world bank group resources & debt cancellation

7/29/2019 World Bank Group Resources & Debt Cancellation

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Wrd B Gr Rsrcs & Db Cc

Jubilee USA Network 222 E Capitol St NE Washington, DC 20003

tel 202.783.3566 fax 202.783.3566 [email protected] www. jubileeusa.org

BRiefinG note SiXjune 20 08

By Thmas Chp

Amca Fds Svc Cmmtt 1501 Chy Stt Phadpha, PA 19102

t 215.241.7000 aca@asc. www.asc./cmc


2/10

Dbt cacat pvdd v th ast dcad has pv a hhy ctv t t cmbatpvty. Bt v wth th adab ts th Havy idbtd P Cts (HiPC) ta-

tv ad Mtata Dbt r itatv (MDri), w-cm cts ct t sd $100m vy day t wathy bata cdts, th itata Mtay Fd ad th Wd

Bak. Ths w pap by Jb uSA ad th Amca Fds Svc Cmmtt dts pt $23.4 b Wd Bak scs that cd b mbzd t d a scat pt

th cst th dbt cacat ts.

i a ct vw by th Wd Bak ts capta adqacy staty1, th Bak ts that th i-

tata Bak rcstct ad Dvpmt (iBrD) has a capta b $10 b.Th Bak as assms a 3% aa a wth at thh 2028. Ths pjctd wth at

s ky ad asab basd th stady dc iBrD d, whch dppd ay20% th ast v yas a. i ths jt pap, w stmat that th Bak cd mbz p

t $11 b m svs by 2020 wtht act ts AAA cdt at, basd a m a-sab assmpt a 0% a wth at. i addt t a tas m svs, ths papccds that th iBrD cd tas a addta $500 m p ya m ts t cm t

yd p t $6.5 b by 2020. F th ast 10 yas, th iBrD has had a ava aa pt $1.7 b; a addta aa tas $500 m cd b mad wtht act th

Baks pata abty cdt at.

i addt t th $17.5 b that th Bak cd mbz m iBrD svs ad aa -cm, th pap stmats th Bak cd at as mch as $5.9 b m itataFac Cpat (iFC) svs ad cm tass by 2020. Wth a -tm tas

20% ts dsatd tad as, th iFC cd at $2 b dbt cac-at. Wth a addta tas $300 m ach ya m ts pat cm, th iFC

cd mbz ath $3.9 b by 2020. Ths s a csvatv ppsa, ad psts y20% th iFCs ava aa cm th ast v yas.

Th pap ccds that by mpy th th stats abv, th Wd Bak cd m-bz as mch as $23.4 b th Baks addta scs twad th cst Wd Bak

dbt cacat, wtht cmpms th Baks pata capacty aca stth.

tv mmr

1

rvw iBrD Statc Capta Adqacy. (2008). Washt, D.C.: Wd Bak gp.


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th dcad sc th tdct th Havy idbtd P Cts (HiPC) itatv ad th Mtata Dbt ritatv (MDri), $70 b w-cm cty dbt has b cacd (t pst va). it s xpctd that at a

b cts ach cmpt pt ths pams, tta dbt cacat w xcd $100 b. Dspt thsmptat ts, th wds mst cmcay mpvshd cts ct t sd $100 m vy day t th

itata Mtay Fd (iMF), th Wd Bak (th Bak) ad th wathy cdts d t svc dbt.

