninterest Expense (845) (783) (711) (789) (723) Operating Income 3,021 1,924 1,144 1,991 1,518 Effects of applying FAS 133 2,323 854 345 Net Income 5,344 2,778 1,489 1,991 1,518 Net Return on Average Earning Assetsa, b 2.06 1.29 0.78 1.34 1.05 after the effects of FAS 133 3.64 1.87 0.87c Gross Return on: Average Earning Assetsa 4.19 5.11 6.61 6.53 6.47 Average Outstanding Loansa 4.73 5.57 6.67 6.71 6.58 Average Cash and Investments 1.64 2.87 6.28 5.74 6.00 Cost of Average Borrowings (including swaps)b 3.23 4.23 6.18 5.92 5.92 after the effects of FAS 133 1.18 3.53 6.12c Interest Coverage b 1.84 1.39 1.16 1.28 1.22 after the effects of FAS 133 2.49 1.57 1.18c Return on Equity b 10.32 7.09 4.33 7.73 6.16 after the effects of FAS 133 16.18 9.75 4.63c Equity-to-Loans Ratiod 26.59 22.90 21.51 21.31 20.71 Total Assetse 230,352 227,794 222,873 228,539 230,445 Cash and Liquid Investmentsf 26,620 25,056 24,407 24,331 30,122 Loans Outstanding 116,240 121,589 118,866 120,104 117,228 Accumulated Provision for Loan Lossese, g (4,045) (5,053) (4,074) (3,554) (3,714) Borrowings Outstandingh 108,554 110,263 106,757 110,379 115,739 Total Equity 37,918 32,313 29,570 29,289 28,021 Current Value Basis 2003 2002 2001 Net Income 3,436 2,853 1,460 of which current value adjustment 394 881 367 Net Return on Average Earning Assets 2.25 1.86 0.89i Return on Equity 11.16 10.07 4.98i Equity-to-Loans Ratio 26.36 23.10 21.43 Cash and Liquid Investmentsf 26,620 25,056 24,407 Loans Outstanding 122,593 126,454 123,062 Borrowings Outstandingh 116,695 114,502 110,290 Total Equity 35,675 32,466 29,744 a. Includes income from commitment charges. b. Amounts are presented before the effects of FAS 133 to facilitate comparison to prior years. c. Excludes the one-time cumulative effect of the adoption of FAS 133. d. Before the effects of FAS 133. See Section 5, Funding Resources-Equity for additional discussion. e. Certain reclassifications of the prior years' information have been made to conform with the current year's presentation. f. Excludes restricted cash. g. Prior to FY 2001, this amount includes accumulated provision for guarantee losses. For FY 2001 through FY 2003, the accu- mulated provision for guarantees is included in other liabilities. h. Outstanding borrowings, excluding swaps, net of premium/discount. i. Excludes the one-time cumulative effect of the adoption of the current value basis of accounting. 4 The World Bank Annual Report 2003 On July 31, 2003, the Executive Directors approved individual positions and portfolios, and to reduce the allocation of $2,410 million of FY 2003 net borrowing costs. income to the General Reserve. In addition, the IBRD's funding operations are designed to meet a Executive Directors recommended to IBRD's Board major organizational objective of providing lower of Governors the following transfers from cost funds to borrowing members. Because of the unallocated net income: $100 million to Surplus and extent of IBRD's long-dated funding, the reported $540 million to other development purposes. The volatility under FAS 133 may be more pronounced Executive Directors also approved that for FY 2004, than for many other financial institutions. The the interest waiver will be maintained at 5 basis effects of applying FAS 133 may significantly affect points for old loans and 25 basis points for new reported results in each accounting period, loans. Waivers of 50 basis points on commitment depending on changes in market rates. However, charges for FY 2004 were also maintained at the FY IBRD believes that its funding and asset/liability 2003 level. management strategies accomplish its objectives of protection from market risk and provision of lower 2. BASIS OF REPORTING cost funding, and that a current value basis provides Financial Statement Reporting more meaningful information for risk management IBRD prepares its financial statements in accordance and management reporting. with generally accepted accounting principles IBRD believes that a current value presentation (GAAP) in the United States of America and better reflects the economic value of all of its International Financial Reporting Standards financial instruments. The basis for the current value (together referred to in this document as the model is the present value of expected cash flows `reported basis'). based on appropriate discount rates. The model The standards require that all derivatives, as defined incorporates available market data in determining by FAS 133, be recorded on IBRD's balance sheet at the cash flow and discount rates for each instrument. their fair value. Additionally, the standards allow The current value financial statements do not IBRD to designate hedging relationships and, if purport to present the net realizable, liquidation, or certain criteria are met, follow the requirements for market value of IBRD as a whole. hedge accounting. While IBRD believes that its Current Value Basis hedging strategies achieve its objectives, the The Condensed Current Value Balance Sheets in application of this FAS 133 hedging criteria to Table 1 present IBRD's estimates of the economic IBRD's derivative portfolio would not consistently value of its financial assets and liabilities, after reflect the effective hedging strategies that IBRD has considering interest rate, currency and credit risks. established. That is, if these criteria were applied to The current year's Condensed Current Value Balance IBRD's financial instrument portfolios, certain of the Sheet is presented with a reconciliation to the hedged instruments would be carried at fair value, reported basis. The prior year's Condensed Current while other similar hedged instruments would be Value Balance Sheet is presented, with a carried at amortized cost. Therefore, IBRD elected reconciliation to the reported basis, in Table 17 in not to define any qualifying hedging relationships Section 10. and, as a result, all changes in the fair value of the derivative financial instruments are recognized IBRD's Condensed Current Value Comprehensive immediately in earnings. For management reporting Statements of Income, with a reconciliation to the purposes, IBRD has disclosed current value financial reported basis at June 30, 2003, are presented in statements which IBRD believes make fully evident Table 2. The prior year's Condensed Current Value the risk management strategy that IBRD employs. Comprehensive Statement of Income is presented, with a reconciliation to the reported basis, in Table Management Reporting 18 in Section 10. In implementing its risk management strategy, IBRD makes extensive use of derivatives to manage the A summary of the effects on net income of the interest rate and currency risks associated with its current value adjustments in the balance sheet is financial assets and liabilities. IBRD uses derivative presented in Table 3. instruments for asset/liability management of IBRD Management's Discussion and Analysis: June 30, 2003 5 Table 1: Condensed Current Value Balance Sheets at June 30, 2003 and June 30, 2002. In millions of U.S. dollars June 30, 2003 June 30, 2002 Reversal of Current Current Reported FAS 133 Value Value Current Value Basis Effects Adjustments Basis Basis Due from Banks $ 1,929 $ 1,929 $ 1,083 Investments 28,131 28,131 26,076 Loans Outstanding 116,240 $ 6,353 122,593 126,454 Less Accumulated Provision for Loan Losses and Deferred Loan Income (4,478) (4,478) (5,442) Swaps Receivable Investments 10,301 10,301 9,940 Borrowings 70,316 $(7,084) 7,084 70,316 66,052 Other Asset/Liability 726 -- -- 726 727 Other Assets 7,187 (455) 6,732 7,296 Total Assets $230,352 $(7,084) $12,982 $236,250 $232,186 Borrowings $108,554 $(1,559) $ 9,700 $116,695 $114,502 Swaps Payable Investments 11,862 11,862 10,827 Borrowings 64,779 (1,875) 1,875 64,779 66,994 Other Asset/Liability 810 1 (1) 810 758 Other Liabilities 6,429 6,429 6,639 Total Liabilities 192,434 (3,433) 11,574 200,575 199,720 Paid in Capital Stock 11,478 11,478 11,476 Retained Earnings and Other Equity 26,440 (3,651) 1,408 24,197 20,990 Total Liabilities and Equity $230,352 $(7,084) $12,982 $236,250 $232,186 Table 2: Condensed Current Value Comprehensive Statements of Income for the years ended June 30, 2003 and June 30, 2002 In millions of U.S. dollars FY 2003 FY 2002 Adjustments Current Value Current Value to Current Comprehensive Comprehensive Reported Basis Value Basis Basis Income from Loans $ 5,742 $5,742 $6,861 Income from Investments, net 418 $ 21 439 782 Other Income 202 202 277 Total Income 6,362 21 6,383 7,920 Borrowing Expenses 3,594 3,594 4,903 Administrative Expenses 1,038 1,038 1,052 Provision for Losses on Loans and Guarantees (1,300) 1,300 -- -- Other Expenses 9 9 8 Total Expenses 3,341 1,300 4,641 5,963 Operating Income 3,021 (1,279) 1,742 1,957 Current Value Adjustments 394 394 881 Provision for Losses on Loans and Guarantees--Current Value 1,300 1,300 15 Effects of applying FAS 133 2,323 (2,323) -- -- Net Income $5,344 $(1,908) $3,436 $2,853 6 The World Bank Annual Report 2003 Table 3: Summary of Current Value Adjustments In millions of U.S. dollars Total Income Statement Balance Sheet Effects as of June 30, 2003 Effect Less Prior Other Year Loans Borrowings Asset/Liability Effects FY 2003 FY 2002 Total Current Value Adjustments on Balance Sheet $6,353 $(4,946)a $1 $(1,368)b $ 40 $567 Unrealized Losses on Investmentsc (21) (48) Currency Translation Adjustmentd 375 362 Total Current Value Adjustments $394 $881 a. Amount is net of the current value adjustments for swaps, and unamortized issuance costs. b. Includes $116 million representing a one-time cumulative effect of recording the adoption, on July 1, 2000, of the current value basis of accounting. c. Unrealized losses on the investment portfolio have been moved from Operating Income under the reported basis and included as part of current value adjustments for current value reporting. d. The currency translation effects have been moved from Other Comprehensive Income under the reported basis and included in Comprehensive Current Value Net Income for purposes of current value reporting. Current Value Balance Sheets any other potential overdue payments, IBRD adjusts the Loan Portfolio value of its loans through its loan loss provision. All of IBRD's loans are made to or guaranteed by The $6,353 million ($4,865 million--June 30, 2002) countries that are members of IBRD. In addition, IBRD positive adjustment to IBRD's loan balance from the may also make loans to the International Finance reported basis to the current value basis reflects the fact Corporation, an affiliated organization, without any that the loans in the portfolio, on average, carry a higher guarantee. IBRD does not currently sell its loans, nor rate of interest than the present discount rate, which does management believe there is a market for loans represents the rate at which IBRD would currently comparable to those made by IBRD. The current value originate a similar loan. of loans incorporates management's best estimate of the probable expected cash flows of these instruments to Investment Portfolio IBRD. Under both the reported and current value basis, the investment securities and related financial instruments The current value of loans is based on a discounted cash held in IBRD's trading portfolio are carried and flow method. The estimated cash flows from principal reported at fair value. Fair value is based on market repayments and interest are discounted using the quotations; instruments for which market quotations applicable market yield curves for IBRD's funding cost, are not readily available have been valued using market- plus IBRD's lending spread, adjusted for interest waivers. based methodologies and market information. The current value also includes IBRD's assessment of the Borrowings Portfolio appropriate credit risk, considering various factors The current value of borrowings includes the value of including its history of payment receipts from the debt securities and the financial derivative borrowers. IBRD has always eventually collected all instruments associated with the borrowings portfolio. contractual principal and interest due on its loans. The current value is calculated based on market data However, IBRD has suffered losses resulting from the using market-based methodologies. The current value of difference between the discounted present value of IBRD's instruments in this portfolio is predominantly payments for interest and charges, according to the based on discounted cash flow techniques. The $4,946 loan's contractual terms, and the actual timing of cash million ($3,499 million--June 30, 2002) increase in the flows. To recognize the credit risk inherent in these and borrowings portfolio due to current value adjustments IBRD Management's Discussion and Analysis: June 30, 2003 7 results from the fact that the average cost of the summary of cumulative lending is contained in Table borrowings portfolio is higher than the rate at which 4. IBRD could currently obtain funding. Table 4: Lending Status at June 30 Current Value Comprehensive Statements of In millions of U.S. dollars Income 2003 2002 Current Value Adjustments Cumulative Approvalsa 333,501 325,333 For purposes of the current value presentation, all Cumulative Repaymentsb 184,493 164,007 unrealized gains and losses are presented as current value adjustments. Therefore, the change in the mark-to-market unrealized losses on the investments a. Net of cancellations. of $21 million as well as a reduction in the provision b. Multicurrency pool loan repayments are included at for losses on loans and guarantees of $1,300 million exchange rates in effect on the date of original disburse- are presented as part of the adjustment related to ment. All other amounts are based on U.S. dollar equiva- lents at the time of receipt. current value. The net current value adjustment of $394 million for At June 30, 2003, the total volume of outstanding the year ended June 30, 2003 ($881 million--June 30, loans was $116,240 million, $5,349 million lower 2002), as shown in Table 3, represents the change in than the $121,589 million of outstanding loans at the current value of all of IBRD's financial June 30, 2002. This decrease was due to negative net instruments during the fiscal year. The current value disbursements, including $6,972 million of adjustment reflects changes in both interest rates and prepayments, partially offset by positive currency currency exchange rates. translation adjustments. Undisbursed balances at June 30, 2003 totaled $33,031 million, a decrease of Impact of Changes in Interest Rates $3,322 million from June 30, 2002. This change was During the year ended June 30, 2003, the net increase due to cancellations and disbursements, partially in the current value adjustments on the balance sheet offset by new commitments and positive currency was $40 million. This net increase is the result of a translation adjustments. $1,488 million increase in unrealized gains in the loan portfolio, offset by a $1,447 million increase in During FY 2003, commitments of new loans to unrealized losses in the borrowings portfolio, and a member countries were $11,231 million, ($11,452 $1 million decrease in unrealized gains in other asset/ million--FY 2002). In FY 2003, Latin America and liability swaps. On average, interest rates for the the Caribbean accounted for the largest share of reference markets dropped during the fiscal year commitments. In contrast, Europe and Central Asia thereby increasing the current value adjustments for accounted for the largest share of commitments in all portfolios. FY 2002. Figure 1 presents the regional composition of commitments for FY 2003 and FY 2002. Impact of Changes in Exchange Rates During FY 2003 and FY 2002, there was a positive net Figure 1: Commitments by Region currency translation adjustment as both the euro and In millions of U.S. dollars the Japanese yen appreciated against the U.S. dollar. 6,000 5,668 4,895 3. DEVELOPMENT ACTIVITIES 5,000 4,188 IBRD offers loans, related derivative products, and 4,000 guarantees to its borrowing member countries to help meet their development needs. It also provides 3,000 technical assistance and other advisory services to 2,089 support poverty reduction in these countries. 2,000 1,767 Loans 982 856 836893 1,000 From its establishment through June 30, 2003, IBRD 452 15 42 had approved loans, net of cancellations, totaling 0 $333,501 million to borrowers in 129 countries. A AFR EAP ECA LCR M NA SAR FY 2003 FY 2002 8 The World Bank Annual Report 2003 Under IBRD's Articles of Agreement (the Articles), as Investment lending is generally used to finance applied, the total amount outstanding of direct loans goods, works, and services in support of economic made by IBRD, participation in loans and callable and social development projects in a broad range of guarantees may not exceed the statutory lending sectors. In contrast, adjustment lending generally limit. At June 30, 2003, outstanding loans and supports social, structural, and institutional reforms. callable guarantees (net of the accumulated provision In the past, the majority of IBRD loans were for for losses on loans and guarantees) totaled $112.6 investment projects or programs. However, as shown billion, equal to 52.9% of the statutory lending in Figure 2 the percentage of IBRD loans approved limit. for adjustment lending over the past seven years occasionally exceeded 50 percent. IBRD's lending operations have conformed generally to five principles derived from its Articles. These Figure 2: IBRD Lending Commitments principles, taken together, seek to ensure that IBRD Percent loans are made to member countries for financially 100% and economically sound purposes to which those countries have assigned high priority, and that funds lent are utilized as intended. The five principles are 75% Investment described in Box 2. Within the scope permitted by the Articles, application of these principles must be developed and adjusted in light of experience and 50% changing conditions. Lending Cycle 25% The process of identifying and appraising a project Adjustment and approving and disbursing a loan often extends over several years. However, on numerous occasions 0% IBRD has shortened the preparation and approval FY97 FY98 FY99 FY00 FY01 FY02 FY03 cycle in response to emergency situations such as natural disasters. In FY 2003, new IBRD commitments for adjustment Generally, the appraisal of projects is carried out by lending accounted for 37% of total commitments IBRD's operational staff (economists, engineers, (64%--FY 2002; 38%--FY 2001). financial analysts, and other sector and country specialists). With certain exceptionsa, each loan must On rare occasions, IBRD will provide enclave lending for a large, foreign exchange generating project in a be approved by IBRD's Executive Directors. member country usually eligible only for loans from Loan disbursements are subject to the fulfillment of the International Development Association (IDA). In conditions set out in the loan agreement. During these circumstances appropriate risk mitigation implementation of IBRD-supported operations, measures are incorporated (including off-shore experienced IBRD staff review progress, monitor escrow accounts and debt-service reserves acceptable compliance with IBRD policies and assist in to IBRD) to ensure that the risks to IBRD are resolving any problems that may arise. An minimized. At June 30, 2003, IBRD had $116 million independent IBRD unit, the Operations Evaluation in outstanding loans for enclave projects ($192 Department, evaluates the extent to which million--June 30, 2002). No new enclave lending operations have met their major objectives, and these was approved during FY 2003 or FY 2002. evaluations are reported directly to the Executive Financial Terms of Loans Directors. Currently Available Financial Terms Lending Instruments IBRD currently offers a product mix that is intended IBRD lending generally falls into one of two to provide borrowers with the flexibility to select categories: investment or adjustment lending. terms that are both compatible with their debt management strategy and suited to their debt- a. For Adaptable Program Loans (APLs), the Board approves all servicing capacity. As of June 30, 2003, IBRD offers first-phase APLs and delegates to Management the approval of the following two basic types of loan terms, each subsequent phases subject to agreed procedures. Learning and denominated in the currency or currencies chosen by Innovation Loans are loans of $5 million or less approved by Man- the borrower provided it is a currency in which IBRD agement. IBRD Management's Discussion and Analysis: June 30, 2003 9 Box 2: Lending Operations Principles (i) IBRD makes loans to governments, governmental authorities or private enterprises in the territories of member countries. A loan that is not made directly to the member in whose territories the project is located must be guaranteed as to principal, interest and other charges by the member or its central bank or a comparable agency of the member acceptable to IBRD. A guarantee by the member itself has been obtained in all such cases to date. (ii) IBRD's loans are designed to promote the use of resources for productive purposes in its member countries. Projects financed by IBRD loans are required to meet IBRD's standards for technical, eco- nomic, financial, institutional and environmental soundness. (iii)In making loans, IBRD must act prudently and pay due regard to the prospects of repayment. Deci- sions to make loans are based upon, among other things, studies by IBRD of a member country's economic structure, including assessments of its resources and ability to generate sufficient foreign exchange to meet debt-service obligations. (iv)IBRD must be satisfied that in the prevailing market conditions (taking into account the member's overall external financing requirements), the borrower would be unable to obtain financing under conditions which, in the opinion of IBRD, are reasonable for the borrower. IBRD is intended to pro- mote private investment, not to compete with it. (v)The use of loan proceeds is supervised. IBRD makes arrangements to ensure that funds loaned are used only for authorized purposes and, where relevant, with due attention to considerations of cost- effectiveness. This policy is enforced primarily by requiring borrowers (a) to submit documentation establishing, to IBRD's satisfaction, that the expenditures financed with the proceeds of loans are made in conformity with the applicable lending agreements and (b) to maximize competition in the procurement of goods and services by using, wherever possible, international competitive bidding or, when it is not appropriate, other procedures that ensure maximum economy and efficiency. can efficiently intermediate: variable-spread loans, Transaction fees range from 12.5 to 25 basis points of and fixed-spread loans. Variable-spread loans, which the notional transaction amount. Any conversion were introduced in FY 1993, have a variable spread requests accepted by IBRD are executed at market over LIBOR that is adjusted every six months. Fixed- rates. spread loans, which were introduced in FY 2000, In FY 1999, IBRD introduced special structural and have a fixed spread over LIBOR that is fixed for the sector adjustment loans to support structural and life of the loan. social reforms by creditworthy IBRD borrowers with Borrowers selecting the fixed-spread loan product exceptional external financing needs due to a may, for a fee, change the currency or interest rate potential or actual crisis. basis over the life of the loan. For example, borrowers Table 5 summarizes the financial terms for these have the option to fix, unfix, or re-fix the interest rate types of loans. at market rates on all or a part of the disbursed amounts for up to the remaining maturity of the loan. 10 The World Bank Annual Report 2003 Table 5: Loan Pricing - Currently Available Financial Terms Basis Points Special Structural and Sector Variable Spread Fixed Spread Loans Adjustment Loans Loans (VSL) (FSL) (SSAL) Reference Market Rate Six month LIBOR SIx month LIBOR Six month LIBOR Spread Contractual Lending Spread 75 (new loans)a 75 400 50 (old loans)b Market Risk Premium -- 5 -- Funding Cost Margin Weighted average Projected funding -- spread to LIBOR of spread to LIBOR debt allocated to VSLs Charges Commitment charge 75 85c 75 Front-end fee 100 (new loans) 100 100 0 (old loans) Eligible for Waivers Interest Yes Yes No Commitment Yes Yes No Maturity 15-20 years 15-25 years 5 years Grace period 3-5 years 3-8 years 3 years a. Loans for which the invitation to negotiate was issued on or after July 31, 1998. b. Loans for which the invitation to negotiate was issued prior to July 31, 1998. c. The commitment charge is 85 basis points for the first four years and 75 basis points thereafter to compensate IBRD for additional funding and refinancing risk associated with this product. Repayment terms for fixed-spread loans are more At June 30, 2003, 49% (42%-June 30, 2002) of loans flexible than for variable-spread loans, subject to outstanding were variable-spread loans or fixed- certain constraints on the average repayment spread loans, including special structural and sector maturity and final maturity on a country basis. adjustment loans and loans with non-standard Within these constraints, borrowers have flexibility terms. to configure grace periods and maturity profiles in a Loans with a Deferred Drawdown Option manner consistent with the purpose of the loan. During FY 2002, IBRD approved a Deferred Repayment profiles may be level repayment of Drawdown Option (DDO) for use with IBRD principal, an annuity type schedule, a single lump- adjustment loans. A DDO would give IBRD sum repayment, or a customized schedule. borrowers the option of deferring the loan's Repayment profiles cannot be changed after a loan is disbursement for up to three years. Loans with a signed. DDO are subject to a commitment fee of 100 basis Prior to the introduction of special structural and points, which is 25 basis points higher than that for sector adjustment loans, IBRD approved and standard IBRD loans. Also, the front-end fee of 100 disbursed several large loans totaling $7,000 million basis points, which is normally payable at the time a on non-standard loan terms. These loans, which loan becomes effective, is only payable for a DDO were issued in response to the global financial crises loan at the time it is disbursed. During FY 2003, one of FY 1998 and FY 1999, carry a six-month U.S. loan with a DDO was approved by IBRD. dollar LIBOR interest rate plus a fixed spread ranging Derivative Products from 75 to 100 basis points and a front-end fee. None of these loans is eligible for waivers of interest or Along with the approval of the introduction of the commitment charges. During FY 2003, $1,800 fixed-spread loan product with its various risk million of these loans were prepaid, resulting in an management features such as rate fixing and outstanding balance on these loans of $5,200 million currency conversion, the Executive Directors also at June 30, 2003. approved the offer of new derivative products for IBRD Management's Discussion and Analysis: June 30, 2003 11 borrowers to respond to their needs for access to at a specified spread over then-current borrowing better risk management tools in connection with costs. The currency composition of each loan existing IBRD loans. These derivative products depended on the currencies disbursed on that loan. include currency and interest rate swaps, and interest In 1980, IBRD established the currency pool system, rate caps and collars. funded primarily with fixed rate medium-to-long term borrowings. In 1982, IBRD mitigated its IBRD will pass through the market cost of the interest rate risk by moving from offering a fixed rate instrument to the borrower, and will charge a to a variable rate on these loans. transaction fee comparable to the fee charged on the fixed-spread loan conversion features. These The currency composition of multicurrency pool instruments may be executed either under a master loans is determined on the basis of a pool, which derivatives agreement which substantially conforms provides a currency composition that is the same for to industry standards, or in individually negotiated all loans in the pool. Pursuant to a policy established transactions. During FY 2003, one master derivative by the Executive Directors and subject to their agreement was signed; no transactions have been periodic review, at least 90% of the U.S. dollar executed under this agreement. equivalent value of the pool is in a fixed ratio of one U.S. dollar to 125 Japanese yen to one euro. Previously Available Financial Terms In previous years, IBRD offered loans with a variety During FY 1997, IBRD offered borrowers the option of other financial terms including: multicurrency to elect to modify their currency choice by pool loans and fixed-rate single currency loans. converting multicurrency pool loans to single currency loan terms or single currency pool terms. Table 6 summarizes the financial terms for variable- The lending rate formulation for loans with single rate multicurrency and single-currency pool loans currency pool terms is the same as that for and fixed-rate single-currency loans. multicurrency pool loans. Prior to 1980, IBRD offered loans at fixed rates determined at the time a loan was contracted and set Table 6: Loan Pricing - Previously Available Financial Terms Basis Points Variable rate Multicurrency Variable rate single Fixed rate single Pool loans currency pool loansa currency Loansb (1982-2001) (1996-1998) (1995-1999) Weighted average cost of Weighted average Cost Base allocated debt cost of allocated debt LIBOR Spread Contractual Lending Spread 75 (new loans)c 50 75 (new loans) 50 (old loans)d 50 (old loans) Market Risk Premium -- -- 0-10 Funding Cost Margin -- -- IBRD's funding spread to LIBOR Charges Commitment charge 75 75 75 Front-end fee 100 (new loans) -- 100 (new loans) 0 (old loans) -- 0 (old loans) Eligible for Waivers Interest Yes Yes Yes Commitment Yes Yes Yes Maturity 15-20 years based on original 12-20 years loan agreement Grace period 3-5 years based on original 3 years loan agreement a. Converted from variable-rate multicurrency pool loans. b. Cost base and spread are fixed on rate-fixing date for amounts disbursed during the preceding six months. c. Loans for which the invitation to negotiate was issued on or after July 31, 1998. d. Loans for which the invitation to negotiate was issued prior to July 31, 1998. 12 The World Bank Annual Report 2003 Single-currency pool loans are held in U.S. dollars, Figure 3 presents a breakdown of IBRD's loan Japanese yen, and euro. Fixed-rate single currency portfolio by loan product. For more information, see loans were offered in all currencies in which IBRD the Notes to Financial Statements--Note D. could efficiently intermediate. Waivers Any fixed-rate multicurrency pool loans that were Waivers of a portion of interest owed by all eligible subsequently converted to single currency pools borrowers are determined annually and have been in continued to carry their fixed rate. effect since FY 1992. Eligibility for the partial waiver Fixed-rate single currency loans carry lending rates of interest is limited to borrowers that have made full fixed on semi-annual rate fixing dates for amounts payments of principal, interest and other charges disbursed during the preceding six months. For the within 30 calendar days of the due dates during the interim period from the date each disbursement is preceding six months, on all their loans. Waivers of a made until its rate fixing date, interest accrues at the portion of the commitment charge owed on the rate applicable to variable-spread loans. undisbursed portion of loans are also determined At June 30, 2003, 51% (58%--June 30, 2002) of loans annually and have been in effect since FY 1990. All outstanding carried these previously available borrowers receive the commitment charge waiver on financial terms. their eligible loans. Table 7 presents a breakdown of IBRD's loan charge waivers. Further details are provided in the Notes to Financial Statements-Note D. Figure 3: Loan Portfolio by Loan Product (In millions of U.S. dollars) Loans Outstanding June 30, 2003 June 30, 2002 Variable-Rate Single Currency Single Currency Variable-Rate Multicurrency Pool Fixed-Rate Single Pool Loans Pool Loans Fixed-Rate Single Multicurrency Pool Loans Currency Loansa $25,586 $20,490 Loans Currency Loansa $22,728 $15,528 (21%) (18%) $28,076 $16,172 (20%) (13%) (13%) Other Loansb (23%) $415 (*%) Other Loansb $501 Special Structural (1%) and Sector Adjustment Loansc Special Structural and Sector $8,454 Variable-Spread Variable-Spread (7%) Fixed-Spread Loans Adjustment Loansc Fixed-Spread Loans Loans Loans $12,414 $11,505 $7,017 $36,211 $32,732 (11%) (9%) (6%) (31)% (27)% Total loans outstanding: $116,240 Total loans outstanding: $121,589 Undisbursed Balances June 30, 2003 June 30, 2002 Variable-Rate Single Currency Variable-Rate Single Multicurrency Pool Pool Loans Multicurrency Pool Currency Pool Special Structural Special Structural Loans $8 Loans Loans and Sector and Sector $1,400 (*%) Fixed-Rate Single $2,070 $78 Adjustment Loans Adjustment Loans (4%) Currency Loans (6%) (*%) Fixed-Rate Single $125 $800 $1,784 Currency Loans (*%) (2%) Fixed-Spread (6%) $3,139 Loans (9%) Fixed-Spread $8,564 Loans (26%) $7,138 (19%) Variable-Spread Variable-Spread Loans Loans $23,128 $21,150 (64%) (64%) Total undisbursed balances: $33,031 Total undisbursed balances: $36,353 a. Includes fixed-rate single currency loans for which the rate had not yet been fixed at fiscal year-end. b. Includes loans issued prior to 1980, loans to IFC, and fixed-rate multicurrency pool loans. c. Includes loans with non-standard terms. * Indicates amounts less than 0.5%. IBRD Management's Discussion and Analysis: June 30, 2003 13 guarantees are higher than those charged for non- enclave guarantees.The commitment of enclave Table 7: Loan Charge Waivers guarantees is initially limited to an aggregate Basis points guaranteed amount of $300 million. As of June 30, Interest Period 2003 no enclave guarantees were outstanding. Commencing During FY 2003, IBRD's guarantee of certain bonds FY 2004 FY 2003 FY 2002 that had been issued by Argentina was called and, in Commitment charge waivers 50 50 50 accordance with the terms of the guarantee, IBRD Interest waiversa made a payment of $250 million to the holders of the Old loans 5 5 5 guarantee. Pursuant to the terms of the New loans 25 25 25 reimbursement agreement between IBRD and Average eligibility n.a. 96% 97% Argentina, IBRD directed Argentina to reimburse IBRD for the entire $250 million in four equal semi- a. On loans to eligible borrowers. annual installments, commencing October 15, 2005, and to pay interest on the outstanding amount at Guarantees LIBOR plus 400 basis points. The outstanding IBRD offers partial risk guarantees and partial credit amount of $250 million is included in Loans guarantees. These guarantees are generally offered on Outstanding on the balance sheet at June 30, 2003. loans from private investors for projects in countries As the amount guaranteed was not repaid in full eligible to borrow from IBRD, although they can also within 60 days of the call date, the guarantee was not be offered on securities issued by entities eligible for reinstated. IBRD loans. IBRD applies the same country IBRD's exposure at June 30, 2003 on its guarantees creditworthiness and project evaluation criteria to (measured by discounting each guaranteed amount guarantees as it applies to loans. from its first call date) is detailed in Table 8. For Partial risk guarantees cover debt-service defaults on additional information see the Notes to Financial a loan that result from non-performance of Statements-Note D. government obligations. In contrast, partial credit Table 8: Guarantee Exposure guarantees are used for public sector projects when there is a need to extend loan maturities and In millions of U.S. dollars guarantee specified interest or principal payments on FY 2003 FY 2002 FY 2001 loans to the government or its instrumentalities. Partial risk $ 456 $ 465 $ 473 When such partial credit guarantees are used in Partial credit 728 957 903 support of agreed structural, institutional and social Of which: Policy based 158 406 402 policies and reforms, they are considered policy- Total $1,184 $1,422 $1,376 based guarantees. Eligibility for IBRD adjustment lending is a necessary condition for eligibility for Other Activities policy-based guarantees. Consultation: In addition to its financial operations, IBRD guarantees can be customized to suit varying IBRD provides technical assistance to its member country and project circumstances. They can be countries, both in connection with, and targeted to mitigate specific risks, generally risks independently of, lending operations. There is a relating to political, regulatory and government growing demand from borrowers for strategic advice, performance, which the private sector is not knowledge transfer, and capacity building. Such normally in a position to absorb or manage. assistance includes assigning qualified professionals to survey developmental opportunities in member Each guarantee requires the counter-guarantee of the countries, analyzing their fiscal, economic and member government. Guarantees are priced within a developmental environment, assisting member limited range to reflect the risks involved, and countries in devising coordinated development preparation fees may be charged where there are programs, appraising projects suitable for investment exceptional costs involved for IBRD. and assisting member countries in improving their In exceptional cases, IBRD may offer enclave asset and liability management techniques. guarantees for loans for foreign-exchange generating Research and Training: To assist its developing projects in a member country usually eligible only member countries, IBRD--through the World Bank for credits from IDA. Fees charged for enclave Institute and its partners--provides courses and 14 The World Bank Annual Report 2003 other training activities related to economic policy this facility, see the Notes to Financial Statements-- development and administration for governments Note E. and organizations that work closely with IBRD. Under IBRD's liquidity management policy, Trust Fund Administration: IBRD, alone or jointly aggregate liquid asset holdings should be kept at or with IDA, administers on behalf of donors, funds above a specified prudential minimum. That restricted for specific uses. These funds are held in minimum is equal to the highest consecutive six trust and are not included in the assets of IBRD. See months of expected debt service obligations for the the Notes to Financial Statements-Note J. fiscal year, plus one-half of net approved loan disbursements as projected for the fiscal year. The FY Investment Management: IBRD has leveraged its 2004 prudential minimum liquidity level has been set treasury management knowledge, expertise, and at $18 billion, unchanged from that set for FY 2003. infrastructure to provide investment management IBRD also holds liquid assets over the specified services to several external institutions, including minimum to provide flexibility in timing its central banks of member countries. One objective of borrowing transactions and to meet working capital providing these services to central banks is to assist needs. them in developing portfolio management skills. These funds are not included in the assets of IBRD. Liquid assets may be held in three distinct sub- See the Notes to Financial Statements--Note J. portfolios: stable; operational; and discretionary, each with different risk profiles and performance 4. LIQUIDITY MANAGEMENT benchmarks. IBRD's liquid assets are held principally in The stable portfolio is principally an investment obligations of governments and other official portfolio holding the prudential minimum level of entities, time deposits and other unconditional liquidity, which is set at the beginning of each fiscal obligations of banks and financial institutions, year. currency and interest rate swaps, asset-backed The operational portfolio provides working capital securities, and futures and options contracts for IBRD's day-to-day cash flow requirements. pertaining to such obligations. The discretionary portfolio, when used, provides Liquidity risk arises in the general funding of IBRD's flexibility for the execution of IBRD's borrowing activities and in the management of its financial program and can be used to take advantage of positions. It includes the risk of being unable to fund attractive market opportunities. The discretionary its portfolio of assets at appropriate maturities and portfolio was not used during FY 2002 or FY 2003, rates and the risk of being unable to liquidate a but was reactivated on July 1, 2003. position in a timely manner at a reasonable price. The objective of liquidity management is to ensure Figure 4 represents IBRD's liquid asset portfolio size the availability of sufficient cash flows to meet all of and structure at the end of FY 2003 and FY 2002, IBRD's financial commitments. excluding investment assets associated with certain other postemployment benefits. At the end of FY As one component of liquidity management, IBRD 2003, the aggregate size of the IBRD liquid asset maintains a $500 million line of credit with an independent financial institution.a This facility is portfolio stood at $26,423 million, an increase of $1,537 million from FY 2002. Of this amount, $1.3 used to cover any overnight overdrafts that may billion of assets in the stable portfolio were managed occur due to failed trades. For further details about by external firms. This portfolio is largely composed of assets denominated in U.S. dollars with net a. This line of credit is held jointly with the International Devel- exposure to short-term interest rates. opment Association (IDA), an affiliated organization. IBRD Management's Discussion and Analysis: June 30, 2003 15 Figure 4: Liquid Asset Portfolio Composition (In millions of U.S. dollars) June 30, 2003 June 30, 2002 Stable Portfolio Stable Portfolio $18,024 $20,766 68% 83% Operational Portfolio Operational Portfolio $8,399 $4,120 32% 17% The returns of the liquid asset portfolio in FY 2003 normal loan growth, without reliance on additional compared to FY 2002 are presented in Table 9. These shareholder capital. returns exclude investment assets funding certain For management purposes, IBRD closely monitors other postemployment benefits. equity as defined and utilized in the equity-to-loans Table 9: Liquid Asset Portfolio Returns ratio. Table 10 presents the composition of this measure at June 30, 2003 and 2002. Financial Return (%) FY 2003 FY 2002 The equity-to-loans ratio is a summary statistic that IBRD uses as one measure of the adequacy of its risk- IBRD Overall Portfolio 1.62 2.86 bearing capacity. IBRD also uses a stress test as a Stable Portfolio 1.73 3.00 measure of income-generating capacity and capital Operational Portfolio 1.34 2.29 adequacy. See discussion in Section 6, Financial Risk Management--Managing Risk-Bearing Capacity. The lower returns in FY 2003 are due primarily to the As presented in Figure 5, IBRD's equity-to-loans lower interest rate environment in FY 2003 as ratio increased during FY 2003, on both a reported compared to FY 2002, as shown in Figure 10. basis (excluding cumulative translation adjustments associated with the FAS 133 adjustments) and a IBRD enters into derivative transactions to manage current value basis. its investment portfolio. The main purposes of these derivative instruments are to enhance the return, and Figure 5: Equity-to-Loans Ratio manage the overall duration, of the portfolio. 27.0% 5. FUNDING RESOURCES 25.0% Reported Basis Equity 23.0% Total shareholders' equity, as reported in IBRD's balance sheet at June 30, 2003, was $37,918 million 21.0% compared with $32,313 million at June 30, 2002. The 19.0% Current Value Basis increase from FY 2002 primarily reflects the increase in retained earnings. 