Public Information Notice No. 04/63

Public Information Notice: IMF Executive Board Approves the FY 2005 Administrative and Capital Budgets

June 16, 2004

On April 28, 2004, the Executive Board of the International Monetary Fund (IMF) approved the IMF's administrative and capital budgets for FY 2005. In keeping with the policy of informing the public of the IMF's financial activities, the staff paper "The FY 2005 Budget and the Medium-Term Expenditure Framework" prepared for the Board's discussion is being published.

Background

The IMF's fiscal year runs from May 1 through April 30. The IMF's administrative budget provides funds for personnel costs, travel, and other recurrent expenses. It is approved by the Board on both a gross and a net basis: the gross budget includes expenditures that are funded from "reimbursements"—mainly external donor contributions for capacity building (technical assistance and training of member country officials) and a small amount of revenue from publications; the net budget is funded from the net income of IMF operations.

The Executive Board sets limits on the gross and the net expenditures and a ceiling on full-time (i.e., open-ended and limited-term) staff positions. The Executive Board also sets a three-year ceiling on expenditures for capital projects starting in the forthcoming fiscal year. Any funds not spent within this time frame lapse, unless reappropriated by the Executive Board. Capital projects comprise building facilities, including regulatory mandated and security related upgrades, and information technology (IT) projects.

Since FY 2002, along with the approval of the administrative and capital budgets for the upcoming fiscal year, the Executive Board is also asked to take note each year of the medium-term expenditure framework (MTEF), which provides an indicative "top-down" constraint on administrative expenditures for the two following fiscal years. The MTEF reflects the costs of existing policies and the existing ceiling on staff positions, as set for FY 2005, allowing for projected price increases in the main inputs—personnel costs, travel, and other expenditures—for FY 2006 and FY 2007, respectively.

The impact of the administrative and capital budgets on the Fund's projected net income and the rate of charge is discussed in a separate staff paper "Review of Fund's Income Position for FY 2004 and FY 2005."

Executive Board Decisions on the FY 2005 Budget

The IMF Executive Board adopted three decisions on April 28:

• Decision No. 1 approved appropriations for the FY 2005 administrative expenditures in the total amount of US$905.1 million (or US$849.6 million net of projected reimbursements). A ceiling of 2,802 full-time staff positions was also approved.

• Decision No. 2 approved an appropriation for capital projects beginning in FY 2005 in the total amount of US$31.8 million applied to the following project categories:

I. Building facilities                   US$8.1 million

II. Information Technology       US$23.7 million

• Decision No. 3 authorized the reimbursement of the General Department for the expenses of conducting the business of the SDR department for the period from May 1, 2003 through April 30, 2004, and the assessment of a levy on all participants in the SDR department.

The Administrative Budget for FY 2005

Within the top-down constraint of maintaining the institution at broadly its present size, the priorities and plans laid out in the October 2003 Managing Director's statement on the IMF work plan provided the policy backdrop for the formulation of the FY 2005 budget. These plans, which were further refined in the Acting Managing Director's Statement for the Spring Meetings, highlight the following principal objectives for the Fund's work in the year ahead: strengthening surveillance as a crisis prevention tool; advancing the work on the low-income policy agenda to achieve the high and sustainable growth needed to reduce poverty and make decisive progress toward the Millennium Development Goals; and enhancing member countries' institutional capacity and ability to resolve crises.

The following actions were approved to help meet the above objectives in the FY 2005 budget.

• An additional 12 staff positions for the African Department to help strengthen the IMF's work on Africa, and on low-income countries more generally; a new unit will assist in integrating Poverty and Social Impact Analysis into the IMF's work on low-income countries.

• A Middle East Technical Assistance Center to be established to augment the Fund's capacity building work in that region.

• Enhanced work on regional surveillance; and, in line with the IMF's Independent Evaluation Office recommendations, regular ex post assessments of country cases involving the prolonged use of Fund resources (UFR).

The above initiatives are to be wholly accommodated through redeployment of positions and dollar resources released from efficiency savings in support activities, from streamlining the IMF's work in Europe and Asia, and from the reduction or elimination of lower priority activities. The FY 2005 administrative budget also provided for an expanded anti-money laundering and combating the financing of terrorism (AML/CFT) program. A part of the costs will be met from redeployment, a part from external finance (for related technical assistance), and a part from a small increase of three positions in the IMF staff ceiling, raising it to 2,802 positions.

