International Development Association Management’s Discussion & Analysis and Condensed Quarterly Financial Statements December 31, 2018 (Unaudited) Management’s Discussion and Analysis International Development Association (IDA) Management’s Discussion and Analysis December 31, 2018 Contents Section I: Executive Summary Goals and the 2030 Development Agenda 3 Financial Results and Portfolio Performance 3 Key Performance Indicators 5 Section II: Overview Financial Business Model 6 Basis of Reporting 6 Section III: IDA’s Financial Resources IDA18 Funding 7 Allocation of IDA18 Resources 7 Section IV: Financial Results Summary of Financial Results 8 Section V: Risk Management Risk Governance 13 Summary and Management of IDA’s Risks 13 Section VI: Fair Value Analysis Fair Value Analysis and Results 18 Fair Value of Financial Instruments 18 Section VII: Governance External Auditors 20 Senior Management Changes 20 List of Tables, Figures and Boxes Tables 21 Figures 21 Boxes 21 Management’s Discussion and Analysis Section I: Executive Summary This Management’s Discussion & Analysis (MD&A) discusses the results of the International Development Association’s (IDA) financial performance for the six month period ended December 31, 2018 (FY19 YTD). This document should be read in conjunction with IDA’s financial statements and MD&A issued for the fiscal year ended June 30, 2018 (FY18). IDA undertakes no obligation to update any forward-looking statements. IDA produces publicly available information relating to its development operations’ results and corporate performance, which can be found in the World Bank Corporate Scorecard and Sustainability Review. Box 1 provides IDA’s selected financial data as of and for the six months ended December 31, 2018 and December 31, 2017 (FY18 YTD), as well as for the fiscal years ended June 30, 2015-2018. Box 1: Selected Financial Data In millions of U.S. dollars, except ratios which are in percentages As of and for the six months As of and for the Fiscal Years ended June 30, ended December 31, 2018 2017 2018 2017 2016 2015 Lending Highlights (Section IV) Loans, Grants and Guarantees Commitmentsa $ 9,306 $ 8,711 $ 24,010 $ 19,513 $ 16,171 $ 18,966 Gross disbursements 7,608 6,187 14,383 12,718 13,191 12,905 Net disbursements 4,999 3,715 9,290 8,154 8,806 8,820 Balance Sheet (Section IV) Total assets $ 201,591 $ 201,831 $ 206,330 $ 197,041 $ 180,475 $ 178,685 Net investment portfolio 30,109 29,324 33,735 29,673 29,908 28,418 Net loans outstanding 147,184 143,671 145,656 138,351 132,825 126,760 Borrowings 7,316 4,330 7,305 3,660 2,906 2,150 Total equity 161,079 161,240 163,945 158,476 154,700 147,149 Income Statement (Section IV) Interest revenue, net of $ 838 $ 813 $ 1,647 $ 1,521 $ 1,453 $ 1,435 borrowing expenses Transfers from affiliated 251 123 203 599 990 993 organizations and others Development grants (3,194) (2,529) (4,969) (2,577) (1,232) (2,319) Net (loss) income (2,555) (2,621) (5,231) (2,296) 371 (731) Capital Adequacy (Section V) Deployable strategic capital 36.2% 37.4% 37.4% 37.2% NA NA ratio a. Excludes commitments relating to IFC-MIGA Private Sector Window (PSW) activities. 2 IDA Management’s Discussion and Analysis: December 31, 2018 Management’s Discussion and Analysis Section I: Executive Summary Section I: Executive Summary Goals and the 2030 Development Agenda With its many years of experience and its depth of knowledge in the international development arena, IDA plays a key role in achieving the World Bank Group’s (WBG1) overarching goals of ending extreme poverty by 2030 and promoting shared prosperity in a sustainable manner2, and its three priorities of sustainable and inclusive growth, investment in human capital, and strengthening resilience. These goals and priorities reflect and support the international community’s development agenda set for 2030, which include the Sustainable Development Goals (SDGs). The Forward Look: A Vision for the World Bank Group in 2030, describes how the WBG will deliver on its twin goals and its three priorities. The Forward Look rests on four pillars: serving all clients; mobilizing resources for development; leading on global issues; and improving the business model. The Eighteenth Replenishment of IDA (IDA18) represents an innovative policy and financing package for FY18 through FY20. The IDA18 financing framework represents a fundamental shift in IDA’s approach to mobilizing finance since it combines contributions from members with market debt, thereby allowing IDA to provide US$75 billion3 in financing for its clients. IDA18 is integral to the progress IDA is making toward implementing the Forward Look strategy. Financial Results and Portfolio Performance Equity and Capital Adequacy As of December 31, 2018, IDA’s reported equity was $161.1 billion, a decrease of $2.8 billion from June 30, 2018. The decrease was primarily due to the reported net loss and $161.1 billion Total Equity negative currency translation adjustments during the period, partially offset by cash received from members for subscriptions and contributions. The net loss was primarily driven by the impact of development grants provided to IDA’s eligible members. See Section IV: Financial Results. IDA’s deployable strategic capital (DSC) ratio was 36.2% as of December 31, 2018, above the zero percent policy minimum. IDA’s capital continues to be adequate to support its 36.2% DSC operations. See Section V: Risk Management. Lending Operations IDA had $9.3 billion of commitments in FY19 YTD, of which $6 billion were loan and $147.2 billion guarantee commitments. The remaining $3.3 billion were grant commitments, which are Net Loans Outstanding recorded as an expense in IDA’s Statement of Income, net of grant cancellations. IDA’s net loans outstanding increased by $1.5 billion, to $147.2 billion as of December 31, 2018, from $145.7 billion as of June 30, 2018. The key driver of the increase was the $3.3 billion Grant Commitments $3.2 billion of net loan disbursements during the period. 1 The other WBG institutions are the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID). 2 By decreasing the percentage of people living on less than $1.90 a day to no more than 3% by 2030 and improving the income growth of the bottom 40% in each country. 3 U.S. dollar amounts are based on an IDA18 reference rate of USD/SDR 1.40207. The U.S. dollar amounts are provided for illustrative purposes only, as IDA’s balance sheet is predominantly managed in Special Drawing Rights (SDR). IDA Management’s Discussion and Analysis: December 31, 2018 3 Management’s Discussion and Analysis Section I: Executive Summary Net Investment Portfolio IDA’s investments remain concentrated in the upper end of the credit spectrum, with 62% rated AA or above (See Table 13), reflecting IDA’s objective of principal protection and $30.1 billion resulting preference for high quality investments. As of December 31, 2018, the net Net Investment Portfolio investment portfolio was $30.1 billion, a decrease of $3.6 billion compared with June 30, 2018, primarily due to net disbursements of loans and grants. Borrowing Portfolio IDA raised $1.5 billion in fixed-rate market debt in April, 2018, in its first issuance in the international capital markets. The issuance was denominated in U.S. dollars and has $1.5 billion a five-year maturity. Market Borrowings As of December 31, 2018, total borrowings from members - Concessional Partner Loans (CPLs) - were $5.8 billion, largely unchanged compared with June 30, 2018. $5.8 billion CPLs Net Income For FY19 YTD, IDA reported a net loss of $2.6 billion, which was primarily driven by the impact of $3.3 billion of grants provided to IDA’s eligible members. Grants are $2.6 billion financed by contributions from members. These contributions carry voting rights and are Net loss therefore recorded as equity and not reflected in the Statement of Income. 4 IDA Management’s Discussion and Analysis: December 31, 2018 Management’s Discussion and Analysis Section I: Executive Summary Key Performance Indicators In billions of U.S. dollars (except for ratio) Lending – During the first six months of FY19, IDA committed $9.3 billion to help its eligible member countries to finance their development needs. Since IDA’s loans are primarily in SDR, their reported balance is affected by the appreciation/depreciation of the SDR against the U.S. dollar. Commitments Net Loans Outstanding Grant Expense Gross Disbursements Net Disbursements 160 10 10 8 120 8 6 6 80 4 4 2 40 2 0 0 FY15 FY16 FY17 FY18 FY19 0 FY15 FY16 FY17 FY18 FY19 YTD YTD YTD YTD YTD Jun15 Jun16 Jun17 Jun18 Dec18 YTD YTD YTD YTD YTD Equity, Liquidity & Borrowings – Each successive replenishment has increased the amount of equity available to finance IDA’s operations. Since IDA’s resources are managed primarily in SDR, the reported balance of IDA’s equity is affected by the appreciation/depreciation of the SDR against the U.S. dollar, the reporting currency. IDA has maintained high levels of liquidity in its investment portfolio to ensure that it can meet its liquidity needs, even under potential scenarios of severe market disruptions. The borrowings balance reflects both borrowings from members and capital market debt. Equity Investment Portfolio Borrowings 200 40 40 150 30 30 100 20 20 50 10 10 0 0 0 Jun15 Jun16 Jun17 Jun18 Dec18 Jun15 Jun16 Jun17 Jun18 Dec18 Jun15 Jun16 Jun17 Jun18 Dec18 Financial Results & Capital Adequacy – IDA’s reported net losses are primarily driven by its grant activity, as previously discussed. Given the long duration of IDA’s investment portfolio, which is carried at fair value, results can also be affected by unrealized mark-to-market gains and losses due to movements in the relevant yield curves. IDA’s main measure for capital adequacy, the DSC, has decreased by 1.2% compared with June 30, 2018. The DSC measures the amount of capital available to support future commitments above the current loan portfolio. Net Income Deployable Strategic Capital Ratio 2 Excluding 45% 37.2% 37.4% 36.2% 1 Grants 0 30% (1) (2) Including 15% (3) Grants Policy minimum = 0% (4) FY15 FY16 FY17 FY18 FY19 0% Jun17 Jun18 Dec18 YTD YTD YTD YTD YTD IDA Management’s Discussion and Analysis: December 31, 2018 5 Management’s Discussion and Analysis Section II: Overview Section II: Overview Owned by its 173 members 4 , IDA, a triple-A rated  Ensure long-term financial sustainability of IDA’s entity and one of the five institutions of the WBG, has financial model through a prudent risk been providing financing and knowledge services to management framework. many of the world’s developing countries for more than 58 years. While its main business activity is Concessional lending, including grants, is primarily extending loans to its eligible member countries, by financed by IDA’s equity. Non-concessional lending operating across a wide range of country clients, IDA will primarily be financed by market debt. To the maintains a depth of development knowledge, uses its extent that market debt will be used to finance convening power to advance the global public goods concessional lending, it will be blended with member agenda, and coordinates responses to regional and contributions, which will provide an interest subsidy. global challenges. IDA leverages its experience and See Figure 1. expertise to provide technical assistance and policy Basis of Reporting advice. It also supports countries with disaster risk financing and insurance against natural disasters and IDA prepares its financial statements in conformity health-related crises, and facilitates financing through with accounting principles generally accepted in the trust fund partnerships. United States of America (U.S. GAAP), referred to in this document as the “reported basis”. IDA’s Financial Business Model functional currencies are the SDR and its component IDA has financed its operations over the years with its currencies of U.S. dollar, Euro, Japanese Yen, Pound own equity, including periodic additions to equity Sterling and Chinese Renminbi. For the convenience provided by member countries as part of the of its members and other users, IDA’s financial replenishment process. In order to make the most statements are reported in U.S. dollars. efficient use of the strong equity base that has been Fair Value Results built up over the decades, IDA has included market debt in its business model starting from FY18. By IDA reflects all financial instruments at fair value in prudently leveraging its equity and blending market Section VI: Fair Value Analysis of the MD&A. The debt with additional equity contributions from fair value of these instruments is affected by changes members, IDA has increased its financial efficiency, in market variables such as interest rates, exchange and scaled up its financing to support the escalating rates, and credit risk. Management uses fair value to demand for its resources to deliver on the following assess the performance of the investment-trading priorities: portfolio, and to manage various market risks, including interest rate risk and commercial  Retain IDA’s mandate to provide concessional counterparty credit risk. financing on terms that respond to clients’ needs; and Figure 1: IDA's Financial Business Model Reflows and Operating Results Borrowings Non – Concessional Lending Investments Equity Concessional Lending and Grants 4 IDA’s members are owners and hold voting rights in IDA. Members do not, however, hold shares in IDA and are therefore not referred to as shareholders. Payments for subscriptions and contributions from members increase IDA’s paid-in equity and are financially equivalent to paid-in capital in multilateral development organizations with capital structures. 