91834 FY15 World Bank Budget October 8, 2014 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION BUDGET, PERFORMANCE REVIEW AND STRATEGIC PLANNING This document contains forward-looking statements that are based on management's expectations, estimates, projections, and assumptions. Words such as "proposes," "plans," "estimates," "anticipates," "intends," and variations of these words and similar expressions are intended to identify forward-looking statements. Such statements are not guarantees of future performance. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the Bank is under no obligation to update or alter its forward looking statements, whether as a result of such changes, new information, subsequent events or otherwise. FY15 BUDGET DOCUMENT CONTENTS 1. OVERVIEW AND RECOMMENDATIONS...................................................................................... 5 1.1 CONTEXT .......................................................................................................................................... 5 1.2 FY15 BUDGET RECOMMENDATIONS ......................................................................................... 7 2. WORLD BANK FINANCIAL AND BUDGETARY CONTEXT ...................................................... 8 2.1 WORLD BANK FINANCIAL SUSTAINABILITY FRAMEWORK .............................................. 8 2.2 EXPENDITURE REVIEW ............................................................................................................... 10 2.3 SIZING THE BUDGET ENVELOPE .............................................................................................. 12 3. FY15-17 BUDGET FRAMEWORK AND PROPOSAL ................................................................... 14 3.1 NEW STRATEGIC PLANNING AND BUDGETING PROCESS ................................................. 14 3.2 INSTITUTIONAL PRIORITIES ...................................................................................................... 15 3.3 CORPORATE BUDGET FLEXIBILITY ........................................................................................ 17 3.4 ADMINISTRATIVE BUDGET PROPOSAL .................................................................................. 18 3.5 BUDGET ALLOCATIONS BY WORK PROGRAM AND UNIT TYPE ...................................... 20 3.6 BUDGET ALLOCATIONS BY OPERATIONAL UNIT ............................................................... 22 3.7 EXTERNAL FUNDS ....................................................................................................................... 25 3.8 EXPENSE LINE VIEW ................................................................................................................... 25 3.9 NON-UNIT SPECIFIC ACCOUNTS AND BUDGETS ................................................................. 28 3.10 CAPITAL BUDGET SUMMARY ................................................................................................. 32 4. WORK PROGRAM AND DELIVERABLES ................................................................................... 35 4.1 REGIONAL WORK PROGRAM .................................................................................................... 35 4.2 GLOBAL PRACTICES AND CROSS-CUTTING SOLUTION AREA WORK PROGRAM ....... 37 5. CHALLENGES AND NEXT STEPS .................................................................................................. 39 ANNEXES ANNEX A: PROGRAM COST SUMMARY TABLE .............................................................................. 40 ANNEX B: CAPITAL BUDGET ............................................................................................................... 44 ANNEX C: ANALYZING EXPENDITURE PATTERNS BY EXPENSE TYPE.................................... 49 i FY15 BUDGET DOCUMENT BOXES Box 3.1: Implementing the New Budgeting Approach............................................................................... 15 Box 3.2: Increased focus on Fragility, Conflict and Violence .................................................................... 16 Box 3.3: Meeting the IDA17 Commitments ............................................................................................... 17 Box 3.4: Global Practice Budgeting ........................................................................................................... 25 Box 3.5: Capital Budgeting - Overview...................................................................................................... 34 TABLES Table 2.1: Administrative Bank Budget Summary ..................................................................................... 12 Table 3.1: Corporate Budget Flexibility ..................................................................................................... 18 Table 3.2: FY15-17 Total Administrative Budget ...................................................................................... 19 Table 3.3: FY15-17 Budget by Work Program and Funding Source.......................................................... 21 Table 3.4: FY15-17 Budget Share by Work Program and Funding Source ............................................... 