Amp vdc dmstats that dbt cacat s a ctv t by whch t dc pvty.2 Ths pap dts

ptta sc t hp d a xpas dbt cacat t addta w-cm cts pvdd thy dmstatth cmmtmt ad capacty t dct asd ds twads pvty adcat pams.

it shd b td that th a a mb ways t mbz sct scs t ac xpadd dbt cacat sch

as that ppsd by th Jb Act rspsb ld ad expadd Dbt Cacat (Hr.2634/S.2166). o mptatsc d s th mtd, statc sa iMF d svs3, whch hav a ct makt va ay $100 b.4 Ths

mthd pvds py addta ds ad ds t q hh ad bdts. Ath mptat addta sc ds vwd dta ths t s th itata Bak rcstct ad Dvpmt (iBrD) ad th itataFac Cpat (iFC), bth mmbs th Wd Bak gp, whch tth cd mbz p t $23.4 b by 2020. Ths

wd q ss tha 5% th Baks vast assts ad wd t scaty mpact th Baks pats cdt at. Whth bk th d cssay t ac mtata dbt cacat cd cm m ths scs th iMF ad Wd

Bak, xpadd cmmtmts m Wd Bak d vmts cd as b cssay t ac th dbt cacat thats dd t hp mt th Mm Dvpmt gas (MDgs).

Ths b t as that th svs ad pat cm th iBrD ad iFC ca ac a scat v dbt cac

at ad th th Baks mss t d pvty.

The Financial PosiTion oF The iBRD anD iFc

Th iBrD s th mst sc-ch aca sttts th wd, wth m tha $208 b ctv capta. i actth iBrD s m acay sd w tha v b ts 64-ya hsty. it pay ts a cm xcss $1.5 b

Ths hh pts hav ctbtd t th Baks cd-hh v svs, whch w spass $38 b.

As ts scs cmb, th iBrDs d has dppd t 44% capacty. its ct qty-t-as at (e/l at), a ky dcat

aca stth, stads at 34.5%. Ths psts a cas 38% y sx yas. its capta adqacy at, ath kyaca dcat, xptay xcds that th hhy atd baks.5 Pt smpy, th iBrDs aca pst a xcds wha

s cssay t saad ts ma pats ad pct AAA cdt at.6 As w w s, th Wd Bak shas ths vw.

Th iFC, th pvat sct dvpmt am th Wd Bak, has a smay pw aca p.7 Tta assts xcd $40

b, wth dsatd tad as xcd $10 b. Th iFC has td a pt vy ya sc ts cpt 1956i act, th iFC azd a cd-hh $2.6 b cm FY 2007 85% hh tha 2006 ad ay 400% hh tha 2003. its

tta capta casd by 27.6% th past ya a.

The WoRlD Bank caPiTal aDequacy RePoRT

rcty, th Wd Bak pdcd a ta vw ts capta adqacy staty.8 Ths pt cbats th aca pct

dscbd abv ad maks ca that th Baks ct qty t as at s scaty hh tha what s cssay t cvsk ad at sct cm. Th iBrD dts a tat e/l at a 23-27%. gv that th pjctd e/l at FY2008 s 38%, 11 pcta pts hh tha th pp bd, th pt dts a $10 b capta b ad pcds t

ay t th stats by whch ths my cd b mbzd:

(a) icasd xta tass t tts sch as iDA.(b) Tatd sbsdzat tst ats sctd dvpmt tatvs. ($10b @ liBor-200bp)

(c) r-vstmt th scs a m dvsd hh-t, yt sk pt. ($10b @ liBor+300bp)

F 1 th xt pa pdcs th iBrDs pjctd tcm th abvmtd scas thh FY 2028.

i

2 itata Dvpmt Asscat ad itata Mtay Fd Havy idbtd P Cts (HiPC) itatv ad MtataDbt r itatv (MDri)Stats impmtat. (2007). Washt, D.C.: iDA ad iMF.

3 rct Dvpmts iMF gd Sas ad Dbt Cacat. (2008). Jb uSA ntwk.4 Cacat basd makt va d, Ap 2008.5 S Tab 1.6 S Tab 2.7 S Tab 3.8 rvw iBrD Statc Capta Adqacy. (2008). Washt, D.C.: Wd Bak gp


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fiGuRe 1: iBRDS optionS foR uSinG the Capital BuffeR

Th Bak pap avs th thd staty dvscat th Baks vstmt pt t cd hh-t sk assts

a that v th -tm sch vstmt w aat hh cm ad sct capta adqacy. Ths ca -casd cm at stms m th Baks cc that v tm ths $10 b capta b w vapat.