17.0% IBRD's equity base plays a critical role in securing its 15.0% financial objectives. By enabling IBRD to absorb risk 96 97 98 99 00 01 02 03 out of its own resources, its equity base protects un-J un-J un-J un-J un-J un-J un-J un-J shareholders from a possible call on callable capital. The adequacy of IBRD's equity capital is judged on the basis of its ability to generate future net income sufficient to absorb potential risks and support 16 The World Bank Annual Report 2003 Table 10: Equity Capital In millions of U.S. dollars June 30, 2003 June 30, 2002 Usable Capital Paid-in Capital $ 11,478 $ 11,476 Restricted Paid-in Capital (2,464) (2,300) Net Receivable for Maintenance of Value (433) (936) Total Usable Capital 8,581 8,240 Special Reserve 293 293 General Reserve, including allocation of FY 2003/FY 2002 net income 21,542 19,132 Cumulative Translation Adjustmenta (389) (764) Equity used in Equity-to-Loans Ratio--Reported Basis a $ 30,027 $ 26,901 Current Value Adjustments 1,408 1,368 Equity used in Equity-to-Loans Ratio-- Current Value Basis $ 31,435 $ 28,269 Loans and Guarantees Outstanding, net of Accumulated Provision for Losses on Loans and Guarantees and Deferred Loan Income $112,922 $117,528 Current Value Loans and Guarantees Outstanding, net of Accumulated Provision for Losses on Loans and Guarantees and Deferred Loan Income $119,275 $122,393 Equity-to-Loans Ratio--Reported Basis a 26.59% 22.90% Equity-to-Loans Ratio--Curr ent Value Basis 26.36% 23.10% a. Excluding cumulative translation amounts associated with the FAS 133 adjustment. In accordance with the financial policy defining this capital and the restrictions on its use that are derived ratio, the amount of transfer to the general reserve of from the Articles and from resolutions of IBRD's $2,410 million, that was approved on July 31, 2003, Board of Governors are as follows: was included in this ratio at June 30, 2003 ($1,291 Paid-in Capital million--June 30, 2002). The increase in this ratio (i) $2,796 million of IBRD's capital was initially from 22.90% at June 30, 2002 to 26.59% at June 30, paid in gold or U.S. dollars or was converted 2003 was due to the overall increase in equity in FY from the currency of the subscribing members 2003, including the transfer to the general reserve, into U.S. dollars. This amount may, under the and the decrease in net loans outstanding. During FY Articles, be freely used by IBRD in its opera- 2003, IBRD considered it prudent to increase general tions. reserves in the medium term in order to improve its (ii) $8,682 million of IBRD's capital was paid in the risk-bearing capacity. national currencies of the subscribing members. Capital Under the Articles this amount is subject to maintenance of value obligations and may be Shareholder support for IBRD is reflected in the used for funding loans only with the consent of capital backing it has received from its members. At the member whose currency is involved, or used June 30, 2003, the authorized capital of IBRD was for administrative expenses without the need for $190,811 million, of which $189,567 million had consent. In accordance with such consents for been subscribed. Of the subscribed capital, $11,478 lending, $5,483 million of this amount was million had been paid in and $178,089 million was being used in IBRD's lending operations at June callable. Of the paid-in capital, $8,581 million was 30, 2003. available for lending and $2,897 million was not In FY 2002, the Board of Executive Directors available for lending.The terms of payment of IBRD's endorsed new options to increase the usability of IBRD Management's Discussion and Analysis: June 30, 2003 17 the national currency portion of the members' subscriptions of those countries and the callable paid-in capital. Accordingly, IBRD may use a amounts. member's local currency to invest or lend in that currency, or may swap the local currency into Table 11: Capital Subscriptions of DAC Members of OECD Countries another currency for investment or lending pur- poses, provided it has the consent of the mem- In millions of U.S. dollars ber whose currency is involved. As of June 30, Total Capital Uncalled Portion 2003, no member's currency has been used for Member Countrya Subscription of Subscription any of these new options. Callable Capital United States $ 31,965 $ 29,966 (iii) $151,654 million of IBRD's capital may, under Japan 15,321 14,377 the Articles, be called only when required to Germany 8,734 8,191 meet obligations of IBRD for funds borrowed or France 8,372 7,851 on loans guaranteed by it. This amount is thus United Kingdom 8,372 7,832 not available for use by IBRD in making loans. Canada 5,404 5,069 Payment on any such call may be made, at the Italy 5,404 5,069 option of the particular member, either in gold, Netherlands 4,283 4,018 in U.S. dollars or in the currency required to dis- Belgium 3,496 3,281 charge the obligations of IBRD for which the call Spain 3,377 3,171 is made. Switzerland 3,210 3,012 Australia 2,951 2,770 (iv) $26,435 million of IBRD's capital is to be called Sweden 1,806 1,696 only when required to meet obligations of IBRD Denmark 1,623 1,525 for funds borrowed or on loans guaranteed by it, Austria 1,335 1,254 pursuant to resolutions of IBRD's Board of Gov- Norway 1,204 1,132 ernors (though such conditions are not required Finland 1,033 971 by the Articles). Of this amount, 10% would be New Zealand 873 821 payable in gold or U.S. dollars and 90% in the Portugal 659 620 national currencies of the subscribing members. Ireland 636 599 While these resolutions are not legally binding Greece 203 189 on future Boards of Governors, they do record Luxembourg 199 190 an understanding among members that this Total $110,460 $103,604 amount will not be called for use by IBRD in its lending activities or for administrative purposes. a. See details regarding the capital subscriptions of all No call has ever been made on IBRD's callable members of IBRD at June 30, 2003 in Financial State- capital. Any calls on unpaid subscriptions are ments-Statement of Subscriptions to Capital Stock and required to be uniform, but the obligations of the Voting Power. members of IBRD to make payment on such calls are The United States is IBRD's largest shareholder. independent of each other. If the amount received on Under the Bretton Woods Agreements Act, the Par a call is insufficient to meet the obligations of IBRD Value Modification Act and other U.S. legislation, the for which the call is made, IBRD has the right and is Secretary of the U.S. Treasury is permitted to pay up bound to make further calls until the amounts to $7,663 million of the uncalled portion of the received are sufficient to meet such obligations. subscription of the United States, if it were called by However, no member may be required on any such IBRD, without any requirement of further call or calls to pay more than the unpaid balance of congressional action. The balance of the uncalled its capital subscription. portion of the U.S subscription, $22,303 million, has At June 30, 2003, $103,604 million (58.2%) of the been authorized by the U.S. Congress but not uncalled capital was callable from the member appropriated. Further action by the U.S. Congress countries of IBRD that are also members of the would be required to enable the Secretary of the Development Assistance Committee (DAC) of the Treasury to pay any portion of this balance. The Organization for Economic Cooperation and General Counsel of the U.S Treasury has rendered an Development (OECD). This amount slightly opinion that the entire uncalled portion of the U.S. exceeded IBRD's outstanding borrowings including subscription is an obligation backed by the full faith swaps at June 30, 2003. Table 11 sets out the capital and credit of the United States, notwithstanding that congressional appropriations have not been obtained with respect to certain portions of the subscription. For a further discussion of capital stock, restricted currencies, maintenance of value and membership 18 The World Bank Annual Report 2003 refer to the Notes to Financial Statements--Notes A 2002. Table 12 summarizes IBRD's funding and B. operations for FY 2003 and FY 2002. Borrowings Table 12: Funding Operations Indicators Source of Funding FY 2003 FY 2002 IBRD diversifies its sources of funding by offering its Total Medium- and Long-term securities to institutional and retail investors globally. Borrowingsa (USD million) $18,798 $22,050 Under its Articles, IBRD may borrow only with the Average Maturityb (years) 6.1 3.3 approval of the member in whose markets the funds Number of Transactions 403 472 are raised and the member in whose currency the Number of Currencies 9 10 borrowing is denominated, and only if each such a. Includes one-year notes and represents net proceeds on member agrees that the proceeds may be exchanged a trade date basis. for the currency of any other member without b. Average maturity to first call date. restriction. Funding raised in any given year is used for IBRD's New medium- and long-term funding by currency general operations, including loan disbursements, for FY 2003, as compared to FY 2002, is shown in refinancing of maturing debt and prefunding of Figure 6 below. future lending activities. The decrease in funding in Figure 6: New Funding by Currencya FY 2003 was primarily attributable to lower borrowing requirements. All proceeds from new (in millions of U.S dollars equivalent) funding are initially invested in the liquid asset FY 2003 portfolio until they are required for IBRD's Others operations. Debt is allocated on a periodic basis to Japanese $6,883 the different debt pools funding loans as necessary, in Yen (37%) accordance with operating guidelines. In FY 2003, $4,061 (22%) IBRD followed a strategy of selective bond issuance, composed of cost-effective private placements, public issues placed with large institutional investors, Euro and public issues targeted to retail investors. $1,009 U.S. Dollars (5%) $6,845 IBRD strategically repurchases, calls or prepays its (36%) debt to reduce the cost of borrowings and to reduce FY 2002 exposure to refunding requirements in a particular year or to meet other operational needs. In response Others to market conditions, during FY 2003, IBRD Japanese $1,315 Yen (6%) repurchased or called $6,293 million of its $5,756 outstanding borrowings (net of unamortized (26%) discounts, premiums, and issuance costs). Use of Derivatives Euro IBRD enters into currency and interest rate swaps to $1,112 U.S. Dollars (5%) $13,867 convert U.S. dollar and non-U.S. dollar fixed-rate (63%) borrowings into U.S. dollar variable-rate funding for its loans. In FY 2003, all new funding was initially a. Includes one-year notes and represents net proceeds on a swapped into floating rate U.S. dollars, with trade date basis. conversion to other currencies or fixed-rate funding Funding Operations being carried out subsequently in accordance with In FY 2003, medium- and long-term debt raised funding requirements. Figures 7a and 7b illustrate directly in financial markets by IBRD amounted to the effect of swaps on both the interest rate structure $18,798 million compared to $22,050 million in FY and currency composition of the borrowings portfolio at June 30, 2003. Interest rate and currency swaps are also used for asset/liability management purposes to match the pool of liabilities as closely as possible to the interest rate and currency characteristics of liquid assets and loans. IBRD does not enter into derivatives for speculative purposes in the borrowings portfolio. IBRD Management's Discussion and Analysis: June 30, 2003 19 Figure 7a: Effect of Swaps on Interest Rate Structures--June 30, 2003 Borrowings excluding swaps Borrowings including swaps Floating Floating 16% 66% Fixed 34% Fixed 84% Figure 7b: Effect of Swaps on Currency Composition--June 30, 2003 Borrowings excluding swaps Borrowings including swaps Japanese Japanese Yen Yen Others 14% Euro 5% 1% Euro Others 10% 16% 20% U.S. Dollars U.S. Dollars 84% 50% A more detailed analysis of borrowings outstanding Market Risk and Currency Management is provided in the Notes to Financial Statements- Subcommittee and the Credit Risk Subcommittee. Note E. The Market Risk and Currency Management Subcommittee develops and monitors the policies 6. FINANCIAL RISK MANAGEMENT under which market and commercial credit risks IBRD assumes various kinds of risk in the process of faced by IBRD are measured, reported and managed. providing development banking services. Its The subcommittee also monitors compliance with activities can give rise to four major types of financial policies governing commercial credit exposure and risk: credit risk; market risk (interest rate and currency management. Specific areas of activity exchange rate); liquidity risk; and operational risk. include establishing guidelines for limiting balance The major inherent risk to IBRD is country credit sheet and market risks, the use of derivative risk, or loan portfolio risk. instruments, setting investment guidelines, and monitoring matches between assets and their Governance Structure funding. The Credit Risk Subcommittee monitors The risk management governance structure includes the measurement and reporting of country credit a Risk Management Secretariat supporting the risk and reviews the impact on the provision for Management Committee in its oversight function. losses on loans and guarantees of any changes in risk The Risk Management Secretariat was established in ratings of borrowing member countries or FY 2002 to support the Management Committee, movements between the accrual and nonaccrual particularly in the coordination of different aspects portfolios. of risk management, and in connection with risks that cut across functional areas. Country credit risk, the primary risk faced by IBRD, is identified, measured and monitored by the For financial risk management, there is an Asset/ Country Credit Risk Department, led by the Chief Liability Management Committee chaired by the Credit Officer. This unit is independent from IBRD's Chief Financial Officer. The Asset/Liability business units. In addition to continuously reviewing Management Committee makes recommendations the creditworthiness of IBRD borrowers, this in the areas of financial policy, the adequacy and department is responsible for assessing loan portfolio allocation of risk capital, and oversight of financial risk, determining the adequacy of provisions for reporting. Two subcommittees that report to the losses on loans and guarantees, and monitoring Asset/Liability Management Committee are the 20 The World Bank Annual Report 2003 borrowers that are vulnerable to crises in the near nonaccrual event used in the stress test is an estimate term. The Chief Credit Officer reports to the Vice of the amount of the loan portfolio that could enter President of Strategy, Finance, and Risk Management nonaccrual status (payment arrears in excess of six who is a member of the Operations Committee, months) in the next three years at a 95% confidence which reviews IBRD's Country Assistance Strategies level. and selected planned adjustment loans. Credit risk is measured in terms of both probable Market risks, liquidity risks and counterparty credit and potential losses from protracted payments risks in IBRD's financial operations are identified, arrears. Probable losses are covered by IBRD's measured and monitored by the Corporate Finance accumulated provision for losses on loans and Department, which is independent from IBRD's guarantees, and potential losses are covered by business units. The Corporate Finance Department income-generating capacity and equity. works with IBRD's financial managers, who are IBRD's equity supports its risk-bearing capacity for responsible for the day-to-day management of these its lending operations. IBRD strives to immunize its risks, to establish and document processes that risk-bearing capacity from fluctuations in interest facilitate, control and monitor risk. These processes and exchange rates. Therefore, IBRD uses the equity- are built on a foundation of initial identification and to-loans ratio (on a current value basis) as one tool measurement of risks by each of the business units. to monitor the sensitivity of its risk-bearing capacity Under the direction of the Asset/Liability to movements in interest and exchange rates. One of Management Committee, policies and procedures IBRD's financial risk management objectives is to for measuring and managing such risks are seek to protect the equity-to-loans ratio from formulated, approved and communicated movements arising from market risks. To the extent throughout IBRD. Senior managers represented on that the duration of its equity capital is matched to the Committee are responsible for maintaining that of its loan portfolio, this ratio is protected sound credit assessments, addressing transaction and against interest rate movements. To the extent that product risk issues, providing an independent review the currency composition of its equity capital is function and monitoring the loans, investments and matched with that of its loan portfolio, this ratio is borrowings portfolios. protected from exchange rate movements. Primary responsibility for the management of As presented in Figure 5 in Section 5, Funding operational risk resides with each of IBRD's Resources, IBRD has maintained a relatively stable managers. These individuals are responsible for equity-to-loans ratio on both the current value and establishing, maintaining and monitoring reported basis. appropriate internal control procedures in their respective areas. Credit Risk The processes and procedures by which IBRD Country Credit Risk manages its risk profile continually evolve as its Country credit risk is the risk of loss due to a country activities change in response to market, credit, not meeting its contractual obligations. IBRD's product, and other developments. The Executive Credit Risk Department continuously reviews the Directors, particularly the Audit Committee creditworthiness of its borrowing member countries. members, periodically review trends in IBRD's risk These reviews are taken into account in determining profiles and performance, as well as any significant IBRD's overall country programs and lending developments in risk management policies and operations, used to estimate the appropriate level of controls. provisions for losses on loans and guarantees, and used to assess the adequacy of IBRD's income- Managing Risk-Bearing Capacity generating capacity and risk-bearing capital. In IBRD assesses its risk-bearing capacity using a keeping with standard practice, probable losses variety of metrics, including a stress test and an inherent in the portfolio due to country credit risk equity-to-loans ratio, to measure its income are covered by the accumulated provision for losses generating capacity and capital adequacy. on loans and guarantees, while potential losses due to The stress test measures the level of loan growth country credit risk are covered by income-generating which could be supported by IBRD in the wake of a capacity and risk-bearing capital. significant credit shock, without further Portfolio concentration risk, which arises when a deterioration in IBRD's capital position. The small group of borrowers account for a large share of IBRD Management's Discussion and Analysis: June 30, 2003 21 loans outstanding, is a key concern for IBRD and is Figure 8: carefully managed, in part, through a single Top Eight Country Exposures at June 30, 2003 borrower exposure limit. According to an approach (in billions of U.S.dollars) approved by the Executive Directors in 1997, the single borrower exposure limit is set at the lower of 16 Exposure Limit ($13.5 billion) an equitable access limit and a concentration risk 14 limit. The equitable access limit is equal to 10% of 12 IBRD's subscribed capital, reserves and unallocated 10 surplus, and the concentration limit is estimated by 8 stress testing IBRD's income-generating capacity and risk-bearing capital (taking into account not only 6 current exposure - loans outstanding plus the present 4 value of guarantees - but also projected exposure 2 over the ensuing three- to five-year period). The 0 single borrower exposure limit is determined by the Executive Directors each year at the time they China xicoe Brazil Russia Korea Turkey consider IBRD's reserves adequacy and the allocation M Indonesia Argentina of its net income from the preceding fiscal year. For FY 2004, the concentration risk limit is $13.5 billion, Overdue and Non-performing Loans unchanged from FY 2003. The equitable access limit It is IBRD's policy that if a payment of principal, is $21.3 billion. As depicted in Figure 8, IBRD's interest or other charges on an IBRD loan or IDA largest exposure (including the present value of credit becomes 30 days overdue, no new loans to that guarantees) to a single borrowing country was $11.0 member country, or to any other borrower in that billion at June 30, 2003. country, will be presented to the Executive Directors Since the current exposure data presented are at a for approval, nor will any previously approved loan point in time, evaluating these exposures relative to be signed, until payment for all amounts 30 days the limit requires consideration of the repayment overdue or longer has been received. In addition, if profiles of existing loans, as well as disbursement such payment becomes 60 days overdue, profiles and projected new loans and guarantees. disbursements on all loans to or guaranteed by that member country are suspended until all overdue In FY 2003, IBRD's Executive Directors approved a amounts have been paid. Where the member country policy that, under certain circumstances, would is not the borrower, the time period for suspension of allow IBRD to continue lending to borrowers that the approval and signing of new loans to or had reached the concentration risk limit. Under this guaranteed by the member country is 45 days and policy, borrowers may exceed this limit provided they the time period for suspension of disbursements is 60 have entered into an arrangement designed to days. It is the policy of IBRD to place all loans made insulate IBRD from possible cash flow losses to or guaranteed by a member of IBRD in nonaccrual resulting from exposure in excess of the status, if principal, interest or other charges on any concentration risk limit. Application of this policy such loan are overdue by more than six months, would therefore not increase IBRD's net exposure to unless IBRD determines that the overdue amount a borrower. Any such arrangement that would will be collected in the immediate future. See Notes permit the gross exposure to a borrower to exceed to Financial Statements--Note D for a summary of the concentration risk limit would need to be countries with loans or guarantees in nonaccrual approved in advance by IBRD's Executive Directors. status at June 30, 2003. During FY 2003, IBRD entered into the first such arrangement with one borrower, China. As of June IBRD maintains an accumulated provision for losses 30, 2003, China had not exceeded the concentration on loans and guarantees to recognize the probable risk limit. losses inherent in both the accrual and nonaccrual portfolios. The methodology for determining the accumulated provision for losses on loans and guarantees is discussed in Section 7, Critical Accounting Policies. 22 The World Bank Annual Report 2003 In 1991, the Executive Directors adopted a policy to assumed, respectively, by BiH and SAM as part of assist members with protracted arrears to IBRD to their conditions for succession to membership of the mobilize sufficient resources to clear their arrears former SFRY, as well as all unpaid interest and and to support a sustainable growth-oriented charges related to the former SFRY's loans. This adjustment program over the medium term. Under resulted in an increase in loans outstanding of $168 this policy, IBRD will develop a lending strategy and million for BiH and $799 million for SAM. The offset will process loans, but not sign or disburse such to these amounts was initially classified as deferred loans, during a pre-clearance performance period loan income, which was presented along with the with respect to members that: (a) agree to and accumulated provision for loan losses as a implement a medium-term, growth-oriented determinant of net loans outstanding on the balance structural adjustment program endorsed by IBRD; sheet. (b) undertake a stabilization program, if necessary, Accumulated Provision for Losses on Loans endorsed, or financially supported, by the and Guarantees International Monetary Fund; (c) agree to a IBRD's allowance for losses on loans and guarantees financing plan to clear all arrears to IBRD and other covers probable credit losses from protracted arrears. multilateral creditors in the context of a medium- The Credit Risk Subcommittee reviews the allowance term structural adjustment program; and (d) make for losses on loans and guarantees at least quarterly debt-service payments as they fall due on IBRD loans and, if necessary, adjustments are made to the during the performance period. The signing, provision. effectiveness and disbursement of such loans will not take place until the member's arrears to IBRD have During FY 2003, IBRD determined that the offset to been fully cleared. loans outstanding related to BiH and SAM, that was initially classified as Deferred Loan Income, should It is IBRD's practice not to reschedule interest or be reclassified to Accumulated Provision for Loan principal payments on its loans or participate in debt Losses to better reflect the nature of these amounts. rescheduling agreements with respect to its loans. Following the reclassification, the required However, during FY 1996 and FY 2002, exceptions provisions for these countries were reassessed, and were made to that practice with regard to Bosnia and resulted in a positive effect on income of $591 Herzegovina (BiH) and Serbia and Montenegro million. See the Notes to Financial Statements--Note (SAM), formerly the Federal Republic of Yugoslavia, D for additional information. based on criteria approved by the Executive Directors in connection with the financial assistance package Overall, the accumulated provision for losses on for Bosnia and Herzegovina in 1996. These criteria loans and guarantees decreased during FY 2003. This limited eligibility for such treatment to a country: decrease was primarily due to a net improvement in that has emerged from a current or former member borrowers' risk ratings; negative net disbursements of IBRD; that is assuming responsibility for a share of on loans, including $7 billion of prepayments, which the debt of such member; that because of a major reduced loans outstanding; and the reclassification of armed conflict in its territory involving extensive deferred income on loans to BiH and SAM and destruction of physical assets, has limited subsequent reassessment of the required provision, creditworthiness for servicing the debt it is assuming; as discussed above. and for which a rescheduling/refinancing would result in a significant improvement in its repayment Commercial Credit Risk capacity, if appropriate supporting measures are Commercial credit risk is the risk of loss due to a taken. This treatment was based on a precedent counterparty not honoring its contractual established in 1975 after Bangladesh became obligations. independent from Pakistan. IBRD does not believe IBRD's commercial credit risk is concentrated in that any other borrowers with loans in nonaccrual investments in debt instruments issued by sovereign status currently meet these eligibility criteria. governments, agencies, banks and corporate entities. The accumulated arrears on loans to the former The majority of these investments are in AAA and Socialist Federal Republic of Yugoslavia (SFRY), for AA rated instruments. which BiH and SAM undertook responsibility, were In the normal course of its business, IBRD utilizes cleared through new consolidation loans extended by various derivatives and foreign exchange financial IBRD in FY 1996 and FY 2002, respectively. These instruments to meet the financial needs of its new loans included the loan principal outstanding IBRD Management's Discussion and Analysis: June 30, 2003 23 borrowers, to generate income through its market is positive, it indicates the counterparty owes investment activities and to manage its exposure to IBRD and, therefore, creates an exposure for IBRD. fluctuations in interest and currency rates. When the mark-to-market is negative, IBRD owes the counterparty and does not have replacement risk. Derivative and foreign exchange transactions involve credit risk. The effective management of credit risk is When IBRD has more than one transaction vital to the success of IBRD's funding, investment outstanding with a counterparty, and the parties and asset/liability management activities. The have entered into a master derivatives agreement monitoring and managing of these risks is a which contains legally enforceable close-out netting continuous process due to changing market provisions, the "net" mark-to-market exposure environments. represents the netting of the positive and negative exposures with the same counterparty. If this net IBRD controls the credit risk arising from derivatives mark-to-market is negative, then IBRD's exposure to and foreign exchange transactions through its credit the counterparty is considered to be zero. For the approval process, the use of collateral agreements contractual value, notional amounts and related and risk limits, and monitoring procedures. The credit risk exposure amounts by instrument, see the credit approval process involves evaluating Notes to Financial Statements--Note G. counterparty creditworthiness, assigning credit limits and determining the risk profile of specific Table 13 provides details of IBRD's estimated credit transactions. Credit limits are calculated and exposure on its investments and swaps, net of monitored on the basis of potential exposures taking collateral held, by counterparty rating category. into consideration current market values, estimates The increase in the proportion of AA rated of potential future movements in those values and investments, compared to the prior year, is mainly collateral agreements with counterparties. If there is due to the increase in deposits with commercial a collateral agreement with the counterparty to banks. After the effects of netting arrangements, the reduce credit risk, then the amount of collateral credit exposure from swaps increased from $1,534 obtained is based on the credit rating of the million at June 30, 2002 to $6,599 million at June 30, counterparty. Collateral held includes cash and 2003. The swap credit exposure of $6,599 million is government securities. offset by collateral of $4,941 million, which results in IBRD treats the credit risk exposure as the a total net swap exposure of $1,658 million. replacement cost of the derivative or foreign Market Risk exchange product. This is also referred to as replacement risk or the mark-to-market exposure IBRD faces risks which result from market amount. While contractual principal amount is the movements, primarily interest and exchange rates. In most commonly used volume measure in the comparison to country credit risk, IBRD's exposure derivative and foreign exchange markets, it is not a to market risks is small. IBRD has an integrated measure of credit or market risk. asset/liability management framework to flexibly assess and hedge market risks associated with the Mark-to-market exposure is a measure, at a point in characteristics of the products in IBRD's portfolios. time, of the value of a derivative or foreign exchange contract in the open market. When the mark-to- Table 13: Credit Exposure by Counterparty Rating In millions of U.S. dollars At June 30, 2003 At June 30, 2002 At June 30, 2001 Investments Agencies, Net Total Exposure Total Exposure Total Exposure Counterparty Banks & Swap on Investments % of on Investments % of on Investments % of Rating Sovereigns Corporates Exposure and Swaps Total and Swaps Total and Swaps Total AAA $ 273 $10,147 $ 529 $10,949 39 $11,217 47 $ 9,225 39 AA 842 10,838 969 12,649 46 9,253 38 13,527 56 A 1,132 2,939 160 4,231 15 3,537 15 1,169 5 Total $2,247 $23,924 $1,658 $27,829 100 $24,007 100 $23,921 100 24 The World Bank Annual Report 2003 Asset/Liability Management Use of Derivatives The objective of asset/liability management for IBRD As part of its asset/liability management process, is to ensure adequate funding for each product at the IBRD employs derivatives to manage and align the most attractive available cost, and to manage the characteristics of its assets and liabilities. IBRD uses currency composition, maturity profile and interest derivative instruments to adjust the interest rate rate sensitivity characteristics of the portfolio of repricing characteristics of specific balance sheet liabilities supporting each lending product in assets and liabilities, or groups of assets and liabilities accordance with the particular requirements for that with similar repricing characteristics, and to modify product and within prescribed risk parameters. The the currency composition of net assets and liabilities. current value information is used in the asset/liability Table 14 details the current value information of management process. each loan product, the liquid asset portfolio, and the debt allocated to fund these assets. Table 14: Financial Instrument Portfolios In millions of U.S. dollars At June 30, 2003 At June 30, 2002 Current Current Carrying Contractual Value Carrying Contractual Value Value Yield Mark Value Yield Mark Loansa $116,240 4.09% $6,353 $121,589 5.06% $4,865 Variable-Rate Multicurrency Pool Loans 22,728 4.62 2,447 28,076 5.03 1,766 Single Currency Pool Loansb 20,490 6.95 1,682 25,585 8.12 1,987 Variable-Spread Loans c 36,424 1.62 44 33,031 2.44 54 Fixed-Rate Single Currency Loans 15,315 6.45 1,756 15,873 6.59 969 Special Structural and Sector Adjustment Loansd 8,454 3.33 8 11,505 4.22 15 Fixed-Spread Loans 12,414 3.18 401 7,017 4.00 57 Other Fixed Rate Loans 415 7.92 15 502 7.86 17 Liquid Asset Portfolioe, f $26,423 1.35% $24,886 2.11% Borrowings (including swaps)e $107,845 2.75% $4,946 $114,261 3.61% $3,499 Variable-Rate Multicurrency Pools 13,615 3.96 2,624 17,875 4.09 1,780 Single Currency Pools 12,857 5.68 1,046 16,996 7.03 1,260 Variable-Spread 25,151 1.05 (186) 22,106 1.96 (229) Fixed-Rate Single Currency 12,400 6.13 1,451 13,727 5.83 774 Special Structural and Sector Adjustment 8,012 1.04 (22) 11,916 1.79 (74) Fixed-Spread 7,146 2.61 133 5,055 3.13 (85) Other Debtg 28,664 1.42 (100) 26,586 2.27 73 a. Contractual yield is presented before the application of interest waivers. b. Excludes fixed-rate single currency pool loans, which have been classified in other fixed-rate loans. c. Includes fixed-rate single currency loans for which the rate had not yet been fixed at fiscal year-end. d. Includes loans with non-standard terms. e. Carrying amounts and contractual yields are on a basis which includes accrued interest and any unamortized amounts, but does not include the effects of applying FAS 133. f. The liquid asset portfolio is carried and reported at market value and excludes investment assets associated with certain other postemployment benefits. g. Includes amounts not yet allocated at June 30, 2003 and June 30, 2002. IBRD Management's Discussion and Analysis: June 30, 2003 25 Interest Rate Risk be transacted in a phased manner. The present value There are two main sources of potential interest rate of the remaining over-funded portion of the above risk to IBRD. The first is the interest rate sensitivity market debt is approximately $424 million as of June associated with the net spread between the rate IBRD 30, 2003. earns on its assets and the cost of borrowings, which Interest rate risk on non-cost pass-through products, fund those assets. The second is the interest rate which currently account for 31% of the existing loan sensitivity of the income earned from funding a portfolio (29% at the end of FY 2002), is managed by portion of IBRD assets with equity. In general, lower using interest rate swaps to closely align the rate nominal interest rates result in lower lending rates sensitivity characteristics of the loan portfolio with which, in turn, reduce the nominal earnings on those of their underlying funding. As the portfolio of IBRD's equity. In addition, as the loan portfolio shifts fixed-spread loans increases, the proportion of non- from pool loans to LIBOR based loans, the sensitivity cost pass-though products will grow. The interest of IBRD's income to changes in market interest rates rate risk on IBRD's liquid portfolio is managed will increase. within specified duration-mismatch limits and is The borrowing cost pass-through formulation further limited by stop-loss limits. incorporated in the lending rates charged on most of Interest rate risk also arises from a variety of other IBRD's existing loans has traditionally helped limit factors, including differences in the timing between the interest rate sensitivity of the net spread earnings the contractual maturity or repricing of IBRD's on its loan portfolio. Such cost pass-through loans assets, liabilities and derivative financial instruments. currently account for approximately 69% of the On floating rate assets and liabilities, IBRD is existing outstanding loan portfolio (71% at the end exposed to timing mismatches between the re-set of FY 2002). All cost pass-through loans, including dates on its floating rate receivables and payables. To single currency and multicurrency pool loans as well mitigate its exposure to these timing mismatches, as variable-spread loans, pose some residual interest IBRD has developed a framework to analyze and rate risk, given the lag inherent in the lending rate assess the mismatch risk and, during FY 2002, IBRD calculation. Since pool loan terms are no longer executed some overlay interest rate swaps to reduce available for new commitments, this risk will this mismatch risk. diminish as the existing loans mature. Exchange Rate Risk Another potential risk arises because the cost pass- In order to minimize exchange rate risk in a through currency pool products have traditionally multicurrency environment, IBRD matches its been funded with a large share of medium- and long- borrowing obligations in any one currency (after term fixed-rate debt, to provide the borrowers with a swap activities) with assets in the same currency, as reasonably stable interest basis. Given that the prescribed by the Articles. In addition, IBRD's policy cumulative impact of interest rate changes over time is to minimize the exchange rate sensitivity of its has resulted in a decline in the level of interest rates, equity-to-loans ratio. It carries out this policy by the cost of these historical fixed-rate borrowings in undertaking currency conversions periodically to the multicurrency pool and the single currency pools align the currency composition of its equity to that of is currently considerably higher than IBRD's new its outstanding loans. This policy is designed to borrowing costs. The amount of debt allocated to the minimize the impact of market rate fluctuations on multicurrency debt pool will exceed the balance of the equity-to-loans ratio, thereby preserving IBRD's the multicurrency loan pool after FY 2009. The debt ability to better absorb potential losses from arrears which funds these loans has maturities that extend regardless of the market environment. beyond those of the loans and presents a risk of loss to IBRD because this debt carries fixed interest rates. Figure 9 presents the currency composition of significant balance sheet components (net of swaps) Over-funding reaches a maximum of approximately at the end of FY 2003 and FY 2002. $5.8 billion in FY 2016. Strategies for managing this risk include changing the rate fixity of the over- Liquidity Risk funded portion of the debt from fixed to floating Liquidity risk arises from the general funding needs rates beyond 2009 through the use of forward of IBRD's activities and in the management of its starting swaps. IBRD began executing these swaps in assets and liabilities. For a discussion on how FY 2000 and to date has paid $165 million. IBRD liquidity is managed, please refer to Section 4-- expects these forward starting swaps to continue to Liquidity Management. 26 The World Bank Annual Report 2003 Figure 9: Relative Currency Composition of Significant Balance Sheet Components At June 30, 2003 At June 30, 2002 IBRD Management's Discussion and Analysis: June 30, 2003 27 Operational Risk During FY 2004, IBRD plans to further enhance its Operational risk is the potential for loss resulting operational risk management practices by moving from inadequate or failed internal processes or towards an approach that emphasizes active systems, human factors, or external events, and management of operational risk for its finance includes business disruption and system failure, activities. The objective of this effort is to transaction processing failures and failures in supplement the traditional control-based approach execution of legal, fiduciary and agency to operational risk with risk measures, tools and responsibilities. IBRD, like all financial institutions, disciplines that are risk specific and consistently is exposed to many types of operational risks. applied. IBRD attempts to mitigate operational risk by 7. CRITICAL ACCOUNTING POLICIES maintaining a system of internal controls that is designed to keep that risk at appropriate levels in The Notes to IBRD's financial statements contain a view of the financial strength of IBRD and the summary of IBRD's significant accounting policies. characteristics of the activities and markets in which The following is a description of those accounting IBRD operates. policies which involve significant management judgments that are difficult, complex or subjective Since 1996, IBRD has used a COSOa-based and relate to matters that are inherently uncertain. integrated internal control framework. IBRD's approach to operational risk management continues Provision for Losses on Loans and Guaran- tees to evolve each year as IBRD seeks to adopt best practice. IBRD uses several tools to monitor and IBRD's accumulated provision for losses on loans control operational risk. These tools include self- and guarantees reflects probable losses in its assessment workshops, business process reviews in nonaccrual and accrual portfolios. Management the finance, treasury and accounting areas, annual determines the appropriate level of accumulated cascading internal representation letters from provisions for losses on loans and guarantees on a business unit managers, and compliance reviews. borrower-by-borrower basis for both the nonaccrual These tools are used to assist business units in and accrual portfolios at the balance sheet date. The identifying key operational risks and assessing the appropriate level of provisions for each borrower is degree to which they mitigate these risks and estimated as the sum product of its expected default maintain appropriate controls. Action plans are frequency (or probability of default to IBRD), its developed for issues identified. In addition, these loans outstanding (plus the present value of action plans and the risks they are intended to guarantees), and the assumed severity of loss given address are evaluated on an annual basis by an default. internal panel. The panel evaluates and categorizes Judgments on borrowers' expected default the risks to determine if they pose a threat to frequencies and severities of losses given default are management's ability to make a positive assertion on based on many factors such as assessments of the adequacy of internal controls surrounding borrowers' past and prospective economic IBRD's external financial reporting. performance and economic policy framework. IBRD The results of the work undertaken to evaluate the periodically reviews such factors and reassesses the effectiveness of internal controls over financial adequacy of the accumulated provision for losses on reporting are reported to the Audit Committee loans and guarantees accordingly. Actual losses may through an annual report. differ from expected losses due to unforeseen changes in any of the factors that affect borrowers' IBRD has obtained an attestation report from its creditworthiness. external auditors that IBRD's assertion that, as of June 30 of each fiscal year, its system of internal The accumulated provision for loan losses is control over its external financial reporting has met separately reported in the balance sheet as a the criteria for effective internal control over external deduction from IBRD's total loans. The accumulated financial reporting as described in COSO, is fairly provision for losses on guarantees is included in stated in all material respects. other liabilities. Increases or decreases in the accumulated provision for losses on loans and guarantees are reported in the Statement of Income a. In 1992, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) issued its Internal Control-Inte- as provision for losses on loans and guarantees. grated Framework, which provided a common definition of inter- nal control and guidance on judging its effectiveness. 28 The World Bank Annual Report 2003 Additional information on IBRD's provisioning 8. RESULTS OF OPERATIONS policy and the status of nonaccrual loans can be To a large extent, the change in IBRD's net income found in the Notes to Financial Statements--Notes A was due to changes in the credit standing of and D. borrowing countries and the interest rate Fair Value of Financial Instruments environment. Under the current value basis of reporting, IBRD Interest Rate Environment carries all of its financial assets and liabilities at During FY 2003, interest rates for most currencies estimated values. Under the reported basis, IBRD were significantly lower than those in FY 2002. In carries its investments and derivatives, as defined by addition, interest rates declined in both years. The FAS 133, on a fair value basis. These derivatives U.S. dollar short-term interest rates (six-month include certain features in debt instruments that, for LIBOR) depicted in Figure 10 illustrate these trends. accounting purposes, are separately valued and accounted for as either assets or liabilities. When Figure 10: LIBOR Interest Rates - U.S. Dollar possible, fair value is determined by quoted market prices. If quoted market prices are not available, then 4.5 fair value is based on discounted cash flow models 4.0 using market estimates of cash flows and discount 3.5 rates. 