IBRD issues its securities through both global offerings and bond issues tailored to the needs of specific markets or investor types. It issues bonds to investors in various currencies, maturities, and markets, and at fixed and variable terms. It often opens up new markets for international investors by issuing new products or bonds in emerging market currencies. IBRD’s annual funding volumes vary from year to year.
IBRD’s strategy has enabled it to borrow at favorable market terms and pass the savings on to its borrowing members. Funds not immediately deployed for lending are held in IBRD’s investment portfolio to provide liquidity for its operations.
In fiscal 2016, IBRD raised U.S. dollar equivalent (USDeq) 63 billion by issuing bonds in 21 currencies. IBRD’s equity comprises primarily paid-in capital and reserves. Under the terms of the general and selective capital increase resolutions approved by the Board of Governors on March 16, 2011, subscribed capital is expected to increase by $87.0 billion, $5.1 billion of which will be paid in. The subscription periods for selective capital increase and general capital increase are expected to end in March 2017 and March 2018, respectively, following the approval by the Board of Executive Directors of extension requests by shareholders. As of June 30, 2016, the cumulative increase in subscribed capital totaled $73 billion. Related paid-in amounts in connection with the capital increase were $43 billion.
As a cooperative institution, IBRD seeks not to maximize profit but to earn enough income to ensure its financial strength and sustain its development activities. Of fiscal 2016 allocable net income, the Board of Executive Directors recommended to the Board of Governors the transfer of $497 million to IDA and the allocation of $96 million to the General Reserve.
As part of IBRD’s lending, borrowing, and investment activities, IBRD is exposed to market, counterparty, and country credit risks. To manage these risks, IBRD has put in place a strong risk management framework, which supports management in its oversight functions. The framework is designed to enable and support IBRD in achieving its goals in a financially sustainable manner. One summary measure of IBRD’s risk profile is the ratio of equity to loans, which is closely managed in line with its financial and risk outlook. This ratio stood at 22.7 percent as of June 30, 2016.
World Bank Green Bonds
Since 2008, IBRD has issued more than $9.1 billion in 18 currencies through benchmark bonds in U.S. dollars, euros, and Australian dollars; smaller bonds in other currencies; and structured green bonds. World Bank Green Bonds have supported 84 climate-related projects in 24 member countries, where they have increased energy efficiency and helped to develop renewable energy among other impacts.
IBRD issued its first World Bank Green Bond in 2008, making it a pioneer in the green bond market. Since then, its global issuances to both institutional and retail investors, as well as its documentation of its green bond process, use of a second opinion from Cicero, and issuance in 18 currencies have paved the way for the development of the market to a broad range of types of issuers and markets. The Bank has also pioneered efforts to harmonize reporting on the impact of green bonds by other multilateral institutions as an important tool for investors to evaluate the nonfinancial benefits of their investments.
Risk management products
IBRD offers financial products that allow clients to efficiently fund their development programs and manage risks related to currencies, interest rates, commodity prices, and disasters. In fiscal 2016, the Bank’s Treasury executed USDeq 1.1 billion in hedging transactions, including USDeq 790 million in currency conversions and USDeq 349 million in interest rate conversions, to assist borrowers in managing currency and interest rate risks over the life of their IBRD loans. The Bank helped Uruguay to limit its exposure to future oil price increases with the execution of a $330 million hedge transaction, the first time that the Bank has entered into a derivative contract with a member country to manage exposure to commodity price volatility. Disaster risk management transactions included a $43 million transaction to renew coverage of the Pacific Disaster Insurance Program, which provides protection against earthquakes and tropical cyclones in the Cook Islands, the Marshall Islands, Samoa, Tonga, and Vanuatu, on behalf of IDA. The Bank’s Treasury executed swap transactions totaling USDeq 12.5 billion to manage the risks of IBRD’s balance sheet and USDeq 1.5 billion to manage the risks of IDA ’s balance sheet.
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IDA financial commitments, resources, and services
The International Development Association (IDA) is the world’s largest multilateral source of concessional financing for the poorest countries. It provides concessional development credits, grants, and guarantees in support of these countries’ efforts to increase economic growth, reduce poverty, and improve the living conditions of the poor. In fiscal 2016, 77 countries were eligible for IDA assistance. India, which graduated from IDA in fiscal 2014, will receive transitional support on an exceptional basis through the IDA 17 period, which covers fiscal 2015–17.
In fiscal 2016, new IDA lending commitments amounted to $16.2 billion for 162 operations, including $14.4 billion in credits, $1.3 billion in grants, and $500 million in guarantees.
Resources and financial model
IDA is funded largely by contributions from developed and middle-income partner countries. Additional financing comes from transfers from IBRD’s net income, grants from IFC, and borrowers’ repayments of earlier IDA credits. Development partners meet every three years to replenish IDA ’s funds and review its policies. Administrative expenses are recovered primarily through service charges paid by recipient countries.
Under the IDA 17 Replenishment, total resources amount to 37.7 billion in Special Drawing Rights (SDR) (equivalent to $56.8 billion). (This figure reflects updates made after the replenishment discussions.) IDA ’s commitment authority is denominated in SDRs. The U.S. dollar equivalents presented here are based on the reference exchange rate for IDA 17 and provided for illustrative purposes.
A total of 51 partners, 4 of which are new contributing partners, are providing SDR 17.3 billion ($26.1 billion) in grants, of which SDR 0.6 billion ($930 million) is the grant element from concessional partner loan contributions. Partners are providing SDR 2.9 billion ($4.4 billion) in concessional partner loans or SDR 2.2 billion ($3.4 billion) excluding the grant element of the loans. Contributing partners are also expected to provide SDR 3.0 billion ($4.5 billion) in compensation for debt relief under the Multilateral Debt Relief Initiative. Credit reflows (principle and interest repayments) from IDA recipients will provide SDR 9.9 billion ($15.0 billion). This figure includes SDR 1.9 billion ($2.8 billion) from contractual accelerated repayments of outstanding credits from IDA graduates and voluntary prepayments. Transfers from IBRD and IFC, including associated investment income, amount to SDR 1.9 billion ($2.9 billion). These transfers are approved annually by IBRD’s Board of Governors and IFC’s Board of Directors, based on evaluations of the institutions’ annual results and financial capacities.