Ths xpctat t sv ss s pdcatd a ky assmpt: a sbstatatd a wth at pjct 3% p

ya thh 2028. Hstca tds Bak d d t ay way sppt ths pjct. Th tta amt tstadas wd t th Bak has dppd by ay 20% th ast v yas a. i act, d has actay dcasd at a av-a aa at 2% sc 1995. Cmbd wth th act that may th Baks ast hstca bws w jy casd

accss t ba aca makts ad hd a pcdtd v svs, a 3% aa a wth pjct smpy dst sqa wth aty. F th sak cmpas, F 2 bw psts th Wd Baks a pjct ats asd m

astc a wth ats 2%, 1% ad 0%.9

fiGuRe 2: eStimateD loan GRoWth SCenaRioS

9 Jb uSA ad th Amca Fds Svc Cmmtt wd k t thak th Ct ecmc ad Pcy rsach th assstac

wth sach ad aayss iBrD scas.

50.0

90.0

130.0

170.0

210.0

250.0

FY20

00

FY20

01

FY20

02

FY20

03

FY20

04

FY20

05

FY20

06

FY20

07

FY20

08

FY20

09

FY20

10

FY20

11

FY20

12

FY20

13

FY20

14

FY20

15

FY20

16

FY20

17

FY20

18

FY20

19

FY2020

FY2021

FY2022

FY20

23

FY2024

FY2025

FY2026

FY2027

FY20

28

4% scenario

3% scenario

2% scenario

1% scenario

0% scenario

Source: Ct ecmc ad Pcy rsach (CePr), 2008

Source: iBrD, 2008.


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i th Wd Baks astc pjcts ay $200 b tstad as by 2028 d t mataz, ts $10 b capta b w t dsappa. F 3 bw stats pjcts th e/l at d th sam a wth scas as abv

Ths bas-cas pjcts assm that th stats dscssd by th Bak pap a mpyd. nt that d thm astc a wth scas (0%-2%), th e/l at 2028 as m 30%-45%, scaty hh tha th Baks ta

a 23%-27%.fiGuRe 3: e/l Ratio unDeR DiffeRent aveRaGe annual loan GRoWth SCenaRioS

Source: CePr, 2008

Wh statc vstmt a pt th capta b may b a ws -tm staty t at cm ad sat t tass t iDA, th sht- th avd vstmt staty th $10 b ds t advac th Baks

mss t dc pvty.

i d t vaat atatv scas t th s ppsd by th iBrD mm, w hav appxmatd th a mms

scas, sc th dy data ad assmpts a t avaab. Th dtas hw ths appxmat t th a mds d ca b d th Appdx. Hwv, t that F 4 bw, th dcs btw th a ad stmatd

scas th e/l at a spsy sma, v th ack mat avaab.

fiGuRe 4: Bank vS. eStimateD hiGh-YielD ($10Bn at liBoR+300Bp) anD loW-YielD ($10Bn at liBoR-200Bp) SCenaRioS

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

FY20

00

FY20

01

FY20

02

FY20

03

FY20

04

FY20

05

FY20

06

FY20

07

FY20

08

FY20

09

FY20

10

FY20

11

FY20

12

FY20

13

FY20

14

FY20

15

FY20

16

FY20

17

FY20

18

FY20

19

FY20

20

FY20

21

FY20

22

FY2023

FY20

24

FY20

25

FY20

26

FY20

27

FY20

28

E/LRatio(%)

4% scenario3% scenario2% scenario1% scenario0% scenario

Series6Series7

10.00

15.00

20.00

25.00

30.00

35.00

40.00

FY20

07

FY20

08

FY20

09

FY20

10

FY20

11

FY20

12

FY20

13

FY20

14

FY20

15

FY20

16

FY20

17

FY20

18

FY20

19

FY20

20

FY20

21

FY20

22

FY20

23

FY20

24

FY20

25

FY20

26

FY20

27

FY20

28

E/LRatio(%)