3.0 All the financial models used for input to IBRD's FY 2002 2.5 financial statements are subject to both internal and tnec Per2.0 external verification and review by qualified personnel. These models use market sourced inputs, 1.5 such as interest rate yield curves, exchange rates, and 1.0 FY 2003 option volatilities. Selection of these inputs may 0.5 involve some judgment. Imprecision in estimating 0.0 these factors, and changes in assumptions, can n l g t v c n b r r y n Ju Ju Au Sep Oc No De Ja Fe Ap Ju impact net income and IBRD's financial position as Ma Ma reported in the balance sheet. Operating Income IBRD believes its estimates of fair value are IBRD's operating income can be seen as broadly reasonable given its processes for obtaining external comprising a spread on earning assets, plus the prices and parameters; ensuring that valuation contribution of equity, less provisions for loan losses models are reviewed and validated both internally and administrative expenses. Table 15 shows a and externally; and applying its approach breakdown of income, net of funding costs. consistently from period to period. Table 15: Net Income In millions of U.S. dollars FY 2003 FY 2002 FY 2001 Loan interest income, net of funding costs Debt funded $ 936 $ 848 $ 509 Equity funded 1,483 1,714 1,871 Total loan interest income, net of funding costs 2,419 2,562 2,380 Other loan income 111 98 11 Provision for losses on loans and guarantees 1,300 15 (676) Investment income, net of funding costs 36 32 140 Net noninterest expense (845) (783) (711) Operating Income 3,021 1,924 1,144 Effects of applying FAS 133 2,323 854 345 Net Income--Reported Ba sis $5,344 $2,778 $1,489 IBRD Management's Discussion and Analysis: June 30, 2003 29 FY 2003 versus FY 2002 portfolio more than offset a further deterioration in FY 2003 operating income was $3,021 million, the credit quality of the accrual portfolio. $1,097 million higher than for FY 2002. The main reason for the increase in operating income was a reduction in the accumulated provision for losses on Net Interest Income loans and guarantees. FY 2003 versus FY 2002 During FY 2003, provisioning requirements were Loan interest income, net of funding costs, decreased reduced by $709 million due to a net improvement in by $143 million due primarily to lower returns on the borrowers' risk ratings, and negative net equity funded component of loans, and lower disbursements, including $6,972 million of loan average loan balances, offset partially by the interest prepayments. rate repricing lag inherent in the cost pass-through loans in a falling interest rate environment. Interest In addition, as discussed previously in Section 6, income was also affected by an increase in Financial Risk Management ­ Country Credit Risk, prepayment premiums. in FY 2003, IBRD reclassified an amount related to loans to the former SFRY, for which BiH and SAM FY 2002 versus FY 2001 undertook responsibility, from Deferred Loan · Loan interest income, net of funding costs, Income to Accumulated Provision for Loan Losses to increased $182 million due primarily to the better reflect its nature. Subsequent to this interest rate repricing lag inherent in the reclassification, the provisioning requirements for cost pass-through loans, and the decrease in these countries were reassessed, resulting in an the waiver rate on old loans. additional $591 million being taken into income. · Investment income net of funding costs During FY 2002, provisioning requirements were decreased by $108 million in FY 2002 due primarily to changes in U.S. dollar short- reduced by $15 million as credit improvements in the term interest rates. nonaccrual portfolio were offset by a net deterioration in the credit quality of the accrual · Other loan income increased by $87 million portfolio. due primarily to the interest income on loans to three countries which were restored FY 2002 versus FY 2001 to accrual status in FY 2002. FY 2002 operating income was $1,924 million, $780 Net Noninterest Expense million higher than in FY 2001. The majority of this The main components of net noninterest expense are increase was due to a reduction in the provision for presented in Table 16. loan loss expense of $691 million, as arrears clearances from borrowers in the nonaccrual Table 16: Net Noninterest Expense In millions of U.S. dollars FY 2003 FY 2002 FY 2001 Gross Administrative Expenses Staff Costs $ 406 $ 428 $ 466 Consultant Fees 78 86 62 Operational Travel 86 91 77 Pension and other postretirement benefits 58 17 7 Other Expenses 410 430 416 Total Gross Administrative Expenses 1,038 1,052 1,028 Less: Contribution to Special Programs 156 176 147 Total Net Administrative Expenses 882 876 881 Contribution to Special Programs 156 176 147 Service Fee Revenues (178) (155) (146) Income from Staff Retirement Plan and other post retirement benefit plans -- (93) (155) Net Other Income (15) (21) (16) Total Net Noninterest Expense $ 845 $ 783 $ 711 30 The World Bank Annual Report 2003 FY 2003 versus FY 2002 9. GOVERNANCE Net noninterest expense increased by $62 million General Governance primarily due to a $134 million increase in pension Board Membership and other postretirement benefit costs. This was offset by a $55 million decrease in other In accordance with its Articles of Agreement, administrative expenses and a $23 million increase in members of IBRD'sa Board of Executive Directors are service fee revenues. The increase in pension and appointed or elected by their member governments. other postretirement benefit costs was primarily due These Executive Directors are neither officers nor to changes in the underlying actuarial assumptions staff of IBRD. James D. Wolfensohn, President, is the and a decrease in the value of the pension assets only management member of the Board of Executive during FY 2002. See Notes to Financial Statements-- Directors, serving as a non-voting member and as Note K. Chairman of the Board. The Executive Directors have established several Committees including: FY 2002 versus FY 2001 · Committee on Development Effectiveness Net noninterest expense increased by $72 million due primarily to a reduction in the actuarially · Audit Committee determined amount of pension income in FY 2002. · Budget Committee In addition, total gross administrative expenses were $24 million higher in FY 2002 than in FY 2001. · Personnel Committee FAS 133 Adjustments · Committee on Governance and Adminis- trative Matters As discussed earlier, IBRD has marked all derivative instruments, as defined by FAS 133, to market. IBRD The Executive Directors and their Committees generally uses derivatives to modify fixed U.S. dollar function in continuous session at the principal and non-U.S. dollar borrowings to variable U.S. offices of IBRD, as business requires. Each dollar borrowings as required. When IBRD borrows Committee's terms of reference establishes its in currencies that are not needed for lending, it respective roles and responsibilities. As Committees immediately swaps the borrowings into the needed do not vote on issues, their role is primarily to serve currencies to take advantage of the arbitrage the full Board of Executive Directors in discharging opportunities which may exist. During FY 2003, the its responsibilities. effects of applying FAS 133 were $2,323 million Audit Committee compared to $854 million for FY 2002. This increase in the effects of applying FAS 133 was due primarily Membership to a significant drop in the interest rates for certain The Audit Committee consists of eight members of currencies in FY 2003 as compared to FY 2002. the Board of Executive Directors. Membership on the Committee is determined by the Board of Executive This decline in interest rates caused a significant Directors, based upon nominations by the Chairman increase in the value of the liability swaps. While of the Board, following informal consultation with economically this increase in the liability swaps has the Executive Directors. In addition, membership of been offset by a corresponding increase in the value the Committee is expected to reflect the economic of the fixed rate borrowings, IBRD's application of and geographic diversity of IBRD's member FAS 133 requires that only derivative instruments be countries. Other relevant selection criteria include marked to market. For management reporting seniority, continuity and relevant experience. purposes, IBRD has disclosed the Current Value Generally, Committee members are appointed for a financial statements in Table 2 in Section 2. IBRD two year term; reappointment to a second term, believes that these statements make fully evident the when possible, is desirable for continuity. Audit risk management strategy that IBRD employs. Committee meetings are generally open to any member of the Board who may wish to attend, and non-Committee members of the Board may participate in the discussion. In addition, the Chairman of the Audit Committee may speak in that capacity at meetings of the Board of Executive Directors, with respect to discussions held in the Audit Committee. a. For purposes of this section, references to IBRD are also appli- cable to IDA. IBRD Management's Discussion and Analysis: June 30, 2003 31 Key Responsibilities accounting matters. Executive Directors have The Audit Committee is appointed by the Board to complete access to Management. The quarterly and exercise, on its behalf, oversight and assessment of annual financial statements are made available to the the effectiveness of financial policies and reporting, Committee for discussion prior to issuance. The fiduciary controls, various aspects of financial, Committee has the opportunity to meet with both business, operating, and reputational risk, quality of management and the external auditors for bilateral earnings, and internal controls. In the execution of discussions. The Committee then meets to discuss this role, the Committee discusses with management the financial statements with management and the and the external auditors financial issues and policies external auditors. which have an important bearing on the institution's Code of Ethics financial position and risk-bearing capacity. It also IBRD strives to foster and maintain a positive work reviews the internal audit work program with the environment that supports the ethical behavior of its Auditor General, and management. The Audit staff. To facilitate this effort, IBRD has in place a Committee monitors the evolution of developments Code of Professional Ethics-Living our Values. The in corporate governance and the role of audit Code applies to all staff (including managers, committees on an ongoing basis and periodically consultants, and temporary employees) worldwide. reviews its terms of reference. This Code is available in nine languages on IBRD's Communications website, www.worldbank.org. Staff relations, The Audit Committee communicates regularly with conflicts of interest, and operational issues, including the full Board through distribution of the following: the accuracy of books and records, are key elements of the Code. · The minutes of its meetings. · Reports of the Audit Committee prepared In addition to the Code, an essential element of by the Chairman, which document discus- appropriate conduct is compliance with the sions held. These Reports are distributed to obligations embodied in the Principles of Staff the Executive Directors, Alternates, World Employment, Staff Rules, and Administrative Rules, Bank Group Senior Management and Vice the violation of which may result in disciplinary Presidents of IBRD. actions. In accordance with the Staff Rules, senior · "Statement(s) of the Chairman" and state- managers must complete a confidential financial ments issued by other members of the disclosure instrument with the Office of Ethics and Committee. Business Conduct. · The Annual Report to the Board of Execu- Guidance for staff is also provided through tive Directors, which provides an overview programs, training materials, and other resources. of the main issues addressed by the Com- Managers are responsible for ensuring that internal mittee over the year. systems, policies, and procedures are consistently The Audit Committee's communications with the aligned with IBRD's ethical goals. In support of its external auditor are described in the Auditor efforts on ethics, IBRD offers a variety of methods Independence section. for informing staff of these resources. Many of these efforts are headed by the following groups: Executive Sessions · The Office of Ethics and Business Conduct Members of the Committee may convene in provides leadership, management and over- executive session at any time, without management sight for IBRD's ethics infrastructure present. Under the Committee's terms of reference, it including the Ethics HelpLine, a consoli- meets in executive session with the external auditors dated conflicts of interest disclosure/resolu- at least once a year. tion system, financial disclosure, ongoing training to both internal and external audi- Access to Resources and to Management ences, and communication resources. Throughout the year, the Audit Committee receives a · The Department of Institutional Integrity is large volume of information, which supports the charged with investigating allegations of preparation of the financial statements. The Audit fraud and corruption in IBRD-funded Committee meets both formally and informally projects worldwide. The Department also throughout the year to discuss financial and investigates allegations of misconduct by 32 The World Bank Annual Report 2003 IBRD staff, and trains and educates staff reappointment and approval of a resolution by the and clients in detecting and reporting fraud Board of Executive Directors. and corruption in IBRD-funded projects. The Department reports directly to the As a standard practice, the external auditor is present President and is composed of professionals as an observer at virtually all Audit Committee from a range of disciplines including finan- meetings and is frequently asked to present its cial analysts, researchers, investigators, law- perspective on issues. In addition, the Audit yers, prosecutors, forensic accountants, and Committee meets periodically with the external IBRD staff with operational experience. auditor in private session without management IBRD offers both an "Ethics HelpLine", as well as a present. Members of the Audit Committee have Fraud and Corruption hotline run by an outside firm independent access to the external auditor. staffed by trained specialists. This third party service Communication between the external auditor and offers numerous methods of communication in the Audit Committee is ongoing, as frequently as is addition to a toll free hotline in countries where deemed necessary by either party. IBRD's auditors access to telecommunications may be limited. In follow the communication requirements with audit addition there are other methods by which the committees set out under U.S. generally accepted Department of Institutional Integrity may receive auditing standards and International Standards on allegations, including directly by email, Auditing. In keeping with these standards, significant anonymously, or through confidential submission formal communications include: through their website, as well as the postal service · Quarterly and annual financial statement and telephone. reporting. Auditor Independence · Annual appointment of the external audi- In February 2003, the Board of Executive Directors tors. adopted a set of principles applicable to the · Presentation of the external audit plan. appointment of the external auditor for IBRD. Key features of those principles include: · Presentation of control recommendations and discussion of the COSO attestation and · An immediate prohibition of the external report. auditor from the provision of all non audit- · Presentation of a statement regarding inde- related services. pendence. · All audit-related services must be pre- approved on a case-by-case basis by the 10. RECONCILIATION OF PRIOR YEAR Board of Executive Directors, upon recom- CURRENT VALUE FINANCIAL STATEMENTS TO mendation of the Audit Committee. REPORTED BASIS · Mandatory rebidding of the external audit IBRD's Condensed Current Value Balance Sheet at contract every five years. June 30, 2002 is presented, with a reconciliation to · Prohibition of any firm serving as external the reported basis, in Table 17 below. Similarly, auditors for more than two consecutive five- IBRD's Condensed Current Value Comprehensive year terms. Statement of Income for the year ended June 30, · Mandatory rotation of the senior partner 2002 is presented, with a reconciliation to the after five years. reported basis, in Table 18. · An evaluation of the performance of the external auditor at the mid-point of the five year term. IBRD's external auditor is commencing a new term of up to five years as of FY 2004, and will have served 11 years as auditor upon completion of that term, pursuant to a one-time grandfathered exemption from the above-referenced ten-year limit. The service of the external auditors is subject to recommendation by the Audit Committee for annual IBRD Management's Discussion and Analysis: June 30, 2003 33 Table 17: Condensed Current Value Balance Sheet at June 30, 2002 In millions of U.S. dollars June 30, 2002 Reported Reversal of FAS Current Value Current Basis 133 Effects Adjustments Value Basis Cash $ 1,083 $ 1,083 Investments 26,076 26,076 Loans Outstanding 121,589 $4,865 126,454 Less Accumulated Provision for Loan Losses and Deferred Loan Income (5,442) (5,442) Swaps Receivable Investments 9,940 9,940 Borrowings 66,052 $(2,821) 2,821 66,052 Other Asset/Liability 727 (1) 1 727 Other Assets 7,769 (473) 7,296 Total Assets $227,794 $(2,822) $7,214 $232,186 Borrowings $110,263 $(354) $4,593 $114,502 Swaps Payable Investments 10,827 10,827 Borrowings 66,994 (1,254) 1,254 66,994 Other Asset/Liability 758 1 (1) 758 Other Liabilities 6,639 6,639 Total Liabilities 195,481 (1,607) 5,846 199,720 Paid in Capital Stock 11,476 11,476 Retained Earnings and Other Equity 20,837 (1,215) 1,368 20,990 Total Liabilities and Equity $227,794 $(2,822) $7,214 $232,186 Table 18: Condensed Current Value Comprehensive Statement of Income for the year ended June 30, 2002 In millions of U.S. dollars FY 2002 Reported Adjustments to Current Value Basis Current Value Comprehensive Basis Income from Loans $6,861 $6,861 Income from Investments, net 734 $ 48 782 Other Income 277 277 Total Income 7,872 48 7,920 Borrowing Expenses 4,903 4,903 Administrative Expenses 1,052 1,052 Provision for Losses on Loans and Guarantees (15) 15 -- Other Expenses 8 8 Total Expenses 5,948 15 5,963 Operating Income 1,924 33 1,957 Current Value Adjustments 881 881 Provision for Losses on Loans and Guarantees--Current Value 15 15 Effects of applying FAS 133 854 (854) -- Net Income $2,778 $ 75 $2,853 34 The World Bank Annual Report 2003 GLOSSARY OF TERMS Asset-backed Securities: Asset-backed securities are instru- value of the currency is reduced (or increased) to a signifi- ments whose cash flow is based on the cash flows of a pool cant extent, in the opinion of IBRD. of underlying assets managed by a trust. Net Disbursements: Loan disbursements net of repay- Cross-Currency Interest Rate Swaps: Cross-currency inter- ments and prepayments. est rate swaps are currency swaps where one set of cash New Loans: Loans for which the invitation to negotiate was flows reflects a fixed rate of interest and the other reflects a issued on or after July 31, 1998. floating rate of interest. Old Loans: Loans for which the invitation to negotiate was Currency Swaps: Currency swaps are agreements between issued prior to July 31, 1998. two parties to exchange cash flows denominated in differ- ent currencies at one or more certain times in the future. Options: Options are contracts that allow the holder of the The cash flows are based on a predetermined formula option the right, but not the obligation, to purchase or sell reflecting rates of interest and an exchange of principal. a financial instrument at a specified price within a specified period of time from or to the seller of the option. The pur- Equity-to-Loans Ratio: This ratio is the sum of usable cap- chaser of an option pays a premium at the outset to the ital plus the special and general reserves, cumulative trans- seller of the option, who then bears the risk of an unfavor- lation adjustment (excluding amounts associated with able change in the price of the financial instrument under- applying the provisions of FAS 133) and the proposed lying the option. transfer from unallocated net income to general reserves divided by the sum of loans outstanding, the present value Repurchase and Resale Agreements and Securities Loans: of guarantees, net of the accumulated provision for losses Repurchase agreements are contracts under which a party on loans and guarantees and deferred loan income. sells securities and simultaneously agrees to repurchase the same securities at a specified future date at a fixed price. Failed Trades: Failed trades are securities transactions that The reverse of this transaction is called a resale agreement. do not settle on the contractual settlement date. A resale agreement involves the purchase of securities with Forward Starting Swaps: A forward starting swap is an a simultaneous agreement to sell back the same securities agreement under which the cash flow exchanges of the at a stated price on a stated date. Securities loans are con- underlying interest rate swaps would begin to take effect tracts under which securities are lent for a specified period from a specified future date. of time at a fixed price. Futures and Forwards: Futures and forward contracts are Return on Equity: This return is computed as net income contracts for delivery of securities or money market instru- divided by the average equity balance during the year. ments in which the seller agrees to make delivery at a spec- Risk-bearing Capacity: The ability to absorb risks in the ified future date of a specified instrument at a specified balance sheet while continuing normal operations without price or yield. Futures contracts are traded on U.S. and having to call on callable capital. international regulated exchanges. Short Sales: Short sales are sales of securities not held in Government and Agency Obligations: These obligations the seller's portfolio at the time of the sale. The seller must include marketable bonds, notes and other obligations purchase the security at a later date and bears the risk that issued by governments. the market value of the security will move adversely Hedging: Hedging is a risk management technique of between the time of the sale and the time the security must entering into offsetting commitments to eliminate or mini- be delivered. mize the impact of adverse movements in the value or cash Statutory Lending Limit: Under IBRD's Articles of Agree- flow of a financial instrument. ment, as applied, the total amount outstanding of loans, Interest Rate Swaps: Interest rate swaps are agreements participations in loans, and callable guarantees may not involving the exchange of periodic interest payments of dif- exceed the sum of subscribed capital, reserves and surplus. fering character, based on an underlying notional principal Swaptions: A swaption is an option that gives the holder amount for a specified time. the right to enter into an interest rate or currency swap at a LIBOR: London interbank offer rate. certain future date. Maintenance of Value: Agreements with members provide Time Deposits: Time deposits include certificates of for the maintenance of the value, from the time of sub- deposit, bankers' acceptances, and other obligations issued scription, of certain restricted currencies. Additional pay- or unconditionally guaranteed by banks and other finan- ments to (or from) IBRD are required in the event the par cial institutions. IBRD Management's Discussion and Analysis: June 30, 2003 35 I N T E R N A T I O N A L B A N K F O R R E C O N S T R U C T I O N A N D D E V E L O P ME N T F I N A N C I A L S T A T E ME N T S A N D I N T E R N A L C O N T R O L R E P O R T S J U N E 3 0 , 2 0 0 3 Management's Report Regarding Effectiveness of Internal Controls Over External Financial Reporting 38 Report of Independent Accountants on Management's Assertion Regarding Effectiveness of Internal Controls Over External Financial Reporting 40 Report of Independent Accountants 41 Balance Sheet 42 Statement of Income 44 Statement of Comprehensive Income 45 Statement of Changes in Retained Earnings 45 Statement of Cash Flows 46 Summary Statement of Loans 48 Statement of Subscriptions to Capital Stock and Voting Power 51 Notes to Financial Statements 55 IBRD Financial Statements: June 30, 2003 37 M A N A G E M E N T ' S R E P O R T R E G A R D I N G E FF E C T I V E N E S S O F I NT E R N A L C O N T R O L SO V E R E X T E R N A L F IN A N C I A L R E P O R T I N G 38 The World Bank Annual Report 2003 IBRD Financial Statements: June 30, 2003 39 R E P O R T O F IN D E P E N D E N T A C C O U N T A N T S O N M A N A G E M E N T ' S A S S E R T I O NR E G A R D I N G E F F E C T I V E N E S S O F I NT E R N A L C O N T R O L S O V E R E X T E R N A L F IN A N C I A L R E P O R T I N G 40 The World Bank Annual Report 2003 RE P O R T O FI ND E P E N D E N TA C C O U N T A N T S IBRD Financial Statements: June 30, 2003 41 B A L A N C E S H E E T June 30, 2003 and June 30, 2002 Expressed in millions of U.S. dollars 2003 2002 Assets Due from Banks Unrestricted currencies $ 1,259 $ 415 Currencies subject to restrictions--Note B 670 668 1,929 1,083 Investments-- Trading (including securities transferred under repurchase or security lending agreements of $153 million-- June 30, 2003; $nil million June 30, 2002)-- Notes C and G 27,919 24,256 Securities Purchased Under Resale Agreements-- Note C 212 1,820 Nonnegotiable, Noninterest-bearing Demand Obligations on Account of Subscribed Capital 1,794 1,632 Receivable from Currency and Interest Rate Swaps Investments--Notes C and G 10,301 9,940 Borrowings (including $7,084 million due to FAS 133--June 30, 2003; $2,821 million--June 30, 2002)--Notes E and G 70,316 66,052 Other Asset/Liability (including $nil million due to FAS 133--June 30, 2003; $1 million--June 30, 2002)--Notes F and G 726 727 81,343 76,719 Receivable to Maintain Value of Currency Holdings on Account of Subscribed Capital 166 355 Other Receivables Receivable from investment securities traded 272 427 Accrued income on loans 1,248 1,632 1,520 2,059 Loans Outstanding (see Summary Statement of Loans, Notes D and G) Total loans 149,271 157,942 Less undisbursed balance 33,031 36,353 Loans outstanding 116,240 121,589 Less: Accumulated provision for loan losses 4,045 5,053 Deferred loan income 433 389 Net loans outstanding 111,762 116,147 Other Assets Unamortized issuance costs of borrowings 455 473 Prepaid pension cost--Note K 2,014 2,090 Miscellaneous 1,238 1,160 3,707 3,723 Total assets $230,352 $227,794 42 The World Bank Annual Report 2003 2003 2002 Liabilities Borrowings-- Notes E and G Short-term $ 3,432 $ 4,918 Medium- and long-term (including $1,559 million due to FAS 133--June 30, 2003; $354 million--June 30, 2002). 105,122 105,345 108,554 110,263 Securities Sold Under Repurchase Agreements, Securities Lent Under Securities Lending Agreements, and Payable for Cash Collateral Received-- Note C 153 -- Payable for Currency and Interest Rate Swaps Investments--Notes C and G 11,862 10,827 Borrowings (including $1,875 million due to FAS 133--June 30,2003; $1,254 million--June 30, 2002)--Notes E and G 64,779 66,994 Other Asset/Liability (including $(1) million due to FAS 133--June 30, 2003, $(1) million--June 30, 2002)--Notes F and G 810 758 77,451 78,579 Payable to Maintain Value of Currency Holdings on Account of Subscribed Capital 64 61 Other Liabilities Payable for investment securities purchased 1,328 975 Accrued charges on borrowings 1,633 2,316 Payable for Board of Governors-approved transfers--Note H 1,474 1,437 Liabilities under other postretirement benefits plans--Note K 157 144 Accounts payable and miscellaneous liabilities--Note D 1,620 1,706 6,212 6,578 Total liabilities 192,434 195,481 Equity Capital Stock (see Statement of Subscriptions to Capital Stock and Voting Power, Note B) Authorized capital (1,581,724 shares--June 30, 2003 and June 30, 2002) Subscribed capital (1,571,412 shares--June 30, 2003; 1,570,895 shares--June 30, 2002) 189,567 189,505 Less uncalled portion of subscriptions 178,089 178,029 11,478 11,476 Amounts to Maintain Value of Currency Holdings-- Note B (331) (641) Retained Earnings (see Statement of Changes in Retained Earnings, Note H) 27,031 22,227 Accumulated Other Comprehensive Loss-- Note M (260) (749) Total equity 37,918 32,313 Total liabilities and equity $230,352 $227,794 The Notes to Financial Statements are an integral part of these Statements. IBRD Financial Statements: June 30, 2003 43 S T A T E M E N T O F IN C O M E For the fiscal years ended June 30, 2003, June 30, 2002 and June 30, 2001 Expressed in millions of U.S. dollars 2003 2002 2001 Income Loans--Note D Interest $5,659 $6,779 $ 8,052 Commitment charges 83 82 91 Investments­Trading--Note C Interest 413 725 1,476 Net gains (losses) Realized 11 39 (10) Unrealized (21) (48) 51 Securities purchased under resale agreements--Note C 15 22 29 Staff Retirement Plan and other postretirement benefit plans--Note K -- 93 155 Other income--Notes I and J 202 184 171 Total income 6,362 7,876 10,015 Expenses Borrowing expenses--Note E Interest 3,509 4,793 7,021 Amortization of issuance and other borrowing costs 85 110 131 Interest on securities sold under repurchase agreements and payable for cash collateral received--Note C -- 4 6 Administrative expenses--Notes I, J, and K 882 876 881 Contributions to special programs--Note I 156 176 147 Provision for losses on loans and guarantees (decrease) increase--Note D (1,300) (15) 676 Other expenses 9 8 9 Total expenses 3,341 5,952 8,871 Operating Income 3,021 1,924 1,144 Effects of applying FAS 133-- Note N 2,323 854 126 Income before cumulative effect of change in accounting principle 5,344 2,778 1,270 Cumulative effect of change in accounting principle-- Note N -- -- 219 Net Income $5,344 $2,778 $ 1,489 The Notes to Financial Statements are an integral part of these Statements. 44 The World Bank Annual Report 2003 S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E For the fiscal years ended June 30, 2003, June 30, 2002 and June 30, 2001 Expressed in millions of U.S. dollars 2003 2002 2001 Net income $5,344 $2,778 $1,489 Other comprehensive income--Note M Cumulative effect of change in accounting principle -- -- 500 Reclassification of cumulative effect of change in accounting principle to net income (117) (128) (169) Currency translation adjustments 606 224 (535) Total other comprehensive income (loss) 489 96 (204) Comprehensive income $5,833 $2,874 $1,285 S T A T E M E N T O F C H A N G E S I N R E T A I N E D E A R N I N G S For the fiscal years ended June 30, 2003, June 30, 2002 and June 30, 2001 Expressed in millions of U.S. dollars 2003 2002 2001 Retained earnings at beginning of the fiscal year $22,227 $19,851 $19,027 Board of Governors-approved transfers to--Note H International Development Association (300) (302) (320) Heavily Indebted Poor Countries Debt Initiative Trust Fund (240) (100) (250) Capacity building in Africa -- -- (30) Trust Fund for Kosovo -- -- (35) Trust Fund for Federal Republic of Yugoslavia (now Serbia and Montenegro) -- -- (30) Net income for the fiscal year 5,344 2,778 1,489 Retained earnings at end of the fiscal year $27,031 $22,227 $19,851 The Notes to Financial Statements are an integral part of these Statements. IBRD Financial Statements: June 30, 2003 45 S T A T E M E N T O F C A S H F L O W S For the fiscal years ended June 30, 2003, June 30, 2002 and June 30, 2001 Expressed in millions of U.S. dollars 2003 2002 2001 Cash flows from Investing (lending) activities Loans Disbursements $(11,809) $(11,154) $(11,707) Principal repayments 12,945 10,745 9,623 Principal prepayments 6,972 1,323 70 Loan origination fees received 8 7 1 Net cash provided by (used in) investing (lending) activities 8,116 921 (2,013) Cash flows from Board of Governors-approved transfers to International Development Association (300) (2) (20) Debt Reduction Facility for IDA-Only Countries -- (3) 3 Trust Fund for Gaza and West Bank (13) -- (17) Heavily Indebted Poor Countries Debt Initiative Trust Fund (240) (100) (250) Trust Funds for Kosovo, and Federal Republic of Yugoslavia (now Serbia and Montenegro), and capacity building in Africa -- -- (95) Net cash used in Board of Governors-approved transfers (553) (105) (379) Cash flows from financing activities Medium- and long-term borrowings New issues 17,246 22,803 17,223 Retirements (24,136) (21,691) (18,027) Net short-term borrowings (1,525) (2,112) 1,870 Net currency and interest rate swaps--Borrowings 357 (656) (1,402) Net capital stock transactions 59 75 72 Net cash used in financing activities (7,999) (1,581) (264) Cash flows from operating activities Net income 5,344 2,778 1,489 Adjustments to reconcile net income to net cash provided by operating activities Effects of applying FAS 133 (2,323) (854) (126) Cumulative effect of change in accounting principle -- -- (219) Depreciation and amortization 668 189 979 Amortization of deferred loan income (83) (65) (49) Provision for losses on loans and guarantees (decrease) increase (1,300) (15) 676 Income from Staff Retirement Plan and other postretirement benefit plans -- (93) (155) Changes in other assets and liabilities Decrease in accrued income on loans 413 400 138 (Increase) decrease in miscellaneous assets (116) (7) 82 Decrease in accrued charges on borrowings (709) (947) (49) (Decrease) increase in accounts payable and miscellaneous liabilities (16) (62) 54 Net cash provided by operating activities 1,878 1,324 2,820 Effect of exchange rate changes on unrestricted cash and liquid investments 122 90 (88) Net increase in unrestricted cash and liquid investments 1,564 649 76 Unrestricted cash and liquid investments at beginning of the fiscal year 25,056 24,407 24,331 Unrestricted cash and liquid investments at end of the fiscal year $26,620 $25,056 $24,407 46 The World Bank Annual Report 2003 2003 2002 2001 Composition of unrestricted cash and liquid investments: Investments--Trading $27,919 $24,256 $24,168 Unrestricted currencies 1,259 415 50 Net payable for investment securities traded/purchased--Trading (1,056) (548) (178) Net (payable) receivable from currency and interest rate swaps-- Investments (1,561) (887) 252 Net receivable from securities purchased/sold under resale/repurchase agreements and payable for cash collateral received 59 1,820 115 $26,620 $25,056 $24,407 Supplemental disclosure Increase (decrease) in ending balances resulting from exchange rate fluctuations Loans outstanding $ 2,647 $ 2,736 $ (3,329) Borrowings 4,922 4,093 (5,530) Currency and interest rate swaps--Borrowings (3,194) (2,230) 3,164 Capitalized loan origination fees included in total loans 112 102 77 Capitalized interest and charges related to loans for which Serbia and Montenegro undertook responsibility -- 799 -- The Notes to Financial Statements are an integral part of these Statements. IBRD Financial Statements: June 30, 2003 47 S U MMA R Y S T A T E ME N T O F L O A N S June 30, 2003 Expressed in millions of U.S. dollars Loans approved Undisbursed Percentage but not yet balance of Loans of total loans Borrower or guarantor Total loans effectivea effective loansb outstanding outstanding Algeria $ 1,590 $ 95 $ 363 $ 1,132 0.97% Argentina 9,553 -- 1,630 7,923 6.82 Armenia 8 -- -- 8 0.01 Bahamas, The * -- -- * * Bangladesh 10 -- -- 10 0.01 Barbados 23 -- 14 9 0.01 Belarus 107 -- 21 86 0.07 Belize 47 -- 4 43 0.04 Bosnia and Herzegovina 535 -- -- 535 0.46 Botswana 6 -- -- 6 0.01 Brazil 11,877 732 2,486 8,659 7.45 Bulgaria 1,463 73 196 1,194 1.03 Cameroon 166 -- 14 152 0.13 Chad 40 -- 14 26 0.02 Chile 719 25 157 537 0.46 China 16,289 850 4,609 10,830 9.32 Colombia 3,570 300 421 2,849 2.45 Congo, Republic of 6 -- -- 6 0.01 Costa Rica 122 -- 38 84 0.07 Côte d'Ivoire 492 -- -- 492 0.42 Croatia 920 -- 295 625 0.54 Cyprus 15 -- -- 15 0.01 Czech Republic 174 -- -- 174 0.15 Dominica 5 -- 1 4 * Dominican Republic 486 72 61 353 0.30 Ecuador 1,054 114 117 823 0.71 Egypt, Arab Republic of 760 12 216 532 0.46 El Salvador 602 161 75 366 0.32 Estonia 57 -- 13 44 0.04 Fiji 11 -- -- 11 0.01 Gabon 52 -- 4 48 0.04 Ghana 4 -- -- 4 * Grenada 18 4 8 6 0.01 Guatemala 808 80 315 413 0.36 Guyana 2 -- -- 2 * Honduras 95 -- -- 95 0.08 Hungary 281 -- 14 267 0.23 India 9,333 348 3,844 5,141 4.42 Indonesia 11,658 439 950 10,269 8.83 Iran, Islamic Republic of 775 200 197 378 0.32 48 The World Bank Annual Report 2003 S U MMA R Y S T A T E ME N T O F L O A N S (Continued) June 30, 2003 Expressed in millions of U.S. dollars Loans approved Undisbursed Percentage but not yet balance of Loans of total loans Borrower or guarantor Total loans effective a effective loansb outstanding outstanding Iraq $ 46 $ -- $ -- $ 46 0.04% Jamaica 593 -- 110 483 0.42 Jordan 1,218 -- 197 1,021 0.88 Kazakhstan 1,490 40 232 1,218 1.05 Kenya 9 -- -- 9 0.01 Korea, Republic of 5,895 -- 7 5,888 5.07 Latvia 309 -- 41 268 0.23 Lebanon 699 140 228 331 0.28 Lesotho 36 -- 17 19 0.02 Liberia 142 -- -- 142 0.12 Lithuania 352 -- 67 285 0.25 Macedonia, former Yugoslav Republic of 207 -- 57 150 0.13 Malawi 2 -- -- 2 * Malaysia 789 -- 66 723 0.62 Mauritius 98 -- 9 89 0.08 Mexico 13,347 905 1,773 10,669 9.18 Moldova 190 -- 4 186 0.16 Morocco 2,996 77 287 2,632 2.26 Nigeria 1,224 -- -- 1,224 1.05 Pakistan 2,742 -- 36 2,706 2.33 Panama 377 -- 97 280 0.24 Papua New Guinea 354 -- 85 269 0.23 Paraguay 284 -- 65 219 0.19 Peru 2,785 93 143 2,549 2.19 Philippines 4,134 34 748 3,352 2.88 Poland 2,711 -- 351 2,360 2.03 Romania 3,000 170 604 2,226 1.91 Russian Federation 8,190 481 1,280 6,429 5.53 St. Kitts and Nevis 25 -- 14 11 0.01 St. Lucia 21 -- 13 8 0.01 St. Vincent and the Grenadines 5 -- 4 1 * Serbia and Montenegro 2,388 -- -- 2,388 2.05 Seychelles 3 -- -- 3 * Slovak Republic 399 6 190 203 0.17 Slovenia 85 -- 14 71 0.06 South Africa 39 -- 25 14 0.01 Sri Lanka 4 -- -- 4 * Swaziland 27 -- 18 9 0.01 Syrian Arab Republic 8 -- -- 8 0.01 Tanzania 4 -- -- 4 * IBRD Financial Statements: June 30, 2003 49 S U MMA R Y S T A T E ME N T O F L O A N S (Continued) June 30, 2003 Expressed in millions of U.S. dollars Loans approved Undisbursed Percentage but not yet balance of Loans of total loans Borrower or guarantor Total loans effective a effective loansb outstanding outstanding Thailand $ 2,305 $ -- $ 86 $ 2,219 1.91% Trinidad and Tobago 121 20 11 90 0.08 Tunisia 2,255 131 534 1,590 1.37 Turkey 7,825 -- 2,552 5,273 4.54 Turkmenistan 38 -- 8 30 0.03 Ukraine 2,795 300 291 2,204 1.90 Uruguay 1,199 -- 451 748 0.64 Uzbekistan 495 35 177 283 0.24 Venezuela, Republica Bolivariana de 701 -- 125 576 0.50 Zambia 10 -- -- 10 0.01 Zimbabwe 433 -- -- 433 0.37 Subtotale 149,137 5,937 27,094 116,106 99.89 CaribbeanDevelopmentBankc 1 -- -- 1 * InternationalFinanceCorporationd 133 -- -- 133 0.11 Total--June 30, 2003e $149,271 $5,937 $27,094 $116,240 100.00% Total--June 30, 2002 $157,942 $6,634 $29,719 $121,589 *Indicates amount less than $0.5 million or less than 0.005 percent. NOTES a. Loans totaling $4,333 million ($3,705 million--June 30, 2002) have been approved by IBRD, but the related agreements have not been signed. Loan agreements totaling $1,604 million ($2,929 million--June 30, 2002) have been signed, but the loans do not become effective and disbursements thereunder do not start until the borrowers and guarantors, if any, take certain actions and furnish certain documents to IBRD. b. Of the undisbursed balance, IBRD has entered into irrevocable commitments to disburse $579 million ($811 million--June 30, 2002). c. These loans are for the benefit of The Bahamas, Barbados, Grenada, Guyana, Jamaica, Trinidad and Tobago, and territories of the United Kingdom (Associated States and Dependencies) in the Caribbean Region, that are severally liable as guarantors to the extent of subloans made in their territories. d. Loans to the International Finance Corporation have a weighted average interest rate of 6.54% and a weighted average maturity of 2.03 years. These loans are not eligible for IBRD's interest waivers. e. May differ from the sum of individual figures shown due to rounding. The Notes to Financial Statements are an integral part of these Statements. 50 The World Bank Annual Report 2003 S T A T E ME N T O F S U B S C R I P T I O N S T O C A P I T A L S T O C K A N D V O T I N G P O WE R June 30, 2003 Expressed in millions of U.S. dollars Subscriptions Voting Power Percentage Amounts Number Percentage of Total Amounts subject of of Member Shares total amounts paid ina to calla,b votes total Afghanistan 300 0.02% $ 36.2 $ 3.6 $ 32.6 550 0.03% Albania 830 0.05 100.1 3.6 96.5 1,080 0.07 Algeria 9,252 0.59 1,116.1 67.1 1,049.0 9,502 0.59 Angola 2,676 0.17 322.8 17.5 305.4 2,926 0.18 Antigua and Barbuda 520 0.03 62.7 1.3 61.5 770 0.05 Argentina 17,911 1.14 2,160.7 132.2 2,028.4 18,161 1.12 Armenia 1,139 0.07 137.4 5.9 131.5 1,389 0.09 Australia 24,464 1.56 2,951.2 181.8 2,769.5 24,714 1.53 Austria 11,063 0.70 1,334.6 80.7 1,253.9 11,313 0.70 Azerbaijan 1,646 0.10 198.6 9.7 188.8 1,896 0.12 Bahamas, The 1,071 0.07 129.2 5.4 123.8 1,321 0.08 Bahrain 1,103 0.07 133.1 5.7 127.4 1,353 0.08 Bangladesh 4,854 0.31 585.6 33.9 551.6 5,104 0.32 Barbados 948 0.06 114.4 4.5 109.9 1,198 0.07 Belarus 3,323 0.21 400.9 22.3 378.5 3,573 0.22 Belgium 28,983 1.84 3,496.4 215.8 3,280.6 29,233 1.81 Belize 586 0.04 70.7 1.8 68.9 836 0.05 Benin 868 0.06 104.7 3.9 100.8 1,118 0.07 Bhutan 479 0.03 57.8 1.0 56.8 729 0.05 Bolivia 1,785 0.11 215.3 10.8 204.5 2,035 0.13 Bosnia and Herzegovina 549 0.03 66.2 5.8 60.4 799 0.05 Botswana 615 0.04 74.2 2.0 72.2 865 0.05 Brazil 33,287 2.12 4,015.6 245.5 3,770.1 33,537 2.07 Brunei Darussalam 2,373 0.15 286.3 15.2 271.1 2,623 0.16 Bulgaria 5,215 0.33 629.1 36.5 592.6 5,465 0.34 Burkina Faso 868 0.06 104.7 3.9 100.8 1,118 0.07 Burundi 716 0.05 86.4 3.0 83.4 966 0.06 Cambodia 214 0.01 25.8 2.6 23.2 464 0.03 Cameroon 1,527 0.10 184.2 9.0 175.2 1,777 0.11 Canada 44,795 2.85 5,403.8 334.9 5,068.9 45,045 2.79 Cape Verde 508 0.03 61.3 1.2 60.1 758 0.05 Central African Republic 862 0.05 104.0 3.9 100.1 1,112 0.07 Chad 862 0.05 104.0 3.9 100.1 1,112 0.07 Chile 6,931 0.44 836.1 49.6 786.6 7,181 0.44 China 44,799 2.85 5,404.3 335.0 5,069.3 45,049 2.79 Colombia 6,352 0.40 766.3 45.2 721.1 6,602 0.41 Comoros 282 0.02 34.0 0.3 33.7 532 0.03 Congo, Democratic Republic of 2,643 0.17 318.8 25.4 293.5 2,893 0.18 Congo, Republic of 927 0.06 111.8 4.3 107.5 1,177 0.07 Costa Rica 233 0.01 28.1 1.9 26.2 483 0.03 Côte d'Ivoire 2,516 0.16 303.5 16.4 287.1 2,766 0.17 Croatia 2,293 0.15 276.6 17.3 259.3 2,543 0.16 Cyprus 1,461 0.09 176.2 8.4 167.9 1,711 0.11 Czech Republic 6,308 0.40 761.0 45.9 715.0 6,558 0.41 Denmark 13,451 0.86 1,622.7 97.8 1,524.9 13,701 0.85 Djibouti 559 0.04 67.4 1.6 65.9 809 0.05 Dominica 504 0.03 60.8 1.1 59.7 754 0.05 Dominican Republic 2,092 0.13 252.4 13.1 239.3 2,342 0.14 Ecuador 2,771 0.18 334.3 18.2 316.1 3,021 0.19 Egypt, Arab Republic of 7,108 0.45 857.5 50.9 806.6 7,358 0.45 IBRD Financial Statements: June 30, 2003 51 S T A T E ME N T O F S U B S C R I P T I O N S T O C A P I T A L S T O C K A N D V O T I N G P O WE R (Continued) June 30, 2003 Expressed in millions of U.S. dollars Subscriptions Voting Power Percentage Amounts Number Percentage of Total Amounts subject of of Member Shares total amounts paid ina to calla,b votes total El Salvador 141 0.01% $ 17.0 $ 1.7 $ 15.3 391 0.02% Equatorial Guinea 715 0.05 86.3 2.7 83.5 965 0.06 Eritrea 593 0.04 71.5 1.8 69.7 843 0.05 Estonia 923 0.06 111.3 4.3 107.1 1,173 0.07 Ethiopia 978 0.06 118.0 4.7 113.3 1,228 0.08 Fiji 987 0.06 119.1 4.8 114.3 1,237 0.08 Finland 8,560 0.54 1,032.6 61.9 970.8 8,810 0.54 France 69,397 4.42 8,371.7 520.4 7,851.3 69,647 4.31 Gabon 987 0.06 119.1 5.1 113.9 1,237 0.08 Gambia, The 543 0.03 65.5 1.5 64.0 793 0.05 Georgia 1,584 0.10 191.1 9.3 181.8 1,834 0.11 Germany 72,399 4.61 8,733.9 542.9 8,190.9 72,649 4.49 Ghana 1,525 0.10 184.0 12.7 171.2 1,775 0.11 Greece 1,684 0.11 203.1 14.1 189.1 1,934 0.12 Grenada 531 0.03 64.1 1.4 62.7 781 0.05 Guatemala 2,001 0.13 241.4 12.4 229.0 2,251 0.14 Guinea 1,292 0.08 155.9 7.1 148.8 1,542 0.10 Guinea-Bissau 540 0.03 65.1 1.4 63.7 790 0.05 Guyana 1,058 0.07 127.6 5.3 122.3 1,308 0.08 Haiti 1,067 0.07 128.7 5.4 123.3 1,317 0.08 Honduras 641 0.04 77.3 2.3 75.0 891 0.06 Hungary 8,050 0.51 971.1 58.0 913.1 8,300 0.51 Iceland 1,258 0.08 151.8 6.8 144.9 1,508 0.09 India 44,795 2.85 5,403.8 333.7 5,070.1 45,045 2.79 Indonesia 14,981 0.95 1,807.2 110.3 1,697.0 15,231 0.94 Iran, Islamic Republic of 23,686 1.51 2,857.4 175.8 2,681.5 23,936 1.48 Iraq 2,808 0.18 338.7 27.1 311.6 3,058 0.19 Ireland 5,271 0.34 635.9 37.1 598.8 5,521 0.34 Israel 4,750 0.30 573.0 33.2 539.8 5,000 0.31 Italy 44,795 2.85 5,403.8 334.8 5,069.0 45,045 2.79 Jamaica 2,578 0.16 311.0 16.8 294.2 2,828 0.17 Japan 127,000 8.08 15,320.6 944.0 14,376.7 127,250 7.87 Jordan 1,388 0.09 167.4 7.8 159.6 1,638 0.10 Kazakhstan 2,985 0.19 360.1 19.8 340.3 3,235 0.20 Kenya 2,461 0.16 296.9 15.9 281.0 2,711 0.17 Kiribati 465 0.03 56.1 0.9 55.2 715 0.04 Korea, Republic of 15,817 1.01 1,908.1 114.5 1,793.5 16,067 0.99 Kuwait 13,280 0.85 1,602.0 97.4 1,504.6 13,530 0.84 Kyrgyz Republic 1,107 0.07 133.5 5.7 127.9 1,357 0.08 Lao People's Democratic Republic 178 0.01 21.5 1.5 20.0 428 0.03 Latvia 1,384 0.09 167.0 7.8 159.2 1,634 0.10 Lebanon 340 0.02 41.0 1.1 39.9 590 0.04 Lesotho 663 0.04 80.0 2.3 77.6 913 0.06 Liberia 463 0.03 55.9 2.6 53.3 713 0.04 Libya 7,840 0.50 945.8 57.0 888.8 8,090 0.50 Lithuania 1,507 0.10 181.8 8.7 173.1 1,757 0.11 Luxembourg 1,652 0.11 199.3 9.8 189.5 1,902 0.12 Macedonia, former Yugoslav Republic of 427 0.03 51.5 3.2 48.3 677 0.04 Madagascar 1,422 0.09 171.5 8.1 163.5 1,672 0.10 Malawi 1,094 0.07 132.0 5.6 126.4 1,344 0.08 52 The World Bank Annual Report 2003 S T A T E ME N T O F S U B S C R I P T I O N S T O C A P I T A L S T O C K A N D V O T I N G P O WE R (Continued) June 30, 2003 Expressed in millions of U.S. dollars Subscriptions Voting Power Percentage Amounts Number Percentage of Total Amounts subject of of Member Shares total amounts paid ina to calla,b votes total Malaysia 8,244 0.52% $ 994.5 $ 59.5 $ 935.0 8,494 0.53% Maldives 469 0.03 56.6 0.9 55.7 719 0.04 Mali 1,162 0.07 140.2 6.1 134.1 1,412 0.09 Malta 1,074 0.07 129.6 5.4 124.1 1,324 0.08 Marshall Islands 469 0.03 56.6 0.9 55.7 719 0.04 Mauritania 900 0.06 108.6 4.1 104.4 1,150 0.07 Mauritius 1,242 0.08 149.8 6.7 143.1 1,492 0.09 Mexico 18,804 1.20 2,268.4 139.0 2,129.4 19,054 1.18 Micronesia, Federated States of 479 0.03 57.8 1.0 56.8 729 0.05 Moldova 1,368 0.09 165.0 7.6 157.4 1,618 0.10 Mongolia 466 0.03 56.2 2.3 53.9 716 0.04 Morocco 4,973 0.32 599.9 34.8 565.1 5,223 0.32 Mozambique 930 0.06 112.2 4.8 107.4 1,180 0.07 Myanmar 2,484 0.16 299.7 16.1 283.6 2,734 0.17 Namibia 1,523 0.10 183.7 8.8 174.9 1,773 0.11 Nepal 968 0.06 116.8 4.6 112.1 1,218 0.08 Netherlands 35,503 2.26 4,282.9 264.8 4,018.1 35,753 2.21 New Zealand 7,236 0.46 872.9 51.9 821.0 7,486 0.46 Nicaragua 608 0.04 73.3 2.1 71.3 858 0.05 Niger 852 0.05 102.8 3.8 99.0 1,102 0.07 Nigeria 12,655 0.81 1,526.6 92.7 1,433.9 12,905 0.80 Norway 9,982 0.64 1,204.2 72.6 1,131.6 10,232 0.63 Oman 1,561 0.10 188.3 9.1 179.2 1,811 0.11 Pakistan 9,339 0.59 1,126.6 67.8 1,058.9 9,589 0.59 Palau 16 * 1.9 0.2 1.8 266 0.02 Panama 385 0.02 46.4 3.2 43.2 635 0.04 Papua New Guinea 1,294 0.08 156.1 7.1 149.0 1,544 0.10 Paraguay 1,229 0.08 148.3 6.6 141.6 1,479 0.09 Peru 5,331 0.34 643.1 37.5 605.6 5,581 0.35 Philippines 6,844 0.44 825.6 48.9 776.7 7,094 0.44 Poland 10,908 0.69 1,315.9 79.6 1,236.3 11,158 0.69 Portugal 5,460 0.35 658.7 38.5 620.2 5,710 0.35 Qatar 1,096 0.07 132.2 9.0 123.3 1,346 0.08 Romania 4,011 0.26 483.9 30.5 453.4 4,261 0.26 Russian Federation 44,795 2.85 5,403.8 333.9 5,070.0 45,045 2.79 Rwanda 1,046 0.07 126.2 5.2 120.9 1,296 0.08 St. Kitts and Nevis 275 0.02 33.2 0.3 32.9 525 0.03 St. Lucia 552 0.04 66.6 1.5 65.1 802 0.05 St. Vincent and the Grenadines 278 0.02 33.5 0.3 33.2 528 0.03 Samoa 531 0.03 64.1 1.4 62.7 781 0.05 San Marino 595 0.04 71.8 2.5 69.3 845 0.05 São Tomé and Principe 495 0.03 59.7 1.1 58.6 745 0.05 Saudi Arabia 44,795 2.85 5,403.8 335.0 5,068.9 45,045 2.79 Senegal 2,072 0.13 250.0 13.0 237.0 2,322 0.14 Serbia and Montenegro 1,597 0.10 192.7 16.9 175.7 1,847 0.11 IBRD Financial Statements: June 30, 2003 53 S T A T E ME N T O F S U B S C R I P T I O N S T O C A P I T A L S T O C K A N D V O T I N G P O WE R (Continued) June 30, 2003 Expressed in millions of U.S. dollars Subscriptions Voting Power Percentage Amounts Number Percentage of Total Amounts subject of of Member Shares total amounts paid ina to calla,b votes total Seychelles 263 0.02% $ 31.7 $ 0.2 $ 31.6 513 0.03% Sierra Leone 718 0.05 86.6 3.0 83.6 968 0.06 Singapore 320 0.02 38.6 3.9 34.7 570 0.04 Slovak Republic 3,216 0.20 388.0 23.0 365.0 3,466 0.21 Slovenia 1,261 0.08 152.1 9.5 142.6 1,511 0.09 Solomon Islands 513 0.03 61.9 1.2 60.7 763 0.05 Somalia 552 0.04 66.6 3.3 63.3 802 0.05 South Africa 13,462 0.86 1,624.0 98.8 1,525.2 13,712 0.85 Spain 27,997 1.78 3,377.4 206.8 3,170.6 28,247 1.75 Sri Lanka 3,817 0.24 460.5 26.1 434.3 4,067 0.25 Sudan 850 0.05 102.5 7.2 95.3 1,100 0.07 Suriname 412 0.03 49.7 2.0 47.7 662 0.04 Swaziland 440 0.03 53.1 2.0 51.1 690 0.04 Sweden 14,974 0.95 1,806.4 110.2 1,696.2 15,224 0.94 Switzerland 26,606 1.69 3,209.6 197.2 3,012.4 26,856 1.66 Syrian Arab Republic 2,202 0.14 265.6 14.0 251.7 2,452 0.15 Tajikistan 1,060 0.07 127.9 5.3 122.5 1,310 0.08 Tanzania 1,295 0.08 156.2 10.0 146.2 1,545 0.10 Thailand 6,349 0.40 765.9 45.2 720.7 6,599 0.41 Timor-Leste 517 0.03 62.4 1.9 60.4 767 0.05 Togo 1,105 0.07 133.3 5.7 127.6 1,355 0.08 Tonga 494 0.03 59.6 1.1 58.5 744 0.05 Trinidad and Tobago 2,664 0.17 321.4 17.6 303.7 2,914 0.18 Tunisia 719 0.05 86.7 5.7 81.1 969 0.06 Turkey 8,328 0.53 1,004.6 59.8 944.8 8,578 0.53 Turkmenistan 526 0.03 63.5 2.9 60.5 776 0.05 Uganda 617 0.04 74.4 4.4 70.1 867 0.05 Ukraine 10,908 0.69 1,315.9 79.3 1,236.6 11,158 0.69 United Arab Emirates 2,385 0.15 287.7 22.6 265.1 2,635 0.16 United Kingdom 69,397 4.42 8,371.7 539.5 7,832.2 69,647 4.31 United States 264,969 16.86 31,964.5 1,998.4 29,966.2 265,219 16.40 Uruguay 2,812 0.18 339.2 18.6 320.7 3,062 0.19 Uzbekistan 2,493 0.16 300.7 16.1 284.7 2,743 0.17 Vanuatu 586 0.04 70.7 1.8 68.9 836 0.05 Venezuela, República Bolivariana de 20,361 1.30 2,456.2 150.8 2,305.5 20,611 1.27 Vietnam 968 0.06 116.8 8.1 108.7 1,218 0.08 Yemen, Republic of 2,212 0.14 266.8 14.0 252.8 2,462 0.15 Zambia 2,810 0.18 339.0 20.0 319.0 3,060 0.19 Zimbabwe 3,325 0.21 401.1 22.4 378.7 3,575 0.22 Total--June 30, 2003b 1,571,412 100.00% $189,567 $11,478 $178,089 1,617,412 100.00% Total--June 30, 2002 1,570,895 100.00% $189,505 $11,476 $178,029 1,616,645 * Indicates amounts less than 0.005 percent. NOTES a. See Notes to Financial Statements--Note B. b. May differ from the sum of individual figures shown due to rounding. The Notes to Financial Statements are an integral part of these Statements. 