6 IDA Management’s Discussion and Analysis: December 31, 2018 Management’s Discussion and Analysis Section III: IDA’s Financial Resources Section III: IDA’s Financial Resources IDA18 Funding the form of grants. Included in these commitments were $7.7 billion to countries identified as being in IDA’s Commitment Authority, the resource envelope situations of fragility, conflict and violence. available for financing lending and grant commitments made during the three-year Non-Concessional lending comprises loans and replenishment period, is based on the long-term guarantees whose terms are aligned with those of outlook of IDA’s financial sustainability. This takes IBRD’s flexible loans and guarantees. As of into account the amount of member contributions and December 31, 2018, commitments for non- the concessionality of the proposed financing to concessional financing were $2.6 billion. borrowers, market conditions, and capital adequacy A $2.5 billion IFC-MIGA Private Sector Window requirements. For the three-year funding cycle of (PSW) has been created in IDA18, with the goal of IDA18, the agreed resource envelope totals $75 mobilizing private sector investment in the IDA-only billion, including $27 billion of member contributions. countries and IDA-eligible Fragile and Conflict- affected States. For further details, see Section III: Allocation of IDA18 Resources IDA’s Financial Resources of the MD&A for the fiscal year ended June 30, 2018. As of December 31, 2018, Concessional financing is provided in the form of instruments totaling $191 million had been approved loans, grants and guarantees. Eligibility and under the PSW, for which $73 million of the window percentage of allocation for grants for IDA-only has been utilized, comprised of: countries is based on an assessment of the country’s risk of debt distress, where the higher the risk  $44 million for guarantees assessment, the greater the proportion of grant  $0.2 million in exposure through the funding of financing. IFC’s PSW related equity investments. Cumulative commitments under IDA18 for  $29 million for derivatives. concessional lending, as of December 31, 2018, amounted to $30.7 billion, of which $22.4 billion was in the form of loans and guarantees, and $8.3 billion in IDA Management’s Discussion and Analysis: December 31, 2018 7 Management’s Discussion and Analysis Section IV: Financial Results Section IV: Financial Results Summary of Financial Results IDA had a net loss of $2,555 million in FY19 YTD These grants are funded by member contributions, compared with a net loss of $2,621 million in FY18 which carry voting rights and are therefore recorded in YTD. The net loss in both periods was driven by grant equity as subscriptions and contributions. activity. Table 1: Condensed Statement of Income In millions of U.S. dollars For the six months ended December 31, 2018 2017 Variance Interest Revenue Loans $ 714 $ 669 $ 45 Investments, net 229 209 20 Borrowings, net (105) (65) (40) Interest Revenue, net of borrowing expenses 838 813 25 Provision for losses on loans and other exposures (94) (74) (20) Other expenses, net (Table 10) 20 (25) 45 Net non-interest expenses (Table 9) (728) (741) 13 Transfers from affiliated organizations and others 251 123 128 Non-functional currency translation adjustment gains (losses), net 77 (172) 249 Unrealized mark-to-market gains (losses) on investments-trading portfolio, net 71 (35) 106 Unrealized mark-to-market gains on non-trading portfolios, net 204 19 185 Development Grants (3,194) (2,529) (665) Net Loss $ (2,555) $ (2,621) $ 66 Table 2: Condensed Balance Sheet In millions of U.S. dollars As of December 31, 2018 June 30, 2018 Variance Assets Due from Banks $ 529 $ 523 $ 6 Investments 30,921 36,075 (5,154) Net loans outstanding 147,184 145,656 1,528 Receivable from derivatives 20,970 21,914 (944) Other assets 1,987 2,162 (175) Total assets $ 201,591 $ 206,330 $ (4,739) Liabilities Borrowings $ 7,316 $ 7,305 $ 11 Payable for derivatives 20,650 21,958 (1,308) Other liabilities 12,546 13,122 (576) Equity 161,079 163,945 (2,866) Total liabilities and equity $ 201,591 $ 206,330 $ (4,739) 8 IDA Management’s Discussion and Analysis: December 31, 2018 Management’s Discussion and Analysis Section IV: Financial Results Total Assets Table 3: Changes in Equity In millions of U.S. dollars As of December 31, 2018, total assets were $201.6 billion, a decrease of $4.7 billion from June 30, 2018. Equity balance as of June 30, 2018 $ 163,945 The decrease was primarily driven by a decrease in Subscriptions and contributions paid-in 3,123 investments. The net investment portfolio was $30.1 Nonnegotiable, noninterest-bearing demand billion as of December 31, 2018, lower by $3.6 billion obligations (1,737) as compared to June 30, 2018, mainly due to net Accumulated deficit (2,555) outflows for loan and grant disbursements. Accumulated other comprehensive loss (1,697) As of December 31, 2018, while the amounts Total activity $ (2,866) receivable and payable for derivatives were $21.0 billion and $20.7 billion respectively, IDA’s net Equity balance as of December 31, 2018 $ 161,079 derivative exposure after master-netting agreements and collateral was $363 million, a $113 million increase as compared with June 30, 2018. See Notes to Loan Portfolio and Grant Activity the Condensed Quarterly Financial Statements, Note As of December 31, 2018, IDA’s net loans outstanding E: Derivative Instruments. were $147.2 billion, $1.5 billion higher compared with Equity June 30, 2018. The increase was mainly due to $3.2 billion in net positive loan disbursements partially IDA’s equity was $161.1 billion as of December 31, offset by negative currency translation adjustments of 2018, a $2.8 billion decrease compared to June 30, $1.6 billion, consistent with the 1.1% depreciation of 2018. The decrease was primarily due to: the SDR against the U.S. dollar during the period. As  $2.6 billion of net loss incurred during the of December 31, 2018, 95% of IDA’s total loans period. The net loss primarily reflects the outstanding were denominated in SDR. impact of IDA’s grant expenses during the Loans Outstanding period, and, Loans outstanding as of December 31, 2018, were  $1.7 billion of negative currency translation $151.6 billion. Of this amount, the Africa and South adjustments from the depreciation of the SDR Asia regions accounted for 78%. See Table 4 for against the U.S. dollar, partially offset by details.  $1.4 billion of cash received from members for subscriptions and contributions. Table 4: Loans Outstanding by Region In millions of U.S. dollars As of December 31, 2018 % of total June 30, 2018 % of total Variance Africa $ 61,302 40 % $ 59,220 39 % $ 2,082 East Asia and Pacific 19,534 13 19,638 13 (104) Europe and Central Asia 7,812 5 7,389 5 423 Latin America and the Caribbean 2,657 2 2,605 2 52 Middle East and North Africa 2,776 2 2,891 2 (115) South Asia 57,527 38 58,285 39 (758) Total $ 151,608 100 % $ 150,028 100 % $ 1,580 IDA Management’s Discussion and Analysis: December 31, 2018 9 Management’s Discussion and Analysis Section IV: Financial Results Commitments Commitments of loans in FY19 YTD were $5,821 million, a decrease of $369 million (6%) compared In the first six months of FY19, IDA had new with FY18 YTD ($6,190 million). The net decrease in commitments totaling $9.3 billion ($6 billion of loans FY19 YTD loan commitments was primarily due to a and guarantees and $3.3 billion of grants). These $1.4 billion decrease in Program-for-Results lending, commitments primarily supported operations in the offset by a $1.1 billion increase in investment project Equitable Growth, Finance & Institutions, and financing. The regional distribution of FY19 YTD Infrastructure clusters. The operations were largely commitments was consistent with FY18 YTD. concentrated in Macroeconomics, Trade and Investment related projects. Commitments of guarantees in FY19 YTD were $228 million, an increase of $225 million compared with The Africa and South Asia regions together accounted FY18 YTD ($3 million). All of the guarantees related for 94% of the FY19 YTD commitments of loans and to the Africa region. guarantees (See Table 5). Grant commitments in FY19 YTD increased by 29% ($739 million) compared with FY18 YTD (See Table 6). The grant commitments in both periods were primarily in the Africa region. Table 5: Commitments of Loans and Guarantees by Region In millions of U.S. dollars For the six months ended December 31, 2018 % of total 2017 % of total Variance Africa $ 3,618 60 % $ 3,673 59 % $ (55) East Asia and Pacific 166 3 185 3 (19) Europe and Central Asia 149 2 71 1 78 Latin America and the Caribbean 59 1 - - 59 Middle East and North Africa 30 * - - 30 South Asia 2,027 34 2,264 37 (237) Total $ 6,049 100 % $ 6,193 100 % $ (144) * denotes less than 0.5% Table 6: Commitments of Grants by Region In millions of U.S. dollars For the six months ended December 31, 2018 % of total 2017 % of total Variance Africa $ 2,517 77 % $ 2,035 81 % $ 482 East Asia and Pacific 181 6 53 2 128 Europe and Central Asia 48 1 55 2 (7) Latin America and the Caribbean 20 1 - - 20 Middle East and North Africa 145 4 350 14 (205) South Asia 346 11 25 1 321 Total $ 3,257 100 % $ 2,518 100 % $ 739 10 IDA Management’s Discussion and Analysis: December 31, 2018 Management’s Discussion and Analysis Section IV: Financial Results IDA’s loans generally disburse within five to ten years for investment project financing and one to three years for development policy financing, therefore, each year’s disbursements also include amounts relating to commitments made in earlier years (See Table 7) Table 7: Gross Disbursements of Loans and Grants by Region In millions of U.S. dollars 2018 2017 For the six months ended December 31, Loans Grantsa Total Loans Grantsa Total Africa $ 3,071 1,309 4,380 $ 2,778 999 3,777 East Asia and Pacific 669 62 731 590 41 631 Europe and Central Asia 724 66 790 154 27 181 Latin America and the Caribbean 117 83 200 64 49 113 Middle East and North Africa 21 62 83 38 245 283 South Asia 1,226 198 1,424 1,036 166 1,202 Total $ 5,828 1,780 7,608 $ 4,660 1,527 6,187 a. Excludes Project Preparation Advances (PPA). During the first six months of FY19, IDA earned As of December 31, 2018, 62% of IDA’s loans were interest revenue of $166 million and service charge on regular terms (75bps SDR equivalent service revenue of $548 million, an increase of $29 million charge), see Table 8. For a summary of financial terms and $16 million, respectively, compared with the same for IDA’s lending products, effective July 1, 2018, period in FY18. These increases were driven by the refer to Section V: Development Activities, Products increased volume of loans. and Programs of IDA’s MD&A for the fiscal year ended June 30, 2018. Table 8: Loan Balances and Revenue by Category In millions of U.S. dollars Interest revenue Service charge revenue Balance as of December 31, For the six months ended December 31, Category 2018 2017 2018 2017 2018 2017 Loans Concessional Regular $ 94,595 $ 91,015 $ 7 $ 8 $ 340 $ 325 Blend 54,454 54,786 120 104 203 202 Hard 1,310 1,295 19 19 5 5 Non-concessional Transitional support 601 270 10 3 - - Scale-up Facility a 648 268 10 3 - - Total $ 151,608 $ 147,634 $ 166 $ 137 $ 548 $ 532 a. $6 million of commitment charges were earned in FY19 YTD under the Scale-up Facility ($3 million in FY18 YTD) Investment Portfolio Borrowing Portfolio IDA’s net investment portfolio was $30.1 billion as of As part of IDA18, five members have agreed to December 31, 2018, a decrease of $3.6 billion provide IDA with concessional loans totaling $5.2 compared with June 30, 2018. The key drivers during billion. As of December 31, 2018, IDA has signed the period were: concessional loan agreements totaling $5 billion, of which $2.1 billion was received as debt proceeds. As  The outflow of $7.6 billion in loan and grant of December 31, 2018, total borrowings from disbursements, members under IDA17 and IDA18 were $5.8 billion.  The inflow of $2.6 billion in the form of loan In FY18, for the first time, IDA issued $1.5 billion of repayments and prepayments, and debt in the international capital markets. This debt was  The inflow of $1.4 billion relating to member denominated in U.S. dollars and has a maturity of five contributions. years. As part of IDA’s asset-liability management strategy, IDA also entered into derivatives to convert IDA Management’s Discussion and Analysis: December 31, 2018 11 Management’s Discussion and Analysis Section IV: Financial Results the fixed rate bond into a floating rate instrument. See approved by their Boards, which is primarily driven by Notes to the Condensed Quarterly Financial the relative level of activities relating to lending, Statements, Note D: Borrowings. knowledge services, and other services between the two institutions. The staff costs and consultant and Transfers from Affiliated Organizations contractual services shown in the table below include On October 12, 2018, IBRD’s Board of Governors costs related to IDA-executed trust funds, which are approved a transfer of $248 million to IDA, bringing recovered through revenue from externally funded the cumulative transfers to $15,497 million. This activities. transfer was received on October 23, 2018. IDA’s net non-interest expenses were $728 million for Net Non-Interest Expenses FY19 YTD, a $13 million decrease compared with FY18 YTD. The key drivers of the decrease related to As shown in Table 9, IDA’s net non-interest expenses the increase in revenue from externally funded primarily comprise administrative expenses, net of activities partially offset by the increase in costs revenue from externally funded activities. IBRD and allocated to IDA under the cost sharing methodology, IDA's administrative budget is a single resource due to the increase in client engagement activities envelope that funds the combined work programs of associated with IDA18. See Table 9 for a comparison IBRD and IDA. The allocation of administrative of the main sources of Administrative expenses and expenses between IBRD and IDA is based on an revenue from externally funded activities between agreed cost and revenue sharing methodology, FY19 YTD and FY18 YTD. Table 9: Net Non-Interest Expenses In millions of U.S. dollars For the six months ended December 31, 2018 2017 Variance Administrative expenses: Staff costs $ 528 $ 499 $ 29 Travel 83 78 5 Consultant and contractual services 172 165 7 Pension and other post-retirement benefits 152 161 (9) Communications and technology 29 28 1 Equipment and buildings 71 67 4 Other expenses 20 27 (7) Total administrative expenses $ 1,055 $ 1,025 $ 30 Contributions to special programs 20 19 1 Revenue from externally funded activities: Reimbursable revenue - IDA executed trust funds (205) (186) (19) Other revenue (142) (117) (25) Total revenue from externally funded activities $ (347) $ (303) $ (44) Net Non-Interest Expenses (Table 1) $ 728 $ 741 $ (13) During FY19 YTD, IDA’s net other expenses decreased by $45 million. The main driver was the PPA grant activity, including cancellations and refinancing of PPA grants previously approved. Table 10: Other expenses, net In millions of U.S. dollars For the six months ended December 31, 2018 2017 Variance Other (primarily PPA grants) $ (8) $ 32 $ (40) Guarantee fees (6) (4) (2) Commitment charges (6) (3) (3) Other expenses, net (Table 1) $ (20) $ 25 $ (45) 12 IDA Management’s Discussion and Analysis: December 31, 2018 Management’s Discussion and Analysis Section V: Risk Management Section V: Risk Management Risk Governance The risk in operations in IDA’s lending activities is monitored, at the corporate level, by the Operations IDA’s risk management processes and practices Policy and Country Services (OPCS). Where fraud continually evolve to reflect changes in activities in and corruption risks may impact IDA-financed response to market, credit, product, operational, and projects, OPCS and the Integrity Vice Presidency other developments. The Board, particularly Audit jointly address such issues. Committee members, periodically reviews trends in IDA’s risk profiles and performance, and any major Summary and Management of IDA’s developments in risk management policies and Risks controls. IDA assumes financial risks in order to achieve its Management believes that effective risk management development and strategic objectives. IDA’s financial is critical for IDA’s overall operations. Accordingly, risk management framework is designed to enable and the risk management governance structure is designed support the institution in achieving its goals in a to manage the principal risks IDA assumes in its financially sustainable manner. IDA manages credit, activities, and supports Management in its oversight market and operational risks for its financial activities function, particularly in coordinating different aspects which include lending, borrowing and investing of risk management and in connection with risks that activities. The primary financial risk to IDA is the are common across functional areas. country credit risk inherent in its loan and guarantee IDA’s financial and operational risk governance portfolio. IDA is also exposed to risks in its liquid structure is built on the “three lines of defense” asset and derivative portfolios, where the major risks principle where: are interest rate, exchange rate, commercial