Estimated High-Yield Scenario

Actual High-Yield Scenario

Estimated Low-Yield Scenario

Actual Low-Yield Scenario

Source: CePr, 2008


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Mobilizing ibRD ResouRces foR Debt cancellation

Th iBrD ad iFC ca mbz p t $23.4 b by 2020 t d scat dbt cacat wtht act th Baks pa

ts, cdt at th tst ats at whch t bws. Hs hw:

a) th bk mpy mxd ry r p d r p $11 rm r rrv.

o pt th $10 b cd b tasd t iDA t vst ad d dbt cacat th sht-tm as pt (a). Thma pt cd b vstd a hh-yd pt as sstd pt (c) d t s a hh v acab

cm th t. nt that d sca (c) F 1, th e/l at sms t v at 30% at 2018 (ad act, smst shty cas at that ya). Ths ssts that y a pt th $10 b capta b wd b dd t mata

a e/l at ad th pp bd th tat a (27%). Th st ca b sd dbt cacat. nt: ths assms 3%ava aa a wth.

i d actay tacks at a at w tha th Bak pjct 3% p ya, th pt th capta b that cd b sd

dbt cacat cass. Th, t s advsab t ay vw ay capta sa staty (.. vy 5 yas) d tvaat whth th Bak s accmat addta qty d t a ctd dcas d at cm atpvs cssay.

F 5 shws th a bas cas sca asd th mxd staty ppsa d th Bak pjct 3% aa a

wth as w as 2%, 1% ad 0% a wth ats.

fiGuRe 5: alteRnative uSeS of iBRD Capital BuffeRSource: CePr, 2008

As shw F 5, d t ssta a e/l at a th pp bd th capta adqacy tat a stabshd by th

iBrD (27%), md ssts that y ad $7.5 b ds t b vstd, v a aa a wth at 3% p yathh FY 2028. Ths avs ad $2.5 b avaab mmdaty dbt cacat. Hwv, w pjct a a wthat 1%, th th amt scs avaab dbt cacat, wh s th e/l at mas at th pp bd

th Bak tat a, cmbs t $9 b. Wth a aa a wth atv 2% sc 1995 whch cds th spk d asscatd wth th Asa Faca Css 1997 t 1998 w ctd that 1% a wth thh FY 2028 s a as

ab cast.

ud th assmpt a $9 b tas, t s mptat t t that a scat pt t w t vstd as th amtdd dbt cacat th Wd Bak ttas a stmatd $4.7 b th st th yas d ppsd satWh cmc md s dway, t s xpctd that vstmt cm wd amt t at ast $1 b b th p

cpa s xhastd. i th Bak xpcs a fat a wth at, whch s z pct, thh 2028, th th t $10 bcapta b cd b dctd t iDA ad wth sbsqt vstmt cm, cd at at ast $11 b tta w-

cm cty dbt cacat.

b) th bk rr dd $500 m pr yr rm m yd p $6.5 y 2020.

F th ast 10 yas, th iBrD has had a ava aa pt $1.7 b. Th Bak pt ctd abv pjcts that FY 2008

th iBrD wd hav a t acab cm $1.25 b. Sc 2004 t has tasd a ava appxmaty $600 m

20.00

22.00

24.00

26.00

28.00

30.00

32.00

34.00

36.00

38.00

40.00

FY20

07

FY20

08

FY20

09

FY20

10

FY20

11

FY20

12

FY20

13

FY20

14

FY20

15

FY20

16

FY20

17

FY20

18

FY20

19

FY20

20

FY20

21

FY20

22

FY20

23

FY20

24

FY20

25

FY20

26

FY20

27

FY20

28

E/LRatio(%)

A. Base Scenario

E. $7.5bn at LIBOR+300bp (3% Annual Average Loan G rowth)

F. $4.5bn at LIBOR+300bp (2% Annual Average Loan G rowth)

G. $1bn at LIBOR+300bp (1% Annual Average Loan Growth)

H. $0bn at LIBOR+300bp (0% Annual Average Loan Growth)

Upper Bound

Lowe r B oun d


7/10

ach ya m ths cm t iDA ad th HiPC Tst Fd.