54 The World Bank Annual Report 2003 N O T E S T O F I N A N C I A L S T A T E M E N T S PURPOSE AND AFFILIATED ORGANIZATIONS in the valuation of certain financial instruments, the determination of the adequacy of the accumulated The International Bank for Reconstruction and provision for losses on loans and guarantees, the Development (IBRD) is an international organization determination of net periodic income from pension which commenced operations in 1946. The principal and other postretirement benefits plans, and the purpose of IBRD is to promote sustainable economic present value of benefit obligations. development and reduce poverty in its member countries, primarily by providing loans, guarantees Certain reclassifications of the prior years' and related technical assistance for specific projects information have been made to conform with the and for programs of economic reform in developing current year's presentation. member countries. The activities of IBRD are Accounting for Derivatives: IBRD complies with complemented by those of three affiliated the derivative accounting requirements of Statement organizations, the International Development of Financial Accounting Standards No. 133, Association (IDA), the International Finance "Accounting for Derivative Instruments and Hedging Corporation (IFC), and the Multilateral Investment Activities", along with its amendments, as well as Guarantee Agency (MIGA). Each of these International Accounting Standard (IAS) 39, organizations is legally and financially independent "Financial Instruments: Recognition and from IBRD, with separate assets and liabilities, and Measurement". These standards, collectively referred IBRD is not liable for their respective obligations. to as FAS 133 in this document, require that derivative Transactions with these affiliates are disclosed in the instruments, as defined by these standards, be notes that follow. IDA's main goal is to reduce poverty recorded on the balance sheet at fair value. through promoting sustainable economic development in the less developed areas of the world IBRD uses derivative instruments in its investments included in IDA's membership by providing a and borrowings portfolios and for asset/liability combination of grants and financing on management purposes. In applying FAS 133 for the concessionary terms. IFC's purpose is to encourage purposes of financial statement reporting, IBRD has the growth of productive private enterprises in its elected not to define any qualifying hedging member countries through loans and equity relationships. Rather, all derivative instruments, as investments in such enterprises without a member's defined by FAS 133, have been marked to fair value guarantee. MIGA was established to encourage the and all changes in fair value have been recognized in flow of investments for productive purposes between net income. While IBRD believes that its hedging member countries and, in particular, to developing strategies achieve its objectives, the application of FAS member countries by providing guarantees against 133 qualifying hedge criteria would not make fully noncommercial risks for foreign investment in its evident the risk management strategies that IBRD developing member countries. employs. Translation of Currencies: IBRD's financial NOTE A--SUMMARY OF SIGNIFICANT statements are expressed in terms of U.S. dollars solely ACCOUNTING AND RELATED POLICIES for the purpose of summarizing IBRD's financial IBRD's financial statements are prepared in position and the results of its operations for the conformity with the accounting principles generally convenience of its members and other interested accepted in the United States of America and with parties. International Financial Reporting Standards. On July IBRD is an international organization which conducts 31, 2003, the Board of Executive Directors approved its operations in the currencies of all of its members. these financial statements for issue. IBRD's resources are derived from its capital, The preparation of financial statements in conformity borrowings, and accumulated earnings in those with generally accepted accounting principles requires various currencies. IBRD has a number of general management to make estimates and assumptions that policies aimed at minimizing exchange rate risk in a affect the reported amounts of assets and liabilities multicurrency environment. IBRD matches its and disclosure of contingent assets and liabilities at borrowing obligations in any one currency (after the date of the financial statements and the reported swaps) with assets in the same currency, as prescribed amounts of revenue and expenses during the by its Articles of Agreement, primarily by holding or reporting period. Actual results could differ from lending the proceeds of its borrowings (after swaps) in these estimates. Significant judgments have been used the same currencies in which they are borrowed. In IBRD Financial Statements: June 30, 2003 55 addition, IBRD periodically undertakes currency appreciate significantly in terms of the standard of conversions to more closely match the currencies value. underlying its Equity with those of the net loans The net MOV amounts relating to restricted outstanding. currencies out on loan, and amounts that have been Assets and liabilities are translated at market exchange reclassified from receivables for those countries that rates in effect at the end of the period. Income and have been in arrears for two years or more, are expenses are translated at either the market exchange included as a component of equity under Amounts to rates in effect on the dates on which they are Maintain Value of Currency Holdings. For amounts recognized or at an average of the market exchange on loan, these MOV amounts are shown as a rates in effect during each month. Translation component of Equity since MOV becomes effective adjustments are charged or credited to Accumulated only as such currencies are repaid to IBRD. Other Comprehensive Income. Retained Earnings: Retained Earnings consists of Valuation of Capital Stock: In the Articles of allocated amounts (Special Reserve, General Reserve, Agreement, the capital stock of IBRD is expressed in Pension Reserve, Surplus and Cumulative FAS 133 terms of "U.S. dollars of the weight and fineness in Adjustments) and unallocated Net Income. effect on July 1, 1944" (1944 dollars). Following the The Special Reserve consists of loan commissions set abolition of gold as a common denominator of the aside pursuant to Article IV, Section 6 of the Articles monetary system and the repeal of the provision of the of Agreement, which are to be held in liquid assets. U.S. law defining the par value of the U.S. dollar in These assets may be used only for the purpose of terms of gold, the pre-existing basis for translating meeting liabilities of IBRD on its borrowings and 1944 dollars into current dollars or into any other guarantees in the event of defaults on loans made, currency disappeared. The Executive Directors of participated in, or guaranteed by IBRD. The Special IBRD have decided, until such time as the relevant Reserve assets are included under Investments-- provisions of the Articles of Agreement are amended, Trading, and comprise obligations of the United States that the words "U.S. dollars of the weight and fineness Government, its agencies, and other official entities. in effect on July 1, 1944" in Article II, Section 2(a) of The allocation of such commissions to the Special the Articles of Agreement of IBRD are interpreted to Reserve was discontinued in 1964 with respect to mean the Special Drawing Right (SDR) introduced by subsequent loans and no further additions are being the International Monetary Fund, as valued in terms made to it. of U.S. dollars immediately before the introduction of the basket method of valuing the SDR on July 1, 1974, The General Reserve consists of earnings from prior such value being $1.20635 for one SDR. fiscal years which, in the judgment of the Executive Directors, should be retained in IBRD's operations. Maintenance of Value: Article II, Section 9 of the Articles of Agreement provides for maintenance of the The Pension Reserve consists of the difference value (MOV), at the time of subscription, of such between the cumulative actual funding of the Staff restricted currencies (see Note B), requiring (1) the Retirement Plan (SRP) and other postretirement member to make additional payments to IBRD in the benefits plans, and the cumulative accounting income event that the par value of its currency is reduced or for these plans, from prior fiscal years. This Pension the foreign exchange value of its currency has, in the Reserve will be reduced in future fiscal years if pension opinion of IBRD, depreciated to a significant extent in accounting expenses exceed the actual funding of its territories and (2) IBRD to reimburse the member these plans. in the event that the par value of its currency is Surplus consists of earnings from prior fiscal years increased. which are retained by IBRD until a further decision is Since currencies no longer have par values, made on their disposition or the conditions of transfer maintenance of value amounts are determined by for specified uses have been met. measuring the foreign exchange value of a member's The Cumulative FAS 133 Adjustments consist of the currency against the standard of value of IBRD capital effects associated with the application of FAS 133 from based on the 1974 SDR. Members are required to prior years. At June 30, 2003, this amount includes make payments to IBRD if their currencies depreciate the one-time cumulative effect of the adoption of FAS significantly relative to the standard of value. 133 on July 1, 2000, the reclassification and Furthermore, the Executive Directors have adopted a amortization of the transition adjustments for prior policy of reimbursing members whose currencies 56 The World Bank Annual Report 2003 fiscal years, and the unrealized gains or losses on SFRY which were assumed by BiH and SAM were certain derivative instruments, as defined by FAS 133, cleared through the issuance of new loans extended by for prior fiscal years. IBRD. Unallocated Net Income consists of earnings in the IBRD's treatment of BiH and SAM was based on current fiscal year. Commencing in 1950, a portion or criteria approved by the Executive Directors in all of the unallocated Net Income has been allocated connection with the financial assistance package for to the General Reserve after an assessment by the BiH in fiscal year 1996. These criteria limit eligibility Executive Directors of IBRD's reserve needs. Upon for such treatment to a country: (a) that has emerged recommendation by the Executive Directors, the from a current or former member of IBRD; (b) that is Board of Governors, consisting of one Governor assuming responsibility for a share of the debt of such appointed by each member, periodically approves member; (c) that, because of a major armed conflict transfers out of unallocated Net Income and Surplus in its territory involving extensive destruction of to various entities for development purposes physical assets, has limited creditworthiness for consistent with IBRD's Articles of Agreement. servicing the debt it is assuming; and (d) for which rescheduling/refinancing would result in a significant Loans: All of IBRD's loans are made to or guaranteed improvement in its repayment capacity, if appropriate by members, except loans to IFC. The majority of supporting measures are taken. This treatment was IBRD's loans have repayment obligations based on based on a precedent established in 1975 after specific currencies. IBRD also holds multicurrency Bangladesh became independent from Pakistan. loans which have repayment obligations in various IBRD does not believe that any other borrowers with currencies determined on the basis of a currency loans in nonaccrual status currently meet these pooling system. eligibility criteria. Any loan origination fees incorporated in a loan's It is the policy of IBRD to place in nonaccrual status terms are deferred and recognized over the life of the all loans made to or guaranteed by a member of IBRD loan as an adjustment of yield. However, incremental if principal, interest, or other charges with respect to direct costs associated with originating loans are any such loan are overdue by more than six months, expensed as incurred as such amounts are considered unless IBRD management determines that the insignificant. The unamortized balance of loan overdue amount will be collected in the immediate origination fees is included as a reduction of Loans future. In addition, if development credits made by Outstanding on the balance sheet, and the loan IDA to a member government are placed in origination fees amortization is included in Interest nonaccrual status, all loans made to or guaranteed by under Income from Loans on the income statement. that member government will also be placed in It is IBRD's practice not to reschedule interest or nonaccrual status by IBRD. On the date a member's principal payments on its loans or participate in debt loans are placed into nonaccrual status, unpaid rescheduling agreements with respect to its loans. In interest and other charges accrued on loans exceptional cases, however, such as when outstanding to the member are deducted from the implementation of a financed project has been income of the current period. Interest and other delayed, the loan amortization schedule may be charges on nonaccruing loans are included in income modified to avoid substantial repayments prior to only to the extent that payments have actually been project completion. received by IBRD. If collectibility risk is considered to be particularly high at the time of arrears clearance, In addition, during fiscal years 1996 and 2002, the member's loans may not automatically emerge exceptions were made to that practice with regard to from nonaccrual status, even though the member's Bosnia and Herzegovina (BiH) and Serbia and eligibility for new loans may have been restored. A Montenegro (SAM), formerly the Federal Republic of decision on the restoration of accrual status is made Yugoslavia, respectively, in connection with their on a case-by-case basis after a suitable period of succession to membership of the former Socialist payment performance has passed from the time of Federal Republic of Yugoslavia (SFRY). One arrears clearance. component of the financial assistance packages for BiH and SAM, was a plan for the clearance of arrears Guarantees: IBRD provides guarantees of loans under all loans to the former SFRY for which they undertaken for, or securities issued in support of, undertook responsibility. Under the arrears clearance projects located within a member country eligible for plans, the accumulated arrears on loans to the former IBRD loans, as well as loans undertaken or securities IBRD Financial Statements: June 30, 2003 57 issued by entities eligible for IBRD adjustment the nonaccrual and accrual portfolios at the balance lending. These financial guarantees are commitments sheet date. The appropriate level of provisions for issued by IBRD to guarantee payment performance by each borrower is estimated as the sum product of its a borrower to a third party. expected default frequency (or probability of default to IBRD), its loans outstanding (plus the present value Guarantees are regarded as outstanding when the of guarantees), and the assumed severity of loss given underlying financial obligation of the borrower is default. This methodology considers the present value incurred, and called when a guaranteed party of expected cash flows relative to the contractual cash demands payment under the guarantee. IBRD would flows for each borrower. be required to perform under its guarantees if the payments guaranteed were not made by the debtor Judgments on borrowers' expected default frequencies and the guaranteed party called the guarantee by and severities are based on many factors such as demanding payment from IBRD in accordance with assessments of borrowers' past and prospective the terms of the guarantee. In the event that a economic performance and economic policy guarantee is called, IBRD has the contractual right to framework. IBRD periodically reviews such factors require payment from the member country in whose and reassesses the adequacy of the accumulated territory the project is located, on demand, or as IBRD provision for losses on loans and guarantees may otherwise direct. accordingly. Adjustments to the accumulated provision are recorded as a charge or addition to Prior to January 1, 2003, IBRD recorded a liability for income. the probable losses related to guarantees outstanding. In addition, fee income received from these Cash and Liquid Investments: IBRD considers guarantees was deferred and amortized over the unrestricted cash, as well as financial instruments held period of benefit. The provision for losses on in the investment portfolio as elements of liquidity in guarantees as well as the unamortized balance of the the Statement of Cash Flows, since they are readily deferred guarantee fee income are included in convertible to known amounts of cash within ninety Accounts Payable and Other Liabilities on the balance days. sheet. For guarantees issued or modified after Investments: Investment securities are classified December 31, 2002, in accordance with Financial based on management's intention on the date of Accounting Standards Board (FASB) Interpretation purchase, their nature, and IBRD's policies governing No. 45 (FIN 45), "Guarantor's Accounting and the level and use of such investments. At June 30, Disclosure Requirements for Guarantees, Including 2003 and June 30, 2002, all investment securities were Indirect Guarantees of Indebtedness to Others", IBRD held in a trading portfolio. Investment securities and will record the fair value of the obligation to stand related financial instruments held in IBRD's Trading ready in the financial statements. IBRD has not issued portfolio are carried and reported at fair value, using or modified any guarantees after December 31, 2002. trade-date accounting. The first-in first-out (FIFO) Accumulated Provision for Losses on Loans and method is used to determine the cost of securities sold Guarantees: Delays in receiving loan payments result in computing the realized gains and losses on these in present value losses to IBRD since it does not instruments. Unrealized gains and losses for charge fees or additional interest on any overdue investment securities and related financial interest or loan charges. These present value losses are instruments held in the Trading portfolio are included equal to the difference between the present value of in income. Derivative instruments are used in payments of interest and charges made according to liquidity management to take advantage of profitable the related loan's contractual terms and the present trading opportunities and as a proxy for cash value of its expected future cash flows. IBRD has not securities. These derivatives are carried at fair value. written off any of its loans. From time to time, IBRD enters into forward contracts for the sale or purchase of investment Management determines the appropriate level of securities; these transactions are recorded at the time accumulated provisions for losses on loans and of commitment. guarantees on a borrower-by-borrower basis for both 58 The World Bank Annual Report 2003 Securities Purchased Under Resale Agreements Disclosures related to the fair value of these, and other and Securities Sold Under Repurchase financial instruments are included in Note O. Fair Agreements and Payable for Cash Collateral value is based on market quotations when possible. Received: Securities purchased under resale Financial instruments for which market quotations agreements, securities lent under securities lending are not readily available have been valued based on agreements, and securities sold under repurchase discounted cash flow models using market estimates agreements are recorded at historical cost. IBRD of cash flows and discount rates. All the financial receives securities purchased under resale agreements, models used for valuing IBRD's financial instruments monitors the fair value of the securities and, if are subject to both internal and periodic external necessary, requires additional collateral. verification and review by qualified personnel. These models use market sourced inputs such as interest rate Nonnegotiable noninterest-bearing Demand yield curves, exchange rates, and option volatilities. Obligations on Account of Subscribed Capital: Selection of these inputs may involve some Payments on these instruments are due to IBRD upon judgement, as does estimating prices when no external demand and are held in bank accounts which bear parameters exist. IBRD's name. Accordingly, these instruments are carried and reported at face value as assets on the Accounting and Reporting Developments: In balance sheet. January 2003 and April 2003, FASB issued Interpretation No. 46, "Consolidation of Variable Borrowings: To ensure funds are available for lending Interest Entities" and Statement of Financial and liquidity purposes, IBRD borrows in the Accounting Standards No. 149, "Amendment of worldwide capital markets offering its securities to Statement 133 on derivative Instruments and Hedging private and governmental buyers. IBRD issues short- Activities", respectively. These Standards did not have term and medium- and long-term debt instruments a material impact on IBRD's financial statements for denominated in various currencies with both fixed the fiscal year ended June 30, 2003. and adjustable interest rates. Borrowings are carried on the balance sheet at their par value (face value), There were no significant changes in the relevant adjusted for any unamortized premiums or discounts, International Financial Reporting Standards that and include adjustments for embedded derivatives would have an impact on IBRD's financial statements. and fair value hedges that existed at June 30, 2000, as required by FAS 133. Issuance costs associated with a NOTE B--CAPITAL STOCK, RESTRICTED bond offering are deferred and amortized over the CURRENCIES, MAINTENANCE OF VALUE, AND period during which the related indebtedness is MEMBERSHIP outstanding. The unamortized balance of the issuance Capital Stock: At June 30, 2003, IBRD's capital costs is included in Other Assets on the balance sheet, comprised 1,581,724 authorized shares(1,581,724 and the issuance costs amortization is presented as a shares--June 30, 2002), of which 1,571,412 shares had separate element under Borrowing Expenses on the been subscribed (1,570,895 shares--June 30, 2002). income statement. Amortization of discounts and Each share has a par value of 0.1 million 1974 SDRs, premiums is included in Interest under Borrowing valued at the rate of $1.20635 per 1974 SDR. Of the Expenses on the income statement. subscribed capital, $11,478 million ($11,476 IBRD uses derivatives in its borrowing and liability million--June 30, 2002) has been paid in, and the management activities to take advantage of cost saving remaining $178,089 million ($178,029 million--June opportunities across capital markets to mitigate risks 30, 2002) is subject to call only when required to meet as well as lower its funding costs. These derivatives are the obligations of IBRD created by borrowing or used to modify the interest rate and/or currency guaranteeing loans. characteristics of the borrowing portfolio, and are Currencies Subject to Restrictions: A portion of carried at fair value in accordance with FAS 133. The capital subscriptions paid in to IBRD has been paid in interest component of these derivatives is recognized the local currencies of the members. These amounts, as an adjustment to the borrowing cost over the life of referred to as restricted currencies, are usable by IBRD the derivative contract and included in Interest under in its lending operations, only with the consent of the Borrowing Expenses on the income statement. respective members, and for administrative expenses. Valuation of Financial Instruments: Derivative Maintenance of Value: Of the total amount of $331 financial instruments and investment securities are million ($641 million--June 30, 2002) included in recorded in IBRD's financial statements at fair value. Amounts to Maintain Value of Currency Holdings, IBRD Financial Statements: June 30, 2003 59 which has been deducted from equity, $176 million of a government of a country, a multilateral ($195 million--June 30, 2002) represents MOV organization or any other official entity with a receivables for countries that have amounts in arrears minimum credit rating of AA. For asset-backed for two years or more. IBRD still considers these MOV securities, IBRD may only invest in securities with a receivables in arrears as obligations due from the AAA credit rating. members concerned. The remaining $155 million With respect to futures and options, IBRD generally ($446 million--June 30, 2002) represents net MOV closes out most open positions prior to maturity. amounts relating to restricted currencies out on loan Therefore, cash receipts or payments are mostly that become payable under the same terms as other limited to the change in market value of the futures MOV obligations only after such currencies are repaid and options contracts. Futures contracts generally to IBRD. entail daily settlement of the variation margin. For options, IBRD only invests in exchange-traded NOTE C--INVESTMENTS options. The initial price of an option contract is As part of its overall portfolio management strategy, equal to the premium paid by the purchaser and is IBRD invests in government and agency obligations, significantly less than the contract or notional time deposits, asset-backed securities, repurchase amount. IBRD does not write uncovered option agreements, securities loans, resale agreements and contracts as part of its investment portfolio strategy. related financial derivatives including futures, forward As of June 30, 2003, IBRD had $428 million ($102 contracts, currency swaps, cross-currency interest rate million--June 30, 2002) of short sales included in swaps, interest rate swaps, options and short sales. Payable for Investment Securities Purchased on the For government and agency obligations, IBRD may balance sheet. only invest in obligations issued or unconditionally As of June 30, 2003, IBRD had received $212 million guaranteed by governments of countries with a ($1,833 million--June 30, 2002) of securities under minimum credit rating of AA; however, if such resale agreements. None of these securities had been obligations are denominated in the home currency of transferred under repurchase or security lending the issuer, no rating is required. IBRD may only invest agreements as of June 30, 2003 or June 30, 2002. in obligations issued by an agency or instrumentality 60 The World Bank Annual Report 2003 Liquid Portfolio: A summary of IBRD's position in trading and other liquid portfolio instruments at June 30, 2003 and June 30, 2002 is as follows: In millions of U.S. dollars FY 2003 FY 2002 Carrying Value Carrying Value Investments--Trading Government and agency obligations $ 10,061 $ 8,959 Time deposits 13,363 10,196 Asset-backed securities 4,492 5,100 Options and futures 3 1 Total 27,919 24,256 Securities purchased under resale agreements 212 1,820 Repurchase agreements and securities loans (153) -- Investment holdings excluding swaps 27,978 26,076 Receivable from currency and interest rate swaps Currency swaps 2,631 2,497 Cross-currency interest rate swaps 7,620 7,435 Interest rate swaps 50 8 Total 10,301 9,940 Payable for currency and interest rate swaps Currency swaps (2,651) (2,664) Cross-currency interest rate swaps payable (9,117) (8,106) Interest rate swaps (94) (57) Total (11,862) (10,827) Investment holdings including swaps $26,417 $ 25,189 IBRD Financial Statements: June 30, 2003 61 The following tables summarize IBRD's trading and other liquid portfolio instruments excluding and including swaps, by currency: Investment Holdings Excluding Swaps In millions of U.S. dollars equivalent 2003 2002 Average Average Carrying Average Repricing Carrying Average Repricing Currency Value Yield (%) (years)a Value Yield (%) (years)a Euro $ 8,956 2.49 1.20 $ 7,504 4.01 1.11 Japanese Yen 1,150 0.19 1.95 1,887 0.14 1.72 U.S. Dollars 16,738 1.49 0.16 15,484 2.29 0.30 Others 1,134 2.63 0.05 1,201 3.39 0.05 Total $27,978 1.81 0.56 $26,076 2.69 0.62 Investment Holdings Including Swaps In millions of U.S. dollars equivalent 2003 2002 Average Average Carrying Average Repricing Carrying Average Repricing Currency Value Yield (%) (years)a Value Yield (%) (years)a U.S. Dollars $25,673 1.47 0.12 $24,327 2.13 0.16 Others 744 2.70 0.01 862 2.68 0.03 Total $26,417 1.53 0.12 $25,189 2.17 0.15 a. The average repricing represents the remaining period to the contractual repricing or maturity date, whichever is earlier. This indicates the average length of time for which interest rates are fixed. NOTE D--LOANS AND GUARANTEES IBRD's loan portfolio includes multicurrency loans, single was to reduce Net Income by $93 million, ($102 million-- currency pool loans, single currency loans and fixed June 30, 2002, $139 million--June 30, 2001). In spread loans. Single currency loans and fixed spread loans addition, IBRD continued to waive a portion of the include special structural and sector adjustment loans. At commitment charge on undisbursed balances on all its June 30, 2003 only variable spread loans and fixed spread loans, except for special structural and sector adjustment loans, including special structural and sector adjustment loans and certain other loans which are not eligible for the loans were available for new commitments. waiver. For the fiscal year ended June 30, 2003, the effect of this waiver was to reduce net income by $146 million Waivers of Loan Interest and Commitment Charges ($156 million--June 30, 2002, $169 million--June 30, For fiscal year 2003, IBRD continued to offer waivers of a 2001). portion of interest owed by all eligible borrowers. For the fiscal year ended June 30, 2003, the effect of this waiver 62 The World Bank Annual Report 2003 A summary of IBRD's outstanding loans by currency and product at June 30, 2003 and June 30, 2002 follows: In millions of U.S. dollars equivalent 2003 Euro Japanese yen U.S. dollars Others Loans Outstanding Fixed Adjust. Fixed Adjust. Fixed Adjust. Fixed Adjust. Fixed Adjust. Total Multicurrency loansa,b Amount $ 99 $ 7,538 $ 54 $6,878 $ 169 $ 6,668 $ 93 $1,644 $ 415 $22,728 $ 23,143 Weighted average rate (%)c 8.16 4.62 7.68 4.62 7.98 4.62 7.67 4.62 7.92 4.62 4.68 Single currency pools Amount $ -- $ 2,703 $ -- $ 31 $ -- $17,756 $ -- $ -- $ -- $20,490 $ 20,490 Weighted average rate (%)c -- 5.67 -- 1.07 -- 7.15 -- -- -- 6.95 6.95 Average Maturity (years) -- 3.41 -- 2.54 -- 3.44 -- -- -- 3.43 3.43 Single currency loans Amount $ 685 $ 2,694 $ -- $ 157 $14,630 $41,897 $ -- $ 2 $15,315 $44,750 $ 60,065 Weighted average rate (%)c 5.44 2.66 -- 0.29 6.49 1.89 -- 0.63 6.45 1.93 3.08 Average Maturity (years) 3.81 6.05 -- 6.58 3.79 5.58 -- 3.47 3.79 5.61 5.15 Fixed-spread loans Amount $2,216 $ 1,468 $ * $ -- $ 1,974 $ 6,884 $ -- $ -- $ 4,190 $ 8,352 $ 12,542 Weighted average rate (%)c 5.72 2.85 -- -- 5.31 1.86 -- -- 5.53 2.04 3.20 Average maturity (years) 13.68 12.50 -- -- 9.26 8.07 -- -- 11.60 8.85 9.77 Total Loans Amount $3,000 $14,403 $ 54 $7,066 $16,773 $73,205 $ 93 $1,646 $19,920 $96,320 $116,240 Weighted average rate (%)c 5.73 4.27 7.68 4.51 6.37 3.41 7.67 4.61 6.28 3.64 4.09 Total loans $116,240 Less accumulated provision for loan losses and deferred loan income 4,478 Net loans outstanding $111,762 Note: For footnotes see following page. IBRD Financial Statements: June 30, 2003 63 In millions of U.S. dollars equivalent 2002 Euro Japanese yen U.S. dollars Others Loans Outstanding Fixed Adjust. Fixed Adjust. Fixed Adjust. Fixed Adjust. Fixed Adjust. Total Multicurrency loansa,b Amount $ 120 $ 8,586 $ 82 $9,022 $ 197 $ 8,785 $102 $1,683 $ 501 $ 28,076 $ 28,577 Weighted average rate (%)c 8.17 5.03 7.84 5.03 7.77 5.03 7.66 5.03 7.85 5.03 5.08 Single currency pools Amount $ -- $ 2,835 $ -- $ 40 $ 1 $22,710 $ -- $ -- $ 1 $ 25,585 $ 25,586 Weighted average rate (%)c -- 6.65 -- 1.72 11.60 8.32 -- -- 11.60 8.12 8.12 Average Maturity (years) -- 3.72 -- 2.86 0.47 3.86 -- -- 0.47 3.84 3.84 Single currency loans Amount $ 623 $ 2,045 $ -- $ 139 $15,250 $42,350 $ -- $ 2 $15,873 $ 44,536 $ 60,409 Weighted average rate (%)c 5.47 3.82 -- 0.28 6.64 2.86 -- 1.71 6.59 2.90 3.87 Average Maturity (years) 4.33 6.40 -- 6.48 4.26 5.70 -- 3.97 4.26 5.73 5.35 Fixed-spread loans Amount $1,903 $ 990 $ -- $ 1 $ 565 $ 3,558 $ -- $ -- $ 2,468 $ 4,549 $ 7,017 Weighted average rate (%)c 5.72 4.10 -- 0.59 6.64 2.63 -- -- 5.93 2.95 4.00 Average maturity (years) 14.74 14.44 -- 13.34 9.56 8.34 -- -- 13.55 9.67 11.04 Total Loans Amount $2,646 $14,456 $ 82 $9,202 $16,013 $77,403 $102 $1,685 $18,843 $102,746 $121,589 Weighted average rate (%)c 5.77 5.12 7.84 4.95 6.65 4.70 7.66 5.03 6.54 4.79 5.06 Total loans $121,589 Less accumulated provision for loan losses and deferred loan income 5,442 Net loans outstanding $116,147 a. Includes loans issued prior to 1980, and loans to IFC, in addition to multicurrency pool loans. b. Average Maturity - Multicurrency loans. IBRD maintains a targeted currency composition in its multicurrency loans. The present target ratio is one U.S. dollar for every 125 Japanese yen and one euro. These three major currencies comprise at least 90% of the multicurrency loans' U.S. dollar equivalent value, with the remainder in other currencies. The composition of the multicurrency loans is affected by the selection of currencies for disbursements on those loans and by the currencies selected for the billing of the principal repayments. Along with the selection of disbursement currencies, IBRD manages the selection of repayment currencies to maintain the alignment of the multicur- rency loans' composition with the target ratio. The selection of currencies for repayment billing by IBRD precludes the determination of aver- age maturity information for multicurrency loans by individual currency. Accordingly, IBRD only discloses the maturity periods for its multicurrency loans on a combined U.S. dollars equivalent basis. c. Excludes effects of any waivers of loan interest. * Less than $0.5 million. 64 The World Bank Annual Report 2003 The maturity structure of IBRD's loans at June 30, 2003 and June 30, 2002 is as follows: In millions of U.S. dollars 2003 July 1, 2003 July 1, 2004 July 1, 2008 through through through Product/Rate Type June 30, 2004 June 30, 2008 June 30, 2013 Thereafter Total Multicurrency loans Fixed $ 294 $ 117 $ 4 $ -- $ 415 Adjustable 3,568 11,773 6,545 842 22,728 Single currency pools Fixed -- -- -- -- -- Adjustable 3,750 11,670 4,773 297 20,490 Single currency loans Fixed 1,918 8,743 4,571 83 15,315 Adjustable 5,030 16,764 16,684 6,272 44,750 Fixed-spread loans Fixed 1 412 1,620 2,157 4,190 Adjustable -- 859 5,493 2,000 8,352 All Loans Fixed 2,213 9,272 6,195 2,240 19,920 Adjustable 12,348 41,066 33,495 9,411 96,320 Total loans outstanding $14,561 $50,338 $39,690 $11,651 $116,240 In millions of U.S. dollars 2002 July 1, 2002 July 1, 2003 July 1, 2007 through through through Product/Rate Type June 30, 2003 June 30, 2007 June 30, 2012 Thereafter Total Multicurrency loans Fixed $ 311 $ 177 $ 13 $ -- $ 501 Adjustable 3,897 13,574 9,153 1,452 28,076 Single currency pools Fixed 1 -- -- -- 1 Adjustable 4,168 13,528 7,075 814 25,585 Single currency loans Fixed 1,433 8,517 5,784 139 15,873 Adjustable 3,662 18,118 15,823 6,933 44,536 Fixed-spread loans Fixed -- 193 742 1,533 2,468 Adjustable -- 297 2,836 1,416 4,549 All Loans Fixed 1,745 8,887 6,539 1,672 18,843 Adjustable 11,727 45,517 34,887 10,615 102,746 Total loans outstanding $13,472 $54,404 $41,426 $12,287 $121,589 Guarantees IBRD through regular loans. IBRD's partial IBRD has provided partial guarantees of loans guarantees of such securities are included in the syndicated by other financial institutions for projects. guarantees amount mentioned below. In addition, IBRD has also provided partial guarantees Guarantees of $1,254 million were outstanding at June of securities issued by an entity eligible for IBRD 30, 2003 ($1,574 million--June 30, 2002). This loans, or in support of programs also financed by IBRD Financial Statements: June 30, 2003 65 amount represents the maximum potential amount of million to the holders of such guarantee on October undiscounted future payments that IBRD could be 15, 2002. Pursuant to the terms of the reimbursement required to make under these guarantees, and are not agreement between IBRD and Argentina, IBRD included in the balance sheet. Most of these directed Argentina to reimburse IBRD for the entire guarantees have maturities ranging between 10 and 15 $250 million in four equal semi-annual installments, years, and expire in decreasing amounts through 2012. commencing October 15, 2005, and to repay interest on the outstanding amount at LIBOR plus 400 basis At June 30, 2003, liabilities related to IBRD's points. The outstanding amount of $250 million is obligations under guarantees of $33 million ($55 included in Loans Outstanding on the balance sheet at million--June 30, 2002), have been included in June 30, 2003. No other guarantees provided by IBRD Accounts Payable and Miscellaneous Liabilities on the have been called as of June 30, 2003. balance sheet. These include the accumulated provision for guarantee losses of $24 million ($41 Overdue Amounts million--June 30, 2002). At June 30, 2003, no loans payable to IBRD, other than During the second quarter of fiscal year 2003, IBRD's those referred to in the following table, were overdue guarantee of certain bonds that had been issued by by more than three months. The following table Argentina was called and, in accordance with the provides a summary of selected financial information terms of the guarantee, IBRD made a payment of $250 related to loans in nonaccrual status as of June 30: In millions of U.S. dollars 2003 2002 2001 Recorded investment in nonaccrual loansa $3,012 $2,755 $2,832 Overdue amounts of nonaccrual loans: Principal payments $ 319 $ 336 $1,331 Interest and charges 310 313 1,087 $ 629 $ 649 $2,418 Average recorded investment in nonaccrual loans $2,793 $2,897 $2,424 Accumulated provision for loan losses on nonaccrual loansb $1,269 $1,523 $1,237 Interest income recognized on nonaccrual loans during fiscal year $ 113 $ 84 $ 136 Interest income not earned as a result of loans being in nonaccrual status $ 28 $ 34 $ 80 a. A loan loss provision has been made against each of the loans in the nonaccrual portfolio. b. Certain reclassifications of the prior years' information have been made to conform with the current year's presentation. 66 The World Bank Annual Report 2003 A summary of countries with loans or guarantees in nonaccrual status follows: In millions of U.S. dollars 2003 Principal Principal and Nonaccrual Borrower outstanding charges overdue since With overdues Iraq $ 46 $ 90 December 1990 Liberia 142 348 June 1987 Seychelles 3 1 August 2002 Zimbabwe 433 190 October 2000 Total 624 629 Without overdues Serbia and Montenegro 2,388 -- September 1992 Total $3,012 $629 In July 2002, the Syrian Arab Republic and the During the fiscal year ended June 30, 2002, all IBRD Democratic Republic of Congo cleared all of their loans to or guaranteed by BiH, Cote d'Ivoire, and the overdue payments with IBRD, and all IBRD loans to, Republic of Congo were restored to accrual status. or guaranteed by, these two countries were restored to Income from loans for the fiscal year ended June 30, accrual status. As a result, income from loans for the 2002 increased by $48 million, representing income fiscal year ended June 30, 2003 increased by $57 that would have been accrued in previous fiscal years million, representing income that would have been had these loans not been in nonaccrual status. accrued in previous fiscal years had these loans not Each of the arrears clearances of $25 million for Cote been in nonaccrual status. These events were d'Ivoire, and $34 million for the Republic of Congo, considered in determining the adequacy of the was accomplished using bridge financing provided by provision for loan losses at June 30, 2002. an international financial institution. On the same The arrears clearance of $131 million by the day that the international financial institution Democratic Republic of Congo, was accomplished provided financing, IDA disbursed development using bridge financing provided by an international credits to the respective country in support of financial institution. On the same day of the arrears economic reform and poverty reduction programs. clearance, IDA disbursed a development credit to this Some or all of the proceeds from these development country in support of economic reform and poverty credits were used to repay the bridge financing. The reduction programs. Part of the proceeds of this development credits were funded by IDA resources development credit was used to repay the bridge other than transfers from IBRD. financing. The development credit was funded by Accumulated Provision for Losses on Loans and IDA resources other than transfers from IBRD. Guarantees On January 8, 2002, the accumulated arrears on loans IBRD has always eventually collected all contractual for which SAM undertook responsibility were cleared principal and interest on its loans. However, IBRD through six new loans extended by IBRD. These new suffers losses resulting from the difference between the loans included the loan principal outstanding discounted present value of payments for interest and assumed by SAM as part of its conditions for charges according to the related loan's contractual succession to membership, as well as all unpaid terms and the actual cash flows. Certain borrowers interest and charges related to the SFRY loans for have found it difficult to make timely payments for which SAM undertook responsibility. protracted periods, resulting in their loans being placed in nonaccrual status. Several borrowers have IBRD Financial Statements: June 30, 2003 67 emerged from nonaccrual status after a period of time resulted in an increase in loans outstanding of $168 by bringing up-to-date all principal payments and all million for BiH and $799 million for SAM. The offset overdue service payments, including interest and to these amounts was initially classified as deferred other charges. To recognize the probable losses loan income, which is presented along with the inherent in its loan and guarantee portfolio, IBRD accumulated provision for loan losses as a maintains an accumulated provision for losses on determinant of net loans outstanding on the balance loans and guarantees. sheet. During June 1996 and January 2002, the accumulated During fiscal year 2003, IBRD determined that these arrears on loans to the former SFRY, for which BiH reductions should be reclassified as accumulated and SAM undertook responsibility, were cleared provision for loan losses to better reflect the nature of through the issuance of new loans extended by IBRD these amounts. Accordingly, prior year amounts have to the two countries. These loans included unpaid been reclassified to conform with the current year's interest and charges related to SFRY's loans. This presentation. 68 The World Bank Annual Report 2003 Changes to the accumulated provision for losses on loans and guarantees for the fiscal years ended June 30, 2003, June 30, 2002 and June 30, 2001 are summarized below: In millions of U.S. dollars June 30, 2003 June 30, 2002 June 30, 2001 Accumulated provision for losses on loans and guarantees, beginning of the fiscal year $5,094 $4,106 $3,554 Additional amounts held for loans to Serbia and Montenegro -- 799 -- Provision for losses on loans and guarantees--(decrease) increase (1,300) (15) 676 Translation adjustment 275 204 (124) Accumulated provision for losses on loans and guarantees, end of the fiscal year $4,069 $5,094 $4,106 Composed of: Accumulated provision for guarantee losses 24 41 32 Accumulated provision for loan losses 4,045 5,053 4,074 Total $4,069 $5,094 $4,106 Reported as Follows Balance Sheet Statement of Income Allowance for Losses on: Loans Accumulated Provision for Loan Losses Provision for Losses on Loans and Guarantees Guarantees Accounts Payable and Miscellaneous Liabilities Provision for Losses on Loans and Guarantees IBRD has endorsed a multilateral initiative for IDA are allocated on an annual basis to provide addressing the debt problems of a group of countries, supplementary IDA development credits to IDA- identified as heavily indebted poor countries (HIPCs), eligible countries that are no longer able to borrow on to ensure that the reform efforts of these countries will IBRD terms, but have outstanding IBRD loans not be put at risk by unsustainable external debt approved prior to September 1988 and have in place burdens. Under this initiative, creditors are to provide an IDA-supported structural adjustment program. debt relief for those countries that demonstrated good Such supplementary IDA development credits are policy performance over an extended period to bring allocated to countries that meet specified conditions, their debt burdens to sustainable levels. IBRD has not in proportion to each country's interest payments due entered into any commitments to provide debt relief that year on its pre-September 1988 IBRD loans. To be under this initiative. However, IDA is expected under eligible for such IDA supplemental development the HIPC debt initiative, to extend new credits to credits, a member country must meet IDA's eligibility certain IDA-eligible countries no longer able to criteria for lending, must be ineligible for IBRD borrow on IBRD terms, but with outstanding IBRD lending and must not have had an IBRD loan debt. These credits will be funded by IDA resources approved within the last twelve months. To receive a other than transfers from IBRD. In determining the supplemental development credit from the program, a adequacy of the accumulated provision for losses on member country cannot be more than 60 days loans and guarantees, IBRD has taken the situation of overdue on its debt-service payments to IBRD or IDA. these countries into account. A summary of cumulative IDA development credits Fifth Dimension Program committed and disbursed under this program from Under IDA's Fifth Dimension program established in September 1988, a portion of principal repayments to IBRD Financial Statements: June 30, 2003 69 inception, at June 30, 2003 and June 30, 2002 is pre- NOTE E--BORROWINGS sented below: Providing liquidity and minimizing the cost of funds are key objectives to IBRD's overall borrowing In millions of U.S. dollars strategy. IBRD uses swaps in its borrowing strategy to 2003 2002 lower the overall cost of its borrowings for those members who benefit from IBRD loans. IBRD Commitments $1,711 $1,706 initiates swap transactions with a list of authorized Less undisbursed 12 16 counterparties. Credit limits have been established for each counterparty. Disbursed and outstanding $1,699 $1,690 70 The World Bank Annual Report 2003 A summary of IBRD's borrowings portfolio at June 30, 2003 and June 30, 2002 follows: Medium- and Long-term Borrowings and Swaps at June 30, 2003 In millions of U.S. dollars equivalent Currency Interest rate Direct borrowings swap agreementsa swap agreements Net currency obligations Wgtd. Wgtd. Notional Wgtd. Wgtd. avg. Average Amount avg. Average amount avg. Average Amount avg. Average Currency/ cost maturity payable cost maturity payable cost maturity payable cost maturityb Rate type Amount (%) (years) (receivable) (%) (years) (receivable) (%) (years) (receivable) (%) (years) Euro Fixed $ 12,679 6.01 5.33 $ 1,212 5.42 3.17 $ 2,644 5.36 9.45 $ 16,535 5.86 5.83 (10,921) 5.85 5.07 (974) 6.61 3.25 (11,895) 5.91 4.93 Adjustable 4,678 5.89 8.39 8,807 2.74 4.55 958 2.13 1.94 14,443 3.72 5.62 (5,610) 5.81 7.60 (2,645) 2.65 9.45 (8,255) 4.80 8.19 Japanese yen Fixed 5,428 4.51 4.97 119 5.66 0.85 2,241 0.23 1.06 7,788 3.29 3.78 (4,058) 4.93 3.58 (1,576) 2.61 3.38 (5,634) 4.28 3.53 Adjustable 9,764 4.97 24.89 4,217 0.15 1.99 1,576 0.11 3.38 15,557 3.15 16.50 (10,008) 4.57 24.16 (2,241) 0.04 1.06 (12,249) 3.74 19.93 U. S. dollars Fixed 49,292 5.42 4.44 5,760 9.23 2.10 18,123 5.45 8.19 73,175 5.73 5.19 (150) 7.06 0.68 (46,528) 5.10 4.02 (46,678) 5.10 4.01 Adjustable 1,374 4.13 6.97 41,907 1.01 11.55 52,404 1.13 3.44 95,685 1.12 7.05 (11,712) 1.09 3.70 (23,578) 1.52 6.34 (35,290) 1.38 5.46 Others Fixed 22,337 5.95 8.62 485 7.62 5.08 -- -- -- 22,822 5.98 8.54 (21,796) 5.88 8.27 (173) 6.66 3.26 (21,969) 5.89 8.23 Adjustable 240 3.49 20.53 -- -- -- 173 3.46 3.26 413 3.48 13.30 (412) 5.11 13.32 -- -- -- (412) 5.11 13.32 Total Fixed 89,736 5.58 5.64 7,576 23,008 120,320 5.64 5.82 (36,925) (49,251) (86,176) 5.36 5.18 Adjustable 16,056 5.15 18.49 54,931 55,111 126,098 1.68 8.07 (27,742) (28,464) (56,206) 2.42 9.07 Principal at face value 105,792 5.51 7.59 (2,160) 404 104,036 2.80 Net unamor- tized pre- mium (discount) (2,229) 1,467 (39) (801) Effects of applying FAS 133 1,559 (3,007) (2,202) (3,650) Total $105,122 $ (3,700) $ (1,837) $ 99,585 a. Currency swap agreements include cross-currency interest rate swaps. b. At June 30, 2003, the average repricing period of the net currency obligations for adjustable rate borrowings was three months. IBRD Financial Statements: June 30, 2003 71 Medium- and Long-term Borrowings and Swaps at June 30, 2002 In millions of U.S. dollars equivalent Currency Interest rate Direct borrowings swap agreementsa swap agreements Net currency obligations Wgtd. Wgtd. Notional Wgtd. Wgtd. avg. Average Amount avg. Average amount avg. Average Amount avg. Average Currency/ cost maturity payable cost maturity payable cost maturity payable cost maturityb Rate type Amount (%) (years) (receivable) (%) (years) (receivable) (%) (years) (receivable) (%) (years) Euro Fixed $ 13,218 6.19 4.64 $ 1,145 6.07 2.63 $ 3,129 6.05 7.64 $ 17,492 6.16 5.05 (11,539) 6.21 4.19 (1,117) 6.26 3.37 (12,656) 6.21 4.12 Adjustable 4,777 5.52 7.92 9,620 3.55 4.23 1,105 3.31 2.32 15,502 4.14 5.23 (5,782) 5.10 7.61 (3,128) 3.83 7.64 (8,910) 4.65 7.62 Japanese yen Fixed 7,437 4.57 4.90 127 5.48 1.75 2,283 0.37 1.32 9,847 3.61 4.03 (5,979) 4.85 3.46 (1,757) 2.65 3.90 (7,736) 4.35 3.56 Adjustable 9,037 5.69 24.14 5,221 0.09 2.42 1,757 (0.07) 3.90 16,015 3.23 14.84 (9,265) 5.24 22.73 (2,283) (0.01) 1.32 (11,548) 4.20 18.50 U. S. dollars Fixed 52,039 5.66 4.21 10,009 8.95 2.01 18,506 5.92 7.37 80,554 6.13 4.66 (314) 6.49 0.66 (50,647) 5.31 3.84 (50,961) 5.32 3.82 Adjustable 1,146 3.51 3.23 39,013 1.86 11.20 52,288 1.93 3.35 92,447 1.92 6.66 (13,477) 1.93 3.59 (20,156) 2.17 6.68 (33,633) 2.07 5.44 Others Fixed 17,107 6.95 8.54 169 2.52 0.08 -- -- -- 17,276 6.91 8.46 (16,201) 6.88 8.17 (154) 6.66 4.26 (16,355) 6.88 8.13 Adjustable 192 3.58 22.88 -- -- -- 154 2.80 4.26 346 3.23 14.59 (345) 4.97 14.60 -- -- -- (345) 4.97 14.60 Total Fixed 89,801 5.89 5.16 11,450 23,918 125,169 6.04 5.19 (34,033) (53,675) (87,708) 5.65 4.64 Adjustable 15,152 5.44 17.43 53,854 55,304 124,310 2.37 7.56 (28,869) (25,567) (54,436) 2.96 8.63 Principal at face value 104,953 5.83 6.93 2,402 (20) 107,335 3.67 Net unamor- tized pre- mium 38 61 72 171 Effects of applying FAS 133 354 (347) (1,220) (1,213) Total $105,345 $2,116 $(1,168) $106,293 a. Currency swap agreements include cross-currency interest rate swaps. b. At June 30, 2002, the average repricing period of the net currency obligations for adjustable rate borrowings was three months. 