counterparty, and liquidity risks. IDA’s operational i. Business units are responsible for directly risk management framework is based on a structured managing risks in their respective functional and uniform approach to identify, assess and monitor areas, key operational risks across business units. ii. The Vice President and WBG Chief Risk Officer Capital Adequacy (CRO) provides direction, challenge, and IDA uses a solvency-based capital adequacy model, oversight over financial and operational risk which mandates that IDA holds capital for credit risk, activities, and market risk and operational risk covering all activities and assets on its books. The main measure of capital iii. Internal Audit provides independent oversight. adequacy is the Deployable Strategic Capital (DSC), IDA’s risk management process comprises: risk which is the capital available to support future identification, assessment, response and risk commitments, over and above the current portfolio. monitoring, and reporting. IDA has policies and IDA is required, by the Board, to keep the DSC at procedures under which risk owners and corporate levels greater than or equal to zero percent. The DSC functions are responsible for identifying, assessing, is calculated as the amount by which Total Resources responding to, monitoring and reporting risks. Available (TRA) exceed Total Resources Required (TRR), plus a Conservation Buffer (CB). The TRA Risk Oversight and Coverage consists of IDA’s existing equity plus its outstanding The CRO has an overview of both financial and loan loss reserve. The TRR is the minimum capital operational risks. These risks include (i) country credit required to cover expected and unexpected losses in risks in the core sovereign lending business, (ii) connection with all of IDA’s currently existing market and counterparty risks including liquidity risk, operations and assets. It also includes a capital and (iii) operational risks relating to people, processes allowance to reflect losses that result from valuing and systems. In addition, the CRO works closely with IDA’s concessional loan portfolio in present value IBRD, IFC, and MIGA’s Management to review, terms using market interest rates. The CB is an extra measure, aggregate, and report on risks and share best buffer in the amount of 10 percent of TRA. As of practices across the WBG. The CRO also helps December 31, 2018, the DSC was 36.2%, lower enhance cooperation between the entities and compared with June 30, 2018. The 1.2% decrease in facilitates knowledge sharing in the risk management the DSC ratio was mainly due to the decrease in IDA’s function. equity as of December 31, 2018, see Table 11. IDA Management’s Discussion and Analysis: December 31, 2018 13 Management’s Discussion and Analysis Section V: Risk Management Table 11: Deployable Strategic Capital Ratio in billions of U.S. dollars except ratios in percentage As of December 31, 2018 June 30, 2018 Total Resources Available (TRA) $ 165.5 $ 168.3 Total Resources Required (TRR)a 89.1 88.5 Conservation Buffer (CB) 16.5 16.8 Deployable Strategic Capital (DSC = TRA-TRR-CB) $ 59.9 $ 63.0 Deployable Strategic Capital as a percentage of TRA 36.2% 37.4% a. TRR will be increased for the $2.5 billion allocated to the PSW as it is utilized. In addition to the DSC framework, IDA has policies in Strategic Capital Framework and Single Borrower place to ensure alignment of its lending and borrowing Limit (SBL). activities. These policies have informed the prudent For FY19, the SBL has been set at $41 billion (25% of capital adequacy and liquidity risk management $164 billion of equity as of June 30, 2018). Currently, policies. Included in these policies are asset coverage the maximum country exposure levels compatible requirements, where Management will monitor asset with IDA’s overall capital adequacy target are lower and liquidity levels to ensure IDA’s ability to satisfy than the SBL for all IDA-borrowing countries. As a all its borrowing and commitment obligations. See consequence, the SBL is not currently a constraining Section IX: Risk Management of IDA’s June 30, 2018 factor. MD&A. Probable Losses, Overdue Payments and Non- Management of Credit and Market Risks Performing Loans Credit Risk When a borrower fails to make payments on any IDA faces two types of credit risk: country credit risk principal, interest or other charges due to IDA, IDA and counterparty credit risk. Country credit risk is the may suspend disbursements immediately on all loans risk of loss due to a country not meeting its contractual and grants to that borrower. IDA’s current practice is obligations, and counterparty credit risk is the risk of to exercise this option using a graduated approach. loss attributable to a counterparty not honoring its These practices also apply to member countries contractual obligations. IDA is exposed to commercial eligible to borrow from both IDA and IBRD, and as well as noncommercial counterparty credit risk. whose payments on IBRD loans may become overdue. It is IDA’s practice not to reschedule interest or Country credit risk principal payments on its loans or participate in debt IDA’s lending management framework encompasses rescheduling agreements with respect to its loans. As the long-standing Performance Based Allocation of December 31, 2018, no borrowing countries in (PBA) mechanism and allocation framework agreed at IDA’s accrual portfolio had overdue payments beyond each replenishment, complemented by additional 90 days. considerations required when accessing debt markets As of December 31, 2018, approximately 1.7% of to ensure adherence to risk management (capital IDA’s loans were in nonaccrual status, unchanged adequacy) requirements. from June 30, 2018. See Notes to the Condensed IDA regularly assesses the country credit risk of all its Quarterly Financial Statements, Note F: Loans and borrowers. Based on these risk ratings, to manage Other Exposures. IDA’s overall portfolio risk, the allocation outcomes Table 12 provides details of the top five borrowers of the PBA and other mechanisms are reviewed to with the largest loan outstanding balances as of ensure that they are compatible with the Deployable December 31, 2018. These borrowers represented 48% of loans outstanding as of that date. 14 IDA Management’s Discussion and Analysis: December 31, 2018 Management’s Discussion and Analysis Section V: Risk Management Table 12: Top Five Borrowers with the Largest Outstanding Balance In millions of U.S. dollars, or as otherwise indicated Country Total India Bangladesh Pakistan Vietnam Nigeria Others Eligibility IBRD IDA only Blend IBRD Blend Loans Outstanding $ 151,608 $ 23,069 $ 14,501 $ 13,795 $ 12,908 $ 8,433 $ 78,902 % of Total Loans Outstanding 100 15 10 9 8 6 52 Weighted Average Maturity (Years) 12.2 5.6 13.8 11.4 13.0 14.5 13.6 Loans outstanding by terms Concessional Regular 94,595 4,574 14,497 870 7,581 5,296 61,777 Blend 54,454 17,440 - 12,267 5,055 3,137 16,555 Hard 1,310 454 - 457 266 - 133 Non-concessional Scale-up Facility 648 - 4 201 6 - 437 Transitional support 601 601 - - - - - Undisbursed balance $ 59,896 $ 4,360 $ 7,923 $ 3,468 $ 4,433 $ 6,295 $ 33,417 Commercial Counterparty Credit Risk Exposure The credit quality of IDA’s investment portfolio This is the normal risk that counterparties fail to meet remains concentrated in the upper end of the credit their payment obligations under the terms of the spectrum with 62% of the portfolio rated AA or above contract or other financial instruments. Effective as of December 31, 2018, reflecting IDA’s continued management of counterparty credit risk is vital to the preference for highly rated securities and success of IDA’s funding, investment, and counterparties across all categories of financial asset/liability management activities. The monitoring instruments. and management of these risks is continuous as the market environment evolves. Total commercial counterparty credit exposure, net of collateral held, was $30.5 billion as of December 31, As a result of IDA’s use of mark-to-market collateral 2018. arrangements for swap transactions, its residual commercial counterparty credit risk exposure is For the contractual value, notional amounts and concentrated in the investment portfolio, in related credit risk exposure amounts by instrument. instruments issued by sovereign governments and See Notes to the Condensed Quarterly Financial non-sovereign holdings (including Agencies, Asset- Statements, Note E: Derivative Instruments. backed securities, Corporates, and Time Deposits). (Table 13). Table 13: Commercial Credit Exposure, Net of Collateral Held, by Counterparty Rating In millions of U.S. dollars As of December 31, 2018 June 30, 2018 Counterparty Non- Total % of Non- Total % of Sovereigns Sovereigns Rating a Sovereigns Exposure Total Sovereigns Exposure Total AAA $ 4,697 $ 6,017 $ 10,714 35 $ 6,586 $ 5,003 $ 11,589 32 AA 1,900 6,336 8,236 27 2,659 6,861 9,520 27 A 8,302 3,212 11,514 38 9,752 4,783 14,535 41 BBB or below 29 1 30 * 30 3 33 * Total $ 14,928 $ 15,566 $ 30,494 100 $ 19,027 $ 16,650 $ 35,677 100 a. Average rating is calculated using available ratings for the three major rating agencies; however, if ratings are not available from each of the three rating agencies, IDA uses the average of the ratings available from any of such rating agencies or a single rating to the extent that an instrument or issuer (as applicable) is rated by only one rating agency. * Denotes less than 0.5%. IDA Management’s Discussion and Analysis: December 31, 2018 15 Management’s Discussion and Analysis Section V: Risk Management Interest Rate Risk loans and grants, which are primarily denominated in SDR. Given IDA’s lengthy disbursement profile, the duration of IDA’s assets is relatively long. This long The payable leg of the currency forward contracts duration, combined with volatility in market interest economically hedging member equity contribution rates, would result in significant year-on-year pledges is denominated in non-functional currencies variability in the fair value of equity. However, since (currencies other than SDR and its component the loan portfolio is not reported at fair value under currencies). Accordingly, appreciation (depreciation) U.S. GAAP, the impact of this variability on IDA’s of these currencies against the U.S. dollar results in Balance Sheet is not fully evident. Table 14 provides exchange rate losses (gains), which are reported in the a fair value estimate of IDA’s financial assets and Statement of Income. The economic offset to the liabilities. recorded translation adjustment on non-functional currencies of currency forward is the translation Under the new integrated financing model, IDA adjustment on future inflows from members. employs the following strategies to continue to enhance its management of interest rate risk: The translation adjustment gain on non-functional currencies of $77 million in FY19 YTD was  The capital adequacy policies factor in the economically offset by the effect of foreign exchange sensitivity to interest rates. movements on the future inflows from members,  Matching interest rates between assets and related which was a loss of $92 million in FY19 YTD. In funding to minimize open interest rate positions. comparison, in FY18 YTD, the translation adjustment  The funding risk related to the mismatch between loss on these currencies amounted to $172 million the maturity profile of the debt funding and the which was economically offset by the effect of foreign related assets is monitored through duration exchange movements on the future inflows from measurements and adjustments to capital members, which was a gain of $191 million in FY18 requirements to cover this risk. YTD. As of December 31, 2018, IDA’s investment-trading The difference between the reported translation portfolio (liquid asset portfolio) had a duration of adjustments and the effect of foreign exchange slightly below 2 years. During FY19 YTD, this movements on the economic offsets, primarily portfolio experienced unrealized mark-to-market represent the effect of foreign exchange movements on gains of $71 million as compared with unrealized equity contributions that are not economically hedged mark-to-market losses of $35 million in FY18 YTD, due to their relatively small contribution amount or the as a result of the decrease in the yield curves of the unpredictability of the expected payment date. These major currencies in FY19 YTD. residual equity contributions are hedged using a currency correlation methodology under the overall Under IDA18, the investment-trading portfolio was currency management framework. adjusted to reflect the new financing model. The portfolio has transitioned from the previous tranche Liquidity Risk structure to a sub-portfolio structure which is Liquidity risk arises in the general funding of IDA’s comprised of a Stable portfolio, Discretionary activities and in managing its financial position. It portfolio and an Operational portfolio. includes the risk of IDA being unable to fund its Exchange Rate Risk portfolio of assets at appropriate maturities and rates, and the risk of being unable to liquidate a position in a Changes in exchange rates affect the capital adequacy timely manner at a reasonable price. of IDA when the currency of the equity or debt funding the loan portfolio is different from that of the loan IDA’s aggregate liquid asset holdings are kept above exposure. Accordingly, the aim of IDA’s exchange a specified prudential minimum to safeguard against rate risk management is the protection of IDA’s cash flow interruptions. The Prudential Minimum is financial capacity, as measured by the capital equal to 80% of 24 months of projected net outflows. adequacy framework. For FY19, the prudential minimum has been set at $15.9 billion. As of December 31, 2018, IDA’s IDA uses currency forward contracts to convert eligible liquidity assets were 135% of the Prudential members’ encashments provided in national Minimum. currencies into the five currencies of the SDR basket, thereby aligning the currency composition of member IDA will hold liquidity above the prudential minimum contributions with the net cash outflows relating to to ensure sufficient liquidity under a wide range of shock scenarios as well as to give it flexibility in 16 IDA Management’s Discussion and Analysis: December 31, 2018 Management’s Discussion and Analysis Section V: Risk Management timing its borrowing transactions and to meet working IDA recognizes the importance of operational risks capital needs. which are inherent in its activities. IDA is exposed to a range of operational risks including physical Operational Risk security, staff health and safety, business continuity, Operational risk is defined as the risk of financial loss external vendor risks and, data and cyber security. or damage to IDA’s reputation resulting from IDA’s approach to managing operational risk includes inadequate or failed internal processes, people and assessing, monitoring and reporting risks, identifying systems, or from external events. emerging risks through research and analysis of internal and external events, and developing appropriate risk response and mitigating actions. IDA Management’s Discussion and Analysis: December 31, 2018 17 Management’s Discussion and Analysis Section VI: Fair Value Analysis Section VI: Fair Value Analysis Fair Value Analysis and Results new guidance published by the Financial Accounting Standards Board (FASB), effective July 1, 2018, fair Fair value reflects the