Managing Trust Funds: Trust Fund Management Framework Update and the Way Forward

1. Managing Trust Funds: Trust Fund Management Framework Update and the Way Forward Junhui Wu Director, Global Partnership and Trust Fund Operations Department (CFPTO) Christian Rey Manager, Global Partnership and Trust Fund Policies (CFPTP) Donor Forum Paris, May 19, 2010

2. Agenda • Trust fund portfolio trends and key issues • The Trust Fund Management Framework (TFMF) and new reform directions • Implementation: Update on TF Reform activities and Donors Consultation

3. Trends in the Trust Fund Portfolio • Portfolio continues to expand in value, complexity, and diversity • Funds held in trust doubled from $11.6 billion in FY05 to $23.8 billion in FY09. At end March 2010, it reached $25.2 billion • Major increase in contributions to financial intermediary funds (FIF) that nearly doubled between FY05 and FY09 • Increasing diversity of new TFs with varying governance, financial, and process arrangements have made the TF portfolio more complex

4. Trends in the Trust Fund Portfolio (Cont’d) Gross IBRD, IDA, and WBG TF Disbursements, FY05-FY09. • RETFs disbursement have increased in absolute terms relative to IDA • By FY09, total TF disbursements reached $6.9 billion. FIF disbursement at $3.4 billion, about half of total TF disbursement Disbursements by Category, FY05-FY09

5. Greater Significance in Supporting Bank’s Work and Partnership Engagements: Components of the WBG TF Portfolio, FY09 Contributions Main Trust Funds Grants Activities Programs 798 IFC/MIGA Executed TF Grants 920 Analytical & Advisory Products (e.g. ESW, TA) 35 IFC Facilities & 1 MIGA 1,437 Lending Products (e.g. IBRD/IDA, GEF Projects) 2,776 Bank- Executed TF Grants 1,045 Main Trust Funds 250 Donors From 83 Countries 182 IBRD/IDA TF Programs 454 Other Products (e.g. CAS, Global Partnerships) 1,053 Recipient- Executed TF Grants 662 Projects by other organizations 16 FIF Programs

6. Key Issues and Challenges • Context: Portfolio growth and increasing complexity, reflecting the evolvement of global aid architecture • Increased fragmentation of concessional finance • Grants financed by FIFs and RETFs has risen from 384 to 772 and average commitment size per grant has fallen from $6 to $5 million (FY05 to FY 09) • Corporate accountability and risk management • Potentially significant reputational risks in the case of global partnerships where the Bank plays no operational role.

7. Key Issues and Challenges (cont’d) • Earmarking of aid through vertical funds may constrain countries flexibility • TF may substitute for, rather than add to, multilateral ODA • How would increasing Bank (as well as donors) decentralization impact evolving aid architecture?

8. The 2007 Trust Fund Management Framework Goal: Mainstream Trust Funds into the Bank’s Strategies and Business Practices Pillar 1 Alignment with Bank Strategies Pillar 2 Risk Management and Controls Pillar 3 Cost Efficiency and Sustainability Conclusion: 3 pillars still remain relevant and significant progress has been made but more needs to be done

9. Further Trust Fund Management Reform Directions Strategic Alignment • Bank-wide coordinating mechanism for fund-raising • Consolidation around CAS pillars • Integration of TFs in planning and budgeting process Integration of Operations & Management Systems • Align with Investments Lending & AAA reforms • Knowledge and disclosure agendas • Improvements in information systems and data reporting • Guidance, training, and communications Portfolio Sustainability • Planned measures to recover costs not captured in current arrangements (annual fee on DBA and holding accounts) • Options for simplified standard fee structure to be developed in FY11

10. Update on TF Reform Activities and Donor Consultation

11. Status of Implementation of the 2007 Trust Fund Management Framework: Pillar 1 • Pillar 1: Alignment with Bank Strategies • All VPUs managing TFs now prepare annual trust fund management plans • At the country level, RETF are increasingly discussed in country assistance strategies and country portfolio performance reviews • TFs are now more explicitly considered by Bank and recipients as integral to overall Bank country programs • Senior Management Review is now in place with regard to Bank’s engagements in complex partnerships • Processed used for FIFs such as: Adaptation Fund, the Climate Investment Funds, the Pilot Advanced Market Commitment, and the recently launched Global Agriculture and Food Security Program

12. Status of Implementation of the 2007 Trust Fund Management Framework: Pillar 2 • Pillar 2: Risk Management and Controls • RETFs > $5 million are now subject to same review and appraisal process as equivalent Bank lending activities • BETFs are subject to the same controls as Bank budget expenditures • Establishment of a new financial management department in the Concessional Finance and Global Partnership Vice Presidency • Expanded review process for FIFs that incorporate systematic assessment of risks and their appropriate management and mitigation

13. Status of Implementation of the 2007 Trust Fund Management Framework: Pillar 3 • Pillar 3: Cost Efficiency and Sustainability • Bank now recovering 92% of the costs of administering TFs • Revised threshold and TF fee structure introduced in January 2008 • New FIFs are established under a full cost-recovery policy based on tracked staff time and expenses for each FIF. • Streamlined CFP structure • Controller’s Vice Presidency and CFP continue to strengthen information systems • Institutional and system enhancements are resulting in more efficient services

14. Trust Fund Cross-cutting Consolidation Exercise: An Opportunity to Shape up the Concessional Finance Agenda Achieving Economies of Scale Consolidation started with expanded use of multi-donor trust funds. Consolidation is one of the drivers of the mainstreaming of TF into regular Bank operations through Aligning TFs to CASs & Network Strategies Strengthening Systems (Legal, Accounting and Reporting) And… a more Structured Approach to Donors and Fund Raising Mechanism

15. Trust Fund Consolidation Exercise: Six Sub-Working Groups Six Sub-Working Groups – Bank-wide effort • Regional Operations: country/regional focus • Networks:sectoral / theme focus • Dormant TFs: including DBA (donor balance account) and holding accounts • Donor consultation: bilateral/multilateral, donor forum • Legal: perspective of consolidation • Portfolio Data: analytical underpinning of consolidation

16. Donors Consultation • Fund raising: A more structured approach • Data reporting: Better Access to data • Disclosure: Improved transparency • Cost recovery: Ensure efficiency and sustainability • Annual fee charged for DBA and holding account 35 bp • Potential for a single fee (all-in cost) based approach will be examined in FY11

17. Thank You!