Cacats th abv e/l ats ddct th t pjctd acab cm d pt (c) vstmt th t $10b capta b a hh-yd pt (s F 1) b dv stmatd qty vas ach mxd-staty sc

a shw F 5. Th, a tas svs t iDA th ppss dbt cacat wd t act c acabcm vs--vs th stmatd e/l ats pstd d th mxd staty ppsa.

ud Bak pjcts shw F 1, pt (c) as w as mxd scas (Tab 5, pts () thh (h)), c a-cab cm wd ava $1.56 b aay btw FY2008-28. icas cm tass t iDA t 70% acab

cm wd pvd a addta $500 m aay ad wd at $6.5 b t pst va tms by 2020 ppss dbt cacat wtht mpact th Baks aca stth sstaabty. Sc 100% acab cm s

ddctd b dv th stmatd qty vas ths paps mxd-staty scas, th ppsd cas cmtass pstd abv s qt asab.

MoBilizing iFc ResouRces

Th itata Fac Cpat (iFC) ca at as mch as $5.9 b m svs ad cm tass by 2020.

Wth a tas t iDA 20% ts dsatd tad as th iFC cd at $2 b dbt cacat ppss

ad st ta m th acct tha t hd jst ast ya. i 2006, th iFC tatd cm tass t iDA wth a $150 mat. i ht cd hh pts, th iFC cmmttd t a casd cm tas appxmaty $600 m aay v

th th-ya iDA 15 pshmt pd. Wth a addta tas $300 m ach ya m ts pat cm ($2.6b FY 2007), th iFC cd at ath $3.9 b by 2020. Sch a tas ppsa psts y 20% th iFCs

ava cm th ast v yas. it avs th sttt wth amp scs t xpad ts pats ad ts pct AAAcdt at.

Th iFCs statd a s t cat pptty pp t scap pvty ad mpv th vs. Mbz a sma pt tsvast scs t hp ac dbt cacat w-cm cts s a pv mas by whch th iFC ca achv sbsta

ta pss twad ths a.

Ay iBrD ad iFC scs mbzd dbt cacat ths ma wd t cm at th aca xps th mdd-

w-cm Wd Bak bw vmts. i th wds, ths paps ppsas a t tatamt t bb Pt tpay Pa. Th scs that wd b ddcatd t dbt cacat cm m xst acab cm ad m a capta b

that, tasd ad vstd at th apppat v, wd s a sct v svs ad capta adqacy bth thsht- ad -tm t pvt th bw by th Bak. Wtht th d t cas cm bw d t psh

svs, th wd b tmat as t cas tst ats as t bw vmts. 10 Fay, ay cm

ad sv tass t iDA wd b py addta cm ad wd t mt iDAs capacty t xtd ats ad cdts tb cts at ts ct ccssa ats.

empy th th stats abv, th Wd Bak cd mbz as mch as $23.4 b twad th cst Wd Bak dbt

cacat wtht cmpms th Baks pata capacty ts aca stth.

RecoMMenDaTionsDbt cacat s a pv mas t dc pvty. i ct yas, cpt vmts hav vstd asd ds

hath ca, dcat, astct, jb cat ad cmc dvpmt tatvs. Th Jb Act rspsb ldad expadd Dbt Cacat (Hr 2634/S2166), a b pd th u.S. Css, wd xpad dbt cacat t addta

w-cm cts ad hp ms m pp xt pvty.