most current and complete value adjustments relating to changes in IDA’s own expectation and estimation of the value of assets and credit for financial liabilities measured under the fair liabilities. It aids comparability and can be useful in value option are reported in Other Comprehensive decision-making. On a reported basis, IDA’s loans and Income. See Notes to the Condensed Quarterly borrowings from its members, in the form of Financial Statements, Note A: Summary of Significant concessional partner loans, are carried at amortized Accounting and Related Policies. For the six months cost, while all instruments in its investment portfolio ended December 31, 2018, IDA recorded a Debit (trading and non-trading) and existing market debt and Valuation Adjustment (DVA) of $2 million in Other related derivatives are carried at fair value. While IDA Comprehensive Income, associated with the changes intends to hold its loans and borrowings to maturity, a in own credit for financial liabilities measured under fair value estimate of IDA’s financial assets and the fair value option. liabilities along with their respective carrying values is presented in Table 14. Most outstanding derivative positions are transacted over-the-counter and therefore valued using internally The fair value of these instruments is affected by developed valuation models. For commercial and non- changes in market variables such as interest rates, commercial counterparties where IDA has a net exchange rates, and credit risk. Management uses fair exposure (net receivable position), IDA calculates a value to assess the performance of the investment- Credit Value Adjustment (CVA) to reflect credit risk. trading portfolio, and to manage various market risks, For net derivative positions with commercial and non- including interest rate risk and commercial commercial counterparties where IDA is in a net counterparty credit risk. Table 14 shows that IDA’s payable position, IDA calculates a DVA to reflect its equity on a fair value basis ($133.3 billion) is less than own credit risk. For the six months ended December on a carrying value basis ($161.1 billion). This is 31, 2018, IDA recorded a CVA and DVA, on primarily due to the $27 billion negative fair value outstanding derivatives, of less than $1 million each. adjustment on IDA’s net loans outstanding. This negative fair value adjustment arises due to the Loan Portfolio concessional nature of IDA’s loans; IDA’s contractual lending rates are below market rates for the given As of December 31, 2018, there was a negative $27 maturity of its loans and risk profile of the borrowers. billion fair value adjustment on IDA’s net loans outstanding bringing the fair value to $120.2 billion. The fair value of loans is calculated using market- This compares with a $27.1 billion adjustment as of based methodologies, which incorporate the June 30, 2018, bringing the fair value to $118.5 billion. respective borrowers’ Credit Default Swap (CDS) The $0.1 billion variance in the adjustment was driven spreads and, where applicable, proxy CDS spreads. by the positive impact of the decrease in SDR interest Basis adjustments are applied to market recovery rates, which was significantly offset by the impact of levels to reflect IDA’s recovery experience. The fair changes in the CDS credit spreads of certain value of borrowings from members is calculated using borrowers. a discounted cash flow method which relies on market observable inputs such as yield curves, foreign Borrowings exchange rates, basis spreads and funding spreads. The fair value of borrowings from members Fair Value of Financial Instruments marginally decreased from $6.7 billion as of June 30, 2018 to $6.6 billion as of December 31, 2018. The Through FY18, all fair value adjustments were decrease was primarily driven by the exchange rate recognized through the Statement of Income. Under movements during the period. 18 IDA Management’s Discussion and Analysis: December 31, 2018 Management’s Discussion and Analysis Section VI: Fair Value Analysis Table 14: Fair Value Estimates and Reported Basis Value In millions of U.S. dollars As of December 31, 2018 June 30, 2018 Carrying Carrying Fair Value Fair Value Value Value Assets Due from Banks $ 529 $ 529 $ 523 $ 523 Investments (including securities purchased under resale agreements) 30,921 30,921 36,075 36,075 Net Loans Outstanding 147,184 120,189 145,656 118,508 Derivative Assets Investments 5,372 5,372 6,198 6,198 Other Asset-Liability Management 15,590 15,590 15,715 15,715 Borrowings 8 8 1 1 Receivable from affiliated organization 808 808 816 816 Other assets 1,179 1,179 1,346 1,346 Total $ 201,591 $ 174,596 $ 206,330 $ 179,182 Liabilities Borrowings Concessional partner loans $ 5,806 $ 6,602 $ 5,811 $ 6,660 Market Borrowings 1,510 1,510 1,494 1,494 Securities sold/lent under repurchase agreements/securities lending agreements, and payable for cash collateral received 927 927 2,543 2,543 Derivate Liabilities Investments 5,416 5,416 6,198 6,198 Other Asset-Liability Management 15,234 15,234 15,745 15,745 Borrowings - - 15 15 Payable for grants 10,056 10,056 8,743 8,743 Payable to affiliated organization 467 467 479 479 Other liabilities 1,096 1,096 1,357 1,357 Total Liabilities $ 40,512 $ 41,308 $ 42,385 $ 43,234 Equity $ 161,079 $ 133,288 $ 163,945 $ 135,948 Total Liabilities and Equity $ 201,591 $ 174,596 $ 206,330 $ 179,182 IDA Management’s Discussion and Analysis: December 31, 2018 19 Management’s Discussion and Analysis Section VII: Governance Section VII: Governance Effective February 1, 2019: External Auditors  Jim Yong Kim resigned as the President of the The external auditor is appointed to a five-year term, World Bank Group. The Executive Directors have with a limit of two consecutive terms, and is subject to started the process for selecting the next President annual reappointment based on the recommendation and appointed Kristalina Georgieva, Chief of the Audit Committee and approval of a resolution Executive Officer, as the interim World Bank by the Board. FY18 was the final year of KPMG Group President. LLP’s second term as IDA’s external auditor. Deloitte has been appointed as IDA’s external auditor for a  Bernard Lauwers accepted a special assignment five-year term commencing in FY19. with the office of the Chief Executive Officer, and Jorge Familiar was appointed as the new Vice Senior Management Changes President and World Bank Group Controller. Effective December 1, 2018 Arunma Oteh retired as Bernard Lauwers will also be the acting MDCFO Vice President and Treasurer of IDA. Jingdong Hua until the selection of a new MDCFO is concluded. was appointed as Vice President and Treasurer of IDA,  Akihiko Nishio has been appointed as Vice effective January 1, 2019. President, Development Finance (DFi), Effective December 3, 2018, Joaquim Levy retired as succeeding Axel Van Trotsenburg who has been Managing Director and WBG Chief Financial Officer appointed as the new Vice President for Latin (MDCFO). America & Caribbean region. 20 IDA Management’s Discussion and Analysis: December 31, 2018 Management’s Discussion and Analysis List of Tables, Figures and Boxes List of Tables, Figures and Boxes Tables Table 1: Condensed Statement of Income ................................................................................................... 8 Table 2: Condensed Balance Sheet ............................................................................................................. 8 Table 3: Changes in Equity ........................................................................................................................... 9 Table 4: Loans Outstanding by Region......................................................................................................... 9 Table 5: Commitments of Loans and Guarantees by Region ..................................................................... 10 Table 6: Commitments of Grants by Region ............................................................................................... 10 Table 7: Gross Disbursements of Loans and Grants by Region ................................................................ 11 Table 8: Loan Balances and Revenue by Category ................................................................................... 11 Table 9: Net Non-Interest Expenses ........................................................................................................... 12 Table 10: Other expenses, net .................................................................................................................... 12 Table 11: Deployable Strategic Capital Ratio ............................................................................................. 14 Table 12: Top Five Borrowers with the Largest Outstanding Balance ....................................................... 15 Table 13: Commercial Credit Exposure, Net of Collateral Held, by Counterparty Rating .......................... 15 Table 14: Fair Value Estimates and Reported Basis Value ........................................................................ 19 Figures Figure 1: IDA's Financial Business Model .................................................................................................... 6 Boxes Box 1: Selected Financial Data ..................................................................................................................... 2 IDA Management’s Discussion and Analysis: December 31, 2018 21 This page left intentionally blank INTERNATIONAL DEVELOPMENT ASSOCIATION (IDA) CONTENTS December 31, 2018 CONDENSED QUARTERLY FINANCIAL STATEMENTS Condensed Balance Sheet 24 Condensed Statement of Income 26 Condensed Statement of Comprehensive Income 27 Condensed Statement of Changes in Accumulated Deficit 27 Condensed Statement of Cash Flows 28 Notes to Condensed Quarterly Financial Statements 29 Independent Auditors’ Review Report 54 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) 23 CONDENSED BALANCE SHEET Expressed in millions of U.S. dollars December 31, 2018 June 30, 2018 (Unaudited) (Unaudited) Assets Due from banks—Notes C and K Unrestricted cash $ 503 $ 495 Restricted cash 26 28 529 523 Investments (including securities transferred under repurchase or securities lending agreements of $925 million—December 31, 2018; $2,321 million—June 30, 2018) —Notes C, G and K 30,902 36,056 Securities purchased under resale agreements—Notes C and K 19 19 Derivative assets Asset-liability management—Notes E, G and K 15,590 15,715 Borrowings—Notes D, E and K 8 1 Investments—Notes C, E and K 5,372 6,198 20,970 21,914 Receivable from affiliated organizations—Note G 808 816 Loans outstanding—Notes F and K Total loans 211,504 211,271 Less: undisbursed balance (59,896) (61,243) Loans outstanding 151,608 150,028 Less: Accumulated provision for losses on loans (4,432) (4,383) Add: Deferred loans origination costs 8 11 Net loans outstanding 147,184 145,656 Other assets—Notes C, F and G 1,179 1,346 Total assets $ 201,591 $ 206,330 24 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) December 31, 2018 June 30, 2018 (Unaudited) (Unaudited) Liabilities Borrowings—Notes D and K $ $ Concessional partner loans (at amortized cost) 5,806 5,811 Market borrowings (at fair value) 1,510 1,494 7,316 7,305 Securities sold under repurchase agreements, securities lent under securities lending agreements, and payable for cash collateral received—Notes C and K 927 2,543 Derivative liabilities Asset-liability management—Notes E, G and K 15,234 15,745 Borrowings—Notes D, E and K - 15 Investments—Notes C, E and K 5,416 6,198 20,650 21,958 Payable for development grants—Note H 10,056 8,743 Payable to affiliated organizations—Note G 467 479 Other liabilities—Notes C and F 1,096 1,357 Total liabilities 40,512 42,385 Equity Members' subscriptions and contributions—Note B Subscriptions and contributions committed 267,919 268,710 Less: Subscriptions and contributions receivable (35,679) (39,596) Cumulative discounts/ acceleration credits on subscriptions and contributions (3,656) (3,653) Subscriptions and contributions paid-in 228,584 225,461 Nonnegotiable, noninterest-bearing demand obligations on account of members' subscriptions and contributions (11,777) (10,040) Deferred amounts to maintain value of currency holdings (244) (244) Accumulated deficit (Statement of Changes in Accumulated Deficit) (53,112) (50,557) Accumulated other comprehensive loss—Note J (2,372) (675) Total equity 161,079 163,945 Total liabilities and equity $ 201,591 $ 206,330 The Notes to Condensed Quarterly Financial Statements are an integral part of these Statements. IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) 25 CONDENSED STATEMENT OF INCOME Expressed in millions of U.S. dollars Three Months Ended Six Months Ended December 31, December 31, (Unaudited) (Unaudited) 2018 2017 2018 2017 Interest revenue Loans, net—Note F $ 358 $ 337 $ 714 $ 669 Investments, net—Notes C and G 114 103 229 209 Borrowings, net—Notes C and D (52) (33) (105) (65) Interest revenue, net of borrowing expenses 420 407 838 813 Provision for losses on loans and other exposures—Note F (69) (46) (94) (74) Non-interest revenue Revenue from externally funded activities—Note G 221 186 347 303 Commitment charges—Note F 3 2 6 3 Other 3 2 6 4 Total 227 190 359 310 Non-interest expenses Administrative—Notes G and I (568) (560) (1,055) (1,025) Contributions to special programs—Note G (20) (1) (20) (19) Other 2 (12) 8 (32) Total (586) (573) (1,067) (1,076) Transfers from affiliated organizations and others—Notes G and H 251 123 251 123 Development grants—Note H (1,944) (1,205) (3,194) (2,529) Non-functional currency translation adjustment gains (losses), net 89 (7) 77 (172) Unrealized mark-to-market gains (losses) on Investments- Trading portfolio, net—Notes E and K 128 (50) 71 (35) Unrealized mark-to-market gains (losses) on non-trading portfolios, net Asset-liability management—Notes E and K 161 (32) 191 26 Borrowings, net—Notes D, E and K 3 - 3 - Investments—Note K 12 (7) 10 (7) Total 176 (39) 204 19 Net loss $ (1,308) $ (1,200) $ (2,555) $ (2,621) The Notes to Condensed Quarterly Financial Statements are an integral part of these Statements. 