21 Table 3.5: FY15-17 Regional Budget Envelopes ....................................................................................... 22 Table 3.6: Indicative FY15-17 Global Practice/CCSA Budget Envelopes................................................. 24 Table 3.7: Projected FY15 Administrative Budget by Expense Line ......................................................... 27 Table 3.8: Centrally-Managed Accounts .................................................................................................... 29 Table 3.9: Projected Contributions to Staff Retirement and Related Plans ................................................ 30 Table 3.10: FY14 and FY15 Board-related Budgets (Bank Budget) .......................................................... 31 Table 3.11: FY15-17 Grant-Making Facility Envelopes ............................................................................ 32 Table 3.12: Capital Program Summary....................................................................................................... 33 FIGURES Figure 2.1: WB Bank Budget Envelope...................................................................................................... 13 Figure 2.2: WB All Funds Envelope........................................................................................................... 13 Figure 3.1: FY08-14 Administrative Expenditures and FY15-17 Budget .................................................. 20 Figure 3.2: Projected Composition of the FY15 Country Engagement Envelope ...................................... 23 Figure 3.3: Full-time Bank Staff on Payroll ............................................................................................... 28 ii FY15 BUDGET DOCUMENT ACRONYMS AAA Analytical and Advisory Activities AFR Africa Region BETF Bank-Executed Trust Fund BPS Budget, Performance Review, and Strategic Planning VPU CCSAs Cross-Cutting Solution Areas CE Country Engagement CGIAR Consultative Group for International Agricultural Research CSC Corporate Scorecard CPF Country Partnership Framework DGF Development Grant Facility EAP East Asia and Pacific Region ECR External and Corporate Relations VPU ECA Europe and Central Asia Region EFO Externally Financed Output FCS Fragile and Conflict-Affected Situations GBR Group Business Review GE Global Engagement GMF Grant-Making Facility GPSA Global Partnership for Social Accountability GSD General Services Department HQ Headquarters HRD Human Resources Department IBRD International Bank for Reconstruction and Development IDA International Development Association IDF Institutional Development Fund IEG Independent Evaluation Group IFC International Finance Corporation IG&A Institutional, Governance, and Administrative iii FY15 BUDGET DOCUMENT IMF International Monetary Fund IT Information Technology LCR Latin America and Caribbean Region LEG Legal VPU LLI Leadership, Learning and Innovation VPU MD Managing Director MIGA Multilateral Investment Guarantee Agency MNA Middle East and North Africa Region MTBF Medium-Term Business and Finance Paper OPCS Operations Policy and Country Services VPU PCRF Post-Retirement Contribution Reserve Fund PCS Program Cost Summary PPM Program and Practice Management QBRR Quarterly Business and Risk Review RAS Reimbursable Advisory Services RM Resource Management RETF Recipient-Executed Trust Fund RMS Results Measurement System SAR South Asia Region SCD Systematic Country Diagnostic SMT Senior Management Team SPF State and Peace-Building Fund TRE Treasury VP Vice President VPU Vice Presidential Unit WBG World Bank Group WPA Work Program Agreement iv FY15 BUDGET DOCUMENT 1. OVERVIEW AND RECOMMENDATIONS 1.1 CONTEXT 1. FY14 was a significant year for the World Bank Group, with an extensive change agenda and important corporate initiatives affecting all parts of the institution – the strategy was launched, the IDA17 replenishment concluded with a record funding amount, a new country engagement model is being introduced, the matrix is being reorganized with creation of the new Global Practices, and key support functions have been centralized. 2. It has also been an important year for finance in the Bank, with significant reforms centered on supporting the successful implementation of the WBG strategy. This fiscal year, Management has adopted a new financial sustainability framework to improve the institution’s margins for manoeuvre over the medium-term and strengthen our long-term financial capacity. A new Group Chief Risk Officer was appointed in February. At the same time, a new strategic planning process and approach to budgeting was launched to more closely align resources with corporate priorities, enhance selectivity in work program funding, and capture all revenues and expenses. The proposed FY15 budget is the result of this transformation. 