Th Wd Bak s cmmttd t Wk a Wd F Pvty. As th chst sttts ath, th Bak has accd assts that xcd th cmbd cms th 70 mst w-cm cts th wd. its aa cm ctyxcds th gDP at ast 12 dvda Aca stats. T d dbt cacat a b w-cm cts, addta

tass m th iBrD ad iFC t iDA wd q ss tha 5% th Baks vast assts ad wd t mpact ts patacapacty aca stth. Ths atvy sma pt th Wd Baks assts cd a way twads achv th

10 Fthm, ay bw dd bcm cssay th t, th Baks cdt at wd ma th sam as wd th ats at whcht bws, thby at ay d t pass hh bw csts t bw vmts. S Kap, Sy. (2005). Wd Bak

rscs ad Dbt Cacat.11 icsv dbt wd t iDA, th it-Amca Dvpmt Bak (iDB), th Asa Dvpmt Fd (AsDF), th Aca Dvpmt

Fd (ADF) ad ths.


8/10

Baks statd pps ad pvd a scat pt th cssay d t pvd 100% mtata dbt cacat 1

ths cts ky t b mmdaty b d th Jb Act. Basd th vdc pstd, Jb uSA ad th

Amca Fds Svc Cmmtt whhatdy sppt apppat s iBrD ad iFC scs t xpad dbt cacat t addta w-cm cts.

12 Baks: Bak ndads gmt, ladwtschatch rtbak, rabbak gp, uBS Ag, Bacays Bak pc, BnP Pabas, Dask

Bak, Dtsch Bak Ag, ABn Am Bak n.V., Sct ga.


9/10

aPPenDixTh iBrD mm has sva s m whch vsa stmats ca b dvd th pjcts th e/l at, th v a

tstad ad dsbsd ad th mpact th iBrDs acab cm. Wth ths mat, t s pssb t dv qty vsad pasb assmpts abt th makt tst (liBor) at.

i ay v ya (t), th cha qty s qa t th cm atd wth th pvs yas qty v ms acabcm (.. amts avaab tass t th itata Dvpmt Asscat ad th ss). Th v as t

stad ad dsbsd s v, s that th eqty-t-las rat ca b cmptd. Ths d v ws at a aa avaat 3 pct v th FY2007-2028 pd, bt t st dps th st tw yas t stat w aa FY2010. Sc ths 3

pct a wth sca s th bas cas sca, th v d s cstat th atatv scas.1. (e / l) = [e-1* (1+r) a] / [l-1 * (1+ )]

i th hh-yd sca, th capta b $10b (K0) s tak t qty at th b FY2009 ad pt t a hh-ydpt at a tst at qa t th makt at (liBor at) ps 300 bp. i stmats, th ava aa makt at (r)

sd s 2 pct. Th tst ths capta b s vstd vy sbsqt ya. At th sam tm, th capta b appas th dmat as a sk asst, tth wth as tstad ad dsbsd, th e/l at. Ths,

2. (e / l) = [e -1* (1+r) + K-1 *(1+R+0.03) a] / [l -1 * (1+ ) + K0]

i th w-yd sca, th capta b s sd t sbsdz as ad ths, th t s w tha d makt cdts(assmd by th iBrD at a liBor at 200bp). Ths,

3. (e / l) = [e -1* (1+r) + K-1 *(1+R-0.02) a] / [l -1 * (1+ ) + K0]

i th atatv sca ppsd h, th capta b K s wd t $5.5 b.

Sc th dy data ad assmpts sd th a iBrD cacats a kw, th sts btad wth th md

td h pst a cd appxmat th a. evdty, bta th a data ad assmpts cd ad tm accat pjcts.


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0

taBle 3: keY iBRD finanCial Data

taBle 1: Capital aDequaCY of iBRD viS--viS otheR hiGhlY RateD BankS

taBle 2: keY iBRD finanCial Data

world bank group resources & debt cancellation

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