26 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) CONDENSED STATEMENT OF COMPREHENSIVE INCOME Expressed in millions of U.S. dollars Three Months Ended Six Months Ended December 31, December 31, (Unaudited) (Unaudited) 2018 2017 2018 2017 Net loss $ (1,308) $ (1,200) $ (2,555) $ (2,621) Other comprehensive (loss) income—Note J Currency translation adjustments on functional currencies (442) 1,172 (1,699) 3,347 Net Change in Debit Valuation Adjustment (DVA) on Fair Value option elected liabilities 2 - 2 - Comprehensive (loss) income $ (1,748) $ (28) $ (4,252) $ 726 CONDENSED STATEMENT OF CHANGES IN ACCUMULATED DEFICIT Expressed in millions of U.S. dollars Six Months Ended December 31, (Unaudited) 2018 2017 Accumulated deficit at beginning of the fiscal year $ (50,557) $ (45,326) Net loss for the period (2,555) (2,621) Accumulated deficit at end of the period $ (53,112) $ (47,947) The Notes to Condensed Quarterly Financial Statements are an integral part of these Statements. IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) 27 CONDENSED STATEMENT OF CASH FLOWS Expressed in millions of U.S. dollars Six Months Ended December 31, (Unaudited) 2018 2017 Cash flows from investing activities Loans Disbursements $ (5,828) $ (4,660) Principal repayments 2,609 2,472 Non-trading securities—Investments Principal payments received 61 66 Net cash used in investing activities (3,158) (2,122) Cash flows from financing activities Members' subscriptions and contributions 1,386 2,036 Medium and long-term borrowings (new Issues) - 600 Net derivatives-borrowings (1) - Net cash provided by financing activities 1,385 2,636 Cash flows from operating activities Net loss (2,555) (2,621) Adjustments to reconcile net loss to net cash used in operating activities Provision for losses on loans and other exposures 94 74 Non-functional currency translation adjustment (gains) losses, net (77) 172 Unrealized mark-to-market gains on non-trading portfolios, net (204) (19) Other non-interest expenses (8) 32 Amortization of borrowing costs 38 22 Changes in: Investments—Trading, net 3,031 657 Other assets and liabilities 1,458 930 Net cash provided by (used in) operating activities 1,777 (753) Effect of exchange rate changes on unrestricted and restricted cash 2 - Net increase (decrease) in unrestricted and restricted cash Note—A 6 (239) Unrestricted and restricted cash at beginning of the fiscal year 523 455 Unrestricted and restricted cash at end of the period $ 529 $ 216 Supplemental disclosure (Decrease) increase in ending balances resulting from exchange rate fluctuations: Loans outstanding $ (1,633) $ 3,267 Investment portfolio (353) 589 Derivatives—Asset-liability management 195 (421) Borrowings (42) 48 Principal repayments written off under Heavily Indebted Poor Countries (HIPC) Debt Initiative 5 5 Interest paid on borrowings 45 25 The Notes to Condensed Quarterly Financial Statements are an integral part of these Statements. 28 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) NOTES TO CONDENSED QUARTERLY FINANCIAL STATEMENTS NOTE A—SUMMARY OF SIGNIFICANT ACCOUNTING AND RELATED POLICIES Basis of Preparation These unaudited condensed quarterly financial statements and notes should be read in conjunction with the June 30, 2018 audited financial statements and notes included therein. The condensed comparative information that has been derived from the June 30, 2018 audited financial statements has not been audited. In the opinion of management, the condensed quarterly financial statements reflect all adjustments necessary for a fair presentation of IDA’s financial position and results of operations in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed quarterly financial statements and the reported amounts of revenue and expenses during the reporting periods. Due to the inherent uncertainty involved in making those estimates, actual results could differ from those estimates. Areas in which significant estimates have been made include, but are not limited to, the provision for losses on loans and other exposures and valuation of certain financial instruments carried at fair value. The results of operations for the first six months of the current fiscal year are not necessarily indicative of the results that may be expected for the full year. Certain reclassifications of the prior year’s information have been made to conform with the current year’s presentation. These financial statements were approved for issue on February [ ], 2019 which was also the date through which IDA’s management evaluated subsequent events. Accounting and Reporting Developments Evaluated Accounting Standards: In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and subsequent related amendments. The ASUs provide a common framework for revenue recognition for U.S. GAAP and supersede most of the existing revenue recognition guidance in U.S. GAAP. For IDA, the ASU became effective from the quarter ended September 30, 2018. IDA primarily earns revenue from financial instruments, which is not within the scope of the ASU. In Addition, IDA has a revenue sharing arrangement with IBRD that is not in the scope of the ASU. The ASU did not have an impact on IDA’s financial statements. In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU makes targeted amendments to existing guidance on recognition and measurement of financial instruments that primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. The new guidance requires that changes in the fair value of financial liabilities measured under the fair value option that are attributable to instrument-specific credit risk are reported in Other Comprehensive Income. The ASU became effective for IDA from the quarter ended September 30, 2018. Given the immateriality of the amounts, no transition adjustment was recorded to reclassify amounts relating to IDA’s own credit on fair value option elected liabilities, previously included in Accumulated deficit, to Accumulated other comprehensive loss. The adoption of the ASU also required changes to the Condensed Statement of Comprehensive Income, Note D - Borrowings and Note J –Accumulated Other Comprehensive Income. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The ASU provides classification guidance on eight specific cash flow classification issues for which U.S. GAAP did not provide guidance. For IDA, the ASU became effective from the quarter ended September 30, 2018. This ASU has no impact on IDA’s financial statements as of December 31, 2018. In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted cash. The ASU requires that the amounts of restricted cash and cash equivalents are included in the total of cash and cash equivalents at the beginning and end of the period in the Statement of Cash Flows. For IDA, the ASU became effective from the quarter ended September 30, 2018. Given the immateriality of the amounts subject to IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) 29 reclassification under the ASU, IDA has applied the requirements prospectively from the quarter ended September 30, 2018. In June 2018, the FASB issued ASU 2018-08, Not-For-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. The ASU, which applies to all entities that receive or make contributions, clarifies and improves current guidance about whether a transfer of assets should be accounted for as a contribution or an exchange transaction, and provides additional guidance about how to determine whether a contribution is conditional. For contributions received, the ASU became effective from the quarter ended September 30, 2018. IDA has evaluated the ASU and determined that the guidance on contributions received has no impact on its financial statements. IDA is currently evaluating the impact of the portion of the ASU applicable to contributions made, that will be effective from the quarter ending September 30, 2019. Accounting Standards Under Evaluation: In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU and its subsequent amendments, introduce a new model for the accounting of credit losses of loans and other financial assets measured at amortized cost. Current U.S. GAAP requires an “incurred loss” methodology for recognizing credit losses. The new model, referred to as the current expected credit loss (CECL) model, requires an entity to estimate the credit losses expected over the life of an exposure, considering historical information, current information, and reasonable and supportable forecasts. Additionally, the ASUs require enhanced disclosures about credit quality and significant estimates and judgments used in estimating credit losses. For IDA, the ASUs will be effective beginning from the quarter ending September 30, 2020. IDA is currently evaluating the impact of the ASUs on its financial statements. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which amends the disclosure requirements of ASC 820. The guidance will be effective for IDA from the quarter ending September 30, 2020, with early adoption permitted. IDA is currently evaluating the impact of the ASU on its financial statements. NOTE B—MEMBERS’ SUBSCRIPTIONS AND CONTRIBUTIONS, AND MEMBERSHIP Subscriptions and Contributions: The movement in Subscriptions and Contributions paid-in is summarized below: In millions of U.S dollars December 31, 2018 June 30, 2018 Beginning of the fiscal year $ 225,461 $ 215,403 Cash contributions received 68 4,849 Demand obligations received 3,192 5,171 Translation adjustment (137) 38 End of the period/fiscal year $ 228,584 $ 225,461 During the six months ended December 31, 2018, IDA encashed demand obligations totaling $1,318 million. 30 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) NOTE C—INVESTMENTS The investment securities held by IDA are designated as either trading or non-trading. All securities are carried and reported at fair value, or at face value, which approximates fair value. The majority of IDA’s Investments comprised government and agency obligations (76%), with all the instruments being classified as either Level 1 or Level 2 within the fair value hierarchy. As of December 31, 2018, Japanese government instruments represented the largest holding of a single counterparty and amounted to 19% of Investments Trading. A summary of IDA’s Investments is as follows: In millions of U.S. dollars December 31, 2018 June 30, 2018 Trading Government and agency obligations $ 23,353 $ 27,702 Time deposits 5,830 6,875 Asset-backed securities (ABS) 959 667 $ 30,142 $ 35,244 Non-trading (at fair value) Debt securities 760 812 Total $ 30,902 $ 36,056 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) 31 IDA manages its investments on a net portfolio basis. The following table summarizes IDA’s net portfolio position: In millions of U.S. dollars December 31, 2018 June 30, 2018 Investments Trading $ 30,142 $ 35,244 Non-trading (at fair value) - Note G 760 812 Total 30,902 36,056 Securities purchased under resale agreements 19 19 Securities sold under repurchase agreements, securities lent under securities lending agreements, and payable for cash collateral received (927) (2,543) Derivative Assets Currency forward contracts 3,653 3,789 Currency swaps 1,707 2,401 Interest rate swaps 6 6 Swaptions, exchange traded options and futures contracts - * Other a 6 2 Total 5,372 6,198 Derivative Liabilities Currency forward contracts (3,690) (3,771) Currency swaps (1,712) (2,417) Interest rate swaps (12) (10) Swaptions, exchange traded options and futures contracts (2) (*) Other a - (*) Total (5,416) (6,198) Cash held in investment portfolio b 304 482 c Receivable from investment securities traded 30 277 Payable for investment securities purchased d (175) (556) Net Investment Portfolio $ 30,109 $ 33,735 a. These relate to To-Be-Announced (TBA) Securities. b. This amount is included in Unrestricted cash under Due from banks on the Condensed Balance Sheet. c. This amount is included in Other assets on the Condensed Balance Sheet. d. This amount is included in Other liabilities on the Condensed Balance Sheet. * Indicates amount less than $0.5 million. IDA uses derivative instruments to manage currency and interest rate risk in the investment portfolio. For details regarding these instruments, see Note E—Derivative Instruments. As of December 31, 2018, there were short sales totaling $19 million ($19 million—June 30, 2018) included in Other liabilities on the Condensed Balance Sheet. 32 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) Fair Value Disclosures The following tables present IDA’s fair value hierarchy for investment assets and liabilities, measured at fair value on a recurring basis: In millions of U.S. dollars Fair Value Measurements on a Recurring Basis As of December 31, 2018 Level 1 Level 2 Level 3 Total Assets: Investments—Trading Government and agency obligations $ 9,766 $ 13,587 $ - $ 23,353 Time deposits 812 5,018 - 5,830 ABS - 959 - 959 Total Investments—Trading 10,578 19,564 - 30,142 Investments—Non-trading (at fair value) - 760 - 760 Securities purchased under resale agreements - 19 - 19 Derivative assets Currency forward contracts - 3,653 - 3,653 Currency swaps - 1,707 - 1,707 Interest rate swaps - 6 - 6 Swaptions, exchange traded options and futures contracts - - - - Other a - 6 - 6 Total Derivative assets—Investments - 5,372 - 5,372 Total $ 10,578 $ 25,715 $ - $ 36,293 Liabilities: Securities sold under repurchase agreements and securities lent under security lending agreementsb $ - $ 918 $ - $ 918 Derivative liabilities Currency forward contracts - 3,690 - 3,690 Currency swaps - 1,712 - 1,712 Interest rate swaps - 12 - 12 Swaptions, exchange traded options and futures contracts 2 - - 2 Other a - - - - Total Derivative liabilities—Investments 2 5,414 - 5,416 Total $ 2 $ 6,332 $ - $ 6,334 a. These relate to TBA securities. b. Excludes amount payable for cash collateral received ($9 million). IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) 33 In millions of U.S. dollars Fair Value Measurements on a Recurring Basis As of June 30, 2018 Level 1 Level 2 Level 3 Total Assets: Investments—Trading Government and agency obligations $ 12,541 $ 15,161 $ - $ 27,702 Time deposits 299 6,576 - 6,875 ABS - 667 - 667 Total Investments—Trading 12,840 22,404 - 35,244 Investments—Non-trading (at fair value) - 812 - 812 Securities purchased under resale agreements - 19 - 19 Derivative assets Currency forward contracts - 3,789 - 3,789 Currency swaps - 2,401 - 2,401 Interest rate swaps - 6 - 6 Swaptions, exchange traded options and futures contracts - * - * Other a - 2 - 2 Total Derivative assets—Investments - 6,198 - 6,198 Total $ 12,840 $ 29,433 $ - $ 42,273 Liabilities: Securities sold under repurchase agreements and securities lent under security lending agreements b $ - $ 2,541 $ - $ 2,541 Derivative liabilities Currency forward contracts - 3,771 - 3,771 Currency swaps - 2,417 - 2,417 Interest rate swaps - 10 - 10 Swaptions, exchange traded options and futures contracts - * - * Other a - * - * Total Derivative liabilities—Investments - 6,198 - 6,198 Total $ - $ 8,739 $ - $ 8,739 a. These relate to TBA securities. b. Excludes amount payable for cash collateral received relating to TBA securities ($2 million). * Indicates amount less than $0.5 million. During the six months ended December 31, 2018 and for the fiscal year ended June 30, 2018, there were no securities transferred between Level 1 and Level 2 within the fair value hierarchy. 