72 The World Bank Annual Report 2003 Short-term Borrowings and Swaps at June 30, 2003 and June 30, 2002a In millions of U.S. dollars equivalent 2003 2002 Wgtd. Currencyswapc Net Wgtd. Currency/ Principal avg.cost Principal payable currency avg.cost Rate type outstandingb (%) outstanding (receivable) obligationsb (%) U. S. dollars Fixed $2,833 1.06 $3,964 $ -- $3,964 1.82 -- -- -- -- Adjustable 600 1.19 896 60 956 1.83 -- -- -- -- Others Fixed -- -- 66 -- 66 10.13 -- (66) (66) 10.13 Total Fixed 2,833 1.06 4,030 -- 4,030 1.96 -- (66) (66) 10.13 Adjustable 600 1.19 896 60 956 1.83 -- -- -- -- Principal at face value 3,433 1.08 4,926 (6) 4,920 1.82 Net unamortized discount (1) (8) -- (8) Effects of applying FAS 133 -- -- * * Total $3,432 1.08 $4,918 $ (6) $4,912 1.82 a. As of June 30, 2003, there were no currency or interest rate swap agreements. As of June 30, 2002 there were no interest rate swap agreements. b. At June 30, 2003, the average repricing period of the principal outstanding (net currency obligations) for short-term borrow- ings was less than one month (less than one month--June 30, 2002.) c. Currency swap agreements include cross-currency interest rate swaps. * Less than $0.5 million The maturity structure of IBRD's Medium-and Long-term borrowings outstanding at June 30, 2003 and June 30, 2002 is as follows: In millions of U.S. dollars In millions of U.S. dollars Period 2003 Period 2002 July 1, 2003 through June 30, 2004 $ 12,266 July 1, 2002 through June 30, 2003 $ 17,498 July 1, 2004 through June 30, 2005 19,206 July 1, 2003 through June 30, 2004 11,773 July 1, 2005 through June 30, 2006 12,695 July 1, 2004 through June 30, 2005 17,937 July 1, 2006 through June 30, 2007 8,884 July 1, 2005 through June 30, 2006 11,206 July 1, 2007 through June 30, 2008 9,438 July 1, 2006 through June 30, 2007 6,917 July 1, 2008 through June 30, 2013 15,965 July 1, 2007 through June 30, 2012 16,566 Thereafter 27,338 Thereafter 23,056 Total $105,792 Total $104,953 IBRD Financial Statements: June 30, 2003 73 Line of credit: IBRD maintains a line of credit with institution. No amounts were drawn down under an independent financial institution. This facility was these facilities as of June 30, 2002. created for the benefit of both IBRD and IDA. The available line of credit to each institution is $500 NOTE F--OTHER ASSET/LIABILITY SWAPS million, but usage from both institutions cannot As part of asset/liability management, IBRD has exceed $500 million in aggregate. The line of credit is entered into a number of currency swaps to better used to cover any overnight overdrafts that may occur align its currency composition of Equity with that of due to failed trades. At June 30, 2003, IBRD had Loans Outstanding. A summary of IBRD's other drawn down $1 million under this facility. At June 30, asset/liability swaps at June 30, 2003 and June 30, 2002 2002, IBRD maintained a $400 million line of credit is presented below: with an independent financial institution and IDA maintained a $100 million line of credit with the same In millions of U.S. dollars equivalent June 30, 2003 June 30, 2002 Other Asset/Liability Swap Agreements Other Asset/Liability Swap Agreements Amount Weighted Average Amount Weighted Average Receivable Average Maturity Receivable Average Maturity (payable) Cost (%) (years) (payable) Cost (%) (years) U.S. dollars $726 1.26 3.72 $727 2.30 4.72 Euro $(360) 2.49 3.71 $(312) 3.53 4.71 Japanese yen (450) (0.06) 3.73 (446) (0.03) 4.73 $(810) 1.07 3.72 $(758) 1.43 4.72 NOTE G--CREDIT RISK Country Credit Risk: This risk includes potential Commercial Credit Risk: For the purpose of risk losses arising from protracted arrears on payments management, IBRD is party to a variety of financial from borrowers. IBRD manages country credit risk instruments, certain of which involve elements of through individual country exposure limits according credit risk. Credit risk exposure represents the to creditworthiness. These exposure limits are tied to maximum potential loss due to possible performance on macroeconomic and structural nonperformance by obligors and counterparties policies. In addition, IBRD establishes absolute limits under the terms of the contracts. For all securities, on the share of outstanding loans to any individual IBRD limits trading to a list of authorized dealers and borrower. The country credit risk is further managed counterparties. Credit risk is controlled through by financial incentives such as pricing loans using application of eligibility criteria and volume limits for IBRD's own cost of borrowing and partial interest transactions with individual counterparties and charge waivers conditioned on timely payment that through the use of mark-to-market collateral give borrowers self-interest in IBRD's continued arrangements for swap transactions. IBRD may strong intermediation capacity. Collectibility risk is require collateral in the form of cash or other covered by the accumulated provision for losses on approved liquid securities from individual loans and guarantees. IBRD also uses a simulation counterparties in order to mitigate its credit exposure. model to assess the adequacy of its equity including As of June 30, 2003, IBRD had received collateral of reserves in case a major borrower, or group of $5,110 million in connection with swap agreements borrowers, stops servicing its loans for an extended ($764 million--June 30, 2002). None of this collateral period of time. has been included in the assets of IBRD. 74 The World Bank Annual Report 2003 In addition, IBRD has entered into master derivatives agreements. The extent of the reduction in exposure agreements which contain legally enforceable close- may therefore change substantially within a short out netting provisions. These agreements may further period of time following the balance sheet date. reduce the gross credit risk exposure related to the The contract value/notional amounts and credit risk swaps shown below. Credit risk with financial assets exposure, as applicable, of these financial instruments subject to a master derivatives arrangement is further at June 30, 2003 and June 30, 2002 (prior to taking reduced under these agreements to the extent that into account any master derivatives or collateral payments and receipts with the counterparty are arrangements that have been entered into) are given netted at settlement. The reduction in exposure as a below: result of these netting provisions can vary as additional transactions are entered into under these In millions of U.S dollars 2003 2002 INVESTMENTS - TRADING PORTFOLIO Options and futures · Long position $ 9,590 $ 6,300 · Short position 222 976 · Credit exposure due to potential nonperformance by counterparties * 1 Currency swapsa · Credit exposure due to potential nonperformance by counterparties 92 51 Interest rate swaps · Notional principal 4,575 10,705 · Credit exposure due to potential nonperformance by counterparties 50 8 BORROWING PORTFOLIO Currency swaps · Credit exposure due to potential nonperformance by counterparties 6,949 2,092 Interest rate swaps · Notional principal 82,112 82,533 · Credit exposure due to potential nonperformance by counterparties 5,079 3,084 OTHER ASSET/LIABILITY Currency swaps · Credit exposure due to potential nonperformance by counterparties -- * * Less than $0.5 million. a. Includes cross-currency interest rate swaps. IBRD Financial Statements: June 30, 2003 75 NOTE H--RETAINED EARNINGS, On August 8, 2002, the Executive Directors allocated ALLOCATIONS AND TRANSFERS $1,291 million of the net income earned in the fiscal year ended June 30, 2002 to the General Reserve and Retained Earnings: Retained Earnings comprises the $93 million to the Pension Reserve, representing the following elements at June 30, 2003 and June 30, 2002: difference between actual funding of the Staff Retire- ment Plan and its accounting income for the fiscal year 2002. In addition, the Executive Directors allo- In millions of U.S. dollars cated $854 million of fiscal year 2002 net income to 2003 2002 Cumulative FAS 133 Adjustments. Special reserve $ 293 $ 293 On September 29, 2002, the Board of Governors General reserve 19,132 17,841 approved the following transfers out of fiscal year 2002 unallocated Net Income: $300 million as an Pension reserve 963 870 immediate transfer to IDA and $240 million as an Surplus 100 100 immediate transfer to the Heavily Indebted Poor Cumulative FAS 133 Countries Debt Initiative Trust Fund. These amounts Adjustments 1,199 345 were paid on September 30, 2002. Unallocated net income 5,344 2,778 Total $27,031 $22,227 The aggregate transfers and amounts payable for these Board of Governors-approved transfers at June 30, 2003 and June 30, 2002 are included in the following table: In millions of U.S dollars Amount Payable Transfers from at June 30 Fiscal Year 2002 Aggregate Transfers Unallocated Net Transfers to through June 30, 2002 Income 2003 2002 International Development Association $7,057 $300 $1,293 $1,243 Debt Reduction Facility for IDA-only Countries 300 -- 81 81 Trust Fund for Gaza and West Bank 380 -- -- 13 Heavily Indebted Poor Countries Debt Initiative Trust Fund 1,400 240 100 100 $1,474 $1,437 NOTE I--ADMINISTRATIVE EXPENSES, IBRD recovers certain of its administrative expenses CONTRIBUTIONS TO SPECIAL PROGRAMS, by billing third parties, including IFC and MIGA, for AND OTHER INCOME services rendered. These amounts are included in Other Income. For the fiscal years ending June 30, Administrative Expenses for the fiscal year ended June 2003, June 30, 2002, and June 30, 2001, the amount of 30, 2003 are net of the share of administrative fee revenue associated with administrative services is expenses allocated to IDA of $846 million ($654 as follows: million--June 30, 2002, $551 million--June 30, 2001). The allocation of expenses between IBRD and In millions of U.S. dollars IDA is based on an agreed cost sharing formula that 2003 2002 2001 reflects the administrative costs of service delivery to countries that are eligible for lending from IBRD and Service fee revenue $178 $155 $146 IDA. Included in these amounts are the following: Contributions to special programs represent grants Fees charged to IFC 28 26 19 for agricultural research, and other developmental Fees charged to MIGA 3 3 1 activities. 76 The World Bank Annual Report 2003 At June 30, 2003 and June 30, 2002, the following and pension and other postretirement benefits are payables (receivables) by IBRD to (from) its affiliated included in Miscellaneous Assets and Accounts organizations with regard to administrative services Payable and Miscellaneous Liabilities: In millions of U.S. dollars 2003 2002 Pension and Pension and Other Other Administrative Postretirement Administrative Postretirement Services Benefits Total Services Benefits Total IDA $(310) $698 $388 $(252) $ 726 $474 IFC (23) 277 254 (16) 286 270 MIGA (3) 15 12 (3) 16 13 $(336) $990 $654 $(271) $1,028 $757 NOTE J--MANAGEMENT OF EXTERNAL FUNDS Trust Funds and research and training programs. These funds are IBRD, alone or jointly with IDA, administers on held in trust with IBRD and/or IDA, and are held in a behalf of donors, including members, their agencies separate investment portfolio which is not and other entities, funds restricted for specific uses commingled with IBRD's funds, nor are they included which include the cofinancing of IBRD lending in the assets of IBRD. The trust fund assets by projects, debt reduction operations, technical executing agent at June 30, 2003 and June 30, 2002 are assistance for borrowers including feasibility studies summarized below: and project preparation, global and regional programs 2003 2002 Total fiduciary Number of Total fiduciary Number of assets trust fund assets trust fund (In millions of accounts (In millions of accounts U.S. dollars) (unaudited) U.S. dollars) (unaudited) IBRD executed $2,647 1,996 $1,665 1,754 Recipient executed 2,576 1,232 2,049 1,273 Total $5,223 3,228 $3,714 3,027 The responsibilities of IBRD under these assets on behalf of this institution, and in return arrangements vary and range from services normally receives a quarterly fee based on the average value of provided under its own lending projects to full project the portfolio. implementation including procurement of goods and In addition, IBRD offers asset management and services. During the fiscal year ended June 30, 2003, technical advisory services to Central Banks of IBRD received $14 million ($11 million--June 30, member countries, under the Reserves Advisory and 2002 and $14 million--June 30, 2001) as fees for Management Program, for capacity building and administering trust funds. These fees have been other development purposes. One objective of this recorded as Other Income. program is to assist these Central Banks in developing Investment Management Services their portfolio management skills. IBRD receives a IBRD offers investment management services to a quarterly fee based on the percentage of assets under non-affiliated institution. Under this arrangement, management. IBRD is responsible for managing investment account IBRD Financial Statements: June 30, 2003 77 The fee income from all of these investment During the fiscal year ended June 30, 2003, there were management activities is included in service fee minor amendments to the SRP, RSBP, and PEBP. revenues described in Note I. These amendments included the extension of retroactive pension credit (on a contributory basis) to At June 30, 2003, the assets managed under these eligible current staff members; the lowering of the agreements had a value of $6,450 million ($5,319 service eligibility requirement for RSBP benefits from million--June 30, 2002). These funds are not ten years to five years; and the extension of retiree included in the assets of IBRD. medical coverage to all staff, including those in country field offices. NOTE K--PENSION AND OTHER All costs associated with these plans are allocated POSTRETIREMENT BENEFITS between IBRD, IFC, and MIGA based upon their IBRD has a defined benefit Staff Retirement Plan employees' respective participation in the plans. In (SRP), a Retired Staff Benefits Plan (RSBP) and a addition, IFC and MIGA reimburse IBRD for their Post-Employment Benefits Plan (PEBP) that cover share of any contributions made to these plans by substantially all of its staff members as well as the staff IBRD. Contributions to these plans are calculated as a of IFC and MIGA. percentage of salary. The SRP provides regular pension benefits and The following table summarizes the benefit costs includes a cash balance plan. The RSBP provides associated with the SRP, RSBP, and PEBP for IBRD certain health and life insurance benefits to eligible and IDA for the fiscal years ended June 30, 2003, June retirees. The PEBP provides pension benefits 30, 2002, and June 30, 2001: administered outside the SRP. In millions of U.S. dollars SRP RSBP PEBP 2003 2002 2001 2003 2002 2001 2003 2002 2001 Benefit Cost Service cost $203 $202 $ 228 $28 $28 $ 23 $ 8 $13 $ 8 Interest cost 451 412 448 57 54 52 8 6 6 Expected return on plan assets (587) (761) (829) (57) (72) (79) -- -- -- Amortization of prior service cost 13 7 7 (1) -- -- * -- -- Amortization of unrecog- nized net (gain) loss -- (26) (113) 17 5 -- (1) (2) (1) Amortization of Transition Asset (11) (11) (11) -- -- -- -- -- -- Net periodic pension cost (income) $ 69 $(177) $(270) $44 $15 $ (4) $15 $17 $13 of which: IBRD's Share $ 31 $ (93) $(153) $20 $ 8 $ (2) $ 7 $ 9 $ 7 IDA's Share $ 38 $ (84) $(117) $24 $ 7 $ (2) $ 8 $ 8 $ 6 IDA's share of the net periodic pension income/cost is For the fiscal year ended June 30, 2003, expenses for included as a payable to/receivable from IDA in these plans of $24 million were allocated to IFC and Miscellaneous Assets and Accounts Payable and $2 million was allocated to MIGA. For the fiscal years Miscellaneous liabilities on the balance sheet. ended June 30, 2002 and June 30, 2001, net income from these plans of $31 million and $47 million, The expenses for the SRP, RSBP and PEBP are respectively, was allocated to IFC, and $2 million in included in Administrative Expenses. The income each fiscal year was allocated to MIGA. from the SRP and RSBP for prior fiscal years is included as a separate line item on the Statement of The following table summarizes the benefit Income. obligations, plan assets, and funded status associated 78 The World Bank Annual Report 2003 with the SRP, RSBP, and PEBP for the fiscal years irrevocable trust, they do not qualify for off-balance ended June 30, 2003, June 30, 2002, and June 30, 2001. sheet accounting and are therefore included in IBRD's Since the assets for the PEBP are not held in an investment portfolio. In millions of U.S. dollars SRP RSBP PEBP 2003 2002 2001 2003 2002 2001 2003 2002 2001 Benefit Obligation Beginning of year $8,263 $ 7,277 $ 6,951 $929 $867 $731 $133 $103 $ 89 Service cost 250 244 271 34 32 26 9 15 10 Interest cost 553 499 536 63 60 57 9 7 7 Employee contributions 75 65 64 8 8 6 1 * * Amendments 77 19 -- 24 (38) -- 5 -- -- Benefits paid (306) (304) (312) (29) (30) (20) (5) (5) (5) Actuarial (gain) loss (55) 463 (233) (58) 30 67 (13) 13 2 End of year 8,857 8,263 7,277 971 929 867 139 133 103 Fair value of plan assets Beginning of year 9,413 10,364 11,562 818 894 975 -- -- -- Employee contributions 75 65 64 8 8 6 -- -- -- Actual return on assets 193 (712) (950) 16 (70) (70) -- -- -- Employer contributions 40 -- -- 21 16 3 -- -- -- Benefits paid (306) (304) (312) (29) (30) (20) -- -- -- End of year 9,415 9,413 10,364 834 818 894 -- -- -- Funded status Plan assets in excess of (less than) projected benefit obli- gation 558 1,150 3,087 (137) (111) 27 (139) (133) (103) Unrecognized net loss (gain) from past experience differ- ent from that assumed and from changes in assump- tions 1,186 714 (1,415) 314 344 170 (23) (11) (26) Unrecognized prior service cost 105 44 33 (12) (38) -- 5 -- -- Remaining unrecognized net transition asset -- (13) (26) -- -- -- -- -- -- Prepaid (accrued) pension cost $1,849 $1,895 $ 1,679 $165 $195 $197 $(157) $(144) $(129) * Less than $0.5 million. The $1,849 million prepaid SRP cost at June 30, 2003 There are differences between the prepaid (accrued) ($1,895 million--June 30, 2002) is included in pension cost calculated under the accounting Prepaid Pension Cost on the balance sheet. Of this standards generally accepted in the United States of amount $909 million was attributable to IDA, IFC, America and the relevant International Accounting and MIGA ($938 million--June 30, 2002) and is Standard. These differences are not significant. included in Accounts Payable and Miscellaneous Assumptions Liabilities on the balance sheet. The actuarial assumptions used are based on financial The $165 million prepaid RSBP cost at June 30, 2003 market interest rates, past experience, and ($195 million--June 30, 2002), is included in Prepaid management's best estimate of future benefit changes Pension Cost on the balance sheet. Of this amount and economic conditions. Changes in these $68 million was attributable to IDA, IFC, and MIGA assumptions will impact future benefit costs and ($85 million--June 30, 2002) and is included in obligations. Actuarial gains and losses occur when Accounts Payable and Miscellaneous Liabilities on the actual results are different from expected results. balance sheet. Amortization of these unrecognized gains and losses will be included in income if, at the beginning of the IBRD Financial Statements: June 30, 2003 79 fiscal year, they exceed 10 percent of the greater of the gains and losses are amortized over the expected projected benefit obligation or the market-related average remaining service lives of the employee group. value of plan assets. If required, the unrecognized The weighted-average assumptions used in determining expense and benefit obligations for the fiscal years ended June 30, 2003, June 30, 2002, and June 30, 2001 are as follows: In percent SRP RSBP PEBP 2003 2002 2001 2003 2002 2001 2003 2002 2001 Discount rate 5.75 6.75 7.00 5.75 6.75 7.00 5.75 6.75 7.00 Expected return on plan assets 7.75 7.75 9.00 7.75 7.75 9.00 Rate of compensation increase a 3.75- 4.75- 5.00- 10.25 11.25 11.50 Health care growth rates - at end of fiscal year 5.75 6.75 7.00 - to year 2011 and thereafter 3.75 4.75 5.00 a. The effect of projected compensation levels was calculated based on a scale that provides for a decreasing rate of salary increase depending on age, beginning with 10.25% (11.25%--June 30, 2002; 11.50%--June 30, 2001) at age 20 and decreasing to 3.75% (4.75%--June 30, 2002; 5.00%--June 30, 2001) at age 64. The medical cost trend rate can significantly affect the effects of a one-percentage-point change in the reported postretirement benefit income or costs and assumed healthcare cost trend rate: benefit obligations. The following table shows the In millions of U.S. dollars One percentage point increase One percentage point decrease Effect on total service and interest cost $ 22 $ (18) Effect on postretirement benefit obligation 187 (149) NOTE L--SEGMENT REPORTING For fiscal year 2003, loans to each of two countries generated in excess of 10 percent of loan income. Based on an evaluation of IBRD's operations, Loan income from these two countries was $767 management has determined that IBRD has only one million and $632 million. reportable segment since IBRD does not manage its operations by allocating resources based on a NOTE M--COMPREHENSIVE INCOME determination of the contribution to net income from individual borrowers. In addition, given the nature of Comprehensive income consists of net income and IBRD, the risk and return profiles are sufficiently other gains and losses affecting equity that, under similar among borrowers that IBRD does not generally accepted accounting principles, are excluded differentiate between the nature of the products or from net income. For IBRD, comprehensive income services provided, the preparation process, or the comprises the cumulative effects of a change in method for providing the services among individual accounting principle related to the implementation of countries. FAS 133, currency translation adjustments, and net income. These items are presented in the Statement of Comprehensive Income. 80 The World Bank Annual Report 2003 The following tables present the changes in Accumulated Other Comprehensive Loss for the fiscal years ended June 30, 2003, June 30, 2002, and June 30, 2001: In millions of U.S. dollars 2003 Total Cumulative Accumulated Cumulative Effect of Change Other Translation in Accounting Comprehensive Adjustment Principle Reclassificationa Loss Balance, beginning of the fiscal year $ (952) $500 $(297) $(749) Changes from period activity 606 -- (117) 489 Balance, end of the fiscal year $ (346) $500 $(414) $(260) In millions of U.S. dollars 2002 Total Cumulative Accumulated Cumulative Effect of Change Other Translation in Accounting Comprehensive Adjustment Principle Reclassificationa Loss Balance, beginning of the fiscal year $(1,176) $500 $(169) $(845) Changes from period activity 224 -- (128) 96 Balance, end of the fiscal year $ (952) $500 $(297) $(749) In millions of U.S. dollars 2001 Total Cumulative Accumulated Cumulative Effect of Change Other Translation in Accounting Comprehensive Adjustment Principle Reclassificationa Loss Balance, beginning of the fiscal year $ (641) $ -- $ -- $(641) Changes from period activity (535) 500 (169) (204) Balance, end of the fiscal year $(1,176) $500 $(169) $(845) a. Reclassification of Cumulative effect of change in accounting principle to net income. NOTE N--EFFECTS OF APPLYING FAS 133 Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." On July 1, 2000, IBRD adopted FAS 133. These standards require that derivative instruments, as Upon adoption of FAS 133, IBRD's net income was defined by FAS 133, be recorded on the balance sheet increased by $219 million, and an additional $500 at fair value. million was reported in other comprehensive income. The allocation between net income and other Prior to the adoption of FAS 133, the derivative comprehensive income was based upon the hedging instruments in the borrowing portfolio were recorded relationships that existed under generally accepted using synthetic accounting. The derivative accounting principles before the initial application of instruments in the investment portfolio were, and FAS 133. continue to be, recorded at fair value in accordance with the requirements of Statement of Financial The $500 million difference between the carrying value and the fair value of those derivatives that were IBRD Financial Statements: June 30, 2003 81 hedging a cash flow exposure prior to the initial adoption of FAS 133 were recorded in income at the application of FAS 133, was included in Other time of implementation, and were offset by the mark- Comprehensive Income at the time FAS 133 was to-market adjustments on the related derivative implemented. IBRD has not defined any qualifying instruments. The mark-to-market adjustments on the hedging relationships under this standard. This bonds are being amortized over the remaining lives of amount is being reclassified into earnings in the same the related bonds. period or periods in which the hedged forecasted The cumulative effect of the change in accounting transactions affect earnings. principle of $219 million, includes the difference Any gains or losses on those borrowings for which a between the carrying value and the fair value of the fair value exposure was being hedged prior to embedded derivatives. The following table reflects the components of the effects of applying FAS 133 for the fiscal years ended June 30, 2003, June 30, 2002, and June 30, 2001. In millions of U.S dollars 2003 2002 2001 Net unrealized gains on derivative instruments, as defined by FAS 133 $2,302 $783 $ 46 Reclassification and amortization of transition adjustment Reclassification from Other Comprehensive Income--Cash Flow Hedges 117 128 169 Amortization of mark-to-market on borrowings associated with fair value hedges (96) (57) (89) Effects of applying FAS 133 $2,323 $854 $126 Cumulative effect of change in accounting principle $ -- $ -- $219 82 The World Bank Annual Report 2003 NOTE O--ESTIMATED AND FAIR VALUE DISCLOSURES The Condensed Balance Sheets below present IBRD's estimates of fair value of its assets and liabilities along with their respective carrying amounts as of June 30, 2003 and 2002. In millions of U.S. dollars June 30, 2003 Carrying Carrying Reversal of FAS Value Before Value 133 Effects FAS 133 Fair Value* Due from Banks $ 1,929 $ 1,929 $ 1,929 Investments 28,131 28,131 28,131 Loans Outstanding 116,240 116,240 122,593 Less Accumulated Provision for Loan Losses and Deferred Loan Income (4,478) (4,478) (4,478) Net Loans Outstanding 111,762 111,762 118,115 Swaps Receivable Investments 10,301 10,301 10,301 Borrowings 70,316 $(7,084) 63,232 70,316 Other Asset/Liability 726 726 726 Other Assets 7,187 7,187 6,732 Total Assets $230,352 $(7,084) $223,268 $236,250 Borrowings $108,554 $(1,559) $106,995 $116,695 Swaps Payable Investments 11,862 11,862 11,862 Borrowings 64,779 (1,875) 62,904 64,779 Other Asset/Liability 810 1 811 810 Other Liabilities 6,429 6,429 6,429 Total Liabilities 192,434 (3,433) 189,001 200,575 Paid in Capital Stock 11,478 11,478 11,478 Retained Earnings and Other Equity 26,440 (3,651) 22,789 24,197 Total Liabilities and Equity $230,352 $(7,084) $223,268 $236,250 * Except for loans, which are on an estimated value (current value) basis. IBRD Financial Statements: June 30, 2003 83 In millions of U.S. dollars June 30, 2002 Carrying Carrying Reversal of FAS Value Before Value 133 Effects FAS 133 Fair Value* Due from Banks $ 1,083 $ 1,083 $ 1,083 Investments 26,076 26,076 26,076 Loans Outstanding 121,589 121,589 126,454 Less Accumulated Provision for Loan Losses and Deferred Loan Income (5,442) (5,442) (5,442) Net Loans Outstanding 116,147 116,147 121,012 Swaps Receivable Investments 9,940 9,940 9,940 Borrowings 66,052 $(2,821) 63,231 66,052 Other Asset/Liability 727 (1) 726 727 Other Assets 7,769 7,769 7,296 Total Assets $227,794 $(2,822) $224,972 $232,186 Borrowings $110,263 $ (354) $109,909 $114,502 Swaps Payable Investments 10,827 10,827 10,827 Borrowings 66,994 (1,254) 65,740 66,994 Other Asset/Liability 758 1 759 758 Other Liabilities 6,639 6,639 6,639 Total Liabilities 195,481 (1,607) 193,874 199,720 Paid in Capital Stock 11,476 11,476 11,476 Retained Earnings and Other Equity 20,837 (1,215) 19,622 20,990 Total Liabilities and Equity $227,794 $(2,822) $224,972 $232,186 * Except for loans which are on an estimated value (current value) basis. Valuation Methods and Assumptions Due from Banks probable expected cash flows of these instruments to The carrying amount of unrestricted and restricted IBRD. currencies is considered a reasonable estimate of the The current value of all loans is based on a discounted fair value of these positions. cash flow method. The estimated cash flows from Investments principal repayments and interest are discounted IBRD's investment securities and related financial using the market yield curves applicable to IBRD instruments held in the trading portfolio are carried funding plus IBRD's relevant basis point lending and reported at fair value. Fair value is based on spread adjusted for waivers. market quotations. Instruments for which market The current value of net loans outstanding also quotations are not readily available have been valued includes IBRD's assessment of the appropriate credit using market-based methodologies and market risk, considering its history of collections from information. (See Note A). borrowers. This is reflected in the accumulated Net Loans Outstanding provision for loan losses. All of IBRD's loans are made to or guaranteed by Swaps Receivable and Swaps Payable countries that are members of IBRD, except for those Certain derivatives, as defined by FAS 133, are loans made to IFC. IBRD does not currently sell its recorded in the balance sheet at estimated fair value. loans, nor does it believe there is a comparable market The fair value of swaps is based on market prices, for its loans. The current value of loans outstanding where such prices are available. Where no quoted incorporates management's best estimate of the market price is available, the fair value is estimated using a discounted cash flow method representing the 84 The World Bank Annual Report 2003 estimated cost of replacing these contracts on that Other Assets and Other Liabilities date. (See Note A). These amounts are generally short-term in nature. Borrowings Therefore, the carrying value is a reasonable estimate of fair value. The difference between the carrying The fair value of borrowings is predominantly based value and fair value of other assets is due to the on discounted cash flow techniques using appropriate carrying value of debt issuance costs being included in market yield curves. other assets while the fair value of these costs is included as part of the fair value of borrowings. IBRD Financial Statements: June 30, 2003 85 S PE C I A L P U R P O S E FI N A N C I A L S T A T E M E N T S A N D I N T E R N A L C O N T R O L R E P O R T S O F T H E I NT E R N A T I O N A L D E V E L O P M E N T A S S O C I A T I O N Management's Report Regarding Effectiveness of Internal Controls Over External Financial Reporting 88 Report of Independent Accountants on Management's Assertion Regarding Effectiveness of Internal Controls Over External Financial Reporting 90 Report of Independent Accountants on Special Purpose Financial Statements 91 Statement of Sources and Applications of Development Resources 92 Statement of Income 94 Statement of Comprehensive Income 95 Statement of Changes in Retained Earnings 95 Statement of Cash Flows 96 Summary Statement of Development Credits 97 Statement of Voting Power and Subscriptions and Contributions 101 Notes to Special Purpose Financial Statements 105 Supplementary Information on the Heavily Indebted Poor Countries Debt Initiative 118 IDA Special Purpose Financial Statements: June 30, 2003 87 M A N A G E M E N T ' S R E P O R T R E G A R D I N G EF F E C T I V E N E S S O F I NT E R N A L C O N T R O L SO V E R E X T E R N A L F I N A N C I A L R EP O R T I N G 88 The World Bank Annual Report 2003 IDA Special Purpose Financial Statements: June 30, 2003 89 R E P O R T O F I N D E P E N D E N T A C C O U N T A N T S O N M A N A G E M E N T' S A S S E R T I O N R E G A R D I N G E F F E C T I V E N E S S O F I N T E R N A L C O N T R O L S O V E R E X T E R N A L F IN A N C I A L R E P O R T I N G 90 The World Bank Annual Report 2003 R E P O R T O F IN D E P E N D E N T A C C O U N T A N T S O N S P E C I A L P U R P O S E F I N A N C I A LS T A T E M E N T S IDA Special Purpose Financial Statements: June 30, 2003 91 S T A T E M E N T O F S O U R C E S A N D A P P L I C A T I O N S O F D E V E L O P M E N T R E S O U R C E S June 30, 2003 and June 30, 2002 Expressed in millions of U.S. dollars 2003 2002 Applications of Development Resources Net resources available for development activities Due from banks Unrestricted currencies $ 590 $ 434 Currencies subject to restriction 21 21 611 455 Investments-- Notes B and F Investments--Trading (including securities transferred under repurchase or security lending agreements of $5,922 million--June 30, 2003; $1,919 million--June 30, 2002) 14,242 12,055 Net payable on investment securities transactions (1,207) (447) 13,035 11,608 Nonnegotiable, noninterest-bearing demand obligations on account of member subscriptions and contributions 7,935 8,971 Receivable from the International Bank for Reconstruction and Development-- Note D 1,293 1,243 Receivable from the HIPC Debt Initiative Trust Fund-- Note I 498 559 Payable for HIPC grants -- (26) Payable for development grants-- Note J (1,063) (148) Other resources, net 663 731 Total net resources available for development activities 22,972 23,393 Resources used for development credits (see Summary Statement of Development Credits, Notes E and F ) Total development credits 129,306 118,882 Less undisbursed balance 22,429 22,510 Development credits outstanding 106,877 96,372 Less allowance for HIPC Debt Initiative 10,395 10,270 Total resources used for development credits outstanding 96,482 86,102 Total applications of development resources $119,454 $109,495 92 The World Bank Annual Report 2003 2003 2002 Sources of Development Resources Member subscriptions and contributions (see Statement of Voting Power, Subscriptions and Contributions, and Note C) Unrestricted $118,054 $108,588 Restricted 292 288 Subscriptions and contributions committed 118,346 108,876 Less subscriptions and contributions receivable and unamortized discounts on contributions--Note C 5,887 122 Subscriptions and contributions paid in 112,459 108,754 Deferred amounts receivable to maintain value of currency holdings (234) (235) 112,225 108,519 Transfers from the International Bank for Reconstruction and Development-- Note D 7,392 7,042 Accumulated other comprehensive income (loss)-- Note K 4,708 (514) Accumulated deficit (see Statement of Changes in Retained Earnings) (4,871) (5,552) Total sources of development resources $119,454 $109,495 The Notes to Special Purpose Financial Statements are an integral part of these Statements. IDA Special Purpose Financial Statements: June 30, 2003 93 S T A T E M E N T O F I N C O M E For the fiscal years ended June 30, 2003, June 30, 2002 and June 30, 2001 Expressed in millions of U.S. dollars 2003 2002 2001 Income Income from development credits--Note E $ 816 $ 641 $ 614 Income from investments, net--Note B 1,159 773 684 Total income 1,975 1,414 1,298 Expenses Administrative expenses--Notes G and H 846 568 431 Amortization of discount on contributions 5 -- 1 Development grants--Note J 1,016 154 -- Total expenses 1,867 722 432 Operating Income 108 692 866 Effect of exchange rate changes on income before HIPC Debt Initiative 759 819 (847) Income before HIPC Debt Initiative 867 1,511 19 HIPC Debt Initiative-- Income (Expenses)-- Notes E and I Provision for principal component of debt relief (393) (1,883) (686) Contribution from the HIPC Debt Initiative Trust Fund 207 108 177 HIPC grants -- -- (101) Write-down on sale of development credits -- -- (24) Total net expenses for HIPC Debt Initiative (186) (1,775) (634) Income (Loss) after HIPC Debt Initiative $ 681 $ (264) $ (615) The Notes to Special Purpose Financial Statements are an integral part of these Statements. 94 The World Bank Annual Report 2003 S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E For the fiscal years ended June 30, 2003, June 30, 2002 and June 30, 2001 Expressed in millions of U.S. dollars 2003 2002 2001 Income (loss) after HIPC Debt Initiative $ 681 $ (264) $ (615) Other comprehensive income--Note K Currency translation adjustment on development credits and development grants 5,222 4,454 (4,230) Comprehensive income (loss) $5,903 $4,190 $(4,845) S T A T E M E N T O F C H A N G E S I N R E T A I N E D E A R N I N G S For the fiscal years ended June 30, 2003 and June 30, 2002 Expressed in millions of U.S. dollars 2003 2002 Balance at Activity Balance at Balance at Activity Balance at beginning of during the end of the beginning of during the end of the the fiscal year fiscal year fiscal year the fiscal year fiscal year fiscal year Accumulated income before HIPC Debt Initiative $ 5,042 $ 867 $ 5,909 $ 3,531 $ 1,511 $ 5,042 HIPC Debt Initiative: Provision for principal component of debt relief (10,578) (393) (10,971) (8,695) (1,883) (10,578) Contribution from the HIPC Debt Initiative Trust Fund 886 207 1,093 778 108 886 HIPC grants (330) -- (330) (330) -- (330) Write down of development credits (572) -- (572) (572) -- (572) HIPC Debt Initiative (10,594) (186) (10,780) (8,819) (1,775) (10,594) Accumulated deficit $ (5,552) $ 681 $ (4,871) $(5,288) $ (264) $ (5,552) The Notes to Special Purpose Financial Statements are an integral part of these Statements. IDA Special Purpose Financial Statements: June 30, 2003 95 S T A T E M E N T O F C A S H F L O W S For the fiscal years ended June 30, 2003, June 30, 2002 and June 30, 2001 Expressed in millions of U.S. dollars 2003 2002 2001 Cash flows from development activities Development credits Disbursements $ (6,898) $ (6,601) $ (5,492) Principal repayments 1,369 1,063 997 Credits sold to the HIPC Debt Initiative Trust Fund -- -- 133 Reimbursements received from the HIPC Debt Initiative Trust Fund for principal repayments forgiven 268 192 105 Net cash used in development credit activities (5,261) (5,346) (4,257) Grant activities Development grant disbursements (121) (11) -- HIPC grant disbursements (26) (45) (31) Reimbursements received from the HIPC Debt Initiative Trust Fund for HIPC debt service grants disbursed -- 4 15 Net cash used in grant activities (147) (52) (16) Net cash used in development activities (5,408) (5,398) (4,273) Cash flows from Member subscriptions and contributions 4,671 4,088 5,232 Transfers from the International Bank for Reconstruction and Development 300 2 19 Cash flows from operating activities Operating income 108 692 866 Adjustments to reconcile operating income to net cash provided by operating activities Amortization of discount on subscription advances 5 -- 1 Development Grants 1,016 154 -- Net changes in other development resources 138 (100) (113) Net cash provided by operating activities 1,267 746 754 Effect of exchange rate changes on unrestricted cash and liquid investments 753 813 (838) Net increase in unrestricted cash and liquid investments 1,583 251 894 Unrestricted cash and liquid investments at beginning of the fiscal year 12,042 11,791 10,897 Unrestricted cash and liquid investments at end of the fiscal year $13,625 $12,042 $11,791 Composed of: Due from banks--Unrestricted currencies $ 590 $ 434 $ 49 Investments 13,035 11,608 11,742 $13,625 $12,042 $11,791 Supplemental Disclosure Increase (decrease) in ending balances of development credits outstanding, resulting from exchange rate fluctuations $ 5,244 $ 4,454 $ (4,230) Principal repayments forgiven under HIPC Debt Initiative (268) (192) (105) Write-down on sale of development credits under HIPC Debt Initiative -- -- (97) The Notes to Special Purpose Financial Statements are an integral part of these Statements. 96 The World Bank Annual Report 2003 S U M M A R Y S T A T E M E N T O F D E V E L O P M E N T C R E D I T S June 30, 2003 Expressed in millions of U.S. dollars Percentage of Total Undisbursed Development development development development credits credits Borrower or guarantor credits creditsa outstanding outstanding Afghanistan $ 185 $ 133 $ 52 0.05% Albania 707 196 511 0.48 Angola 296 18 278 0.26 Armenia 734 148 586 0.55 Azerbaijan 598 216 382 0.36 Bangladesh 9,022 1,335 7,687 7.19 Benin 761 68 693 0.65 Bhutan 63 20 43 0.04 Bolivia 1,760 313 1,447 1.35 Bosnia and Herzegovina 867 245 622 0.58 Botswana 8 -- 8 0.01 Burkina Faso 1,111 318 793 0.74 Burundi 787 91 696 0.65 Cambodia 538 197 341 0.32 Cameroon 1,114 223 891 0.83 Cape Verde 198 41 157 0.15 Central African Republic 447 32 415 0.39 Chad 907 200 707 0.66 Chile 6 -- 6 0.01 China 10,079 273 9,806 9.18 Colombia 6 -- 6 0.01 Comoros 121 18 103 0.10 Congo, Democratic Republic of 2,075 440 1,635 1.53 Congo, Republic of 288 81 207 0.19 Costa Rica 1 -- 1 * Côte d'Ivoire 2,010 335 1,675 1.57 Djibouti 137 44 93 0.09 Dominica 19 2 17 0.02 Dominican Republic 12 -- 12 0.01 Ecuador 18 -- 18 0.02 Egypt, Arab Republic of 1,640 299 1,341 1.26 El Salvador 14 -- 14 0.01 Equatorial Guinea 49 -- 49 0.05 Eritrea 454 186 268 0.25 Ethiopia 3,744 819 2,925 2.74 Gambia, The 268 62 206 0.19 Georgia 742 214 528 0.49 Ghana 4,255 523 3,732 3.49 Grenada 27 8 19 0.02 Guinea 1,295 151 1,144 1.07 Guinea-Bissau 305 52 253 0.24 Guyana 234 27 207 0.19 Haiti 514 -- 514 0.48 Honduras 1,270 201 1,069 1.00 IDA Special Purpose Financial Statements: June 30, 2003 97 S U M M A R Y ST A T E M E N T O F D E V E L O P M E N TC R E D I T S ( c o n t i n u e d ) June 30, 2003 Expressed in millions of U.S. dollars Percentage of Total Undisbursed Development development development development credits credits Borrower or guarantor credits creditsa outstanding outstanding India $25,593 $3,950 $21,643 20.25% Indonesia 1,300 500 800 0.75 Jordan 51 -- 51 0.05 Kenya 2,909 363 2,546 2.38 Korea, Republic of 56 -- 56 0.05 Kyrgyz Republic 639 155 484 0.45 Lao People's Democratic Republic 659 142 517 0.48 Lesotho 266 37 229 0.21 Liberia 105 -- 105 0.10 Macedonia, former Yugoslav Republic of 365 37 328 0.31 Madagascar 2,279 470 1,809 1.69 Malawi 2,023 172 1,851 1.73 Maldives 63 11 52 0.05 Mali 1,496 289 1,207 1.13 Mauritania 755 170 585 0.55 Mauritius 12 -- 12 0.01 Moldova 232 73 159 0.15 Mongolia 318 126 192 0.18 Morocco 23 0 23 0.02 Mozambique 1,696 639 1,057 0.99 Myanmar 742 -- 742 0.69 Nepal 1,404 151 1,253 1.17 Nicaragua 1,129 231 898 0.84 Niger 1,022 110 912 0.85 Nigeria 1,657 948 709 0.66 Pakistan 6,002 397 5,605 5.24 Papua New Guinea 86 -- 86 0.08 Paraguay 24 -- 24 0.02 Philippines 211 -- 211 0.20 Rwanda 1,067 203 864 0.81 St. Kitts and Nevis 1 -- 1 * St. Lucia 32 10 22 0.02 St. Vincent and the Grenadines 16 5 11 0.01 Samoa 66 12 54 0.05 São Tomé and Principe 74 6 68 0.06 Senegal 2,241 558 1,683 1.57 Serbia and Montenegro 430 204 226 0.21 Sierra Leone 586 87 499 0.47 Solomon Islands 46 3 43 0.04 Somalia 416 -- 416 0.39 Sri Lanka 2,193 255 1,938 1.81 Sudan 1,222 -- 1,222 1.14 Swaziland 4 -- 4 * Syrian Arab Republic 26 -- 26 0.02 Tajikistan 328 120 208 0.19 98 The World Bank Annual Report 2003 Percentage of Total Undisbursed Development development development development credits credits Borrower or guarantor credits creditsa outstanding outstanding Tanzania $ 3,919 $ 772 $ 3,147 2.94% Thailand 81 -- 81 0.08 Togo 677 22 655 0.61 Tonga 11 5 6 0.01 Tunisia 34 -- 34 0.03 Turkey 86 -- 86 0.08 Uganda 3,569 696 2,873 2.69 Uzbekistan 48 48 -- -- Vanuatu 13 -- 13 0.01 Vietnam 4,193 2,074 2,119 1.98 Yemen, Republic of 2,005 539 1,466 1.37 Zambia 2,533 280 2,253 2.11 Zimbabwe 476 8 468 0.44 Subtotal members b 129,196 22,407 106,789 99.92 West African Development Bank c 59 4 55 0.06 Bank of the States of Central Africa d 16 16 -- -- Caribbean Development Bank e 26 -- 26 0.02 Subtotal regional development banks 101 20 81 0.08 African Trade Insurance Agency f 5 2 3 * Other g 4 -- 4 * Total--June 30, 2003 b $129,306 $22,429 $106,877 100.00% Total--June 30, 2002 $118,882 $22,510 $ 96,372 * Indicates amounts less than 0.005 per cent. NOTES a. Of the undisbursed balance at June 30, 2003, IDA has entered into irrevocable commitments to disburse $318 million ($174 million--June 30, 2002). b. May differ from the sum of individual figures shown due to rounding. c. These development credits are for the benefit of Benin, Burkina Faso, Côte d'Ivoire, Mali, Niger, Senegal and Togo. d. These development credits are for the benefit of Cameroon, Chad, Central African Republic, Republic of Congo, Gabon and Equatorial Guinea. e. These development credits are for the benefit of Grenada and territories of the United Kingdom (Associated States and Dependencies) in the Caribbean region. f. Represents development credit extended to the African Trade Insurance Agency (ATI) as implementing agency for the benefit of Burundi, Kenya, Malawi, Rwanda, Tanzania, Uganda and Zambia. g. Represents development credits made at a time when the authorities on Taiwan represented China in IDA (prior to May 15, 1980). The Notes to Special Purpose Financial Statements are an integral part of these Statements. IDA Special Purpose Financial Statements: June 30, 2003 99 S U M M A R Y ST A T E M E N T O F D E V E L O P M E N T C R E D I T S ( c o n t i n u e d ) June 30, 2003 Expressed in millions of U.S. dollars Maturity Structure of Development Credits Outstanding Period July 1, 2003 through June 30, 2004 $ 2,208 July 1, 2004 through June 30, 2005 2,011 July 1, 2005 through June 30, 2006 2,217 July 1, 2006 through June 30, 2007 2,422 July 1, 2007 through June 30, 2008 2,626 July 1, 2008 through June 30, 2013 16,903 July 1, 2013 through June 30, 2018 20,953 July 1, 2018 through June 30, 2023 22,743 July 1, 2023 through June 30, 2028 19,408 July 1, 2028 through June 30, 2033 11,246 July 1, 2033 through June 30, 2038 3,613 July 1, 2038 through June 30, 2043 527 Total $106,877 The Notes to Special Purpose Financial Statements are an integral part of these Statements. 