In line with the above plans and priorities for FY 2005, area departments, as a group, plan to increase the share of their resources directed to surveillance by a further 0.5 percent from the projected 46 percent in FY 2004, and functional and support departments plan to devote a greater share of their resources to support the UFR work in low-income countries. Overall, departments also plan a small increase of resources devoted to policy development, research and operation of the international monetary system to further strengthen research work on crisis prevention and the international financial architecture, and to capacity building, particularly for the regional technical assistance centers.

In terms of input costs, the FY 2005 administrative budget takes into account lower projected price increases for FY 2005 and incorporates a squeeze on volumes. Contingency provisions for FY 2005 have also been reduced from US$5 million in the FY 2004 budget to US$3 million. Relative to the FY 2004 budget:

• The provision for total salaries rises by 3.9 percent. This allows for the 3.6 percent structural salary increase for staff and a small further addition to staff numbers as vacancies are further reduced. The provision for non-staff salaries (for consultants and contractual employees) has been held broadly constant in nominal terms.

• The provision for benefits and allowances (excluding the budgetary contribution to the SRP) increases by 3.1 percent.

• Taken together, the provision for all non-personnel (travel plus other) expenditures in FY 2005 will fall slightly in nominal terms relative to the FY 2004 budget.

The FY 2005 administrative budget also includes contribution to the Staff Retirement Plan (SRP) equivalent to 14 percent of staff gross remuneration (US$74 million). This reflects the decision to normalize the annual budgetary contribution to the SRP at this 14 percent rate, with drawings from, or additions to reserves, to be made depending on the actuarial assessment of the required contribution rate.

The Medium-Term Capital Plan and the Capital Budget for FY 2005

The medium-term capital plan for FY 2005-FY 2007 sets out the costs of all new capital projects that are scheduled to start in each of the next three years. Within this plan, the Executive Board approves the capital budget (for a three-year period) for capital projects starting in the forthcoming fiscal year. The capital budget approved for FY 2005 includes heightened security projects, such as the installation of chemical and radiological detection devices on all IMF's buildings, further integration of economic databases, and the core network infrastructure for the new Headquarters 2 (HQ2) building.

With the HQ2 building, expected to be completed on time and within the approved budget, no major building works are planned over the medium term. The planned fall in investment on IT reflects the recent spike in such capital spending because of the replacement of the Fund's main administrative and financial information systems over the last two fiscal years.

The Medium-Term Expenditure Framework (MTEF)

As in previous years, the Board was asked to take note of the MTEF for administrative expenditure in FY 2006 and FY 2007. The revised MTEF also takes into account the return of the Annual Meetings to Washington in CY 2005, and an amount of US$5 million to cover the cost of holding the Annual Meetings in Singapore in CY 2006; the opening of the HQ2 building (including the short-term move costs, the savings in lease and property costs; and the operating costs of the new building); and the shift of some IT costs from development (i.e., the capital budget) to operational (i.e., the administrative budget). By 2007, the annual net savings of some US$11 million are projected as a result of these latter two developments. Based on the above assumptions and adjustments, the MTEF indicates that the Fund's net administrative expenditures will increase by 3.6 percent and 3.8 percent in FY 2006 and in FY 2007, respectively.

Future Budget Reforms

Following an external review in 2001, the IMF has been reforming its internal budgetary procedures over the last two years. In the year ahead, reforms will continue on efforts already underway in three areas. A new time reporting system (TRS) will reduce the number of activity codes; adapt the codes to better match the IMF's primary outputs; and decrease the number of staff required to report. A cost allocation system is being developed along with the TRS to allocate staff and non-staff costs to outputs. Earlier in the fiscal year, a task force on performance indicators recommended that the Fund develop a system of performance indicators, emphasizing that, to be successful, the system should be developed with adequate time, ownership, and resources to support it. The above reforms will be supported by a determined effort to improve computerized management information systems, under the guidance of the interdepartmental Information Technology Policy Committee. A large part of this work is being outsourced.

The Board Discussion

In approving the FY 2005 administrative and capital budgets, Executive Directors welcomed the further steps taken in implementing the ambitious budget reform agenda that began in 2002. However, they also pointed to the need to accelerate and complete that agenda, through a more decisive move toward an output-based allocation of the IMF's resources. Several Executive Directors stressed the desirability of adopting a more strategic and medium-term view of the budget process.