34 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) Presented below is the difference between the aggregate fair value and aggregate contractual principal balance of non-trading securities in the investment portfolio: In millions of U.S dollars Fair value Principal amount due Difference December 31, 2018 $ 760 $ 782 $ (22) June 30, 2018 $ 812 $ 843 $ (31) The maturity structure of IDA’s non-trading investment portfolio was as follows: In millions of U.S dollars Period December 31, 2018 June 30, 2018 Less than 1 year $ 122 $ 122 Between 1 - 2 years 127 124 2 - 3 years 122 125 3 - 4 years 106 113 4 - 5 years 86 96 Thereafter 219 263 $ 782 $ 843 Valuation Methods and Assumptions Summarized below are the techniques applied in determining the fair values of investments. Investment securities Where available, quoted market prices are used to determine the fair value of trading securities. Examples include most government and agency securities and futures contracts. For instruments for which market quotations are not available, fair values are determined using model-based valuation techniques, whether internally-generated or vendor-supplied, that include the standard discounted cash flow method using market observable inputs such as yield curves, credit spreads, and constant prepayment spreads. Where applicable, unobservable inputs such as constant prepayment rates, probability of default, and loss severity are used. Unless quoted prices are available, time deposits are reported at face value, which approximates fair value, as they are short term in nature. Securities purchased under resale agreements, securities sold under repurchase agreements, and securities lent under securities lending agreements These securities are of a short-term nature and are reported at face value, which approximates fair value. Commercial Credit Risk For the purpose of risk management, IDA is party to a variety of financial transactions, certain of which involve elements of credit risk. Credit risk exposure represents the maximum potential loss due to possible nonperformance by obligors and counterparties under the terms of the contracts. For all securities, IDA limits trading to a list of authorized dealers and counterparties. In addition, credit limits have been established for counterparties by type of instrument and maturity category. Swap Agreements: Credit risk is mitigated through a credit approval process, volume limits, monitoring procedures and the use of mark-to-market collateral arrangements. IDA may require collateral in the form of cash or other approved liquid securities from individual counterparties to mitigate its credit exposure. IDA has entered into master derivative agreements, which contain legally enforceable close-out netting provisions. These agreements may further reduce the gross credit risk exposure related to the swaps. Credit risk with financial assets subject to a master derivatives arrangement is further reduced under these agreements to the extent that payments and receipts with the counterparty are netted at settlement. The reduction in exposure as a result of these IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) 35 netting provisions can vary due to the impact of changes in market conditions on existing and new transactions. The extent of the reduction in exposure may therefore change substantially within a short period of time following the balance sheet date. For more information on netting and offsetting provisions, see Note E—Derivative Instruments. The following is a summary of the collateral received by IDA in relation to the swap transactions. In millions of U.S. dollars December 31, 2018 June 30, 2018 Collateral received Cash $ 6 $ - Securities - - Total collateral received $ 6 $ - Collateral permitted to be repledged $ 6 $ - Amount of collateral repledged - - Securities Lending: IDA may engage in securities lending and repurchases, against adequate collateral, as well as securities borrowing and reverse repurchases (resales) of government and agency obligations, and ABS. These transactions have been conducted under legally enforceable master netting arrangements, which allow IDA to reduce its gross credit exposure related to these transactions. As of December 31, 2018, there were no amounts which could potentially be offset as a result of legally enforceable master netting arrangements ($19 million—June 30, 2018). Transfers of securities by IDA to counterparties are not accounted for as sales as the accounting criteria for the treatment as a sale have not been met. Counterparties are permitted to repledge these securities until the repurchase date. Securities lending agreements and repurchase agreements expose IDA to several risks, including counterparty risk, reinvestment risk, and risk of a collateral gap (increase or decrease in the fair value of collateral pledged). IDA has procedures in place to ensure that trading activity and balances under these agreements are below predefined counterparty and maturity limits, and to actively monitor net counterparty exposure, after collateral, through daily mark-to-market. Whenever the collateral pledged by IDA related to its borrowings under securities lending agreements and repurchase agreements declines in value, the transaction is re-priced as appropriate by returning cash or pledging additional collateral. The following is a summary of the carrying amount of the securities transferred under repurchase or securities lending agreements, and the related liabilities: In millions of U.S. dollars December 31, 2018 June 30, 2018 Financial Statement Presentation Securities transferred under Included under Investments - Trading on the repurchase or securities $ 925 $ 2,321 Condensed Balance Sheet lending agreements Included under Securities Sold under Liabilities relating to securities Repurchase Agreements, Securities Lent transferred under repurchase $ 918 $ 2,541 under Securities Lending Agreements, and or securities lending Payable for Cash Collateral Received on the agreements Condensed Balance Sheet. As of December 31, 2018, none of the liabilities relating to securities transferred under repurchase or securities lending agreements remained unsettled at that date ($226 million—June 30, 2018). Of this, no amounts represented replacement trades entered into in anticipation of maturing trades of a similar amount ($202 million—June 30, 2018). 36 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) The following table presents the disaggregation of the gross obligation by class of collateral pledged and the remaining contractual maturities for repurchase agreements or securities lending transactions that are accounted for as secured borrowings: In millions of U.S. dollars As of December 31, 2018 Remaining contractual maturity of the agreements Overnight and continuous Up to 30 days Total Repurchase or Securities Lending agreements Government and agency obligations $ 918 $ - $ 918 Total liabilities for Securities sold under repurchase agreements and Securities Lent under Securities Lending Agreements $ 918 $ - $ 918 In millions of U.S.dollars As of June 30, 2018 Remaining contractual maturity of the agreements Overnight and continuous Up to 30 days Total Repurchase or Securities Lending agreements Government and agency obligations $ 1,853 $ 688 $ 2,541 Total liabilities for Securities sold under repurchase agreements and Securities Lent under Securities Lending Agreements $ 1,853 $ 688 $ 2,541 In the case of resale agreements, IDA received collateral in the form of liquid securities and is permitted to repledge these securities. While these transactions are legally considered to be true purchases and sales, the securities received are not recorded on IDA’s balance sheet as the accounting criteria for treatment as a sale have not been met. As of December 31, 2018, none of the securities purchased under resale agreements remained unsettled on that date (Nil—June 30, 2018). For the securities purchased under resale agreements, IDA received securities with a fair value of $19 million ($19 million—June 30, 2018). Out of this amount, no securities had been transferred under repurchase or securities lending agreements (Nil—June 30, 2018). NOTE D—BORROWINGS IDA’s borrowings comprise concessional partner loans made by IDA members and market borrowings. Concessional partner loans are unsecured and unsubordinated fixed rate debt in SDR component currencies. IDA may prepay some or the entire outstanding amounts without penalty. These borrowings are carried and reported at amortized cost, and have original maturities of 25 and 40 years, with the final maturity being 2058. This does not include the effect of the amounts relating to proceeds received under the grant component of the concessional partner loan agreements, for which voting rights have been received. These amounts are reflected in equity. In millions of U.S dollars Concessional Partner Loans outstanding Net unamortized premium Principal at face value (discount) Total December 31, 2018 $ 7,391 $ (1,585) $ 5,806 June 30, 2018 $ 7,461 $ (1,650) $ 5,811 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) 37 During the fiscal year ended June 30, 2018, for the first time, IDA issued a bond in the international capital markets. This bond has a notional principal value of $1.5 billion and carries a fixed interest rate of 2.75%. It is denominated in USD and has a tenor of 5 years maturing in 2023. IDA has elected the fair value option for this instrument. As part of IDA’s asset-liability management strategy, IDA also entered into derivative transactions to convert the fixed- rate bond into a floating-rate instrument. As of December 31, 2018, all of the instruments in IDA’s borrowing portfolio were classified as Level 2, within the fair value hierarchy. For details regarding the derivatives used in the borrowing portfolio, see Note E—Derivative Instruments. Fair Value Disclosures The table below presents the fair value of IDA’s borrowings for disclosure purposes, along with their respective carrying amounts: In millions of U.S. dollars December 31, 2018 June 30, 2018 Carrying Value Fair Value Carrying Value Fair Value Concessional partner loans $ 5,806 $ 6,602 $ 5,811 $ 6,660 Market borrowings 1,510 1,510 1,494 1,494 $ 7,316 $ 8,112 $ 7,305 $ 8,154 Valuation adjustments on fair value option elected liabilities Starting July 1, 2018, changes in the fair value of IDA’s financial liabilities, for which the fair value option has been elected, and that relate to IDA’s own credit risk are recognized in Other comprehensive income (OCI) as a Debit Valuation Adjustment (DVA). The DVA on fair value option elected liabilities (IDA’s market borrowings) is being measured by revaluing each liability to determine the changes in fair value of that liability arising from changes in IDA’s cost of funding relative to LIBOR. As of December 31, 2018, IDA’s Condensed Balance Sheet included a DVA of $2 million in Accumulated other comprehensive income, associated with the changes in IDA’s own credit for its market borrowings. The following table provides information on the unrealized mark-to-market gains or losses on market borrowings included in the Condensed Statement of Income as well as where those amounts are included in the Condensed Statement of Income: In millions of U.S. dollars Three Months Ended Six Months Ended December 31, December 31, Unrealized mark-to-market gains (losses) 2018 2017 2018 2017 Condensed Statement of Income Unrealized mark-to-market gains (losses) on non-trading portfolios, net $ (28) $ - $ (18) $ - Presented below is the difference between the aggregate fair value and aggregate contractual principal balance of borrowings: In millions of U.S. dollars Principal Due Upon Fair Value Maturity Difference December 31, 2018 $ 8,112 $ 8,891 $ (779) June 30, 2018 $ 8,154 $ 8,961 $ (807) Valuation Methods and Assumptions The fair value of IDA’s borrowings is calculated using a discounted cash flow method which relies on market observable inputs such as yield curves, foreign exchange rates, basis spreads and funding spreads. 38 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) NOTE E—DERIVATIVE INSTRUMENTS IDA uses derivative instruments in its investment portfolio to manage currency and interest rate risks, for asset- liability management purposes, and to assist clients in managing risks. The following table summarizes IDA’s use of derivatives in its various financial portfolios. Portfolio Derivative instruments used Purpose/Risk being managed Risk management purposes: Investments—Trading Interest rate swaps, currency forward contracts, Manage currency and interest rate risk in the currency swaps, options, swaptions, futures portfolio. contracts, and TBA securities Other assets/liabilities Currency forward contracts, currency swaps and Manage foreign exchange and interest rate interest rate swaps risks. Borrowings Interest rate swaps Manage interest rate risk in the portfolio. Other purposes: Client operations Structured swaps Assist clients in managing risks. The presentation of IDA’s derivatives is based on the manner in which they are settled. Interest rate swaps are settled on a net basis and are therefore presented on a net basis. Currency swaps are settled on a gross basis and are therefore presented on a gross basis. The following table provides information on the fair value amounts and the location of the derivative instruments on the Balance Sheet: In millions of U.S. dollars Condensed Balance Sheet Location Derivative assets Derivative liabilities December 31, 2018 June 30, 2018 December 31, 2018 June 30, 2018 Derivatives not designated as hedging instruments Currency forward contracts $ 18,511 $ 19,496 $ 18,206 $ 19,506 Currency swaps 2,439 2,409 2,429 2,426 Swaptions, exchange traded options and futures contracts - * 2 * Interest rate swaps 14 7 13 26 Other a 6 2 - * Total Derivatives $ 20,970 $ 21,914 $ 20,650 $ 21,958 a. These relate to TBA securities. * Indicates amount less than $0.5 million. Offsetting assets and liabilities IDA enters into International Swaps and Derivatives Association, Inc. (ISDA) master netting agreements with substantially all of its derivative counterparties. These legally enforceable master netting agreements give IDA the right to liquidate securities held as collateral and to offset receivables and payables with the same counterparty, in the event of default by the counterparty. The following tables summarize information on derivative assets and liabilities (before and after netting adjustments) that are reflected on IDA’s balance sheet. The effects of legally enforceable master netting agreements are applied on an aggregate basis to the total derivative asset and liability positions. The net derivative asset positions have been further reduced by the cash and securities collateral received. IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) 39 In millions of U.S. dollars As of December 31, 2018 Located on the Condensed Balance Sheet Derivative Assets Derivative Liabilities Gross Gross Net Gross Gross Net Amounts Amounts Amounts Amounts Amounts Amounts Recognized Offset Presented Recognized Offset Presented Interest rate swaps $ 395 $ (381) $ 14 $ 203 $ (190) $ 13 Currency swaps a 20,950 - 20,950 20,635 - 20,635 Other b 6 - 6 2 - 2 Total $ 21,351 $ (381) $ 20,970 $ 20,840 $ (190) $ 20,650 Amounts subject to legally enforceable master netting agreements c $ (20,598) $ (20,598) Net derivative positions at counterparty level before collateral 372 52 Less: Cash collateral received d 9 Securities collateral received - Net derivative exposure after collateral $ 363 a. Includes currency forward contracts. b. These include swaptions exchange traded options, futures contracts and TBA securities. c. Not offset on the Condensed Balance Sheet. d. Does not include excess collateral received. In millions of U.S. dollars As of June 30, 2018 Located on the Condensed Balance Sheet Derivative Assets Derivative Liabilities Gross Gross Net Gross Gross Net Amounts Amounts Amounts Amounts Amounts Amounts Recognized Offset Presented Recognized Offset Presented Interest rate swaps $ 236 $ (229) $ 7 $ 396 $ (370) $ 26 Currency swaps a 21,905 - 21,905 21,932 - 21,932 Other b 2 - 2 * - * Total $ 22,143 $ (229) $ 21,914 $ 22,328 $ (370) $ 21,958 Amounts subject to legally enforceable master netting agreements c $ (21,662) $ (21,662) Net derivative positions at counterparty level before collateral 252 296 Less: Cash collateral received d 2 Securities collateral received - Net derivative exposure after collateral $ 250 a. Includes currency forward contracts. b. These include swaptions exchange traded options, futures contracts and TBA securities. c. Not offset on the Condensed Balance Sheet. d. Does not include excess collateral received. * Indicates amount less than $0.5 million. 