100 The World Bank Annual Report 2003 S T A T E M E N T O F V O T I N GP O W E R A N D S U B S C R I P T I O N S A N D C O N T R I B U T I O N S June 30, 2003 Expressed in millions of U.S. dollars Subscriptions and Number of Percentage of contributions Member a votes total votes committed Part I Members Australia 180,540 1.31% $ 2,077.7 Austria 90,656 0.66 912.6 Belgium 158,185 1.15 1,791.4 Canada 408,597 2.97 5,269.7 Denmark 143,391 1.04 1,739.4 Finland 86,168 0.63 802.3 France 596,483 4.33 8,593.7 Germany 966,302 7.02 14,070.0 Greece 35,171 0.26 60.9 Iceland 33,116 0.24 29.8 Ireland 39,324 0.29 144.3 Italy 398,415 2.89 4,496.9 Japan 1,502,886 10.92 26,231.1 Kuwait 78,681 0.57 707.4 Luxembourg 33,117 0.24 67.5 Netherlands 305,971 2.22 4,502.4 New Zealand 41,152 0.30 154.3 Norway 143,447 1.04 1,642.7 Portugal 36,684 0.27 93.8 Russian Federation 39,082 0.28 202.6 South Africa 39,579 0.29 103.5 Spain 85,714 0.62 682.8 Sweden 273,599 1.99 3,256.7 Switzerland 147,924 1.07 1,869.0 United Arab Emirates 1,367 0.01 5.6 United Kingdom 688,291 5.00 9,604.2 United States 1,913,640 13.90 25,841.8 Subtotal Part I Members c 8,467,482 61.50 114,954.0 Part II Members Afghanistan 13,557 0.10 1.3 Albania 32,073 0.23 0.3 Algeria 27,720 0.20 5.1 Angola 48,362 0.35 7.9 Argentina 134,439 0.98 69.9 Armenia 2,717 0.02 0.5 Azerbaijan 3,803 0.03 0.9 Bangladesh 80,183 0.58 7.3 Barbados 29,714 0.22 0.6 Belize 4,553 0.03 0.3 Benin 13,166 0.10 0.7 Bhutan 19,583 0.14 0.1 Bolivia 39,768 0.29 1.4 Bosnia and Herzegovina 19,571 0.14 2.3 Botswana 26,854 0.20 1.6 Brazil 242,015 1.76 372.7 Burkina Faso 24,156 0.18 0.7 Burundi 25,706 0.19 1.0 IDA Special Purpose Financial Statements: June 30, 2003 101 S T A T E M E N T O F V O T I N G P O W E R A N D S UB S C R I P T I O N S A N D C O N T R I B U T I O N S ( c o n t i n u e d ) June 30, 2003 Expressed in millions of U.S. dollars Subscriptions and Number of Percentage of contributions Member a votes total votes committed Cambodia 13,705 0.10% $ 1.3 Cameroon 26,050 0.19 1.4 Cape Verde 4,916 0.04 0.1 Central African Republic 13,620 0.10 0.7 Chad 13,980 0.10 0.7 Chile 31,782 0.23 4.5 China 273,252 1.98 41.3 Colombia 53,080 0.39 24.4 Comoros 13,141 0.10 0.1 Congo, Democratic Republic of 17,041 0.12 3.8 Congo, Republic of 11,375 0.08 0.7 Costa Rica 12,480 0.09 0.3 Côte d'Ivoire 23,069 0.17 1.3 Croatia 40,374 0.29 5.6 Cyprus 37,001 0.27 1.1 Czech Republic 65,386 0.47 43.6 Djibouti 532 * 0.2 Dominica 16,749 0.12 0.1 Dominican Republic 27,780 0.20 0.6 Ecuador 35,989 0.26 0.9 Egypt, Arab Republic of 67,385 0.49 6.7 El Salvador 6,244 0.05 0.4 Equatorial Guinea 6,167 0.04 0.4 Eritrea 25,295 0.18 0.1 Ethiopia 26,044 0.19 0.7 Fiji 9,423 0.07 0.7 Gabon 2,093 0.02 0.6 Gambia, The 19,444 0.14 0.3 Georgia 28,859 0.21 0.9 Ghana 23,831 0.17 3.0 Grenada 20,627 0.15 0.1 Guatemala 33,667 0.24 0.5 Guinea 31,453 0.23 1.3 Guinea-Bissau 6,790 0.05 0.2 Guyana 24,083 0.17 1.0 Haiti 25,455 0.18 1.0 Honduras 27,109 0.20 0.4 Hungary 104,883 0.76 54.2 India 440,607 3.20 56.5 Indonesia 126,774 0.92 14.7 Iran, Islamic Republic of 15,455 0.11 5.7 Iraq 9,407 0.07 1.0 Israel 46,515 0.34 26.0 Jordan 24,865 0.18 0.4 Kazakhstan 806 0.01 1.9 Kenya 37,753 0.27 2.2 Kiribati 11,895 0.09 0.1 Korea, Republic of 76,922 0.56 438.6 Kyrgyz Republic 2,700 0.02 0.5 102 The World Bank Annual Report 2003 Subscriptions and Number of Percentage of contributions Member a votes total votes committed Lao People's Democratic Republic 19,957 0.15% $ 0.6 Latvia 3,659 0.03 0.7 Lebanon 8,562 0.06 0.6 Lesotho 28,677 0.21 0.2 Liberia 22,467 0.16 1.0 Libya 7,771 0.06 1.3 Macedonia, former Yugoslav Republic of 18,707 0.14 1.0 Madagascar 14,966 0.11 1.3 Malawi 31,515 0.23 1.0 Malaysia 53,427 0.39 3.6 Maldives 30,186 0.22 0.1 Mali 24,808 0.18 1.2 Marshall Islands 4,902 0.04 * Mauritania 18,275 0.13 0.7 Mauritius 37,993 0.28 1.2 Mexico 102,666 0.75 138.2 Micronesia, Federated States of 18,424 0.13 * Moldova 612 * 0.7 Mongolia 24,389 0.18 0.3 Morocco 62,932 0.46 5.0 Mozambique 15,855 0.12 1.7 Myanmar 48,827 0.35 3.0 Nepal 34,400 0.25 0.7 Nicaragua 29,845 0.22 0.4 Niger 19,302 0.14 0.7 Nigeria 17,782 0.13 4.3 Oman 26,927 0.20 1.3 Pakistan 116,830 0.85 13.5 Palau 504 * * Panama 7,550 0.05 * Papua New Guinea 15,750 0.11 1.1 Paraguay 16,958 0.12 0.4 Peru 20,428 0.15 2.2 Philippines 16,583 0.12 6.4 Poland 314,678 2.29 62.7 Rwanda 20,312 0.15 1.0 St. Kitts and Nevis 7,888 0.06 0.2 St. Lucia 27,231 0.20 0.2 St. Vincent and the Grenadines 4,883 0.04 0.1 Samoa 18,441 0.13 0.1 São Tomé and Principe 6,414 0.05 0.1 Saudi Arabia 488,093 3.55 2,208.2 Senegal 39,095 0.28 2.3 Serbia and Montenegro 29,374 0.21 6.9 Sierra Leone 17,551 0.13 1.0 Singapore 4,134 0.03 18.4 Slovak Republic 41,870 0.30 14.4 Slovenia 22,300 0.16 3.0 Solomon Islands 518 * 0.1 Somalia 10,506 0.08 1.0 Sri Lanka 56,067 0.41 4.0 IDA Special Purpose Financial Statements: June 30, 2003 103 S T A T E M E N T O F V O T I N G P O W E R A N D S U B S C R I P T I O N S A N D C O N T R I B U T I O N S ( c o n t i n u e d ) June 30, 2003 Expressed in millions of U.S. dollars Subscriptions and Number of Percentage of contributions Member a votes total votes committed Sudan 22,484 0.16% $ 1.3 Swaziland 15,630 0.11 0.4 Syrian Arab Republic 10,351 0.08 1.2 Tajikistan 20,568 0.15 0.5 Tanzania 45,557 0.33 2.2 Thailand 58,195 0.42 4.2 Timor-Leste 558 * 0.4 Togo 23,243 0.17 1.0 Tonga 16,813 0.12 0.1 Trinidad and Tobago 4,396 0.03 1.7 Tunisia 2,793 0.02 1.9 Turkey 94,605 0.69 127.5 Uganda 26,992 0.20 2.2 Uzbekistan 746 0.01 1.5 Vanuatu 13,821 0.10 0.3 Vietnam 15,454 0.11 1.9 Yemen, Republic of 40,727 0.30 2.1 Zambia 33,199 0.24 3.4 Zimbabwe 20,742 0.15 5.0 Subtotal Part II Members c 5,300,458 38.50 3,903.8 Total--June 30, 2003 b,c 13,767,940 100.00% $118,857.8 Total--June 30, 2002 b 13,248,130 $109,387.7 * Indicates amounts less than $0.05 million or less than 0.005 percent. NOTES a. See Notes to Special Purpose Financial Statements--Note A for an explanation of the two categories of membership. b. $512.3 million of Switzerland's subscription and contributions have not been included in the Statement of Sources and Applications of Development Resources at June 30, 2003 and June 30, 2002 since this represents the difference between the total cofinancing grants of $580.1 million provided by Switzerland directly to IDA borrowers as cofinancing grants between the fourth and the ninth replenishments of IDA resources, and the July 1992 contribution by Switzerland of $67.8 million. c. May differ from the sum of individual figures shown due to rounding. The Notes to Special Purpose Financial Statements are an integral part of these Statements. 104 The World Bank Annual Report 2003 N O T E S T O S P E C I A L P U R P O S E F I N A N C I A L S T A T E M E N T S NOTE A--ORGANIZATION, OPERATIONS AND The preparation of these special purpose financial SIGNIFICANT ACCOUNTING AND RELATED statements requires management to make estimates POLICIES and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent Purpose and Affiliated Organizations assets and liabilities at the date of the financial The International Development Association (IDA) is statements and the reported amounts of revenue and an international organization that was established on expenses during the reporting period. Actual results September 24, 1960. IDA's main goal is reducing could differ from these estimates. Significant poverty through promoting sustainable economic judgments have been used in the computation of development in the less developed areas of the world estimated fair values of development credits and included in IDA's membership, by extending allowances for the HIPC Debt Initiative. concessionary financing in the form of grants, development credits and guarantees. IDA has three Reclassifications affiliated organizations, the International Bank for Certain reclassifications of the prior years' Reconstruction and Development (IBRD), the information have been made to conform to the International Finance Corporation (IFC), and the current year's presentation. Multilateral Investment Guarantee Agency (MIGA). Basis of Accounting Each of these other organizations is legally and financially independent from IDA, with separate IDA's special purpose financial statements are assets and liabilities, and IDA is not liable for their prepared on the accrual basis of accounting. That is, respective obligations. Transactions with these the effects of transactions and other events are affiliates are disclosed in the notes that follow. The recognized when they occur (and not as cash or its principal purpose of IBRD is to promote sustainable equivalent is received or paid) and are recorded in the economic development and reduce poverty in its accounting records and reported in the financial member countries, primarily by providing loans, statements of the periods to which they relate. guarantees and related technical assistance for specific Translation of Currencies projects and for programs of economic reform in IDA's special purpose financial statements are developing member countries. IFC's purpose is to expressed in terms of U.S. dollars solely for the encourage the growth of productive private purpose of summarizing IDA's financial position and enterprises in its member countries through loans and the results of its operations for the convenience of its equity investments in such enterprises without a members and other interested parties. member's guarantee. MIGA was established to encourage the flow of investments for productive IDA is an international organization which conducts purposes between member countries and, in its operations in Special Drawing Rights (SDRs) and particular, to developing member countries by U.S. dollars. Applications of development resources providing guarantees against noncommercial risks for and sources of development resources are translated at foreign investment in its developing member market exchange rates in effect at the end of the countries. accounting period, except Member Subscriptions and Contributions which are translated in the manner Summary of Significant Accounting and Related described below. Income and expenses are translated Policies at either the market exchange rates in effect on the Due to the nature and organization of IDA, these dates of income and expense recognition, or at an financial statements have been prepared for the average of the exchange rates in effect during each specific purpose of reflecting the sources and month. Translation adjustments relating to the applications of member subscriptions and revaluation of development credits and development contributions and other development resources. grants denominated in SDRs are charged or credited These financial statements are not intended to be a to Accumulated Other Comprehensive Income. Other presentation in accordance with accounting principles translation adjustments are shown in the Statement of generally accepted in the United States of America or Income. with International Financial Reporting Standards. These special purpose financial statements have been Member Subscriptions and Contributions prepared to comply with Article VI, Section 11(a) of Recognition the Articles of Agreement of IDA, and are prepared in Member Subscriptions and Contributions committed accordance with the accounting policies outlined for each IDA replenishment are recorded in full as below. On July 31, 2003, the Executive Directors Subscriptions and Contributions Committed upon approved these financial statements for issue. effectiveness of the relevant replenishment. IDA Special Purpose Financial Statements: June 30, 2003 105 A replenishment becomes effective when IDA receives their initial subscriptions in freely convertible Instruments of Commitments from members for currencies, and the remaining 90 percent of their subscriptions and contributions of a specified portion initial subscriptions, and all additional subscriptions of the full replenishment. Amounts not yet paid in, at and contributions in their own currencies or in freely the date of effectiveness, are recorded as Subscriptions convertible currencies. Certain Part II members and Contributions Receivable and shown as a provide a portion of their subscriptions and reduction of Subscriptions and Contributions contributions in the same manner as mentioned in (1) Committed. These receivables come due throughout above. IDA's Articles of Agreement and subsequent the replenishment period (generally three years) in replenishment agreements provide that the currency accordance with an agreed maturity schedule. The of any Part II member paid in by it may not be used by actual payment of receivables when they become due IDA for projects financed by IDA and located outside from certain members is conditional upon the the territory of the member except by agreement respective member's budgetary appropriation between the member and IDA. The cash paid and processes. notes deposited in nonconvertible local currencies for the subscriptions of Part II members are recorded The Subscriptions and Contributions Receivable are either as currencies subject to restriction under Due settled through payment of cash or deposit of from Banks, or as restricted notes included under nonnegotiable, noninterest-bearing demand notes. Nonnegotiable, noninterest-bearing demand The notes are encashed by IDA as provided in the obligations on account of member subscriptions and relevant replenishment resolution over the contributions. Restricted notes at June 30, 2003 were disbursement period of the credits committed under $35 million ($33 million--June 30, 2002). the replenishment. Valuation In certain replenishments, donors have had the option of paying all of their subscription and contribution The subscriptions and contributions provided amounts in cash before they become due, and thereby through the Third Replenishment are expressed in receiving discounts. In addition, some replenishment terms of "U.S. dollars of the weight and fineness in arrangements have incorporated an accelerated effect on January 1, 1960" (1960 dollars). Following encashment schedule. In these cases, IDA and the the abolition of gold as a common denominator of the donor agree that IDA will invest the cash and retain monetary system and the repeal of the provision of the the income. The related subscription and contribution U.S. law defining the par value of the U.S. dollar in is recorded at the full undiscounted amount. The terms of gold, the pre-existing basis for translating discount is recorded as unamortized discounts on 1960 dollars into current dollars or any other currency contributions (a reduction of Subscriptions and disappeared. The Executive Directors of IDA decided, Contributions Committed) and amortized over the with effect from that date and until such time as the projected encashment period. relevant provisions of the Articles of Agreement are amended, that the words "U.S. dollars of the weight Under the provisions governing replenishments, IDA and fineness in effect on January 1, 1960" in Article II, must encash the notes or similar obligations of Section 2(b) of the Articles of Agreement of IDA are contributing members on an approximately pro rata interpreted to mean the SDR introduced by the basis. As discussed in the previous paragraph, donors International Monetary Fund as the SDR was valued sometimes contribute resources on an advanced or an in terms of U.S. dollars immediately before the accelerated basis. IDA holds these resources until they introduction of the basket method of valuing the SDR become available for disbursement on a pro rata basis. on July 1, 1974, such value being equal to $1.20635 for Transfers to IDA from IBRD are recorded under one SDR (the 1974 SDR), and have also decided to Sources of Development Resources and are receivable apply the same standard of value to amounts upon approval by IBRD's Board of Governors. expressed in 1960 dollars in the relevant resolutions of the Board of Governors. For the purposes of its financial resources, the membership of IDA is divided into two categories: (1) The subscriptions and contributions provided Part I members, which make payments of through the Third Replenishment are expressed on subscriptions and contributions provided to IDA in the basis of the 1974 SDR. Prior to the decision of the convertible currencies which may be freely used or Executive Directors, IDA had valued these exchanged by IDA in its operations and (2) Part II subscriptions and contributions on the basis of the members, which make payments of ten percent of SDR at the current market value of the SDR. 106 The World Bank Annual Report 2003 The subscriptions and contributions provided under Special Purpose Financial Statements at the full face the Fourth Replenishment and thereafter are amount of the borrowers' outstanding obligations. expressed in members' currencies or SDRs and are It is the practice of IDA to place in nonaccrual status payable in members' currencies. Beginning July 1, all development credits made to a member 1986, subscriptions and contributions made available government or to the government of a territory of a for disbursement in cash to IDA are translated at member if principal or charges with respect to any market exchange rates in effect on the dates they were such development credit are overdue by more than six made available. Prior to that date, subscriptions and months, unless IDA's management determines that contributions which had been disbursed or converted the overdue amount will be collected in the immediate into other currencies were translated at market future. In addition, if loans by IBRD to a member exchange rates in effect on dates of disbursement or government are placed in nonaccrual status, all conversion. Subscriptions and contributions not yet development credits to that member government will available for disbursements are translated at market also be placed in nonaccrual status by IDA. On the exchange rates in effect at the end of the accounting date a member's development credits are placed in period. nonaccrual status, charges that had been accrued on Article IV, Section 2(a) and (b) of IDA's Articles of development credits outstanding to the member Agreement provides for maintenance of value which remained unpaid are deducted from the payments on account of the local currency portion of income from development credits of the current the initial subscription whenever the par value of the period. Charges on nonaccruing development credits member's currency or its foreign exchange value has, are included in income only to the extent that in the opinion of IDA, depreciated or appreciated to a payments have actually been received by IDA. If significant extent within the member's territories, so collectibility risk is considered to be particularly high long as, and to the extent that, such currency shall not at the time of arrears clearance, the member's credits have been initially disbursed or exchanged for the may not automatically emerge from nonaccrual currency of another member. The provisions of status, even though the member's eligibility for new Article IV, Section 2(a) and (b) have by agreement credits may have been restored. A decision on the been extended to cover additional subscriptions and restoration of accrual status is made on a case-by-case contributions of IDA through the Third basis. Replenishment, but are not applicable to those of the In fulfilling its mission, IDA makes concessional loans Fourth and subsequent replenishments. to the poorest countries. Therefore, there is significant The Executive Directors decided on June 30, 1987 that credit risk in the portfolio of development credits. settlements of maintenance of value, which would Management continually monitors this credit risk. No result from the resolution of the valuation issue on the provision for credit losses, other than allowances for basis of the 1974 SDR, would be deferred until the the Heavily Indebted Poor Countries (HIPC) Debt Executive Directors decide to resume such Initiative, has been established. Should losses occur, settlements. These amounts are shown as Deferred they would be included in the Statement of Income. Amounts Receivable to Maintain Value of Currency The repayment obligations of IDA's development Holdings. credits funded from resources through the Fifth Development Credits Replenishment are expressed in the development All development credits are made to or guaranteed by credit agreements in terms of 1960 dollars. In June member governments or to the government of a 1987, the Executive Directors decided to value those territory of a member (except for development credits development credits at the rate of $1.20635 per 1960 which have been made to regional development dollar on a permanent basis. Development credits institutions for the benefit of members or territories funded from resources provided under the Sixth of members of IDA). In order to qualify for lending on Replenishment and thereafter are denominated in IDA terms, a country's per capita income must be SDRs; the principal amounts disbursed under such below a certain level and the country may have only development credits are to be repaid in currency limited or no creditworthiness for IBRD lending. amounts currently equivalent to the SDRs disbursed. Development credits carry a service charge of 0.75 Development Grants percent and generally have 35- or 40-year final The Twelfth Replenishment Resolution authorized the maturities and a 10-year grace period for principal use of Twelfth Replenishment donor funds to finance payments. Development credits are carried in the grants in the context of the HIPC Debt Initiative, or IDA Special Purpose Financial Statements: June 30, 2003 107 grant assistance to post-conflict countries under a at risk by unsustainable external debt burdens. As a framework approved by the Executive Directors on part of this process, the HIPC Debt Initiative Trust July 31, 2001. Fund was established on November 7, 1996. It is administered by IDA and constituted by funds of IDA is authorized to provide a significant portion of donors including the IBRD, to help beneficiaries financing under the Thirteenth Replenishment as reduce their overall debt, including IDA debt. development grants. The annual net income transfers from IBRD for fiscal years 1997 through 2002 also Under the Original Framework of the Initiative, authorized the use of such funds for IDA development eligible countries received relief on IBRD and IDA grants. debt through three mechanisms: (i) partial financing of lending operations with development grants; (ii) Development grants are charged to income when the purchase and cancellation of IDA credits by the IBRD/ development grant agreement is signed by the IDA component of the HIPC Debt Initiative Trust recipient. Fund subject to availability of funds; and (iii) the Guarantees provision of debt service on selected IDA credits, in IDA provides guarantees for loans or securities issued certain cases, by the HIPC Debt Initiative Trust Fund. in support of projects located within a member Under the Enhanced Framework of the Initiative, country that are undertaken by private entities. These which was approved by IDA's Executive Directors on financial guarantees are commitments issued by IDA January 27, 2000, implementation mechanisms also to guarantee payment performance by a borrower to a include: (i) partial forgiveness of IDA debt service as it third party. comes due, to be reimbursed to IDA by the IBRD/IDA Guarantees are regarded as outstanding when the component of the HIPC Debt Initiative Trust Fund; underlying financial obligation of the borrower is and (ii) in the case of countries with a substantial incurred, and called when a guaranteed party amount of outstanding IBRD debt, partial refinancing demands payment under the guarantee. IDA would be by IDA resources (excluding transfers from IBRD) of required to perform under its guarantees if the outstanding IBRD debt. payments guaranteed are not made by the borrower Upon approval of debt relief for a country under the and the guaranteed party called the guarantee by Enhanced HIPC Initiative by the Executive Directors demanding payment from IDA in accordance with the of IDA, the principal component of the estimated debt terms of the guarantee. relief costs is recorded as a reduction of the disbursed In the event that a guarantee is called, IDA has the and outstanding development credits under the contractual right to require payment from the Allowance for HIPC Debt Initiative, and as a charge to member country in whose territory the project is income. This estimate is subject to periodic revision. located, on demand, or as IDA may otherwise direct. The Allowance for HIPC Debt Initiative is reduced when debt relief is provided by IDA. For guarantees issued prior to January 1, 2003, the fee income received was deferred and amortized over the Upon signature by IDA of the country specific legal period of benefit. The unamortized balance of the notification, immediately following the decision by deferred guarantee fee income is included in Other the Executive Directors of IDA to provide debt relief to Resources, net on the Statement of Sources and the country (the decision point), a receivable from the Applications of Development Resources. For HIPC Debt Initiative Trust Fund is created (to the guarantees issued or modified after December 31, extent that funds are available) and income is 2002, in accordance with Financial Accounting recognized. The receivable is limited to the nominal Standards Board (FASB) Interpretation No. 45 (FIN value equivalent of one-third of the net present value 45), "Guarantor's Accounting and Disclosure of the principal component of the total debt relief Requirements for Guarantees, Including Indirect committed to the specific country. The receivable is Guarantees of Indebtedness to Others", IDA will also the maximum debt relief that can be provided record the fair value of the obligation to stand ready in before the country reaches its completion point as the financial statements. IDA has not issued or defined by IDA's Executive Directors, and the modified any guarantees after December 31, 2002. country's other creditors have confirmed their full participation in the debt relief initiative to the Heavily Indebted Poor Countries Debt Initiative satisfaction of IDA. The HIPC Debt Initiative was launched in 1996 as a joint effort by bilateral and multilateral creditors to An additional receivable from the HIPC Debt ensure that reform efforts of HIPCs would not be put Initiative Trust Fund is created and income is recognized when the country reaches its completion 108 The World Bank Annual Report 2003 point and the country's other creditors have Futures: Futures are contracts for delivery of securities confirmed their full participation in the debt relief or money market instruments in which the seller initiative to the satisfaction of IDA. This additional agrees to make delivery at a specified future date of a receivable represents the remaining principal specified instrument, at a specified price or yield. component of the total debt relief committed that was Futures contracts are traded on regulated United not recognized at the decision point. States and international exchanges. IDA generally closes out most open positions in futures contracts Cash and Liquid Investments prior to maturity. Therefore, cash receipts or IDA considers unrestricted cash as well as securities payments are mostly limited to the change in market held in the investment portfolio, as an element of value of the futures contracts. Futures contracts liquidity in the Statement of Cash Flows, since they generally entail daily settlement of the variation are readily convertible to known amounts of cash margin. within ninety days. Government and Agency Obligations: These IDA carries its investment securities and related obligations include marketable bonds, notes and other financial instruments at fair value, using trade date obligations issued by governments. Obligations issued accounting. The first-in-first-out (FIFO) method is or unconditionally guaranteed by governments of used to determine the cost of securities sold in countries require a minimum credit rating of AA if computing the realized gains and losses on these denominated in a currency other than the home instruments. Both realized and unrealized gains and currency of the issuer, otherwise no rating is required. losses are included in Income from investments. Obligations issued by an agency or instrumentality of Securities Purchased Under Resale Agreements and a government of a country, a multilateral organization Securities Sold Under Repurchase Agreements or any other official entity require a minimum credit Securities purchased under resale agreements and rating of AA. securities sold under repurchase agreements are Options: Options are contracts that allow the holder recorded at historical cost. IDA receives securities of the option the right, but not the obligation, to purchased under resale agreements, monitors the fair purchase or sell a financial instrument at a specified value of the securities and, if necessary, requires price within a specified period of time from or to the additional collateral. seller of the option. The purchaser of an option pays a Accounting and reporting developments premium at the outset to the seller of the option, who In January 2003, FASB issued Interpretation No. 46, then bears the risk of an unfavorable change in the "Consolidation of Variable Interest Entities". This price of the financial instrument underlying the interpretation did not have a material impact on IDA's option. IDA invests only in exchange-traded options. financial statements for the fiscal year ended June 30, The initial price of an option contract is equal to the 2003. There were no significant changes in the premium paid by the purchaser and is significantly relevant International Financial Reporting Standards less than the contract or notional amount. that would have an impact on IDA's financial Repurchase and Resale Agreements and Securities statements. Loans: Repurchase agreements are contracts under which a party sells securities and simultaneously NOTE B--INVESTMENTS agrees to repurchase the same securities at a specified As part of its portfolio management strategy, IDA future date at a fixed price. The reverse of this invests in the following financial instruments. transaction is called a resale agreement. A resale agreement involves the purchase of securities with a Asset-backed Securities: Asset-backed securities are simultaneous agreement to sell back the same instruments whose cash flow is based on the cash securities at a stated price on a stated date. Securities flows of a pool of underlying assets managed loans are contracts under which securities are lent for separately. IDA may only invest in asset-backed a specified period of time at a fixed price. securities with a AAA credit rating. Short Sales: Short sales are sales of securities not held Currency Swaps: Currency swaps are agreements in the seller's portfolio at the time of the sale. The between two parties to exchange cash flows seller must purchase the security at a later date and denominated in different currencies at one or more bears the risk that the market value of the security will certain times in the future. The cash flows are based move adversely between the time of the sale and the on a predetermined formula reflecting rates of interest time the security must be delivered. As of June 30, and an exchange of principal. IDA is authorized to 2003, IDA had $716 million ($120 million--June 30, enter into currency swaps including covered forwards. IDA Special Purpose Financial Statements: June 30, 2003 109 2002) of short sales included in Net payable on Time Deposits: Time deposits include certificates of investment securities transactions in the Statement of deposit, bankers' acceptances, and other obligations Sources and Applications of Development Resources. issued or unconditionally guaranteed by banks and other financial institutions. A summary of IDA's investments, by instrument, at June 30, 2003 and June 30, 2002 is as follows: In millions of U.S. dollars equivalent 2003 2002 Government and agency obligations $10,723 $ 9,598 Time deposits 6,487 1,812 Asset-backed securities 1,715 1,906 Futures and options 3 * Securities purchased under resale agreements 1,461 765 Repurchase agreements and securities loans (6,150) (2,017) Investment holdings excluding swaps 14,239 12,064 Receivable from currency swaps 192 212 Payable for currency swaps (189) (221) Investments-Trading $14,242 $12,055 A summary of the currency composition of investments at June 30, 2003 and June 30, 2002 is as follows: Investment holdings excluding swaps In millions of U.S. dollars equivalent 2003 2002 Average Average Carrying Average Yield Repricing Carrying Average Yield Repricing value (%) (years) value (%) (years) Euro $ 5,120 2.89 4.66 $ 4,663 4.52 5.81 Japanese yen -- -- -- 956 0.56 5.33 Pounds sterling 1,726 3.94 6.02 2,110 4.88 6.26 U.S. dollars 7,353 2.72 6.33 4,335 4.03 7.61 Other 40 1.34 5.47 -- -- -- Total $14,239 2.92 5.67 $12,064 4.10 6.45 Investment holdings including swaps In millions of U.S. dollars equivalent 2003 2002 Average Average Carrying Average Yield Repricing Carrying Average Yield Repricing value (%) (years) value (%) (years) Euro $ 5,006 2.91 4.77 $ 4,609 4.53 5.87 Japanese yen -- -- -- 789 0.67 6.50 Pounds sterling 1,725 3.94 6.02 2,110 4.88 6.26 U.S. dollars 7,544 2.69 6.15 4,547 3.93 7.21 Other (33) 2.90 0.08 -- -- -- Total $14,242 2.91 5.67 $12,055 4.12 6.45 110 The World Bank Annual Report 2003 The average repricing in the above currency under resale agreements. Of these instruments held by composition tables represents the remaining period to IDA, $179 million ($102 million--June 30, 2002) has the contractual repricing or maturity date, whichever been transferred under repurchase or security lending is earlier. It indicates the average length of time for agreements. None of these securities have been which interest rates are fixed. included in the assets of IDA. For the purpose of risk management, IDA is party to a At June 30, 2003, IDA maintained a line of credit variety of financial instruments, certain of which facility with an independent financial institution. This involve elements of credit risk in excess of the amount facility was created for the benefit of both IBRD and reflected in the Statement of Sources and Applications IDA. The available line of credit to each institution is of Development Resources. Credit risk exposure $500 million, but usage from both institutions cannot represents the maximum potential accounting loss exceed this amount in aggregate. The line of credit due to possible nonperformance by obligors and facility is being used to cover any overnight overdrafts counterparties under the terms of the contracts. IDA that may occur due to failed trades. As of June 30, limits trading to a list of authorized dealers and 2003, IDA had drawn down $1 million under this counterparties. Credit limits have been established for facility. At June 30, 2002, IDA maintained a $100 each counterparty by type of instrument and maturity million line of credit facility. No amounts had been category. drawn down under this facility as of June 30, 2002. In addition, IDA has entered into master derivatives NOTE C--MEMBER SUBSCRIPTIONS AND agreements which contain legally enforceable close- CONTRIBUTIONS out netting provisions. These agreements may further reduce the gross credit risk exposure related to the Subscriptions and Contributions Receivable: At June swaps shown below. Credit risk with financial assets 30, 2003, receivables from subscriptions and subject to a master derivatives agreement is further contributions were $5,887 million ($122 million-- reduced under these agreements to the extent that June 30, 2002) of which $77 million ($79 million-- payments and receipts with the counterparty are June 30, 2002) was due and $5,810 million ($43 netted at settlement. The reduction in exposure as a million--June 30, 2002) was not yet due. result of these netting provisions can vary as Subscriptions and contributions due at June 30, 2003 additional transactions are entered into under these were as follows: agreements. The extent of the reduction in exposure may therefore change substantially within a short period of time following the balance sheet date. In millions of U.S. dollars equivalent Amounts initially due from The credit risk exposure and contract value, as applicable, of these financial instruments at June 30, July 1, 2002 through June 30, 2003 $76 2003 and June 30, 2002 (prior to taking into account any master derivatives agreements or collateral June 30, 2002 and earlier 1 arrangements that have been made) are given below: Total $77 In millions of U.S. dollars equivalent 2003 2002 Subscriptions and contributions not yet due at June Futures and options 30, 2003 will become due as follows: · Long position $1,193 $721 · Short position 405 -- · Credit exposure due to In millions of U.S. dollars equivalent potential nonperformance Period by counterparties -- * Currency swaps · Credit exposure due to July 1, 2003 through June 30, 2004 $2,869 potential nonperformance July 1, 2004 through June 30, 2005 2,812 by counterparties 3 -- Thereafter 129 * Less than $0.5 million. Total $5,810 As of June 30, 2003, IDA had received $1,533 million ($776 million--June 30, 2002) of securities purchased IDA Special Purpose Financial Statements: June 30, 2003 111 Thirteenth Replenishment: On September 29, 2002, At June 30, 2003, $1,293 million was receivable from IDA's Board of Governors adopted a resolution IBRD ($1,243 million--June 30, 2002). Of this authorizing the Thirteenth Replenishment of IDA's amount, $368 million will be paid after all other resources. Under the Thirteenth Replenishment, IDA resources available to IDA for the purpose of the is authorized to provide concessional financing of Eleventh Replenishment have been drawn down. The about SDR 18 billion ($24 billion equivalent at remaining $925 million of the receivable amount will authorization), including a significant portion as be paid in fiscal year 2005 at the end of the defined grants, during the period July 1, 2002 to June 30, 2005. encashment schedule for donor contributions to IDA's Of this amount, new donor contributions are Twelfth Replenishment expected to total about SDR 10 billion ($13 billion equivalent at authorization). The Thirteenth NOTE E--DEVELOPMENT CREDITS Replenishment became effective on April 8, 2003 after Currency Composition IDA had received commitments for subscriptions and contributions of SDR 5,984 million. The currency composition of IDA's development credits outstanding at June 30, 2003 and June 30, 2002 Membership: Timor-Leste (formerly East Timor) and is as follows: Singapore became Part II members of IDA on July 23, 2002 and September 27, 2002 respectively. On July 15, In millions of U.S. dollars equivalent 2002, the membership status for Greece changed from 2003 2002 Part II to Part I. USD $ 13,067 $13,694 SDR 93,810 82,678 NOTE D--TRANSFERS AND RECEIVABLES Development credits outstanding $106,877 $96,372 FROM IBRD IBRD's Board of Governors has approved aggregate transfers to IDA totaling $7,357 million through June Overdue Amounts 30, 2003 ($7,057 million--June 30, 2002). The aggregate transfers of $7,392 million reported in the At June 30, 2003, in addition to the development Statement of Sources and Applications of credits referred to in the following table, there were Development Resources differs from the amount of principal and charges of less than $1 million payable aggregate transfers approved due to exchange rate to IDA, which were overdue by more than three movements. months. Of the aggregate transfers, $300 million was approved The following table provides a summary of selected by the IBRD Board of Governors in September 2002. financial information related to development credits This approved transfer was paid on September 30, in nonaccrual status as of June 30: 2002. In millions of U.S. dollars 2003 2002 2001 Aggregate recorded investment in nonaccrual credits $4,763 $5,759 $5,887 Overdue amounts: Principal 394 443 340 Charges 203 251 207 $ 597 $ 694 $ 547 Increase in service charge income due to income from prior years being recognized as a result of countries coming out of nonaccrual status $ 91 $ 9 $ -- Service charge income foregone as a result of credits being in nonaccrual status $ 31 $ 43 $ 34 112 The World Bank Annual Report 2003 A summary of borrowers with development credits or guarantees in nonaccrual status follows: In millions of U.S. dollars equivalent June 30, 2003 Principal and Principal Charges Nonaccrual Borrower Outstanding Overdue Since With overdues Central African Republic $ 415 $ 18 June 2002 Haiti 514 28 September 2001 Liberia 105 33 April 1988 Myanmar 742 112 September 1998 Somalia 416 103 July 1991 Sudan 1,222 256 January 1994 Togo 655 27 May 2002 Zimbabwe 468 20 October 2000 Total 4,537 597 Without overdues Serbia and Montenegro 226 -- September 1992 Total $4,763 $597 In July 2002, the Syrian Arab Republic and the recognized in previous fiscal years had these credits Democratic Republic of Congo cleared all of their not been in nonaccrual status. The arrears clearance overdue payments to IDA and IBRD. Subsequently, all for Afghanistan was accomplished using donor funds development credits to, or guaranteed by, these two provided through the Afghanistan Debt Clearance countries were restored to accrual status. Income from Trust Fund. development credits for the fiscal year ended June 30, As of June 30, 2002, all IDA credits and IBRD loans 2003 increased by $85 million, representing income outstanding to Bosnia and Herzegovina were restored that would have been accrued in previous fiscal years to accrual status following management's had these credits not been in nonaccrual status. determination that a suitable period of payment The arrears clearance of the overdue payments to IDA performance had passed subsequent to the time of and IBRD for the Democratic Republic of Congo was arrears clearance. During the fiscal year ended June accomplished using bridge financing provided by an 30, 2002, income from development credits increased international financial institution, and supported by by $1 million, representing income that would have certain member countries. On the same day, IDA been accrued in previous fiscal years had these disbursed a development credit to the Democratic development credits not been in nonaccrual status. Republic of Congo in support of an economic and During the fiscal year ended June 30, 2002, Côte poverty reduction program. A part of the proceeds of d'Ivoire and the Republic of Congo cleared all of their this development credit was used to repay the bridge overdue service payments to IDA and IBRD, and all financing. The development credit was funded by IDA IDA development credits to, or guaranteed by, these resources other than transfers from IBRD. two countries were restored to accrual status. These In February 2003, the Solomon Islands and arrears clearances were accomplished using bridge Afghanistan cleared all of their overdue service financing provided by an international financial payments to IDA, and all development credits to, or institution. On the same day that arrears were cleared, guaranteed by, these two countries were restored to IDA extended development credits to the respective accrual status. Income from development credits for country in support of economic reform and poverty the fiscal year ended June 30, 2003 increased by $6 reduction programs. Some or all of the proceeds of million, representing income that would have been these development credits were used to repay the IDA Special Purpose Financial Statements: June 30, 2003 113 bridge financing. The development credits were not have had an IBRD loan approved within the last funded by IDA resources other than transfers from twelve months. To receive a supplemental IBRD. As a result of these events, income for the fiscal development credit from the program, a member year ended June 30, 2002 increased by $8 million, country cannot be more than 60 days overdue on its representing income that would have been accrued in debt-service payments to IBRD or IDA. previous fiscal years had these development credits A summary of cumulative IDA credits committed and not been in nonaccrual status. disbursed under this program from inception, at June Allowance for HIPC Debt Initiative 30, 2003 and June 30, 2002 is given below: Development credits outstanding are presented in the Statement of Sources and Applications of In millions of U.S. dollars equivalent Development Resources before any allowance in 2003 2002 connection with the HIPC Debt Initiative (see Note I). Commitments $1,711 $1,706 The allowance for HIPC Debt Initiative is the sum of Less undisbursed 12 16 the principal component of debt relief remaining to be provided to those countries