40 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) The following table provides information about the notional amounts and credit risk exposures, of IDA’s derivative instruments. In millions of U.S. dollars Type of contract December 31, 2018 June 30, 2018 Investments - Trading Interest rate swaps Notional principal $ 1,544 $ 978 Credit exposure 6 6 Currency swaps (including currency forward contracts) Credit exposure 32 68 Swaptions, exchange traded options, and futures contracts a Notional long position 3,410 4,442 Notional short position 4,349 5,201 Credit exposure - * Other derivatives b Notional long position 757 518 Notional short position - 8 Credit exposure 6 2 Asset-liability management Currency forward contracts (including currency swaps) Credit exposure 493 388 Interest rate swaps Notional principal 20 21 Credit exposure - - Borrowings Interest rate swaps Notional principal 3,000 3,000 Credit exposure 8 1 Total credit exposure Interest rate swaps 14 7 Currency forward contracts (including currency swaps) 525 456 Swaptions, exchange traded options, and futures contracts a - * Other derivatives b 6 2 Total 545 465 a. Exchange traded instruments are generally subject to daily margin requirements and are deemed to have no material credit risk. All options and futures contracts are interest rate contracts. b. These relate to TBA securities. * Indicates amount less than $0.5 million. Under almost all of its International Swaps and Derivative Association (ISDA) Master Agreements, IDA is not required to post collateral as long as it maintains liquidity holdings at predetermined levels that are a proxy for a triple-A credit rating. After becoming a rated entity, IDA has started to enter into derivative agreements with commercial counterparties in which IDA is not required to post collateral as long as it maintains a triple-A rating. The aggregate fair value of all derivative instruments with credit-risk related contingent features that are in a liability position as of December 31, 2018 is $40 million ($298 million —June 30, 2018). As of December 31, 2018, IDA was not required to post any collateral in accordance with the relevant agreements. If the credit-risk related contingent features underlying these agreements were triggered to the extent that IDA would be required to post collateral as of December 31, 2018, the amount of collateral would be $3 million ($62 million—June 30, 2018). Subsequent triggers of contingent features would require posting of additional collateral, up to a maximum of $40 million as of December 31, 2018 ($298 million—June 30, 2018). IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) 41 Amounts of gains and losses on the non-trading derivatives and their location on the Condensed Statement of Income are as follows: In millions of U.S. dollars Gains (Losses) Three Months Ended Six Months Ended December 31, December 31, Reported as 2018 2017 2018 2017 Derivatives not designated as hedging instruments and not held in a trading portfolio a Interest rate swaps Unrealized mark-to-market 31 - 21 - Currency forward contracts and gains (losses) on non-trading currency swaps portfolios, net 162 (32) 191 26 Total $ 193 $ (32) $ 212 $ 26 a. For alternative disclosures about trading derivatives, see the following table. The majority of the instruments in IDA’s investment portfolio are held for trading purposes. Within the trading portfolio, IDA holds highly rated fixed income instruments as well as derivatives. The trading portfolio is primarily held to ensure the availability of funds to meet future cash flow requirements and for liquidity management purposes. The following table provides information on the amount of gains and losses on the IDA’s investment trading portfolio (derivative and non-derivative instruments), and their location on the Condensed Statement of Income: In millions of U.S. dollars Unrealized Gains (Losses) Three Months Ended Six Months Ended December 31, December 31, Reported as 2018 2017 2018 2017 Type of instrument Unrealized mark-to-market Fixed income (including gains (losses) on Investment- related derivatives) Trading portfolios, net $ 128 $ (50) $ 71 $ (35) 42 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) Fair Value Disclosures IDA’s fair value hierarchy for derivative assets and liabilities measured at fair value on a recurring basis is as follows: In millions of U.S. dollars Fair Value Measurements on a Recurring Basis As of December 31, 2018 Level 1 Level 2 Level 3 Total Derivative assets: Investments Currency forward contracts $ - $ 3,653 $ - $ 3,653 Currency swaps - 1,707 - 1,707 Interest rate swaps - 6 - 6 Swaptions, exchange traded options and futures contracts - - - - Other a - 6 - 6 - 5,372 - 5,372 Asset-liability management Currency forward contracts - 14,858 - 14,858 Currency swaps - 732 - 732 Interest rate swaps - - - - - 15,590 - 15,590 Borrowings Interest rate swaps - 8 - 8 Total derivative assets $ - $ 20,970 $ - $ 20,970 Derivative liabilities: Investments Currency forward contracts $ - $ 3,690 $ - $ 3,690 Currency swaps - 1,712 - 1,712 Interest rate swaps - 12 - 12 Swaptions, exchange traded options and futures contracts 2 - - 2 Other a - - - - 2 5,414 - 5,416 Asset-liability management Currency forward contracts - 14,516 - 14,516 Currency swaps - 717 - 717 Interest rate swaps - 1 - 1 - 15,234 - 15,234 Borrowings Interest rate swaps - - - - Total derivative liabilities $ 2 $ 20,648 $ - $ 20,650 a. These relate to TBA securities. IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) 43 In millions of U.S. dollars Fair Value Measurements on a Recurring Basis As of June 30, 2018 Level 1 Level 2 Level 3 Total Derivative assets: Investments Currency forward contracts $ - $ 3,789 $ - $ 3,789 Currency swaps - 2,401 - 2,401 Interest rate swaps - 6 - 6 Swaptions, exchange traded options and futures contracts - * - * Other a - 2 - 2 - 6,198 - 6,198 Asset-liability management Currency forward contracts - 15,707 - 15,707 Currency swaps - 8 - 8 Interest rate swaps - - - - - 15,715 - 15,715 Borrowings Interest rate swaps - 1 - 1 Total derivative assets $ - $ 21,914 $ - $ 21,914 Derivative liabilities: Investments Currency forward contracts $ - $ 3,771 $ - $ 3,771 Currency swaps - 2,417 - 2,417 Interest rate swaps - 10 - 10 Swaptions, exchange traded options and futures contracts - * - * Other a - * - * - 6,198 - 6,198 Asset-liability management Currency forward contracts - 15,735 - 15,735 Currency swaps - 9 - 9 Interest rate swaps - 1 - 1 - 15,745 - 15,745 Borrowings Interest rate swaps - 15 - 15 Total derivative liabilities $ - $ 21,958 $ - $ 21,958 a. These relate to TBA securities. * Indicates amount less than $0.5 million. Inter-level transfers During the six months ended December 31, 2018 and December 31, 2017, there were no inter-level transfers for IDA’s derivatives. Valuation Methods and Assumptions Derivative contracts include currency forward contracts, TBA, swaptions, exchange traded options and future contracts, currency swaps and interest rate swaps. Where available, quoted market prices are used to determine the fair value of trading securities. Examples include exchange traded options and futures contracts. For instruments for which market quotations are not available, fair values are determined using model-based valuation techniques, whether internally-generated or vendor-supplied, that include the standard discounted cash flow method using market observable inputs such as yield curves, foreign exchange rates, credit spreads, basis spreads, funding spreads and constant prepayment spreads. Where applicable, unobservable inputs such as constant prepayment rates, probability of default, and loss severity are used. 44 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) NOTE F—LOANS AND OTHER EXPOSURES Loans and other exposures are generally made directly to member countries of IDA. Other exposures include irrevocable commitments, guarantees and repaying project preparation facilities. Loans are carried and reported at amortized cost. Of the total loans outstanding as of December 31, 2018, 91% were to the South Asia, Africa, and East Asia and Pacific regions combined. Based on IDA’s internal credit quality indicators, the majority of the loans outstanding are in the Medium and High- risk classes. As of December 31, 2018 loans outstanding totaling $2,528 million (representing about 1.7% of the portfolio) from five borrowers, were in nonaccrual status. Credit Quality of Sovereign Loans Based on an evaluation of IDA’s exposures, management has determined that IDA has one portfolio segment – Sovereign Exposures. IDA’s loans constitute the majority of the Sovereign Exposures portfolio segment. IDA’s country risk ratings are an assessment of its borrowers’ ability and willingness to repay IDA on time and in full. These ratings are internal credit quality indicators. Individual country risk ratings are derived on the basis of both quantitative and qualitative analyses. The components considered in the analysis can be grouped broadly into eight categories: political risk, external debt and liquidity, fiscal policy and public debt burden, balance of payments risks, economic structure and growth prospects, monetary and exchange rate policy, financial sector risks, and corporate sector debt and vulnerabilities. For the purpose of analyzing the risk characteristics of IDA’s exposures, these exposures are grouped into three classes in accordance with assigned borrower risk ratings, which relate to the likelihood of loss: Low, Medium and High risk classes, as well as exposures in nonaccrual status. IDA considers all exposures in nonaccrual status to be impaired. IDA’s borrower country risk ratings are key determinants in the provision for loan losses. Country risk ratings are determined in review meetings that take place several times a year. All countries are reviewed at least once a year, or more frequently if circumstances warrant, to determine the appropriate ratings. IDA considers loans to be past due when a borrower fails to make payment on any principal, interest or other charges due to IDA on the dates provided in the contractual loan agreement. IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) 45 The following tables provide an aging analysis of loans outstanding: In millions of U.S. dollars December 31, 2018 Total Past Days past due Up to 45 46-60 61-90 91-180 Over 180 Due Current Total Risk Class Low $ - $ - $ - $ - $ - $ - $ 1,737 $ 1,737 Medium - - - - - - 24,806 24,806 High * - - - - * 122,537 122,537 Loans in accrual status * - - - - * 149,080 149,080 Loans in nonaccrual status 12 1 5 22 1,276 1,316 1,212 2,528 Total $ 12 $ 1 $ 5 $ 22 $ 1,276 $ 1,316 $ 150,292 $ 151,608 In millions of U.S. dollars June 30, 2018 Total Past Days past due Up to 45 46-60 61-90 91-180 Over 180 Due Current Total Risk Class Low $ - $ - $ - $ - $ - $ - $ 2,065 $ 2,065 Medium - - - - - - 25,815 25,815 High 1 - - - - 1 119,596 119,597 Loans in accrual status 1 - - - - 1 147,476 147,477 Loans in nonaccrual status 11 2 5 23 1,241 1,282 1,269 2,551 Total $ 12 $ 2 $ 5 $ 23 $ 1,241 $ 1,283 $ 148,745 $ 150,028 * Indicates amounts less than $0.5 million. Accumulated Provision for Losses on Loans and Other Exposures Provision for Losses on Loans and Other Exposures Management determines the appropriate level of accumulated provision for losses, which reflects the probable losses inherent in IDA’s exposures. Probable losses comprise estimates of losses arising from default and nonpayment of principal amounts due, as well as present value losses. Delays in receiving loan payments result in present value losses to IDA since it does not charge fees or additional interest on any overdue interest or charges. These present value losses are equal to the difference between the present value of payments of interest and charges, made according to the related instrument’s contractual terms, and the present value of its expected future cash flows. Provision for the HIPC Debt Initiative and Multilateral Debt Relief Initiative (MDRI) includes provisions that are based on quantitative and qualitative analyses of various factors, including estimates of Decision Point and Completion Point dates. These factors are reviewed periodically as part of the reassessment of the adequacy of the accumulated provision for loss. Provisions are released as qualifying debt service becomes due and is forgiven under the HIPC Debt Initiative, and are reduced by the amount of eligible loans written off when the country reaches Completion Point, and becomes eligible for MDRI debt relief. During the six months ended December 31, 2018 and the fiscal year ended June 30, 2018, there were no loans written off under the MDRI. 46 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) Changes to the accumulated provision for losses on loans and other exposures are summarized below: In millions of U.S. dollars December 31, 2018 June 30, 2018 Debt relief Debt relief under under Loans HIPC/MDRI Other Total Loans HIPC/MDRI Other Total Accumulated provision, beginning of the fiscal year $ 2,439 $ 1,944 $ 56 $ 4,439 $ 1,913 $ 1,940 $ 25 $ 3,878 Provision, net a 87 - 7 94 510 7 31 548 Loans written off under: Prepayments - - - - (3) - - (3) HIPC/MDRI - (5) - (5) - (10) - (10) Translation adjustment (26) (7) * (33) 19 7 * 26 Accumulated provision, end of the period $ 2,500 $ 1,932 $ 63 $ 4,495 $ 2,439 $ 1,944 $ 56 $ 4,439 Composed of accumulated provision for losses on: Loans in accrual status $ 2,225 $ 111 $ 2,336 $ 2,160 $ 117 $ 2,277 Loans in nonaccrual status 275 1,821 2,096 279 1,827 2,106 Total $ 2,500 $ 1,932 $ 4,432 $ 2,439 $ 1,944 $ 4,383 Loans: Loans in accrual status $ 149,080 $ 147,477 Loans in nonaccrual status 2,528 2,551 Total $ 151,608 $ 150,028 a. For the six months ended December 31, 2018, the accumulated provision includes provision for discount on prepayment of loans $3 million ($3 million-June 30, 2018). * Indicates amounts less than $0.5 million. Reported as Follows Condensed Balance Sheet Condensed Statement of Income Accumulated Provision for Losses on: Provision for losses on loans and other Loans Accumulated provision for losses on loans exposures, net Debt Relief under Provision for losses on loans and other Accumulated provision for losses on loans HIPC/MDRI exposures, net Provision for losses on loans and other Other Exposures Other liabilities exposures, net Overdue Amounts As of December 31, 2018, there were no principal or charges for loans in accrual status which were overdue by more than three months. The following tables provide a summary of selected financial information related to loans in nonaccrual status: IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) 47 In millions of U.S. dollars Overdue amounts Provision Nonaccrual Recorded Average recorded Principal Provision for for loan Borrower since investment a investment b Outstanding debt relief losses c Principal Charges Eritrea March 2012 $ 434 $ 435 $ 434 $ 303 $ 24 $ 69 $ 24 Somalia July 1991 413 413 413 402 2 253 87 Sudan January 1994 1,206 1,207 1,206 1,116 16 743 220 Syrian Arab Republic June 2012 14 14 14 - 2 9 1 Zimbabwe October 2000 461 462 461 - 231 242 57 Total - December 31, 2018 $ 2,528 $ 2,531 $ 2,528 $ 1,821 $ 275 $ 1,316 $ 389 Total - June 30, 2018 $ 2,551 $ 2,576 $ 2,551 $ 1,827 $ 279 $ 1,282 $ 383 a. A loan loss provision has been recorded against each of the loans in nonaccrual status. b. For December 31, 2018, represents the average for the six months ended that date (June 30, 2018 - represents the average for the fiscal year then ended). c. Loan loss provisions are determined after taking into account accumulated provision for debt relief. In millions of U.S. dollars Three months ended Six months ended December 31, December 31, 2018 2017 2018 2017 Service charge revenue not recognized as a result of loans being in nonaccrual status $ 4 $ 5 $ 9 $ 10 During the six months ended December 31, 2018 and December 31, 2017, no loans were placed into nonaccrual status. During the three and six months ended December 31, 2018 and December 31, 2017, no service charge revenue was recognized on loans in nonaccrual status. Guarantees Guarantees of $1,951 million were outstanding as of December 31, 2018 ($1,808 million—June 30, 2018). This amount includes $44 million relating to the Private Sector Window (PSW) ($36 million—June 30, 2018). The outstanding amount of guarantees represents the maximum potential undiscounted future payments that IDA could be required to make under these guarantees and is not included on the Condensed Balance Sheet. The guarantees issued by IDA have original maturities ranging between 6 and 22 years, and expire in decreasing amounts through 2036. As of December 31, 2018, liabilities related to IDA’s obligations under guarantees of $129 million ($123 million— June 30, 2018), have been included in Other liabilities on the Condensed Balance Sheet. These include the accumulated provision for guarantee losses of $52 million ($47 million—June 30, 2018). During the six months ended December 31, 2018 and December 31, 2017, no guarantees provided by IDA were called. Segment Reporting Based on an evaluation of its operations, Management has determined that IDA has only one reportable segment. Loan revenue comprises service charges and interest charges on outstanding loan balances. For the six months ended December 31, 2018, loan revenue from three countries of $124 million, $91 million and $72 million, respectively were in excess of 10% of total loan revenue. 48 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) The following table presents IDA’s loans outstanding and associated loan revenue by geographic region: In millions of U.S. dollars December 31, 2018 December 31, 2017 Loans Service and Loans Service and Region Outstanding Interest Charges Outstanding Interest Charges Africa $ 61,302 $ 237 $ 56,748 $ 208 East Asia and Pacific 19,534 99 19,924 96 Europe and Central Asia 7,812 55 7,594 55 Latin America and the Caribbean 2,657 15 2,608 14 Middle East and North Africa 2,776 11 3,018 12 South Asia 57,527 297 57,742 284 Total $ 151,608 $ 714 $ 147,634 $ 669 Fair Value Disclosures IDA’s loans are carried and reported at amortized cost. The table below presents the fair value of loans for disclosure purposes, along with their respective carrying amounts: In millions of U.S dollars December 31, 2018 June 30, 2018 Carrying Value Fair Value Carrying Value Fair Value Net Loans Outstanding $ 147,184 $ 120,189 $ 145,656 $ 118,508 IDA’s loans would be classified as Level 3 within the fair value hierarchy. NOTE G—TRANSACTIONS WITH AFFILIATED ORGANIZATIONS IDA transacts with affiliated organizations as a recipient of transfers and grants, administrative and derivative intermediation services as well as through cost sharing of IBRD’s sponsored pension and other postretirement plans. Transfers and Grants Cumulative transfers and grants made to IDA as of December 31, 2018 were $ 19,399 million ($19,148 million— June 30, 2018). Details by transferor are as follows: In millions of U.S dollars Beginning of the Transfers during Transfers from fiscal year the period End of period Total $ 19,148 $ 251 $ 19,399 Of which from: IBRD 15,249 248 15,497 IFC 3,672 - 3,672 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) 49 Receivables and Payables As of December 31, 2018 and June 30, 2018, the total amounts receivable from or (payable to) affiliated organizations comprised: In millions of U.S. dollars December 31, 2018 June 30, 2018 IBRD IFC Total IBRD IFC Total Administrative Services a $ (300) $ - $ (300) $ (339) $ - $ (339) Derivative Transactions Receivable 4,358 28 4,386 4,531 8 4,539 Payable (4,072) (28) (4,100) (4,284) (9) (4,293) PSW- Blended Finance Facility - * * - - - Pension and Other Postretirement Benefits 641 - 641 676 - 676 Investments - 760 760 - 812 812 $ 627 $ 760 $ 1,387 $ 584 $ 811 $ 1,395 a. Includes $167 million as of December 31, 2018 ($140 million-June 30, 2018) receivable from IBRD for IDA's share of investments associated with Post-Retirement Contribution Reserve Fund (PCRF), which is a fund established to stabilize contributions made to the pension plans. * Indicates amounts less than $0.5 million. The receivables from (payables to) these affiliated organizations are reported in the Condensed Balance Sheet as follows: Receivables / Payables related to: Reported as: Receivable for pension and other postretirement benefits Receivable from affiliated organization Receivables (payables) for derivative transactions Derivative assets/liabilities – Asset-liability management Payable for administrative services a Payable to affiliated organization a. Includes amounts receivable from IBRD for IDA’s share of investments associated with PCRF. This receivable is included in Receivable from affiliated organization on the Condensed Balance Sheet. Administrative Services: The payable to IBRD represents IDA’s share of joint administrative expenses, net of other revenue jointly earned. The allocation of expenses is based upon an agreed cost sharing formula, and amounts are settled quarterly. Beginning from the period ended September 30, 2016, the allocation of expenses jointly incurred by IBRD and IDA also includes Contributions to special programs. For the three and six months ended December 31, 2018, IDA’s share of joint administrative expenses totaled $458 million and $870 million, respectively ($445 million and $858 million—three and six months ended December 31, 2017). Other revenue: Includes IDA’s share of other revenue jointly earned with IBRD during the three and six months ended December 31, 2018 totaling $91 million and $142 million, respectively ($71 million and $118 million—three and six months ended December 31, 2017). The allocation of revenue is based upon an agreed revenue sharing formula, and amounts are settled quarterly. For the three and six months ended December 31, 2018 and December 31, 2017, the amount of fee revenue associated with services provided to other affiliated organizations is included in Other revenue on the Condensed Statement of Income, as follows: In millions of U.S dollars Three Months Ended December 31, Six Months Ended December 31, 2018 2017 2018 2017 Fees charged to IFC $ 22 $ 18 $ 38 $ 32 Fees charged to MIGA 2 1 3 2 Pension and Other Post-Retirement Benefits: The receivable from IBRD represents IDA’s net share of prepaid costs for pension and other postretirement benefit plans and Post-Employment Benefits Plan (PEBP) assets. These will be realized over the lives of the plan participants. Derivative transactions: These relate to currency forward contracts entered into by IDA with IBRD acting as the intermediary with the market and primarily convert donors’ expected contributions in national currencies under the Sixteenth and Seventeenth replenishments of IDA’s resources into the five currencies of the SDR basket. 50 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) Investments During the fiscal year ended June 30, 2015, IDA purchased a debt security issued by IFC for a principal amount of $1,179 million, amortizing over a period of 25 years. The investment carries a fixed interest rate of 1.84% and has a weighted average maturity of four years. As of December 31, 2018, the principal amount due on the debt security was $782 million, and it had a fair value of $760 million. The investment is reported under Investments in the Condensed Balance Sheet. During the three and six months ended December 31, 2018, IDA recognized interest income of $3 million and $7 million, respectively on this debt security ($5 million and $9 million —three and six months ended December 31, 2017 respectively). PSW As part of the IDA18 replenishment, IDA’s Executive Directors approved the creation of a $2.5 billion IDA18 IFC- MIGA PSW to mobilize private sector investments in IDA-only countries and IDA-eligible Fragile and Conflict Affected States (FCS). Under the fee arrangement for the PSW, IDA will receive fee income for transactions executed under this window and will reimburse IFC and MIGA for the related costs incurred in administering these transactions. The following tables provide a summary of all PSW related transactions under which IDA has an exposure as of December 31, 2018: In millions of U.S. dollars Net Asset/ Facility Notional (Liability) Description Balance Sheet Location position Local Currency Facility 29 (1) Currency swaps with IFC to support local currency Derivative assets/ denominated loans liabilities- Asset-liability management In millions of U.S. dollars Accumulated Facility Exposure Description Balance Sheet Location Provision MIGA Guarantee Facility 36 4 Expanding the coverage of MIGA Political Risk Off Balance Sheet item Insurance (PRI) products through shared first-loss or risk participation similar to reinsurance Blended Finance Facility 8 1 Sharing the first loss to support IFC's Small Loan Off Balance Sheet item Guarantee Program in PSW eligible countries Blended Finance Facility * - Funding of IFC's PSW related equity investment Other assets * Indicates amounts less than $0.5 million. NOTE H—DEVELOPMENT GRANTS A summary of changes to the amounts payable for development grants is presented below: In millions of U.S dollars December 31, 2018 June 30, 2018 Balance, beginning of the fiscal year $ 8,743 $ 6,583 a Commitments 3,185 4,964 Disbursements (including PPAb grant activity) (1,773) (2,847) Translation adjustment (99) 43 Balance, end of the period/ fiscal year $ 10,056 $ 8,743 a. Excludes $9 million PEF disbursements made from PEF Financial Intermediary Funds. b. Project Preparation Advances (PPA). For the fiscal years ending June 30, 2019 and the fiscal years ended June 30, 2018, the commitment charge rate on the undisbursed balances of IDA grants has been set at nil percent. IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) 51 NOTE I—PENSION AND OTHER POSTRETIREMENT BENEFITS IBRD, along with IFC and MIGA, sponsors a defined benefit Staff Retirement Plan and Trust, a Retired Staff Benefits Plan and Trust and a PEBP that cover substantially all of their staff members. While IDA is not a participating entity to these benefit plans, IDA shares in the costs and reimburses IBRD for its proportionate share of any contributions made to these plans by IBRD, as part of IBRD’s allocation of staff and associated administrative expenses to IDA based on an agreed cost sharing ratio. During the three and six months ended December 31, 2018, IDA’s share of IBRD’s benefit costs relating to all three plans totaled $78 million and $152 million, respectively ($84 million and $161 million—three and six months ended December 31, 2017, respectively). The cost of any potential future liability arising from these plans would be shared by IBRD and IDA using the applicable share ratio. NOTE J—ACCUMULATED OTHER COMPREHENSIVE INCOME Comprehensive income consists of net income (loss) and other gains and losses affecting equity that, under U.S. GAAP, are excluded from net income (loss). For IDA, comprehensive income (loss) is comprised of net income (loss) and currency translation adjustments on functional currencies. These items are presented in the Condensed Statement of Comprehensive Income. The following table presents the changes in Accumulated other comprehensive income balances. In millions of U.S dollars Six Months Ended December 31, 2018 2017 Balance, beginning of the fiscal year $ (675) $ (2,039) Currency translation adjustments on functional currencies (1,699) 3,347 DVA on Fair Value option elected liabilities 2 - Balance, end of the period $ (2,372) $ 1,308 NOTE K—OTHER FAIR VALUE DISCLOSURES The table below presents IDA’s estimates of fair value of its financial assets and liabilities along with their respective carrying amounts. In millions of U.S dollars December 31, 2018 June 30, 2018 Carrying Value Fair Value Carrying Value Fair Value Assets Due from Banks $ 529 $ 529 $ 523 $ 523 Investments (including securities purchased under resale agreements) 30,921 30,921 36,075 36,075 Net Loans Outstanding 147,184 120,189 145,656 118,508 Derivative Assets Asset-Liability Management 15,590 15,590 15,715 15,715 Borrowings 8 8 1 1 Investments 5,372 5,372 6,198 6,198 Liabilities Borrowings Concessional partner loans 5,806 6,602 5,811 6,660 Market borrowings 1,510 1,510 1,494 1,494 Securities sold/ lent under repurchase agreements/ securities lending agreements and payable for cash collateral received 927 927 2,543 2,543 Derivative Liabilities Asset-Liability Management 15,234 15,234 15,745 15,745 Borrowings - - 15 15 Investments 5,416 5,416 6,198 6,198 52 IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) Valuation Methods and Assumptions As of December 31, 2018, and June 30, 2018, IDA had no financial assets or liabilities measured at fair value on a non–recurring basis. For additional fair value disclosures regarding Investments, Borrowings, Derivative assets and liabilities and Loans, refer to Note C—Investments, Note D—Borrowings, Note E—Derivative Instruments and Note F—Loans and other exposures, respectively. Due from Banks: The carrying amount of unrestricted and restricted cash is considered a reasonable estimate of the fair value of these positions. Unrealized Mark-to-Market Gains (Losses) on Trading and Non-Trading Portfolios, Net The following table reflects the components of the unrealized mark-to-market gains or losses on IDA’s trading and non-trading portfolios, net. In millions of U.S. dollars Three Months Ended December 31, Six Months Ended December 31, 2018 2018 Unrealized Unrealize gains d gains (losses) (losses) Realized excluding Unrealized Realized excluding Unrealized gains realized gains gains realized gains (losses) amounts a (losses) (losses) amounts a (losses) Investments, Trading—Note E $ (15) $ 143 $ 128 $ (15) $ 86 $ 71 Non-trading portfolios, net Asset-liability management—Note E - 161 161 - 191 191 Borrowings, including derivatives—Notes D and E a - 3 3 b - 3 3 Investments—Note C - 12 12 - 10 10 Total $ - $ 176 $ 176 $ - $ 204 $ 204 In millions of U.S. dollars Three Months Ended December 31, Six Months Ended December 31, 2017 2017 Unrealized Unrealize gains d gains (losses) (losses) Realized excluding Unrealized Realized excluding Unrealized gains realized gains gains realized gains (losses) amounts a (losses) (losses) amounts a (losses) Investments, Trading—Note E $ 2 $ (52) $ (50) $ (42) $ 7 $ (35) Non-trading portfolios, net Asset-liability management—Note E - (32) (32) - 26 26 Investments—Note C - (7) (7) - (7) (7) Total $ - $ (39) $ (39) $ - $ 19 $ 19 a. Adjusted to exclude amounts reclassified to realized gains/losses. b. Includes $31 million and $21 million of unrealized mark-to-market gains related to derivatives associated with borrowings for three and six months ended December 31, 2018, respectively. NOTE L—CONTINGENCIES From time to time, IDA may be named as a defendant or co-defendant in legal actions on different grounds in various jurisdictions. The outcome of any existing legal action, in which IDA has been named as a defendant or co- defendant, as of and for the six months ended December 31, 2018, is not expected to have a material adverse effect on IDA's financial position, results of operations or cash flows. IDA Condensed Quarterly Financial Statements: December 31, 2018 (Unaudited) 53 INDEPENDENT AUDITORS’ REVIEW REPORT 54