that have reached their Disbursed and decision points, and in certain cases their completion Outstanding $1,699 $1,690 points, and the estimated principal component of debt relief that is expected to be provided to other eligible countries. Guarantees Changes to the allowance for HIPC Debt Initiative for Guarantees of $119 million at June 30, 2003 the fiscal years ended June 30, 2003 and June 30, 2002 ($86 million - June 30, 2002) were not included in are summarized below: IDA's Statement of Sources and Applications of Development Resources. These outstanding amounts In millions of U.S. dollars equivalent represent the maximum potential undiscounted future payments that IDA could be required to make 2003 2002 under these guarantees. Balance, beginning of the fiscal year $10,270 $ 8,579 The three existing guarantees issued by IDA expire in Allowance for principal component of debt relief 393 1,883 2011, 2015 and 2019. Principal component of debt relief delivered (268) (192) Segment Reporting Based on an evaluation of its operations, management Balance, end of the fiscal year $10,395 $10,270 has determined that IDA has only one reportable segment since IDA does not manage its operations by allocating its resources based on the contribution to net income from individual borrowers. In addition, the risk and return profiles are sufficiently similar Fifth Dimension Program among its borrowers so that IDA does not differentiate Under the Fifth Dimension program established in in terms of the nature of products or services September 1988, a portion of principal repayments to provided, the preparation process, or the method of IDA is allocated on an annual basis to provide providing services to its borrowers. supplementary IDA development credits to IDA- For the year ended June 30, 2003, development credits eligible countries that are no longer able to borrow on to two countries generated in excess of ten percent of IBRD terms, but have outstanding IBRD loans total income from these credits. Income from approved prior to September 1988 and have in place development credits for these two countries was $157 an IDA-supported structural adjustment program. million and $96 million, respectively. Such supplementary IDA development credits are allocated to countries that meet specified conditions NOTE F--FAIR VALUE OF FINANCIAL in proportion to each country's interest payments due INSTRUMENTS that year on its pre-September 1988 IBRD loans. To be eligible for such IDA supplemental credits, a member Investments: IDA carries its investments at the fair country must meet IDA's eligibility criteria for value of the portfolio. These fair values are based on lending, must be ineligible for IBRD lending and must quoted market prices, where available. If quoted 114 The World Bank Annual Report 2003 market prices are not available, fair values are based Since IDA's development credits are denominated on quoted market prices of comparable instruments. either in U.S. dollars or SDRs, currency specific rates The fair value of short-term financial instruments have been used to discount the corresponding future approximates their carrying value. cash flows for each currency component of the development credits before being aggregated to Development Credits: IDA's development credits have provide the composite results. a significant grant element because of the concessional nature of IDA's terms. Discounting the future cash The grant element calculations consider interest rates, flows from IDA's development credits using maturity structures and grace periods for the credits. government reference rates represented by interest They do not consider credit risk, portfolio seasoning, rates of government securities having similar maturity multilateral and sovereign credit preferences and to the portfolio of development credits, provides an other risks or indicators that would be relevant in estimate for the grant element. Under the HIPC Debt calculating fair value. Estimating the impact of these Initiative, development credits identified for sale to factors is not practicable. the HIPC Debt Initiative Trust Fund are written down However, under either alternative, the estimated fair to their estimated net present value using currency values of development credits outstanding are specific Commercial Interest Reference Rates (CIRRs) substantially lower than the $106,877 million reflected published monthly by the Organization for Economic on the Statement of Sources and Applications of Cooperation and Development (OECD). Using the six Development Resources at June 30, 2003 ($96,372 months average CIRR as a discount rate provides an million--June 30, 2002), as shown in the following alternative estimate for the grant element. table. In millions of U.S. dollars equivalent June 30, 2003 June 30, 2002 Government Government reference reference rate- rate-based CIRR-based based CIRR-based fair value fair value fair value fair value Development credits outstanding $106,877 $106,877 $96,372 $96,372 Less grant equivalent 34,940 40,244 39,382 44,513 Estimated value of development credits outstanding $ 71,937 $ 66,633 $56,990 $51,859 Estimated grant element 33% 38% 41% 46% Discount Rates Used Discount Rates Used Government reference rates - US dollar 3.58% 4.86% - SDRa 3.66% 4.63% CIRRs: Average of six months to June 30 - U.S. dollar 4.43% 5.90% - SDR 4.25% 5.39% a. Implies weighted average government reference rates of the component currencies contained in the SDR. Discounting the future cash flows from IDA's NOTE G--ADMINISTRATIVE EXPENSES development credits using the standard 10 percent The following table shows IDA's allocated share of the discount rate of the Development Assistance administrative expenses shared jointly by IBRD and Committee (DAC) of the OECD, provides another IDA as well as IDA's share of income from pension alternative for the grant element. The estimated grant and post retirement benefit plans: element based on this standard DAC rate for IDA's development credits is 66 percent as of June 30, 2003 (66 percent--June 30, 2002). IDA Special Purpose Financial Statements: June 30, 2003 115 In millions of U.S. dollars 2003 2002 2001 IDA's allocated share of administrative expenses incurred jointly by IBRD and IDA $846 $654 $551 Less IDA's share of income from pension plan and other postretirement benefits plans -- 86 120 Total $846 $568 $431 The allocation of expenses is based upon an agreed projects, debt reduction operations for IDA members, cost sharing formula that reflects the administrative technical assistance for borrowers including feasibility costs of service delivery to countries that are eligible studies and project preparation, global and regional for lending from IBRD and IDA. programs and research and training programs. These funds are placed in trust with IDA and/or IBRD, and NOTE H--TRUST FUNDS ADMINISTRATION are held in a separate investment portfolio which is not comingled with IDA and/or IBRD funds, nor are IDA, alone or jointly with IBRD, administers on they included in the development resources of IDA. behalf of donors, including members, their agencies and other entities, funds restricted for specific uses At June 30, 2003 and June 30, 2002, the allocation of which include the cofinancing of IDA lending trust fund assets by executing agent were as follows: 2003 2002 Number of Number of Total fiduciary trust fund Total fiduciary trust fund assets accounts assets accounts (In millions) (Unaudited) (In millions) (Unaudited) IDA executed $2,147 1,538 $1,464 1,270 Recipient executed 2,880 859 2,051 904 Total $5,027 2,397 $3,515 2,174 The responsibilities of IDA under these arrangements HIPC Grants vary and range from services normally provided As of June 30, 2003, HIPC grants of $101 million have under its own lending projects to full project been disbursed. The HIPC Debt Initiative Trust Fund implementation including procurement of goods and has reimbursed $19 million of the disbursed grants. services. IDA receives fees for administering trust funds as a reduction of the administrative expenses Receivable from the HIPC Debt Initiative Trust Fund charged by IBRD. During the fiscal year ended June A summary of changes to the receivable from the 30, 2003, IDA received $17 million ($10 million-- HIPC Debt Initiative Trust Fund is presented below: June 30, 2002, $11 million--June 30, 2001) as fees for administering trust funds. In millions of U.S. dollars 2003 2002 NOTE I--IMPACT FROM HEAVILY INDEBTED POOR COUNTRIES DEBT INITIATIVE Balance, beginning of the fiscal year $ 559 $ 647 Contribution from the HIPC Debt Debt Service Relief Initiative Trust Fund 207 108 Reimbursement received for principal As of June 30, 2003, total debt service relief of $711 repayments forgiven (268) (192) million has been provided by IDA consisting of $576 Reimbursement received for HIPC grants million in principal repayments and $135 million in disbursed -- (4) service charges. These amounts have been reimbursed Balance, end of the fiscal year $ 498 $ 559 by the HIPC Debt Initiative Trust Fund. 116 The World Bank Annual Report 2003 A summary of the debt relief provided under the NOTE K--COMPREHENSIVE INCOME HIPC Debt Initiative is included in the Supplementary Comprehensive income consists of net income and Information appended to these financial statements. other gains and losses affecting sources of development resources that, under generally accepted NOTE J--DEVELOPMENT GRANTS accounting principles, are excluded from net income. A summary of changes to the amounts payable for For IDA, comprehensive income comprises income or development grants is presented below: loss after HIPC Debt Initiative and currency translation adjustments on development credits and In millions of U.S. dollars development grants. These items are presented in the 2003 2002 Statement of Comprehensive Income. The total accumulated other comprehensive income represents Balance, beginning of the fiscal year $ 148 $ -- the cumulative translation adjustment on Commitments charged to expense 1,016 154 development credits and development grants. The Disbursements (121) (11) Translation adjustment 20 5 following table presents the changes in Accumulated Other Comprehensive Income balances for the years Balance, end of the period $1,063 $148 ended June 30, 2003, 2002 and 2001: In millions of U.S. dollars equivalent At June 30, 2003, $252 million ($nil million - June 30, Accumulated Other Comprehensive Income 2002) of development grants had been approved by 2003 2002 2001 IDA's Executive Directors but had not been charged to expense pending the signing of agreements with Balance, beginning of the recipients. fiscal year $ (514) $(4,968) $ (738) Changes from period activity 5,222 4,454 (4,230) Balance, end of the fiscal year $4,708 $ (514) $(4,968) IDA Special Purpose Financial Statements: June 30, 2003 117 S U P P L E M E N T A R Y I N F O R M A T I O N O N T H E H E A V I L Y I N D E B T E D P O O R C O U N T R I E S D E B T I N I T I A T I V E The summary table below shows debt relief for countries The debt relief shown under the HIPC Trust Fund in the that have reached their decision or completion points as table below relates only to the IBRD/IDA component, and of June 30, 2003, and estimated amounts to be provided includes amounts approved up to June 30, 2003 by the to other eligible countries (with the exception of those Executive Directors of IDA. countries for which cost estimates are not currently As of June 30, 2003, the 26 countries that have reached available), under the Heavily Indebted Poor Countries their decision or completion points are Benin, Bolivia, (HIPC) Debt Initiative. In addition to the total debt relief Burkina Faso, Cameroon, Chad, Ethiopia, The Gambia, of $13,212 million, IDA is expected to extend new credits Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, estimated at $232 million to certain IDA-eligible Madagascar, Malawi, Mali, Mauritania, Mozambique, countries no longer able to borrow on IBRD terms, but Nicaragua, Niger, Rwanda, São Tomé and Principe, with outstanding IBRD debt. These credits will be funded Senegal, Sierra Leone, Tanzania, Uganda, and Zambia. by IDA resources other than transfers from IBRD. In millions of U.S. dollars equivalent HIPC IDA Trust Fund Total Countries that have reached their decision or completion points Provided to date Principal $ 576 $ -- $ 576 Service charges 135 7 142 Grants 101 -- 101 Write down of development credits 572 571 1,143 Development grants 229 -- 229 Debt service -- 120 120 Total debt relief provided to date 1,613 698 2,311 Remainder to be provided Principal 8,277 -- 8,277 Service charges 261 -- 261 Debt service -- 1 1 Total debt relief to be provided 8,538 1 8,539 Other eligible countries that have not reached their decision points Estimated amount to be provided Principal 2,118 -- 2,118 Service charges 244 -- 244 Total estimated debt relief to other eligible countries 2,362 -- 2,362 Total Debt Relief $12,513 $699 $13,212 118 The World Bank Annual Report 2003 Reconciliation to IDA's Financial Statements Reconciliation of the principal component of HIPC debt relief as reported in the Supplementary Information on the HIPC Debt Initiative to IDA's financial statements at June 30, 2003 is as follows: In millions of U.S. dollars equivalent June 30, 2003 "Principal" component under "Remainder to be provided" as shown below "Countries that have reached their decision or completion points" $ 8,277 "Principal" component under "Estimated amount to be provided" as shown below "Other eligible countries that have not reached their decision points" 2,118 Allowance for HIPC Debt Initiative (IDA's Statement of Sources and Application of Development Resources) 10,395 "Principal" component under "Provided to date" as shown below "Countries that have reached their decision or completion points" 576 "Allowance for principal component of debt relief" -- Balance at the end of the fiscal year (IDA's Statement of Changes in Retained Earnings) $10,971 Contributions from the HIPC Debt Initiative Trust Fund An analysis of the different components of contribution for HIPC from the HIPC Debt Initiative Trust Fund is as follows: In millions of U.S. dollars equivalent June 30, 2003 Reimbursement of the principal component of debt relief by the HIPC Debt Initiative Trust Fund $ 576 Reimbursement of grants by HIPC Debt Initiative Trust Fund to IDA 19 Receivable from HIPC Debt Initiative Trust Fund (IDA's Statement of Sources and Application of Development Resources) 498 Contribution from the HIPC Debt Initiative Trust Fund (IDA's Statement of Changes in Retained Earnings) $1,093 IDA Special Purpose Financial Statements: June 30, 2003 119 IBRD/IDA Appendixes Appendix 1: World Bank Expenditures, by Program, Fiscal 1999­2003 123 Appendix 2: Country Eligibility for Borrowing from the World Bank 124 Note to Appendixes 3­7 126 Appendix 3A: IBRD and IDA Disbursements for Foreign and Local Expenditures 127 Appendix 3B: IBRD and IDA Disbursements for Foreign Expenditures, by Source of Supply 128 Appendix 3C: IBRD and IDA Payments to Supplying Eligible Borrowing Countries for Local and Foreign Procurement in Fiscal 2003 129 Appendix 4: IBRD and IDA Payments to Supplying Countries for Foreign Procurement 132 Appendix 5: IBRD and IDA Payments to Supplying Countries for Foreign Procurement, by Description of Goods, Fiscal 2003 135 Appendix 6: IBRD and IDA Disbursements for Foreign Expenditures, by Description of Goods (for Investment Lending), Fiscal 2001­03 138 Appendix 7: Estimates of IBRD and IDA Payments to Supplying Countries for Foreign Procurement under Adjustment Lending, Fiscal 2003 139 Appendix 8: IBRD and IDA Cumulative Lending since Fiscal 1990 by Sector and Theme and by Region, June 30, 2003 141 Appendix 9: IBRD and IDA Cumulative Lending by Country, June 30, 2003 143 Appendix 10: Projects Approved for IBRD and IDA Assistance in Fiscal 2003, by Region, July 1, 2002­June 30, 2003 147 Appendix 11: Projects Approved for IBRD and IDA Assistance in Fiscal 2003, by Network, July 1, 2002­June 30, 2003 149 Appendix 12: Cumulative IDA Subscriptions and Contributions through June 30, 2003 153 Appendix 13: Development Committee Communiqués, Fiscal 2003 154 Note: Information formerly presented in IBRD/IDA appendixes covering Governors and Alternates of the World Bank, Executive Directors and Alternates of the World Bank and their Voting Power, Officers of the World Bank, Offices of the World Bank, and Country Eligibility for Borrowing from the World Bank (also included above) is now included in The World Bank Annual Report: Volume 1, Year in Review. 121 Appendix 1: World Bank Expenditures, by Program, Fiscal 1999­2003 (amounts in millions of U.S. dollars) Actual Program FY1999 FY2000 FY2001 FY2002a FY2003a Regional 739.5 778.7 707.8 774.6 815.6 Networks 107.3 124.1 119.3 146.8 159.3 Other Operational Programs 12.7 18.5 23.3 23.7 30.5 Development Economics and World Bank Institute 96.9 87.4 93.2 97.4 109.5 Financial 81.0 83.0 92.0 95.0 102.3 Administrative 150.9 159.8 155.1 164.5 183.4 Corporate Management and Services 105.2 102.5 111.1 118.2 128.1 Overheads, Benefits, & Contingencies 29.1 18.6 28.6 (13.2) (17.8) Administrative Budget 1,322.6 1,372.6 1,330.2 1,407.0 1,510.9 Less: Reimbursements & Fee Income (115.1) (117.8) (144.7) (154.8) (177.5) Net Administrative Budget 1,207.4 1,254.8 1,185.5 1,252.2 1,333.3 Staff Retirement Accountb 5.7 8.2 13.8 20.7 63.1 Development Grant Facility 129.4 126.1 147.4 176.1 156.2 Corporate Secretariat 58.1 61.8 64.9 63.2 72.8 Operations Evaluation 16.8 18.5 19.2 19.8 20.3 Less: Reimbursements & Fee Income (1.3) (1.5) (1.2) (0.1) (0.9) Total Administrative Budget 1,416.2 1,467.9 1,429.6 1,531.8 1,644.8 Note: Amounts may not add to totals due to rounding. a. Reflects Budget Reform. b. Includes Staff Retirement Plan (SRP), Supplemental SRP, and Retired Staff Benefit Plan Contributions. World Bank Expenditures, by Program, Fiscal 1999­2003 123 Appendix 2: Country Eligibility for Borrowing from the World Bank (as of July 1, 2003) Income group 2002 GNI Income group 2002 GNI and country per capitaa and country per capita Countries eligible for IBRD funds only Per capita income over $5,115 Marshall Islands 2,350 Korea, Republic of 9,930 Dominican Republic 2,320 Slovenia 9,810 Fiji 2,160 Antigua and Barbuda 9,390 Micronesia, Fed. Sts. of 2,150 Palau 7,140 Russian Federation 2,140 Trinidad and Tobago 6,490 El Salvador 2,080 St. Kitts and Nevis 6,370 Peru 2,050 Mexico 5,910 Tunisia 2,000 Czech Republic 5,560 Thailand 1,980 Hungary 5,280 Suriname 1,960 Seychellesd NA Namibia 1,900 Romania 1,850 Per capita income $2,936­$5,115 Colombia 1,830 Croatia 4,640 Bulgaria 1,790 Poland 4,570 Jordan 1,760 Uruguay 4,370 Guatemala 1,750 Chile 4,260 Algeria 1,720 Estonia 4,140 Iran, Islamic Republic of 1,710 Costa Rica 4,100 Macedonia, FYR of 1,700 Venezuela, RB de 4,090 Kazakhstan 1,510 Argentina 4,060 Egypt, Arab Republic of 1,470 Panama 4,020 Ecuador 1,450 Lebanon 3,990 Slovak Republic 3,950 Per capita income $735­$1,415 Mauritius 3,850 Belarus 1,360 Lithuania 3,660 Turkmenistan 1,200 Malaysia 3,540 Morocco 1,190 Latvia 3,480 Swaziland 1,180 Gabon 3,120 Paraguay 1,170 Botswana 2,980 Syrian Arab Republic 1,130 Belize 2,960 Philippines 1,020 China 940 Per capita income $1,416­$2,935 Ukraine 770 Brazil 2,850 Iraqd NA Jamaica 2,820 South Africa 2,600 Per capita income less than $735 Turkey 2,500 Equatorial Guinea NA Countries eligible for a blend of IBRD and IDA fundsb Per capita income $2,936­$5,115 Per capita income less than $735 St. Luciac 3,840 Azerbaijan 710 Grenadac 3,500 Indonesia 710 Dominicac 3,180 Papua New Guinea 530 India 480 Per capita income $1,416­$2,935 Uzbekistan 460 St. Vincent and the Grenadinesc 2,820 Pakistan 410 Nigeria 290 Per capita income $735­$1,415 Zimbabwed NA Serbia and Montenegrod 1,400 Bosnia and Herzegovina 1,270 Bolivia 900 124 The World Bank Annual Report 2003 Income group 2002 GNI Income group 2002 GNI and country per capita and country per capita Countries eligible for IDA funds onlyb Per capita income $1,416­$2,935 Kenya 360 Maldivesc 2,090 Sudand 350 Samoac 1,420 Mauritania 340 Zambia 330 Per capita income $735­$1,415 Lao PDR 310 Tongac 1,410 Kyrgyz Republic 290 Albania 1,380 São Tomé and Principe 290 Cape Verdec 1,290 Gambia, The 280 Vanuatuc 1,080 Cambodia 280 Honduras 920 Tanzania 280 Djibouti 900 Ghana 270 Guyana 840 Togod 270 Sri Lanka 840 Central African Republicd 260 Kiribatic 810 Madagascar 240 Armenia 790 Mali 240 Uganda 240 Per capita income less than $735 Nepal 230 Georgia 720 Rwanda 230 Congo, Republic of 700 Burkina Faso 220 Angola 660 Chad 220 Côte d'Ivoire 610 Mozambique 210 Bhutan 590 Tajikistan 180 Solomon Islands 570 Niger 170 Cameroon 560 Eritrea 160 Yemen, Republic of 490 Malawi 160 Lesotho 470 Guinea-Bissau 150 Senegal 470 Liberiad 150 Moldova 460 Sierra Leone 140 Haitid 440 Burundi 100 Mongolia 440 Ethiopia 100 Vietnam 430 Congo, Dem. Republic of 90 Timor-Leste 430 Afghanistan NA Guinea 410 Myanmard NA Comoros 390 Nicaragua NA Benin 380 Somaliad NA Bangladesh 360 NA Precise figures are not available. a. World Bank Atlas methodology; per capita GNI (gross national income, formerly GNP) figures are in 2002 U.S. dollars. b. Countries are eligible for IDA on the basis of (a) relative poverty and (b) lack of creditworthiness. The operational cutoff for IDA eligibility for FY04 is a 2002 GNI per capita of US$865, using Atlas methodology. To receive IDA resources, countries must also meet tests of performance. In exceptional circumstances, IDA extends eligibility temporarily to countries that are above the operational cutoff and are undertaking major adjust- ment efforts but are not creditworthy for IBRD lending. An exception has been made for small island economies (see footnote c). c. An exception to the GNI per capita operational cutoff for IDA eligibility ($865 for FY04) has been made for some small island economies, which otherwise would have little or no access to Bank Group assistance because they lack creditworthiness. For such countries, IDA funding is considered case by case for the financing of projects and adjustment programs designed to strengthen creditworthiness. d. Loans/credits in nonaccrual status as of June 30, 2003. Country Eligibility for Borrowing from the World Bank 125 Note to Appendixes 3­7 Disbursements and Procurement The procurement rules and procedures to be countries in fiscal 2003 and cumulatively through followed in the execution of each project depend fiscal 2003. on individual circumstances. Four considerations generally guide the Bank's requirements: Appendix 5 shows the proportion of foreign dis- bursements from the IBRD and IDA for specific economy and efficiency in the execution categories of goods and services provided by selected of a project; member countries in fiscal 2003. opportunity for all eligible bidders from borrowing and nonborrowing member Appendix 6 provides a summary listing of the countries to compete in providing goods, amounts paid to eligible World Bank borrowing works, and services financed by the Bank; country suppliers and nonborrowing country suppli- development of local contractors, manufacturers, ers in each fiscal year from 2001 to 2003 under and consulting services in borrowing countries; investment projects. Amounts disbursed are com- and pared with respect to significant categories of goods transparency in the procurement process. procured from foreign suppliers. The extent to which eligible borrowing countries and nonborrow- Appendix 3A shows consolidated foreign and local ing countries participated in supplying these major disbursements for the IBRD and IDA through the categories of goods in each of the past three fiscal end of fiscal 1998 and for period fiscal 1999 through years is also compared. fiscal 2003. Advance disbursements consist of payments made into special accounts of borrowers, Under simplified procedures for structural and from which funds are paid to specific suppliers as sectoral adjustment loans approved by the executive expenditures are incurred. Because balances in these directors in fiscal 1996, disbursements are no longer accounts cannot be attributed to any specific supply- directly linked to procurement under adjustment ing country until expenditures have been reported to loans disbursed using simplified procedures. Thus, the Bank, these are shown as a separate category. while appendixes 3B to 6 report on disbursements from the IBRD and IDA, they do not include Appendix 3B provides details on foreign disburse- disbursements under adjustment loans disbursed ments by countries eligible to borrow from the using simplified procedures. The information in World Bank and nonborrowing countries1 for the Appendix 7 reflects simplified adjustment loan IBRD and IDA separately. disbursements to each borrower as pro-rata shares of that borrower's eligible imports from supplying Appendix 3C shows disbursements made in fiscal countries using import data drawn from United 2003 by the IBRD and IDA for local procurement Nations trade statistics. by current borrowing countries and disbursements made for goods, works, and services procured from In all these tables and appendixes, IBRD figures them by other Bank borrowers (foreign procure- exclude disbursements for loans to the IFC and "B" ment) for projects funded by the Bank. loans. IDA figures include Special Facility for SubSaharan Africa and Interim Trust Fund credits. Appendix 4 shows the amounts disbursed from the Disbursements for Project Preparation Facility IBRD and IDA separately for foreign procurement advances are excluded for both the IBRD and IDA. of goods, works, and services from selected member 1. Appendix 2 lists countries eligible for borrowing from the World Bank. 126 The World Bank Annual Report 2003 Appendix 3A: IBRD and IDA Disbursements for Foreign and Local Expenditures (amounts in millions of U.S. dollars) IBRD and IDA Net advance Foreigna Local disbursementsb Total Amount % Amount % Amount % Amount Cumulative to June 30, 1998 173,426 56 131,225 42 5,626 2 310,277 1999 14,781 61 8,859 36 736 3 24,376 2000 8,742 47 9,013 49 753 4 18,508 2001 8,104 47 8,504 49 698 4 17,307 2002 9,432 53 7,958 44 474 3 17,864 2003 10,637 56 7,630 40 699 4 18,966 Cumulative to June 30, 2003 225,122 55 173,189 43 8,986 2 407,297 Note: Foreign Expenditures are expenditures in the currency of any country other than that of the borrower or guarantor, for goods or services supplied from the territory of any country other than the territory of the borrower or guarantor. Local expenditures are expenditures in the currency of the borrower or guarantor or for goods or services supplied from the territory of the borrower or the guarantor. Amounts may not add to totals because of rounding. a. Amounts exclude debt-reduction disbursements of $3,988 million through fiscal 1998 and $49 million in fiscal 2002. Amounts include disbursements under simplified procedures for structural and sectoral adjustment loans of $13,429 million through fiscal 1998, $10,423 million in fiscal 1999, $5,329 million in fiscal 2000, $5,366 million in fiscal 2001, $6,584 million in fiscal 2002, and $7,759 million in fiscal 2003. Amounts include HIPC Initiative grant disbursements of $74 million in fiscal 1998, $149 million in fiscal 1999, $31 million in fiscal 2001, $45 million in fiscal 2002, and $25 million in fiscal 2003. Amounts include IDA Grants disbursements of $11 million in fiscal 2002 and $121 million in fiscal 2003. b. Net advance disbursements are advances made to special accounts net of amounts recovered (amounts for which the Bank has applied evidence of expenditures to recovery of the outstanding advance). IBRD and IDA Disbursements for Foreign and Local Expenditures 127 Appendix 3B: IBRD and IDA Disbursements for Foreign Expenditures, by Source of Supply (amounts in millions of U.S. dollars) IBRD IDA Countries not Countries Countries not Countries eligible to eligible to eligible to eligible to borrow borrow borrow borrow Total Total Period Amount % Amount % amount Amount % Amount % amount Cumulative to June 30, 1998 99,240 86 16,575 14 115,815 34,382 78 9,730 22 44,112 1999 2,228 89 275 11 2,503 1,164 68 542 32 1,706 2000 1,842 84 343 16 2,186 851 69 376 31 1,228 2001 1,434 87 213 13 1,647 694 66 364 34 1,058 2002 1,457 86 239 14 1,696 718 66 377 34 1,095 2003 1,118 83 237 17 1,355 1,100 73 398 27 1,498 Cumulative to June 30, 2003 107,319 86 17,882 14 125,201 38,909 77 11,787 23 50,697 Note: Amounts exclude disbursements for debt reduction, net advance disbursements, disbursements under simplified procedures for structural and sectoral adjustment loans, disbursements under HIPC Initiative grants, and disbursements under IDA Grants through fiscal 2002. Countries eligible to borrow from IBRD and IDA are listed in Appendix 2. For consistency of comparison, the Republic of Korea and Serbia and Montenegro (former Federal Republic of Yugoslavia) are included as countries eligible to borrow for all periods covered by this table. Korea, a former graduate, again became eligible to borrow in December 1997. Serbia and Montenegro's eligibility was reestablished in May 2001. Amounts may not add to totals because of rounding. 128 The World Bank Annual Report 2003 Appendix 3C: IBRD and IDA Payments to Supplying Eligible Borrowing Countries for Local and Foreign Procurement in Fiscal 2003a (amounts in millions of U.S. dollars) Percentage Borrowing Local Foreign Total of total countries procurement procurement amount disbursementsb Afghanistan 2 ­ 2 * Albania 24 ­ 24 0.13 Algeria 35 + 35 0.18 Angola 18 ­ 18 0.09 Antigua and Barbuda ­ + + * Argentina 292 3 294 1.56 Armenia 26 + 26 0.14 Azerbaijan 17 1 17 0.09 Bangladesh 185 + 185 0.98 Barbados 1 ­ 1 * Belarus 1 + 1 * Belize 4 ­ 4 * Benin 13 + 14 0.07 Bhutan 5 ­ 5 * Bolivia 41 + 41 0.22 Bosnia-Herzegovina 32 + 32 0.17 Botswana ­ + + * Brazil 377 2 379 2.00 Bulgaria 14 2 16 0.09 Burkina Faso 22 + 22 0.11 Burundi 37 + 37 0.20 Cambodia 25 1 26 0.14 Cameroon 16 1 17 0.09 Cape Verde 10 + 10 0.05 Central African Republic + + + * Chad 25 ­ 25 0.13 Chile 45 + 45 0.24 China 1,485 175c 1,660 8.77 Colombia 89 1 90 0.47 Comoros 8 ­ 8 * Congo Republic of 1 + 2 * Congo, Democratic Republic of 22 + 22 0.12 Costa Rica 6 3 9 * Côte D'Ivoire 38 3 41 0.22 Croatia 24 3 26 0.14 Cyprus ­ 2 2 * Czech Republic ­ 6 6 * Djibouti 7 2 10 0.05 Dominica 1 + 2 * Dominican Republic 28 + 28 0.15 Ecuador 23 + 23 0.12 Egypt, Arab Republic of 48 8 56 0.30 El Salvador 40 + 41 0.21 Equatorial Guinea ­ ­ ­ * Eritrea 35 ­ 35 0.19 Estonia 4 2 6 * Ethiopia 59 + 59 0.31 Fiji ­ + + * Gabon 1 ­ 1 * Gambia, The 8 + 8 * Georgia 25 + 25 0.13 Ghana 60 1 61 0.32 Grenada 3 ­ 3 * Guatemala 29 + 30 0.16 Guinea 18 + 18 0.09 (continued next page) IBRD and IDA Payments to Supplying Eligible Borrowing Countries for Local and Foreign Procurement in Fiscal 2003 129 Appendix 3C (continued) Percentage Borrowing Local Foreign Total of total countries procurement procurement amount disbursementsb Guinea-Bissau 5 ­ 5 * Guyana 6 ­ 6 * Haiti ­ ­ ­ * Honduras 25 + 25 0.13 Hungary + 4 4 * India 1,214 67 1,280 6.76 Indonesia 302 10 312 1.65 Iran, Islamic Republic of 7 13 20 0.11 Iraq ­ ­ ­ * Jamaica 5 ­ 5 * Jordan 36 1 37 0.20 Kazakhstan 21 + 21 0.11 Kenya 25 6 31 0.16 Korea, Republic of 7 80 87 0.46 Kyrgyz Republic 19 + 19 0.10 Lao People's Dem. Rep. 21 ­ 21 0.11 Latvia 9 + 9 * Lebanon 50 1 52 0.27 Lesotho 11 + 11 0.06 Liberia ­ ­ ­ * Lithuania 7 + 7 * Macedonia, Former Yugoslav Rep 10 8 18 0.10 Madagascar 84 + 84 0.44 Malawi 31 + 31 0.17 Malaysia ­ 24 24 0.12 Maldives 2 ­ 2 * Mali 36 + 37 0.19 Mauritania 29 1 29 0.15 Mauritius + 29 29 0.15 Mexico 597 2 599 3.16 Moldova 15 + 15 0.08 Mongolia 9 ­ 9 * Morocco 25 + 25 0.13 Mozambique 55 ­ 55 0.29 Myanmar ­ + + * Nepal 19 + 19 0.10 Nicaragua 44 + 44 0.23 Niger 29 1 29 0.16 Nigeria 16 1 17 0.09 Pakistan 82 4 86 0.46 Panama 23 20 43 0.23 Papua New Guinea 3 + 3 * Paraguay 8 1 9 * Peru 40 + 40 0.21 Philippines 142 1 143 0.75 Poland 110 1 112 0.59 Romania 49 3 52 0.28 Russian Federation 121 17 138 0.73 Rwanda 17 ­ 17 0.09 Samoa 1 ­ 1 * São Tomé and Principe 1 ­ 1 * Senegal 70 3 74 0.39 Serbia and Montenegro ­ + + * Seychelles ­ ­ ­ * 130 The World Bank Annual Report 2003 Percentage Borrowing Local Foreign Total of total countries procurement procurement amount disbursementsb Sierra Leone 7 + 7 * Slovak Republic ­ 1 1 * Slovenia 2 9 10 0.05 Solomon Islands + + + * Somalia ­ + + * South Africa 5 50 55 0.29 Sri Lanka 32 + 32 0.17 St. Kitts and Nevis 2 ­ 2 * St. Lucia 4 + 4 * St. Vincent and the Grenadines 1 1 2 * Sudan ­ ­ ­ * Swaziland + 1 1 * Syrian Arab Republic ­ ­ ­ * Tajikistan 6 + 6 * Tanzania 61 1 62 0.33 Thailand 29 14 43 0.23 Togo ­ ­ ­ * Tonga + ­ + * Trinidad and Tobago 11 + 11 0.06 Tunisia 113 2 115 0.61 Turkey 237 14 251 1.32 Turkmenistan + ­ + * Uganda 37 4 42 0.22 Ukraine 6 4 9 0.05 Uruguay 14 + 14 0.07 Uzbekistan 2 + 2 * Vanuatu ­ ­ ­ * Venezuela, RB de 16 2 18 0.10 Vietnam 195 + 195 1.03 Yemen, Republic of 50 7 57 0.30 Zambia 37 5 43 0.23 Zimbabwe ­ 4 4 * Others ­ ­ ­ * Total 7,630 637 8,267 43.59 ­ Zero + less than $0.5 million * less than 0.05 percent. Note: Amounts may not add to totals because of rounding. a. Countries eligible to borrow from IBRD and IDA are listed in Appendix 2. In addition, payments under disbursing loans to Barbados and Cyprus, which are no longer eligible borrowing countries, are included. Amounts exclude disbursements for debt reduction, net advance disbursements, dis- bursements under simplified procedures for structural and sectoral adjustment loans and disbursements under HIPC Initiative grants. b. Refers to the share of all IBRD and IDA payments for fiscal 2003 which totaled $18,966 million. c. Includes supplies from Hong Kong, China IBRD and IDA Payments to Supplying Eligible Borrowing Countries for Local and Foreign Procurement in Fiscal 2003 131 Appendix 4: IBRD and IDA Payments to Supplying Countries for Foreign Procurement (amounts in millions of U.S. dollars) IBRD cumulative IDA cumulative to June 30, 2003 IBRD fiscal 2003 to June 30, 2003 IDA fiscal 2003 Supplying country Amount % Amount % Amount % Amount % Algeria 45 * + * 14 * ­ * Antigua and Barbuda 4 * + * 1 * ­ * Argentina 930 0.74 2 0.11 142 0.28 1 0.09 Armenia + * + * 2 * + * Australia 1,328 1.06 25 1.82 781 1.54 11 0.71 Austria 2,019 1.61 22 1.62 304 0.60 18 1.19 Azerbaijan 3 * ­ * 25 0.05 1 * Bahamas, the 101 0.08 ­ * 19 * 1 * Bangladesh 18 * ­ * 51 0.10 + * Belarus 55 * + * 2 * + * Belgium 1,636 1.31 5 0.38 1,120 2.21 10 0.70 Benin 7 * + * 27 0.05 + * Bolivia 31 * ­ * 4 * + * Bosnia­Herzegovina + * ­ * 2 * + * Botswana 6 * ­ * 8 * + * Brazil 1,985 1.59 1 0.07 362 0.71 1 0.05 Bulgaria 66 0.05 2 0.13 56 0.11 + * Burkina Faso 1 * ­ * 13 * + * Burundi 1 * ­ * 12 * + * Cambodia 1 * ­ * 1 * 1 * Cameroon 5 * ­ * 28 0.06 1 * Canada 2,967 2.37 41 3.02 922 1.82 20 1.33 Cape Verde + * ­ * 1 * + * Central African Republic 4 * + * 6 * ­ * Chile 400 0.32 + * 42 0.08 + * China 1,798 1.44 53 3.89 1,900 3.75 123 8.20 Colombia 257 0.21 1 * 31 0.06 + * Congo Republic of 8 * ­ * 9 * + * Congo, Democratic Republic of 6 * ­ * 41 0.08 ­ * Costa Rica 70 0.06 1 0.07 49 0.10 2 0.15 Côte D'Ivoire 52 * + * 264 0.52 3 0.17 Croatia 26 * 2 0.18 18 * + * Cyprus 116 0.09 2 0.12 38 0.08 + * Czech Republic 122 0.10 5 0.39 15 * + * Denmark 870 0.70 17 1.26 414 0.82 16 1.06 Djibouti + * ­ * 33 0.06 2 0.15 Dominica 6 * + * 2 * ­ * Dominican Republic 6 * ­ * 11 * + * Ecuador 199 0.16 ­ * 14 * + * Egypt, Arab Republic of 66 0.05 + * 74 0.15 8 0.50 El Salvador 21 * + * 11 * + * Estonia 9 * 2 0.14 5 * ­ * Ethiopia 2 * ­ * 7 * + * Fiji 1 * + * 4 * ­ * Finland 671 0.54 34 2.51 165 0.32 2 0.10 France 8,902 7.11 71 5.24 5,300 10.45 126 8.42 Gambia, The 5 * ­ * 1 * + * Georgia 14 * + * 9 * ­ * Germany 14,399 11.50 210 15.53 3,946 7.78 40 2.68 Ghana 11 * + * 23 0.05 1 0.07 Greece 225 0.18 1 0.05 100 0.20 2 0.15 Guatemala 22 * + * 29 0.06 + * Guinea 5 * ­ * 42 0.08 ­ * Honduras 16 * + * 8 * + * 132 The World Bank Annual Report 2003 IBRD cumulative IDA cumulative to June 30, 2003 IBRD fiscal 2003 to June 30, 2003 IDA fiscal 2003 Supplying country Amount % Amount % Amount % Amount % Hungary 355 0.28 2 0.11 31 0.06 2 0.15 Iceland 12 * ­ * 5 * 1 0.05 India 488 0.39 12 0.92 1,153 2.27 54 3.62 Indonesia 190 0.15 6 0.41 145 0.29 5 0.31 Iran, Islamic Republic of 173 0.14 9 0.63 213 0.42 5 0.31 Ireland 215 0.17 1 0.08 156 0.31 6 0.37 Israel 292 0.23 5 0.36 144 0.28 3 0.17 Italy 7,759 6.20 82 6.06 2,363 4.66 51 3.41 Japan 15,661 12.51 109 8.03 4,572 9.02 42 2.81 Jordan 50 * + * 174 0.34 1 0.09 Kazakhstan 84 0.07 + * 36 0.07 + * Kenya 28 * ­ * 326 0.64 6 0.42 Korea, Republic of 1,927 1.54 43 3.18 1,183 2.33 37 2.49 Kuwait 270 0.22 + * 288 0.57 25 1.68 Kyrgyz Republic 11 * ­ * + * ­ * Latvia 16 * + * 1 * ­ * Lebanon 102 0.08 + * 28 0.05 1 0.06 Lesotho + * ­ * + * ­ * Lithuania 25 * + * 2 * ­ * Luxembourg 76 0.06 + * 47 0.09 2 0.15 Macedonia, former Yugoslav Rep of 13 * 6 0.45 15 * 2 0.11 Madagascar 8 * ­ * 3 * + * Malawi 2 * ­ * 11 * ­ * Malaysia 376 0.30 18 1.31 275 0.54 6 0.39 Mali + * ­ * 15 * + * Mauritania 8 * ­ * 18 * 1 * Mauritius 5 * ­ * 54 0.11 29 1.91 Mexico 591 0.47 2 0.14 118 0.23 + * Moldova 3 * ­ * 1 * ­ * Morocco 179 0.14 ­ * 66 0.13 + * Mozambique 4 * ­ * 7 * ­ * Myanmar 24 * ­ * 16 * + * Nepal 3 * ­ * 7 * + * Netherlands 2,333 1.86 15 1.08 1,445 2.85 36 2.41 New Zealand 200 0.16 2 0.16 145 0.29 7 0.49 Nicaragua 10 * + * 7 * ­ * Niger 9 * 1 * 18 * ­ * Nigeria 391 0.31 ­ * 410 0.81 1 0.08 Norway 571 0.46 2 0.12 187 0.37 2 0.10 Oman 38 * ­ * 15 * ­ * Pakistan 130 0.10 + * 191 0.38 4 0.27 Panama 435 0.35 20 1.44 62 0.12 + * Papua New Guinea 3 * ­ * + * + * Paraguay 122 0.10 1 0.10 16 * ­ * Peru 130 0.10 + * 23 * + * Philippines 76 0.06 + * 87 0.17 1 * Poland 336 0.27 1 0.08 56 0.11 + * Portugal 81 0.07 2 0.18 421 0.83 7 0.44 Qatar 123 0.10 ­ * 17 * + * Romania 339 0.27 3 0.19 77 0.15 + * Russian Federation 794 0.63 14 1.04 120 0.24 3 0.20 Saudi Arabia 595 0.48 1 0.08 312 0.61 4 0.25 Senegal 30 * ­ * 138 0.27 3 0.23 (continued next page) IBRD and IDA Payments to Supplying Countries for Foreign Procurement 133 Appendix 4 (continued) IBRD cumulative IDA cumulative to June 30, 2003 IBRD fiscal 2003 to June 30, 2003 IDA fiscal 2003 Supplying country Amount % Amount % Amount % Amount % Serbia and Montenegro 2 * + * ­ * ­ * Sierra Leone 5 * ­ * 4 * + * Singapore 1,252 1.00 14 1.00 781 1.54 11 0.70 Slovak Republic 20 * + * 2 * + * Slovenia 69 0.06 7 0.50 17 * 2 0.12 Solomon Islands 1 * ­ * 1 * + * Somalia 1 * ­ * 3 * + * South Africa 471 0.38 + * 1,239 2.44 49 3.28 Spain 1,603 1.28 41 3.03 438 0.86 38 2.53 Sri Lanka 27 * ­ * 20 * + * St. Lucia 9 * + * 4 * + * St. Vincent and the Grenadines 1 * 1 0.05 5 * + * Swaziland 38 * + * 33 0.07 + * Sweden 1,811 1.45 14 1.04 526 1.04 15 1.03 Switzerland 4,820 3.85 54 3.97 1,688 3.33 422 28.21 Tajikistan + * ­ * + * + * Tanzania 7 * ­ * 38 0.08 1 * Thailand 170 0.14 11 0.80 409 0.81 3 0.21 Trinidad and Tobago 23 * + * 25 0.05 + * Tunisia 92 0.07 + * 47 0.09 2 0.14 Turkey 611 0.49 4 0.32 156 0.31 10 0.65 Uganda 3 * + * 18 * 4 0.28 Ukraine 178 0.14 3 0.25 56 0.11 + * United Arab Emirates 574 0.46 + * 388 0.77 1 * United Kingdom 9,315 7.44 123 9.08 6,254 12.34 62 4.14 United States 23,485 18.76 91 6.74 4,805 9.48 57 3.77 Uruguay 114 0.09 ­ * 6 * ­ * Uzbekistan 5 * ­ * 14 * + * Venezuela, RB de 599 0.48 2 0.13 215 0.42 1 * Vietnam 46 * ­ * 55 0.11 + * Virgin Islands 4 * + * + * ­ * Yemen, Republic of + * ­ * 9 * 7 0.43 Yugoslavia (former) 858 0.68 ­ ­ 176 0.35 ­ ­ Zambia 52 * ­ * 124 0.24 5 0.35 Zimbabwe 34 * ­ * 139 0.27 4 0.23 Others 3,694 2.95 134 9.85 1,275 2.52 64 4.26 Total 125,201 100.00 1,355 100.00 50,697 100.00 1,498 100.00 ­ Zero + less than $0.5 million * less than 0.05 percent Note: Amounts exclude disbursements for debt reduction, net advance disbursements, disbursements under simplified procedures for structural and sectoral adjustment loans and disbursements under HIPC Initiative grants. Amounts may not add to totals because of rounding. 134 The World Bank Annual Report 2003 Appendix 5: IBRD and IDA Payments to Supplying Countries for Foreign Procurement, by Description of Goods, Fiscal 2003 (amounts in millions of U.S. dollars) All Total Equipment Civil works Consultants other goods disbursements Supplying country Amount % Amount % Amount % Amount % Amount % Algeria ­ * ­ * ­ * + * + * Antigua and Barbuda ­ * ­ * + * ­ * + * Argentina 1 0.07 ­ * 2 0.41 ­ * 3 0.10 Armenia ­ * ­ * + * ­ * + * Australia 10 0.62 ­ * 25 5.81 + * 35 1.24 Austria 31 1.93 6 0.90 3 0.73 + 0.21 40 1.40 Azerbaijan 1 * ­ * + * ­ * 1 * Bahamas, The + * ­ * + * ­ * 1 * Bangladesh ­ * ­ * + * ­ * + * Belarus + * ­ * + * ­ * + * Belgium 7 0.43 2 0.39 5 1.25 1 0.45 16 0.55 Benin ­ * + * + 0.06 ­ * + * Bolivia ­ * ­ * + * ­ * + * Bosnia-Herzegovina ­ * + * + * ­ * + * Botswana + * ­ * + * ­ * + * Brazil + * ­ * 2 0.35 + 0.09 2 0.06 Bulgaria 1 0.08 1 0.15 + * ­ * 2 0.08 Burkina Faso ­ * ­ * + * ­ * + * Burundi ­ * + * + * ­ * + * Cambodia 1 * ­ * + * ­ * 1 * Cameroon + * ­ * 1 0.12 ­ * 1 * Canada 29 1.85 1 0.12 31 6.96 + 0.07 61 2.13 Cape Verde ­ * ­ * + * ­ * + * Central African Republic ­ * ­ * + * ­ * + * Chile + * ­ * + 0.08 ­ * + * China 56 3.52 117 19.05 2 0.45 1 0.38 175 6.15 Colombia + * ­ * 1 0.19 ­ * 1 * Congo Republic of ­ * ­ * + 0.05 ­ * + * Congo, Democratic Republic of ­ * ­ * ­ * ­ * ­ * Costa Rica + * 2 0.32 1 0.14 ­ * 3 0.11 Côte D'Ivoire ­ * 2 0.34 1 0.14 ­ * 3 0.09 Croatia 3 0.17 + * + * ­ * 3 0.10 Cyprus + * ­ * 2 0.37 + * 2 0.06 Czech Republic 6 0.37 + * + * + * 6 0.20 Denmark 14 0.89 13 2.08 6 1.33 + 0.10 33 1.15 Djibouti 2 0.15 ­ * ­ * ­ * 2 0.08 Dominica ­ * ­ * + 0.06 + * + * Dominican Republic ­ * ­ * + * ­ * + * Ecuador ­ * ­ * + * ­ * + * Egypt, Arab Republic of 1 * 6 0.94 2 0.35 ­ * 8 0.28 El Salvador + * ­ * + * ­ * + * Estonia 1 0.05 ­ * 1 0.26 ­ * 2 0.07 Ethiopia ­ * ­ * + 0.07 ­ * + * Fiji ­ * ­ * + * ­ * + * Finland 31 1.96 3 0.46 2 0.37 ­ * 36 1.25 France 89 5.62 39 6.32 47 10.64 22 10.53 197 6.91 Gambia, The ­ * ­ * + * ­ * + * Georgia + * ­ * ­ * ­ * + * Germany 176 11.06 24 3.95 41 9.46 9 4.30 251 8.79 Ghana ­ * ­ * 1 0.27 ­ * 1 * Greece 1 0.07 1 0.16 + * 1 0.29 3 0.10 Guatemala + * ­ * + 0.10 ­ * + * (continued next page) IBRD and IDA Payments to Supplying Countries for Foreign Procurement, by Description of Goods, Fiscal 2003 135 Appendix 5 (continued) All Total Equipment Civil works Consultants other goods disbursements Supplying country Amount % Amount % Amount % Amount % Amount % Guinea ­ * ­ * ­ * ­ * ­ * Honduras + * ­ * + * ­ * + * Hungary 3 0.21 ­ * + 0.11 + * 4 0.13 Iceland ­ * ­ * 1 0.18 ­ * 1 * India 58 3.62 3 0.53 6 1.33 + * 67 2.34 Indonesia 4 0.27 5 0.86 + 0.10 + 0.10 10 0.36 Iran, Islamic Republic of 2 0.10 12 1.88 ­ * ­ * 13 0.46 Ireland + * ­ * 6 1.47 + 0.06 7 0.23 Israel 5 0.32 + * 2 0.47 + 0.09 8 0.26 Italy 25 1.57 97 15.89 5 1.12 6 2.79 133 4.67 Japan 133 8.35 14 2.25 4 0.92 + 0.12 151 5.29 Jordan 1 0.08 ­ * + * ­ * 1 0.05 Kazakhstan + * ­ * + 0.05 + * + * Kenya 5 0.29 + * 1 0.21 1 0.28 6 0.22 Korea, Republic of 31 1.98 40 6.45 4 1.02 5 2.33 80 2.82 Kuwait 22 1.41 3 0.46 ­ * ­ * 25 0.89 Kyrgyz Republic ­ * ­ * ­ * ­ * ­ * Latvia + * ­ * ­ * + * + * Lebanon + * ­ * 1 0.18 ­ * 1 * Lesotho ­ * ­ * ­ * ­ * ­ * Lithuania + * ­ * ­ * + * + * Luxembourg 2 0.14 ­ * + 0.08 ­ * 3 0.09 Macedonia, former Yugoslav Rep of ­ * 7 1.21 + 0.06 ­ * 8 0.27 Madagascar ­ * ­ * + * ­ * + * Malawi ­ * ­ * ­ * ­ * ­ * Malaysia 3 0.17 17 2.74 + 0.06 4 1.80 24 0.83 Mali + * + 0.06 + * ­ * + * Mauritania + * + * + * ­ * 1 * Mauritius 28 1.74 ­ * 1 0.22 ­ * 29 1.00 Mexico 1 * + * 1 0.30 ­ * 2 0.08 Moldova ­ * ­ * ­ * ­ * ­ * Morocco ­ * ­ * + * ­ * + * Mozambique ­ * ­ * ­ * ­ * ­ * Myanmar ­ * ­ * + * ­ * + * Nepal ­ * ­ * + * ­ * + * Netherlands 20 1.28 11 1.76 18 4.12 2 0.75 51 1.78 New Zealand 1 0.05 2 0.32 7 1.51 ­ * 9 0.33 Nicaragua ­ * ­ * + * ­ * + * Niger ­ * ­ * 1 0.14 ­ * 1 * Nigeria ­ * 1 0.19 ­ * ­ * 1 * Norway + * ­ * 3 0.65 ­ * 3 0.11 Oman ­ * ­ * ­ * ­ * ­ * Pakistan + * 3 0.49 + * 1 0.39 4 0.15 Panama + * 20 3.19 + * ­ * 20 0.70 Papua New Guinea ­ * ­ * + * ­ * + * Paraguay ­ * + * 1 0.27 ­ * 1 0.05 Peru ­ * ­ * + * ­ * + * Philippines ­ * ­ * 1 0.20 ­ * 1 * Poland 1 0.08 ­ * + * ­ * 1 0.05 Portugal 2 0.15 4 0.70 2 0.54 + * 9 0.32 Qatar + * ­ * ­ * ­ * + * Romania + * 3 0.42 + * ­ * 3 0.10 Russian Federation 5 0.34 10 1.60 1 0.14 1 0.58 17 0.60 Saudi Arabia 3 0.16 2 0.37 ­ * + 0.08 5 0.17 Senegal 1 * 2 0.27 1 0.29 ­ * 3 0.12 Serbia and Montenegro + * ­ * ­ * ­ * + * Sierra Leone ­ * ­ * + * ­ * + * Singapore 22 1.36 ­ * 2 0.56 + * 24 0.84 Slovak Republic 1 0.06 ­ * ­ * ­ * 1 * 136 The World Bank Annual Report 2003 All Total Equipment Civil works Consultants other goods disbursements Supplying country Amount % Amount % Amount % Amount % Amount % Slovenia 3 0.22 5 0.82 + * + * 9 0.30 Solomon Islands + * ­ * ­ * ­ * + * Somalia ­ * ­ * + * ­ * * South Africa 33 2.07 10 1.57 7 1.64 ­ * 50 1.74 Spain 22 1.37 45 7.28 9 2.08 3 1.60 79 2.77 Sri Lanka + * ­ * + 0.06 ­ * + * St. Lucia ­ * ­ * + * ­ * + * St. Vincent and the Grenadines ­ * 1 0.14 ­ * ­ * 1 * Swaziland + * ­ * + 0.07 ­ * 1 * Sweden 24 1.53 + 0.05 4 0.95 1 0.34 30 1.04 Switzerland 457 28.77 6 0.95 6 1.39 7 3.28 476 16.69 Tajikistan ­ * + * ­ * ­ * + * Tanzania + * ­ * + 0.05 ­ * 1 * Thailand 3 0.16 11 1.74 1 0.18 ­ * 14 0.49 Trinidad and Tobago + * ­ * + * ­ * + * Tunisia 1 * 1 0.08 1 0.24 ­ * 2 0.07 Turkey 2 0.15 11 1.73 1 0.25 ­ * 14 0.49 Uganda 4 0.26 ­ * + * ­ * 4 0.15 Ukraine 4 0.23 ­ * ­ * + 0.05 4 0.13 United Arab Emirates 1 0.05 ­ * + * + 0.08 1 * United Kingdom 79 5.00 31 5.08 64 14.70 10 4.71 185 6.49 United States 62 3.87 8 1.23 68 15.41 11 5.26 148 5.18 Uruguay ­ * ­ * ­ * ­ * ­ * Uzbekistan + * ­ * ­ * ­ * + * Venezuela, RB de ­ * 2 0.28 1 0.13 ­ * 2 0.08 Vietnam ­ * + * + * ­ * + * Virgin Islands + * ­ * ­ * ­ * + * Yemen, Republic of + * 6 0.99 ­ * ­ * 7 0.23 Zambia 1 * 4 0.73 + * + 0.05 5 0.18 Zimbabwe 1 * 1 0.10 2 0.54 ­ * 4 0.12 Others 49 3.08 2 0.26 23 5.21 124 58.69 197 6.92 Total 1,590 100.00 613 100.00 439 100.00 211 100.00 2,853 100.00 ­ Zero + less than $0.5 million * less than 0.05 percent. Note: Amounts exclude disbursements for debt reduction, net advance disbursements, disbursements under simplified procedures for structural and sectoral adjustment loans and disbursements under HIPC Initiative grants. Amounts may not add to totals because of rounding. IBRD and IDA Payments to Supplying Countries for Foreign Procurement, by Description of Goods, Fiscal 2003 137 Appendix 6: IBRD and IDA Disbursements for Foreign Expenditures, by Description of Goods (for Investment Lending), Fiscal 2001­03a Fiscal 2001 Fiscal 2002 Fiscal 2003 Countries Countries Countries Countries Countries Countries not eligible eligible not eligible eligible not eligible eligible Item to borrow to borrow Total to borrow to borrow Total to borrow to borrow Total Millions of U.S. dollars Civil works 420 278 698 365 320 686 313 300 613 Consultants 484 69 553 429 50 479 386 51 437 Goods 1,003 207 1,210 1,163 226 1,389 909 271 1,180 Others 155 24 179 167 19 187 124 13 137 Total 2,062 578 2,640 2,124 616 2,741 1,732 635 2,367 Percentb Civil works 60 40 26 53 47 25 51 49 26 Consultants 88 12 21 90 10 17 88 12 18 Goods 83 17 46 84 16 51 77 23 50 Others 87 13 7 90 10 7 91 9 6 Total 79 21 100 78 22 100 73 27 100 Note: Countries eligible to borrow from IBRD and IDA are listed in Appendix 2. For consistency of comparison, the Republic of Korea and Serbia and Montenegro (former Federal Republic of Yugoslavia) are included as countries eligible to borrow for all periods covered by this table. The Republic of Korea, a former graduate, again became eligible to borrow in December 1997. Serbia and Montenegro's eligibility was reestablished in May 2001. Amounts may not add to totals because of rounding. a. Amounts exclude disbursements for debt-reduction and net advance disbursements. Amounts also exclude disbursements for structural and sectoral adjustment loans, hybrids (loans that support policy and institutional reforms in a specific sector by financing both a policy component disbursed against imports and investment component), and disbursements under HIPC Initiative grants. b. Percentages are based on the dollar amounts shown under the total disbursements section. These percentages show both the breakdown between countries eligible to borrow from the IBRD or IDA, or both, and countries not eligible to borrow, for individual goods categories and the share of each goods category compared with total disbursements. 138 The World Bank Annual Report 2003 Appendix 7: Estimates of IBRD and IDA Payments to Supplying Countries for Foreign Procurement under Adjustment Lending, Fiscal 2003a (amounts in millions of U.S. dollars) Supplying countries Amount Percent Supplying countries Amount Percent Albania 1 0.0 Jordan 2 0.0 Argentina 285 3.7 Korea, Republic of 224 2.9 Australia 65 0.8 Latvia 1 0.0 Austria 55 0.7 Lebanon 3 0.0 Azerbaijan 5 0.1 Lithuania 2 0.0 Bahamas, The + 0.0 Luxembourg 3 0.0 Bahrain 2 0.0 Macedonia, former Bangladesh 3 0.0 Yugoslav Rep of 10 0.1 Barbados 1 0.0 Malawi 5 0.1 Belarus 9 0.1 Malaysia 63 0.8 Belgium 167 2.1 Maldives 1 0.0 Benin 1 0.0 Malta + 0.0 Bolivia 30 0.4 Mauritius 7 0.1 Botswana 2 0.0 Mexico 97 1.3 Brazil 497 6.4 Moldova 1 0.0 Burkina Faso 2 0.0 Mongolia + 0.0 Burundi 1 0.0 Morocco 9 0.1 Cameroon 8 0.1 Mozambique + 0.0 Canada 78 1.0 Namibia 1 0.0 Chile 128 1.6 Netherlands 124 1.6 China 339 4.4 New Zealand 12 0.2 Colombia 23 0.3 Nicaragua 1 0.0 Costa Rica 8 0.1 Niger + 0.0 Croatia 16 0.2 Norway 15 0.2 Cyprus 1 0.0 Oman 10 0.1 Czech Republic 19 0.2 Pakistan 22 0.3 Denmark 36 0.5 Panama 1 0.0 Dominica + 0.0 Paraguay 25 0.3 Ecuador 40 0.5 Peru 30 0.4 Egypt, Arab Republic of 7 0.1 Philippines 5 0.1 El Salvador 5 0.1 Poland 20 0.3 Estonia 1 0.0 Portugal 24 0.3 Ethiopia + 0.0 Qatar 6 0.1 Finland 37 0.5 Romania 27 0.3 France 378 4.9 Russian Federation 114 1.5 Georgia 3 0.0 Rwanda 2 0.0 Germany 576 7.4 Saudi Arabia 16 0.2 Greece 52 0.7 Senegal 4 0.0 Grenada + 0.0 Singapore 123 1.6 Guatemala 3 0.0 Slovak Republic 7 0.1 Guinea 1 0.0 Slovenia 21 0.3 Honduras 1 0.0 South Africa 145 1.9 Hungary 32 0.4 Spain 175 2.3 Iceland + 0.0 Switzerland 88 1.1 Indonesia 63 0.8 Sri Lanka 4 0.1 Iran, Islamic Republic of 21 0.3 Swaziland 7 0.1 Ireland 32 0.4 Sweden 78 1.0 Israel 46 0.6 Taiwan, China 120 1.5 Italy 406 5.2 Tanzania 5 0.1 Japan 323 4.2 Thailand 79 1.0 (continued next page) Estimates of IBRD and IDA Payments to Supplying Countries for Foreign Procurement under Adjustment Lending, Fiscal 2003 139 Appendix 7 (continued) Supplying countries Amount Percent Supplying countries Amount Percent Togo 9 0.1 United States 1,736 22.4 Trinidad and Tobago 16 0.2 Uruguay 36 0.5 Tunisia 5 0.1 Venezuela 111 1.4 Turkey 52 0.7 Zambia 3 0.0 United Kingdom 241 3.1 Uganda 8 0.1 Total 7,759 100 + Amount below $0.5 million. Note: Amounts exclude disbursements under investment lending. See Appendix 4 for payments to supplying countries for foreign procurement under investment lending, fiscal 2003. Amounts may not add to total because of rounding. a. Based on import data drawn from the latest information available on borrowers' trade statistics compiled by the United Nations trade system COMTRADE. 140 The World Bank Annual Report 2003 Appendix 8: IBRD and IDA Cumulative Lending since Fiscal 1990 by Sector and Theme and by Region, June 30, 2003 (amounts in millions of U.S. dollars) IBRD loans to borrowers, by regiona Europe Latin Middle East Asia and America East and and Central and the North South Purpose Africa Pacific Asia Caribbean Africa Asia Total Economic Management 212.30 711.40 4,866.81 7,631.60 644.21 322.85 14,389.17 Public Sector Governance 452.90 3,983.10 4,925.22 9,551.00 1,119.57 722.08 20,753.88 Rule of Law 23.87 446.93 942.70 1,103.05 369.00 331.30 3,216.84 Financial and Private Sector Development 464.87 20,469.40 18,377.35 16,788.54 4,037.31 6,829.02 66,966.49 Trade and Integration 250.35 2,139.02 2,917.38 2,177.15 731.99 995.66 9,211.55 Social Protection and Risk Management 56.85 2,088.80 3,614.47 6,968.85 748.65 244.62 13,722.24 Social Development, Gender, and Inclusion 74.86 1,419.90 556.91 2,810.00 411.82 300.26 5,573.74 Human Development 230.09 2,894.82 2,355.11 7,679.45 1,362.77 351.41 14,873.64 Urban Development 459.29 6,378.89 2,866.83 5,666.04 1,569.07 2,527.14 19,467.27 Rural Development 351.33 6,360.03 3,382.00 6,226.70 1,836.25 1,454.44 19,610.74 Environmental and Natural Resources Management 499.86 9,962.87 3,576.20 5,307.62 1,713.34 2,293.00 23,352.89 Total Themes 3,076.56 56,855.17 48,380.97 71,910.01 14,543.97 16,371.77 211,138.45 Agriculture, Fishing, and Forestry 276.88 3,623.34 2,494.17 3,893.61 1,986.37 580.51 12,854.87 Law and Justice and Public Administration 479.79 5,164.82 10,766.20 20,134.09 1,861.22 1,205.58 39,611.70 Information and Communication 221.57 1,631.61 716.66 464.20 251.61 72.23 3,357.87 Education 143.83 3,399.28 1,611.90 6,816.33 1,110.87 98.08 13,180.27 Finance 104.15 7,646.44 5,895.33 11,155.63 1,981.63 1,358.30 28,141.47 Health and Other Social Services 160.55 2,065.79 3,612.06 8,629.64 1,045.14 245.00 15,758.18 Industry and Trade 356.42 5,354.85 8,817.10 2,953.80 2,490.27 1,255.39 21,227.82 Energy and Mining 597.23 11,604.15 8,587.78 3,633.45 1,094.35 6,583.29 32,100.25 Transportation 185.33 11,215.95 4,345.42 9,267.05 1,280.80 4,188.63 30,483.18 Water, Sanitation, and Flood Protection 550.82 5,148.95 1,534.35 4,962.21 1,441.72 784.77 14,422.82 Total Sectors 3,076.56 56,855.17 48,380.97 71,910.01 14,543.97 16,371.77 211,138.45 Note: Figures are cumulative since fiscal 1990, the first year for which reclassified sector and theme data are available (see table 2.2, page 35 in The World Bank Annual Report 2003: Volume I, Year in Review). Amounts may not add to totals due to rounding. a. No account is taken of cancellations subsequent to original commitment. IBRD loans to IFC are excluded. (continued next page) IBRD and IDA Cumulative Lending since Fiscal 1990 by Sector and Theme and by Region, June 30, 2003 141 Appendix 8 (continued) IDA loans to borrowers, by regiona Europe Latin Middle East Asia and America East and and Central and the North South Purpose Africa Pacific Asia Caribbean Africa Asia Total Economic Management 2,371.82 248.72 397.45 403.86 32.20 904.76 4,358.80 Public Sector Governance 5,756.68 494.91 606.59 512.91 151.06 1,941.12 9,463.27 Rule of Law 476.24 120.10 209.58 112.30 6.52 178.81 1,103.54 Financial and Private Sector Development 7,959.19 1,563.13 1,882.97 841.94 397.49 3,006.33 15,651.04 Trade and Integration 1,804.00 247.04 141.26 182.51 11.62 526.24 2,912.66 Social Protection and Risk Management 1,962.70 955.54 449.50 420.97 183.81 1,795.76 5,768.28 Social Development, Gender, and Inclusion 2,959.73 835.05 316.68 314.49 397.43 3,890.56 8,713.93 Human Development 4,845.57 1,597.10 355.22 315.45 322.42 5,004.34 12,440.09 Urban Development 3,779.62 1,291.16 433.77 294.26 230.54 1,279.20 7,308.54 Rural Development 4,299.21 3,715.85 512.81 607.39 431.24 4,522.88 14,089.38 Environmental and Natural Resources Management 2,363.61 1,974.23 303.67 249.01 321.05 2,634.77 7,846.35 Total Themes 38,578.35 13,042.83 5,609.48 4,255.09 2,485.37 25,684.76 89,655.88 Agriculture, Fishing, and Forestry 2,747.13 3,043.40 493.15 311.58 358.07 3,986.02 10,939.34 Law and Justice and Public Administration 9,515.23 1,374.08 1,407.73 1,214.74 327.92 3,372.17 17,211.88 Information and Communication 333.81 59.48 17.99 40.38 3.64 224.30 679.60 Education 3,733.44 1,343.24 186.36 448.89 367.07 3,878.16 9,957.17 Finance 2,293.95 862.83 659.13 255.13 217.41 1,202.52 5,490.97 Health and Other Social Services 4,801.12 1,427.67 549.45 578.52 454.49 5,546.87 13,358.12 Industry and Trade 3,669.92 1,003.23 959.96 285.95 194.11 1,729.45 7,842.61 Energy and Mining 3,383.01 1,282.58 592.81 175.65 66.62 1,690.19 7,190.87 Transportation 5,679.83 1,406.38 401.98 710.53 190.38 2,353.25 10,742.35 Water, Sanitation, and Flood Protection 2,420.90 1,239.94 340.91 233.74 305.66 1,701.84 6,242.98 Total Sectors 38,578.35 13,042.83 5,609.48 4,255.09 2,485.37 25,684.76 89,655.88 Note: Figures are cumulative since fiscal 1990, the first year for which reclassified sector and theme data are available (see table 2.2, page 35 in The World Bank Annual Report 2003: Volume I, Year in Review). Amounts may not add to totals due to rounding. a. No account is taken of cancellations subsequent to original commitment. IBRD loans to IFC are excluded. 142 The World Bank Annual Report 2003 Appendix 9: IBRD and IDA Cumulative Lending by Country, June 30, 2003 (amounts in millions of U.S. dollars) IBRD loans IDA loans Total Country Number Amount Number Amount Number Amount Afghanistan 28 545.3 28 545 Africa 11 259.8 4 74.4 15 334 Albania 49 699.9 49 700 Algeria 72 5,911.8 72 5,912 Angola 13 360.4 13 360 Argentina 116 20,047.4 116 20,047 Armenia 1 12.0 28 723.9 29 736 Australia 7 417.7 7 418 Austria 9 106.4 9 106 Azerbaijan 20 597.0 20 597 Bahamas, The 5 42.8 5 43 Bangladesh 1 46.1 178 10,468.1 179 10,514 Barbados 12 118.4 12 118 Belarus 4 192.8 4 193 Belgium 4 76.0 4 76 Belize 9 86.2 9 86 Benin 53 794.5 53 795 Bhutan 9 64.3 9 64 Bolivia 14 299.3 68 1,832.2 82 2,131 Bosnia-Herzegovina 0 42 834.3 42 834 Botswana 19 280.7 6 15.8 25 297 Brazil 286 33,182.8 286 33,183 Bulgaria 30 1,801.5 30 1,801 Burkina Faso 0 1.9 60 1,345.6 60 1,348 Burundi 1 4.8 52 902.2 53 907 Cambodia 22 547.2 22 547 Cameroon 45 1,347.8 29 1,207.0 74 2,555 Cape Verde 18 193.9 18 194 Caribbean 4 83.0 2 43.0 6 126 Central African Republic 27 448.5 27 449 Chad 1 39.5 44 973.6 45 1,013 Chile 64 3,710.2 19.0 64 3,729 China 174 27,274.2 71 9,946.7 245 37,221 Colombia 170 11,404.1 19.5 170 11,424 Comoros 18 119.1 18 119 Congo, Democratic Republic of 7 330.0 62 2,105.5 69 2,436 Congo, Republic of 10 216.7 15 314.3 25 531 Costa Rica 40 938.5 5.5 40 944 Côte d'Ivoire 62 2,887.9 25 2,042.5 87 4,930 Croatia 20 1,036.6 20 1,037 Cyprus 30 418.8 30 419 Czech Republic 3 776.0 3 776 Denmark 3 85.0 3 85 Djibouti 16 148.6 16 149 Dominica 2 4.0 3 16.3 5 20 Dominican Republic 33 968.7 3 22.0 36 991 Eastern Africa 1 45.0 1 45 Ecuador 74 2,823.2 5 36.9 79 2,860 Egypt, Arab Republic of 65 4,559.9 41 1,984.0 106 6,544 (continued next page) IBRD and IDA Cumulative Lending by Country, June 30, 2003 143 Appendix 9 (continued) IBRD loans IDA loans Total Country Number Amount Number Amount Number Amount El Salvador 34 981.4 2 25.6 36 1,007 Equatorial Guinea 9 45.0 9 45 Eritrea 12 445.4 12 445 Estonia 8 150.7 8 151 Ethiopia 12 108.6 75 4,183.5 87 4,292 Fiji 12 152.9 12 153 Finland 18 316.8 18 317 France 1 250.0 1 250 Gabon 14 227.0 14 227 Gambia, The 28 259.2 28 259 Georgia 32 725.2 32 725 Ghana 9 207.0 104 4,236.0 113 4,443 Greece 17 490.8 17 491 Grenada 5 17.0 1 23.5 6 41 Guatemala 40 1,404.8 40 1,405 Guinea 3 75.2 58 1,318.5 61 1,394 Guinea-Bissau 23 285.9 23 286 Guyana 12 80.0 19 324.4 31 404 Haiti 1 2.6 36 626.5 37 629 Honduras 33 717.3 32 1,280.4 65 1,998 Hungary 40 4,333.6 40 4,334 Iceland 10 47.1 10 47 India 189 30,526.4 252 29,531.2 441 60,058 Indonesia 253 28,010.8 49 1,613.1 302 29,624 Iran, Islamic Republic of 43 2,490.1 43 2,490 Iraq 6 156.2 6 156 Ireland 8 152.5 8 153 Israel 11 284.5 11 285 Italy 8 399.6 8 400 Jamaica 69 1,660.8 69 1,661 Japan 31 862.9 31 863 Jordan 55 2,281.7 15 85.3 70 2,367 Kazakhstan 23 1,924.0 23 1,924 Kenya 45 1,200.7 82 3,348.0 127 4,549 Korea, Republic of 114 15,647.0 6 110.8 120 15,758 Kosovo 3 11.0 3 11 Kyrgyz Republic 27 649.2 27 649 Lao People's Democratic Republic 34 687.3 34 687 Latvia 19 416.0 19 416 Lebanon 21 1,080.1 21 1,080 Lesotho 2 155.0 29 331.8 31 487 Liberia 19 156.0 14 114.5 33 271 Lithuania 17 490.9 17 491 Luxembourg 1 12.0 1 12 Macedonia, former Yugoslav Republic of 11 276.0 15 378.7 26 655 Madagascar 5 32.9 84 2,326.5 89 2,359 Malawi 9 124.1 73 2,093.5 82 2,218 Malaysia 88 4,150.6 88 4,151 Maldives 7 64.9 7 65 Mali 0 1.9 65 1,565.3 65 1,567 Malta 1 7.5 1 8 Mauritania 3 146.0 49 736.7 52 883 Mauritius 33 459.7 4 20.2 37 480 144 The World Bank Annual Report 2003 IBRD loans IDA loans Total Country Number Amount Number Amount Number Amount Mexico 186 34,992.7 186 34,993 Moldova 9 302.8 12 226.2 21 529 Mongolia 18 307.9 18 308 Morocco 131 8,621.3 3 50.8 134 8,672 Mozambique 45 2,462.7 45 2,463 Myanmar 3 33.4 30 804.0 33 837 Nepal 75 1,731.1 75 1,731 Netherlands 8 244.0 8 244 New Zealand 6 126.8 6 127 Nicaragua 27 233.6 33 1,117.2 60 1,351 Niger 52 1,090.9 52 1,091 Nigeria 84 6,248.2 26 1,814.2 110 8,062 Norway 6 145.0 6 145 OECS Countries 2 10.4 7.1 2 18 Oman 11 157.1 11 157 Pakistan 84 6,614.2 119 6,939.7 203 13,554 Panama 45 1,273.2 45 1,273 Papua New Guinea 35 786.6 9 113.2 44 900 Paraguay 37 816.9 6 45.5 43 862 Peru 92 5,540.7 92 5,541 Philippines 160 11,322.3 5 294.2 165 11,616 Poland 37 5,384.8 37 5,385 Portugal 32 1,338.8 32 1,339 Romania 71 5,984.0 71 5,984 Russian Federation 56 13,141.1 56 13,141 Rwanda 56 1,188.5 56 1,189 Samoa 11 70.5 11 70 São Tomé and Principe 10 68.9 10 69 Senegal 19 164.9 82 2,208.9 101 2,374 Serbia and Montenegro 12 397.0 12 397 Seychelles 2 10.7 2 11 Sierra Leone 4 18.7 30 642.2 34 661 Singapore 14 181.3 14 181 Slovak Republic 5 341.3 5 341 Slovenia 5 177.7 5 178 Solomon Islands 8 49.9 8 50 Somalia 39 492.1 39 492 South Africa 13 302.8 13 303 Spain 12 478.7 12 479 Sri Lanka 12 210.7 82 2,661.4 94 2,872 St. Kitts and Nevis 5 29.0 7.0 5 36 St. Lucia 7 19.2 24.4 7 44 St. Vincent and the Grenadines 3 5.4 1 11.6 4 17 Sudan 8 166.0 47 1,352.9 55 1,519 Swaziland 12 104.8 2 7.8 14 113 Syrian Arab Republic 17 613.2 3 47.3 20 661 Taiwan, China 14 329.4 4 15.3 18 345 Tajikistan 18 322.1 18 322 Tanzania 17 318.9 106 4,161.0 123 4,480 Thailand 118 7,979.1 6 125.1 124 8,104 Togo 1 20.0 41 733.5 42 754 Tonga 3 10.9 3 11 Trinidad and Tobago 22 333.6 22 334 Tunisia 117 5,066.5 5 74.6 122 5,141 (continued next page) IBRD and IDA Cumulative Lending by Country, June 30, 2003 145 Appendix 9 (continued) IBRD loans IDA loans Total Country Number Amount Number Amount Number Amount Turkey 136 20,417.9 10 178.5 146 20,596 Turkmenistan 3 89.5 3 90 Uganda 1 9.1 86 3,807.9 87 3,817 Ukraine 26 3,522.9 26 3,523 Uruguay 53 2,370.7 53 2,371 Uzbekistan 13 554.1 45.0 13 599 Vanuatu 5 18.9 5 19 Venezuela, República Bolivariana de 40 3,328.4 40 3,328 Vietnam 39 4,155.6 39 4,156 Western Africa 1 6.1 3 52.5 4 59 Yemen, Republic of 128 2,173.3 128 2,173 Yugoslavia, former 89 6,090.7 89 6,091 Zambia 27 679.1 54 2,641.8 81 3,321 Zimbabwe 24 983.2 12 662.0 36 1,645 Overall Result 4,723 382,702.5 3,587 142,356.0 8,310 525,059 Note: Joint IBRD/IDA operations are counted only once, as IBRD operations. When more than one loan is made for a single project, the operation is counted only once. Amounts may not add to totals because of rounding. 146 The World Bank Annual Report 2003 Appendix 10: Projects Approved for IBRD and IDA Assistance in Fiscal 2003, by Region, July 1, 2002­June 30, 2003 (amounts in millions of U.S. dollars) IBRD loans IDA loans Total Country Number Amount Number Amount Number Amount Africa Africa 1 14.5 1 15 Angola 2 49.6 2 50 Benin 0 10.0 0 10 Burkina Faso 4 160.1 4 160 Burundi 1 77.7 1 78 Cameroon 2 81.1 2 81 Cape Verde 1 15.5 1 16 Chad 3 137.1 3 137 Congo, Democratic Republic of 1 454.0 1 454 Congo, Republic of 1 41.0 1 41 Eritrea 1 60.0 1 60 Ethiopia 5 404.0 5 404 Ghana 3 219.6 3 220 Guinea 2 25.3 2 25 Kenya 2 110.5 2 111 Madagascar 3 162.0 3 162 Malawi 3 136.9 3 137 Mozambique 3 200.6 3 201 Niger 2 60.0 2 60 Nigeria 3 229.7 3 230 Rwanda 2 115.5 2 116 Senegal 1 46.0 1 46 Sierra Leone 4 105.0 4 105 South Africa 1 15.0 1 15 Tanzania 3 250.5 3 250 Uganda 4 406.5 4 407 Zambia 3 149.5 3 150 Total 1 15.0 60 3,722.2 61 3,737 East Asia and Pacific Cambodia 0.0 3 68.9 3 69 China 6 1,145.0 0.0 6 1,145 Indonesia 5 438.5 145.0 5 584 Lao People's Democratic Republic 0.0 2 24.7 2 25 Mongolia 0.0 1 7.5 1 8 Philippines 3 183.6 0.0 3 184 Samoa 0.0 1 4.5 1 4 Vietnam 0.0 3 293.1 3 293 Total 14 1,767.1 10 543.7 24 2,311 Europe and Central Asia Albania 0.0 2 43.0 2 43 Armenia 0.0 1 40.0 1 40 Azerbaijan 0.0 2 65.9 2 66 Bosnia-Herzegovina 0.0 3 22.7 3 23 Bulgaria 4 268.4 0.0 4 268 Croatia 2 53.0 0.0 2 53 Georgia 0.0 4 75.4 4 75 Kazakhstan 1 40.4 0.0 1 40 Kosovo 0.0 3 11.0 3 11 Kyrgyz Republic 0.0 2 27.8 2 28 Latvia 1 20.2 0.0 1 20 Moldova 0.0 3 24.7 3 25 Romania 5 485.6 0.0 5 486 Russian Federation 5 581.1 0.0 5 581 Serbia and Montenegro 0.0 8 225.3 8 225 Slovak Republic 1 5.4 0.0 1 5 Tajikistan 0.0 1 20.0 1 20 Turkey 1 300.0 0.0 1 300 (continued next page) Projects Approved for IBRD and IDA Assistance in Fiscal 2003, by Region, July 1, 2002­June 30, 2003 147 Appendix 10 (continued) IBRD loans IDA loans Total Country Number Amount Number Amount Number Amount Ukraine 4 300.1 0.0 4 300 Uzbekistan 1 35.0 25.0 1 60 Total 25 2,089.2 29 580.8 54 2,670 Latin America and the Caribbean Argentina 2 1,100.0 0.0 2 1,100 Bolivia 0.0 3 80.0 3 80 Brazil 9 1,237.2 0.0 9 1,237 Chile 1 25.3 0.0 1 25 Colombia 5 905.0 0.0 5 905 Dominican Republic 2 72.0 0.0 2 72 Ecuador 2 100.0 0.0 2 100 El Salvador 1 18.2 0.0 1 18 Grenada 2 7.0 7.0 2 14 Guatemala 2 79.5 0.0 2 80 Guyana 0.0 2 16.8 2 17 Honduras 0.0 2 21.9 2 22 Jamaica 3 129.8 0.0 3 130 Mexico 4 1,171.7 0.0 4 1,172 Nicaragua 0.0 2 27.0 2 27 Peru 5 242.5 0.0 5 243 St. Kitts and Nevis 1 4.1 0.0 1 4 Trinidad and Tobago 1 20.0 0.0 1 20 Uruguay 4 555.6 0.0 4 556 Total 44 5,667.8 9 152.7 53 5,820 Middle East and North Africa Algeria 2 183.5 0.0 2 183 Djibouti 0.0 1 23.0 1 23 Egypt, Arab Republic of 1 12.4 0.0 1 12 Iran, Islamic Republic of 2 200.0 0.0 2 200 Jordan 2 240.0 0.0 2 240 Lebanon 1 31.5 0.0 1 32 Morocco 3 75.9 0.0 3 76 Tunisia 2 112.4 0.0 2 112 Yemen, Republic of 0.0 3 177.4 3 177 Total 13 855.6 4 200.4 17 1,056 South Asia Afghanistan 0.0 4 215.2 4 215 Bangladesh 0.0 5 554.4 5 554 India 2 836.0 5 686.6 7 1,523 Nepal 0.0 3 96.6 3 97 Pakistan 0.0 7 297.2 7 297 Sri Lanka 0.0 5 232.7 5 233 Total 2 836.0 29 2,082.7 31 2,919 Overall Result 99 11,230.7 141 7,282.5 240 18,513 Note: Supplements are included in the amount but are not counted as separate lending operations. Joint IBRD/IDA operations are counted only once, as IBRD operations. Amounts may not add to totals because of rounding. 148 The World Bank Annual Report 2003 Appendix 11: Projects Approved for IBRD and IDA Assistance in Fiscal 2003, by Network, July 1, 2002­June 30, 2003 (amounts in millions of U.S. dollars) Network/Country IBRD IDA Total Environmentally and Socially Sustainable Development Albania 0.0 15.0 15 Azerbaijan 0.0 35.0 35 Bosnia-Herzegovina 0.0 15.7 16 Bangladesh 0.0 18.2 18 Algeria 95.0 0.0 95 Egypt, Arab Republic of 12.4 0.0 12 Ethiopia 0.0 90.0 90 Georgia 0.0 15.7 16 Ghana 0.0 5.0 5 Guatemala 32.8 0.0 33 Honduras 0.0 12.0 12 Croatia 25.7 0.0 26 Indonesia 249.3 70.5 320 India 0.0 370.6 371 Iran, Islamic Republic of 20.0 0.0 20 Kenya 0.0 60.0 60 Cambodia 0.0 22.0 22 Kazakhstan 40.4 0.0 40 Lao People's Democratic Republic 0.0 24.7 25 Morocco 26.8 0.0 27 Malawi 0.0 50.0 50 Mexico 666.6 0.0 667 Niger 0.0 35.0 35 Philippines 150.0 0.0 150 Pakistan 0.0 20.0 20 Romania 25.0 0.0 25 Yemen, Republic of 0.0 24.0 24 Tunisia 34.0 0.0 34 Tanzania 0.0 56.6 57 Ukraine 195.1 0.0 195 Uganda 0.0 31.5 32 Uzbekistan 35.0 25.0 60 Zambia 0.0 90.0 90 Total 1,608.1 1,086.6 2,695 Financial Sector Africa 0.0 14.5 15 Bangladesh 0.0 37.0 37 Colombia 150.0 0.0 150 Honduras 0.0 9.9 10 Jamaica 75.0 0.0 75 Mexico 505.1 0.0 505 Nepal 0.0 16.0 16 Pakistan 0.0 26.5 27 Romania 300.0 0.0 300 Serbia and Montenegro 0.0 80.0 80 Total 1,030.1 183.9 1,214 Human Development Afghanistan 0.0 98.8 99 Angola 0.0 33.0 33 Argentina 600.0 0.0 600 Azerbaijan 0.0 18.0 18 Bosnia-Herzegovina 0.0 7.0 7 Burkina Faso 0.0 2.3 2 (continued next page) Projects Approved for IBRD and IDA Assistance in Fiscal 2003, by Network, July 1, 2002­June 30, 2003 149 Appendix 11 (continued) Network/Country IBRD IDA Total Bulgaria 50.0 0.0 50 Burundi 0.0 23.7 24 Bolivia 0.0 35.0 35 Brazil 695.1 0.0 695 Chile 25.3 0.0 25 Colombia 355.0 0.0 355 Djibouti 0.0 12.0 12 Dominican Republic 72.0 0.0 72 Ecuador 50.0 0.0 50 Eritrea 0.0 60.0 60 Ethiopia 0.0 28.3 28 Grenada 7.0 7.0 14 Georgia 0.0 40.3 40 Ghana 0.0 89.6 90 Guinea 0.0 20.3 20 Croatia 27.3 0.0 27 Indonesia 31.1 74.5 106 India 0.0 316.0 316 Jamaica 39.8 0.0 40 Jordan 120.0 0.0 120 Kenya 0.0 50.0 50 Cambodia 0.0 27.0 27 St. Kitts and Nevis 4.1 0.0 4 Sri Lanka 0.0 52.9 53 Morocco 4.1 0.0 4 Moldova 0.0 5.5 6 Malawi 0.0 60.0 60 Mozambique 0.0 55.0 55 Niger 0.0 25.0 25 Nigeria 0.0 129.7 130 Nepal 0.0 5.0 5 Peru 152.5 0.0 153 Philippines 33.6 0.0 34 Pakistan 0.0 60.7 61 Romania 60.0 0.0 60 Russian Federation 180.0 0.0 180 Rwanda 0.0 30.5 31 Sierra Leone 0.0 75.0 75 Chad 0.0 42.3 42 Tajikistan 0.0 20.0 20 Turkey 300.0 0.0 300 Trinidad and Tobago 20.0 0.0 20 Ukraine 60.0 0.0 60 Uganda 0.0 100.0 100 Vietnam 0.0 138.8 139 Kosovo 0.0 4.5 5 Serbia and Montenegro 0.0 102.8 103 Zambia 0.0 42.0 42 Total 2,886.8 1,892.6 4,779 Poverty Reduction Economic Management Afghanistan 0.0 8.4 8 Armenia 0.0 40.0 40 Angola 0.0 16.6 17 Argentina 500.0 0.0 500 Bangladesh 0.0 300.0 300 Burkina Faso 0.0 35.0 35 Bulgaria 34.2 0.0 34 Burundi 0.0 54.0 54 Benin 0.0 10.0 10 Bolivia 0.0 25.0 25 Brazil 409.0 0.0 409 Congo, Republic of 0.0 41.0 41 150 The World Bank Annual Report 2003 Network/Country IBRD IDA Total Cameroon 0.0 3.3 3 Colombia 300.0 0.0 300 Cape Verde 0.0 4.0 4 Ecuador 50.0 0.0 50 Ethiopia 0.0 26.2 26 Ghana 0.0 125.0 125 Guyana 0.0 16.8 17 Jordan 120.0 0.0 120 Kenya 0.0 0.5 1 Kyrgyz Republic 0.0 27.8 28 Sri Lanka 0.0 125.0 125 Latvia 20.2 0.0 20 Madagascar 0.0 50.0 50 Mongolia 0.0 7.5 8 Malawi 0.0 23.7 24 Mozambique 0.0 145.6 146 Nicaragua 0.0 15.0 15 Pakistan 0.0 190.0 190 Russian Federation 240.0 0.0 240 Rwanda 0.0 85.0 85 Slovak Republic 5.4 0.0 5 Sierra Leone 0.0 30.0 30 El Salvador 18.2 0.0 18 Chad 0.0 40.0 40 Tanzania 0.0 0.4 0 Ukraine 40.0 0.0 40 Uganda 0.0 275.0 275 Uruguay 303.0 0.0 303 Vietnam 0.0 154.3 154 Kosovo 0.0 5.0 5 Serbia and Montenegro 0.0 26.5 27 Total 2,040.1 1,906.6 3,947 Private Sector Infrastructure Afghanistan 0.0 108.0 108 Albania 0.0 28.0 28 Azerbaijan 0.0 12.9 13 Bangladesh 0.0 199.1 199 Burkina Faso 0.0 122.8 123 Bulgaria 184.2 0.0 184 Bolivia 0.0 20.0 20 Brazil 133.1 0.0 133 Cameroon 0.0 77.7 78 China 1,145.0 0.0 1,145 Colombia 100.0 0.0 100 Cape Verde 0.0 11.5 12 Djibouti 0.0 11.0 11 Algeria 88.5 0.0 88 Ethiopia 0.0 259.5 260 Georgia 0.0 19.4 19 Guinea 0.0 5.0 5 Guatemala 46.7 0.0 47 Indonesia 158.1 0.0 158 India 836.0 0.0 836 Iran, Islamic Republic of 180.0 0.0 180 Jamaica 15.0 0.0 15 Cambodia 0.0 19.9 20 Lebanon 31.5 0.0 32 Sri Lanka 0.0 54.8 55 Morocco 45.0 0.0 45 Moldova 0.0 19.2 19 (continued next page) Projects Approved for IBRD and IDA Assistance in Fiscal 2003, by Network, July 1, 2002­June 30, 2003 151 Appendix 11 (continued) Network/Country IBRD IDA Total Madagascar 0.0 112.0 112 Malawi 0.0 3.2 3 Nigeria 0.0 100.0 100 Nicaragua 0.0 12.0 12 Nepal 0.0 75.6 76 Peru 90.0 0.0 90 Romania 100.6 0.0 101 Russian Federation 161.1 0.0 161 Yemen, Republic of 0.0 153.4 153 Senegal 0.0 46.0 46 Chad 0.0 54.8 55 Tunisia 78.4 0.0 78 Tanzania 0.0 193.5 194 Ukraine 5.0 0.0 5 Uruguay 252.5 0.0 253 Samoa 0.0 4.5 4 Kosovo 0.0 1.5 2 Serbia and Montenegro 0.0 16.0 16 South Africa 15.0 0.0 15 Zambia 0.0 17.5 18 Congo, Democratic Republic of 0.0 454.0 454 Total 3,665.7 2,212.9 5,879 Overall Result 11,230.7 7,282.5 18,513 Note: Supplements are included in the amount but are not counted as separate lending operations. Joint IBRD/IDA operations are counted only once, as IBRD operations. Amounts may not add to totals because of rounding. 152 The World Bank Annual Report 2003 Appendix 12: Cumulative IDA Subscriptions and Contributions through June 30, 2003 Cumulative IDA subscriptions Cumulative IDA subscriptions and contributions and contributions Member (millions of U.S. dollars) (percent of total) Argentina 69.86 0.06 Australia 2,077.65 1.75 Austria 912.57 0.77 Barbados 0.63 0.00 Belgium 1,791.41 1.51 Bosnia-Herzegovina 2.34 0.00 Botswana 1.61 0.00 Brazil 372.69 0.31 Canada 5,269.70 4.43 Colombia 24.42 0.02 Croatia 5.59 0.00 Czech Republic 43.60 0.04 Denmark 1,739.44 1.46 Finland 802.25 0.67 France 8,593.73 7.23 Germany 14,070.02 11.84 Greece 60.91 0.05 Hungary 54.17 0.05 Iceland 29.81 0.03 Ireland 144.32 0.12 Israel 25.99 0.02 Italy 4,496.85 3.78 Japan 26,231.13 22.07 Korea, Republic of 438.59 0.37 Kuwait 707.39 0.60 Luxembourg 67.48 0.06 Macedonia, former Yugoslavia 1.03 0.00 Mexico 138.22 0.12 Netherlands, Kingdom of the 4,502.41 3.79 New Zealand 154.33 0.13 Norway 1,642.68 1.38 Oman 1.34 0.00 Poland 62.69 0.05 Portugal 93.81 0.08 Russian Federation 202.55 0.17 Saudi Arabia 2,208.21 1.86 Serbia and Montenegro 6.85 0.01 Singapore 18.41 0.02 Slovak Republic 14.44 0.01 Slovenia 3.02 0.00 South Africa 103.47 0.09 Spain 682.83 0.57 Sweden 3,256.70 2.74 Switzerland 1,869.01 1.57 Turkey 127.53 0.11 United Arab Emirates 5.58 0.00 United Kingdom 9,604.21 8.08 United States 25,841.78 21.74 Total donors 118,575.27 99.76 Total nondonors 282.58 0.24 Grand Total 118,857.85 100.00 Note: Amounts may not add to totals because of rounding. Cumulative IDA Subscriptions and Contributions through June 30, 2003 153 Appendix 13: Development Committee Communiqués, Fiscal 2003 1. We met today to discuss implementation of the therefore welcomed the increased attention to trade strategies and decisions agreed in Monterrey and issues in the work of the World Bank and Interna- Johannesburg and achieving debt sustainability for tional Monetary Fund in support of a successful heavily indebted poor countries. Doha Development Agenda. We urged intensified efforts to mainstream trade in the development dia- 2. At our meeting last April, we welcomed the very logue with the Bank's members, with an enhanced important progress achieved in Monterrey laying out operational focus on building both institutional and a new partnership between developed and develop- physical capacity to help developing countries take ing countries, based on mutual responsibility and advantage of new trade opportunities. accountability, to achieve measurable improvements in sustainable growth and poverty reduction. We 5. Last April, we endorsed a World Bank plan to help welcomed the announcements by a number of make primary education a reality for all children by donors of significant increases in their ODA. Earlier 2015 and gender equality in primary and secondary this month, the WSSD concluded in Johannesburg education by 2005. Today we reviewed implementa- with a number of decisions that provide additional tion of the Fast Track Initiative and requested a direction to our task of eradicating poverty and progress report on results achieved for our next achieving sustainable development. A series of meeting. In addition, we considered the challenges important commitments were made in the areas of of scaling up activities in two additional areas-- water and sanitation, energy, health, agriculture, HIV/AIDS/Communicable Diseases and water and biodiversity and ecosystem management, accompa- sanitation. We urged the World Bank to pursue its nied by the launch of implementation initiatives. work in these areas. Today we committed ourselves with a new vigor and 6. We endorsed the overall approach set out for determination to implement the agreed strategies discussion today for making results central to the and partnerships and to use our future meetings management of development programs in both regularly to review progress through clear and developing countries and in development agencies. measurable indicators. Building on the outcomes of We urged the Bank to expedite implementation of Monterrey and Johannesburg, we also intend to have the action plan for increasing its results orientation further discussions on global public goods. and to intensify its work with multilateral and bilat- 3. The global community must now convert the eral partners to share information on planned and ideas and the shared approaches agreed in Doha, ongoing country development activities, including Monterrey and Johannesburg into concrete action diagnostic work and operational support, as a basis and measure ongoing progress. Experience has for enhanced alignment of donor support for repeatedly shown that progress will only be made national development strategies. We also urged through implementation of sound and sustainable increased use of joint evaluations of donor programs, country-driven strategies. To make existing and new especially for country and sector program support, aid commitments more effective, these strategies to complement assessments of individual agencies' must also be supported by better coordination and performance, including as development partners. We cooperation amongst development partners and by highlighted the need for increased and coordinated effective alignment of donor support with country donor support for capacity building, including for strategies. We underline our commitment to work results-oriented monitoring and evaluation and together and with civil society and the private sector, statistics. We asked the Bank to report on these under the leadership of the government concerned, efforts at our next meeting. in a coherent way to achieve concrete results. 7. We recognized the need for intensified efforts to harmonize operational policies and procedures of 4. We reaffirmed the crucial importance of trade as bilateral and multilateral agencies at the institutional a source of growth and poverty reduction. We recog- and country levels so as to enhance aid effectiveness nized that it is essential for developed countries to and efficiency and promote greater ownership by do more to open their markets and eliminate trade- developing countries. We committed to further distorting subsidies for products that represent major action in streamlining such policies, procedures and potential exports for developing countries, such as requirements over the period leading to the high- agriculture, textiles and clothing. At the same time, level forum scheduled in Rome in February 2003 we recognized the importance of continued efforts and beyond. towards trade liberalization in developing countries as part of an overall development strategy, in con- 8. Recognizing the special challenges faced by Africa junction with the necessary policies and capacities in meeting the millennium development goals, we that facilitate an appropriate supply response and urge the Bank and the IMF to scale up assistance minimize the adjustment burdens on the poor. We to these countries and to build on the NEPAD 154 The World Bank Annual Report 2003 initiative as a unique opportunity to make significant contributions as early as possible. At the same time, and quick progress building on African leadership. we reaffirm our commitment to ensuring that the cost of debt relief to IDA is not permitted to com- 9. Our discussions have reinforced our conviction promise IDA's resources, and we note the arrange- that major progress on achieving the Millennium ments in place to accomplish this objective. Development Goals is possible. What is needed now is determined implementation of agreed strategies 12. We reviewed further experience with PRSPs and partnerships on the part of both developed and which confirmed the broad findings of the joint developing countries, as well as multilateral agencies Bank/Fund review earlier this year. The Committee and the setting out of a clear framework identifying is encouraged by the increased momentum in coun- responsibilities and accountabilities by which tries' efforts to develop and implement their PRSPs. progress can be regularly measured. The Develop- We call on the Fund and Bank together with all ment Committee intends to contribute to moving donors to align their support with country PRSPs this implementation agenda forward through regular and to collaborate with each other to: strengthen monitoring and review of the policies, actions and their analysis of the sources of growth; streamline outcomes needed to achieve these goals. We request conditionality; help countries improve their public the Bank and the Fund to present proposals at our expenditure management systems; facilitate an next meeting for taking this forward, whilst recog- environment conducive to private sector develop- nizing the role of the United Nations in monitoring ment; and intensify efforts to help countries under- the MDGs. take poverty and social impact analyses on a more systematic basis. 10. The Monterrey Summit also stressed the impor- tance of greater coherence, coordination and cooper- 13. Finally we reviewed the role being played by the ation among multilateral organizations and the need Bank and Fund, in collaboration with other interna- to broaden and strengthen participation of develop- tional institutions, in combating money laundering ing countries and countries with economies in tran- and the financing of terrorism (AML/CFT). We sition in international decision-making and norm- endorse the conditional addition of the FATF 40+8 setting. The Summit encouraged the World Bank and Recommendations to the list of international stan- the IMF to find pragmatic and innovative ways to dards and codes useful to the operational work of the further enhance participation of these countries and Bank and the Fund, and the conditional beginning of thereby to strengthen the international dialogue and the 12 month pilot program of comprehensive work of these institutions. We requested the Bank AML/CFT assessments and accompanying ROSCs, and the Fund to prepare a background document to in accordance with the voluntary, cooperative and facilitate consideration of these important issues at uniform approach. We encourage the Bank and the our next meeting. Fund to continue to integrate these issues into their diagnostic and surveillance work in line with their 11. We welcomed the continued progress made on respective mandates and to enhance their technical the HIPC initiative and reconfirmed our commit- and capacity-building efforts. ment to its implementation and full financing. We fully support the objective of helping our poorest, 14. We express our deep condolences to the family most heavily indebted members achieve an enduring of the late Mr. Bernard Chidzero, former Minister of exit from unsustainable debt but we recognize that Finance of Zimbabwe. Minister Chidzero served considerable challenges remain. Success will require: with great skill and distinction as Chairman of the a sustained commitment by HIPC countries to Development Committee from 1986 to 1990. improvements in domestic policies and economic 15. The next meeting of the Development Commit- management; capacity building for the management tee will be held in Washington, D.C. on April 13, of financial assets and liabilities; full participation 2003. and delivery of relief by all affected creditors; and adequate and sufficiently concessional financing by Washington D.C., April 13, 2003 international financial institutions and the donor community. We call upon all official and commercial creditors that have not yet done so to fully partici- Development Committee Communique pate in the HIPC Initiative. We have asked the Bank and the Fund to undertake an early review of the 1. We met today to review progress in the work of difficult issues of HIPC-to-HIPC debt relief and implementing the strategies, partnerships and actions creditor litigation. We stressed the urgency of meet- agreed in Monterrey and Johannesburg to achieve ing the financing shortfall of the HIPC Trust Fund the Millennium Development Goals1 and to consider which could be up to $1 billion. We welcome the recent announcements of support and call upon 1. From the U.N. Millennium Declaration, endorsed by Heads of State other donor countries to make firm pledges and and Government in the U.N. General Assembly on September 8, 2000. (continued next page) Development Committee Communiqués, Fiscal 2003 155 Appendix 13 (continued) ways to enhance the voice and participation of as well as institutional partners, for the policies and developing and transition countries in our actions for achieving the MDGs and related out- institutions. comes. We urged the Bank and the Fund to continue to work closely with partner agencies--UN, Regional 2. Since our meeting last fall, the global environment Development Banks, OECD/DAC and WTO--using has become more uncertain. Slower economic institutional mandates to guide the division of growth, the war in Iraq, and failure to make more responsibilities for monitoring work. We called upon substantive progress on the Doha Development both multilateral agencies and bilateral donors to Agenda add to the challenge of implementing the take the necessary steps to refine and harmonize global development agenda. We therefore strongly their instruments of analysis and measurement. In reaffirmed our commitment to the global effort this context, we urged the Bank, working in a needed to reduce poverty in developing and transi- participatory manner, to continue to improve the tion countries and achieve the MDGs. Country Policy and Institutional Assessment (CPIA) methodology and the transparency of its application. 3. To accelerate progress toward these and related The urgency of the work on statistical capacity goals, we emphasized the need for policies by both building, especially for those countries most at risk developed and developing countries in partnership of not meeting the MDGs, was underlined. We to generate stronger economic growth comple- looked forward to the next global monitoring report. mented by actions to enhance the capabilities of poor people to participate in growth and access key 6. Continuing progress on the Fast Track Initiative on social services. For developing countries, three inter- Education For All was welcomed although we recog- related areas in particular require strengthened nized that more needs to be done to follow up on efforts: improving the environment for investment the commitment to adequately fund the initial seven and private sector activity, including macroeconomic countries and to provide the required support to stability and supporting infrastructure; strengthening other countries that meet the eligibility criteria. governance, including public financial management, Furthermore, extra efforts are needed to achieve the and capacity in the private and public sector; and 2005 MDG on gender parity in access to primary increasing human capital through broader and and secondary education. We asked, before our next more effective delivery of basic and social services meeting, to be informed on progress. We reviewed to the poor. Such stronger reform efforts by devel- progress on water and sanitation and underlined the oping countries would lay the foundations for important contribution that these make to the other enhanced growth and private financing. As agreed development goals. We welcomed the Bank's recent at Monterrey, these efforts need to be matched with strategy to enhance support to the water sector and stronger support from developed countries, in partic- look forward to its implementation. We noted the ular through increased market access for developing recent report of the Panel on Financing Water Infra- country exports, debt relief, and increases in the structure, and asked the Bank to consider, before our volume, predictability and effectiveness of aid. next meeting, how it can implement relevant recom- Proposals to achieve this, including facilities, are mendations of the Panel report. We also considered being considered and we look forward to progress in progress in health and HIV/AIDS and encouraged the coming months. We are pleased that on April 8, the Bank to strengthen further its cooperation with IDA's Thirteenth Replenishment became effective. other partners and to intensify its efforts at the coun- We also reaffirmed our commitment to increased try level. While each service sector will have to find assistance to the sub-Saharan African and other its own approach to accelerating progress, we under- countries that face special challenges in meeting lined the importance of anchoring the efforts to the MDGs. achieve MDG goals in country-owned strategies such as in PRSPs for low-income countries. We stressed 4. On improving aid quality, including its delivery that sound policies and efforts by developing coun- and management aspects, we called for swift progress tries should be supported by adequate and appropri- in implementing the results agenda and the agree- ate financing and we asked the Bank to report on ments in the Rome Declaration on Harmonization. progress in this regard at our next meeting. We underlined the central importance of anchoring strengthened efforts in country-owned strategies, as 7. We emphasized the critical role of investment in set out for low-income countries in PRSPs, linked to infrastructure for economic growth, and its linkages national budget processes and providing the country with the provision of social services and the attain- context within which donors and international ment of the MDGs. We welcomed the Bank's agencies can align support. renewed commitment to increase its support to such investment and asked the Bank to report on its 5. We welcomed the progress on developing a global further efforts at our next meeting. monitoring framework to allow the Committee to regularly assess progress and to reinforce account- 8. Trade remains of crucial importance to growth and abilities among developing and developed countries, poverty reduction. At a time of global uncertainty, it 156 The World Bank Annual Report 2003 is even more important to demonstrate that multilat- 10. We welcomed the progress made on the HIPC eral cooperation can succeed in meeting the ambi- initiative and reconfirmed our commitment to its tious targets set for the Doha Development Agenda. implementation and full financing. We recalled that We urge countries to come to an agreement quickly achievement of long-term debt sustainability will in those areas where Doha deadlines have already require actions on the part of HIPC countries as well been missed. It is essential for developed countries as development partners to complement debt relief to do more to liberalize their markets and eliminate under the enhanced HIPC initiative. We also recalled trade-distorting subsidies, including in the areas of that within existing guidelines, additional relief can agriculture, textiles and clothing, which are of par- be provided at the completion point, on a case-by- ticular importance for developing countries. At the case basis. We welcomed the donor community same time, we emphasize the importance of trade pledges to close the financing gap in the HIPC Trust facilitation and liberalization efforts in developing Fund and urged donors to translate these into countries. These efforts must be integrated into an concrete contributions in the coming months. We overall development strategy, in conjunction with welcomed the recent paper by the Bank and the the necessary policies, infrastructure and institutional Fund that reviewed the difficult issues of creditor capacities that strengthen their ability to participate participation, including HIPC-to-HIPC debt relief in international trade. We call on the Bank and the and creditor litigation and welcomed the decision by Fund to continue to step up their efforts to support the Bank to explore options to assist with HIPC-to- trade. We urge that future Country Assistance Strate- HIPC debt. We once again reiterated the request gies include trade-enhancing lending operations and that all official bilateral and commercial creditors capacity building for member countries where such that have not yet done so participate in the HIPC trade-related support is a clear country priority. initiative. We look forward to reviewing implementa- tion, including any difficulties encountered in reach- 9. Enhancing the voice and effective participation of ing decision and completion points, at our next developing and transition countries in the work and meeting. decision-making of the Bretton Woods Institutions can contribute importantly to strengthening the in- ternational dialogue and the effectiveness of these 11. We noted that the present situation in Iraq institutions. We welcomed the recent capacity- poses significant challenges, with an urgent need to enhancing decisions by the Executive Boards of the restore security, relieve human suffering and pro- Bank and the Fund and we urge them to consider mote economic growth and poverty reduction. We additional steps that might be taken. These deci- support a further UN Security Council resolution. sions will help to ensure that a more effective capac- We further note that engagement by the interna- ity exists to articulate the views and concerns of all tional community including the Bretton Woods insti- members. We encourage potential donors to actively tutions would be essential for sustained economic, pursue the idea of creating a financing mechanism social, and political development in Iraq, recognizing that could support independent research and advice that the Iraqi people have the responsibility to in key policy areas. Broader and more far-reaching implement the right policies and build their own ideas have also been advanced to help achieve future. The World Bank and the IMF stand ready to enhanced participation in the institutions. We note play their normal role in Iraq's re-development at that a status report by the Fund Executive Board to the appropriate time. They will also monitor closely the IMFC on the adequacy of IMF resources, the the impact of the conflict on all their members and distribution of quotas and the strengthening of stand ready to help and support those adversely Fund governance is to be prepared for its next meet- affected. It is important to address the debt issue, ing. We requested the Boards of the Bank and Fund and we look forward to early engagement of the to consider and elaborate upon options with a poten- Paris Club. tial for broad support, taking account of shareholder and institutional implications. On this basis, we will 12. The next meeting of the Development Commit- pursue our discussions of these matters and tee will be held in Dubai, United Arab Emirates, on requested a progress report for our next meeting. September 22, 2003. Development Committee Communiqués, Fiscal 2003 157 Editor Cathy L. Gagnet, Office of the Publisher, External Affairs, World Bank Assistant to the Editor Caroline L. Banton, Office of the Publisher, External Affairs, World Bank Financial Reporting Michael Ochieng, Financial Reporting and Analysis Division, World Bank Philip A. Birkelbach, Financial Reporting and Analysis Division, World Bank Production Mark Ingebretsen, Office of the Publisher, External Affairs, World Bank Monika D. Lynde, Office of the Publisher, External Affairs, World Bank Mary C. Fisk, Office of the Publisher, External Affairs, World Bank Project Assistant Tad Doyle Editorial Consultants UpperCase Publication Services Grammarians, Inc. Cover Photo World Bank Design Patricia Hord.Graphik Design Typesetting Interactive Composition Corporation Printing Graphic Communications, Inc. THE WORLD BANK TMxHSKIMBy355954zv":&:;:*:; 1818 H Street, NW Washington, DC 20433 USA Telephone: 202 473 1000 Facsimile: 202 477 6391 Internet: www.worldbank.org E-mail: feedback@worldbank.org ISBN 0-8213-5595-3