3. Important budget processes and structural changes have been introduced so that resources can be managed more effectively and efficiently. Improvements include the new structured business planning process that promotes holistic decision-making through interplay of top-down management guidance on strategic directions and detailed, bottom-up work program planning at the unit level. Initial steps have also been taken to establish a Group-wide approach to business management and budget allocation: Bank, IFC and MIGA planning processes were coordinated and Management teams exchanged ideas on respective funding considerations to ensure strategic alignment across the WBG. The financial sustainability framework includes a new, more dynamic budget anchor to guide judicious management of resources. The new approach to budgeting moves away from unit-based incremental budgets to a work program approach for operational units. Three core work programs that are non-fungible in their funding are distinguished: Country Engagement (CE), Global Engagement (GE), and Program and Practice Management (PPM). Furthermore, a WBG-wide Expenditure Review was conducted and a plan was approved to secure significant cost savings over the planning period. Lastly, resources and budget structures have been re-mapped to support implementation of the new delivery model of Global Practices and Cross-Cutting Solution Areas (CCSAs). 4. New principles and tools for managing the institution and its performance are in line with the thrust of the ongoing organizational change agenda. An overhaul of business monitoring practices has been initiated to move toward a more strategic and Group-oriented way of managing the institution, anchored in a biweekly Group Business Review (GBR) between the Senior Management Team (SMT) and all WBG Vice Presidents (VPs) to promote stronger collective leadership as well as accountability across the Management team. The Review meetings foster continuous dialogue on work program priorities with a focus on synergies and joint solutions, results and evidence-based approaches. The new WBG Corporate Scorecard (CSC) was launched in the spring to monitor 5 FY15 BUDGET DOCUMENT implementation of the WBG strategy and sustainable progress toward achieving the two goals. It aggregates the contributions of the Bank, IFC and MIGA, and is the apex from which indicators cascade into the individual monitoring frameworks of the three institutions. Correspondingly, the World Bank Scorecard has been revised to ensure its alignment with the new Group Goals, Strategy and CSC. 5. Key decisions have been taken on budget priorities. The new budgeting and planning process has established a framework that supports strategic selectivity and alignment of resource allocations, points to critical trade-offs and, hence, supports Management in making appropriate choices. FY15 allocation priorities include the following: increasing CE funding as much as possible within the currently constrained resource envelope, giving a particular boost to Regions with highest poverty rates and taking into account shared prosperity – in line with the strategy; decreasing funds for Institutional, Governance and Administrative (IG&A) support units and reducing sustaining costs across the Bank; kick-starting the implementation of Expenditure Review savings through a one-time reinvestment; and using remaining corporate flexibility to fund corporate priority areas such as country office security, country office connectivity, safeguard and procurement reform and implementation, and leadership training and culture change. 6. The paper discusses the main concerns raised during Medium-Term Business and Finance (MTBF) discussions, notably plans for Grant-Making Facilities (GMF) arrangements (discussed in Section 3.9); budget anchor, sustainability and efficiency (discussed in Section 2.1); and proposed shifts in operational resource allocations (discussed in Section 3.2). Additional topics discussed during the MTBF and other interactions between Management and the Board, include Capital Budget requirements, Expenditure Review related investments, External Fund integration, focus on Fragile and Conflict-affected Situations (FCS), and strategy for CCSAs. This document, together with the other financial year-end papers, continues the dialogue on these issues and Management will continue to address them in next year’s planning process. 7. A lot has been accomplished in the past year but much remains to be done. The new financial and budgetary framework represents a significant change in how the institution manages its resources, putting in place a solid foundation to strengthen WBG financial sustainability and to undertake business planning in a more strategic and comprehensive fashion. However, many elements have only been launched this year and more work is needed to, for example, refine the budget, solidify new structures and systems, sustain the efficiency agenda, and align the planning and performance review cycles across the WBG institutions. The main lessons learned from this year’s exercise, set out in Section 5, will be addressed in the FY16-18 planning cycle, which will commence in the fall as a fully joint WBG exercise. 6 FY15 BUDGET DOCUMENT 1.2 FY15 BUDGET RECOMMENDATIONS 8. Management seeks Board approval of the following FY15 Budget recommendations: • That the total administrative budget (Bank Budget) be set at $2,577 million, be managed within a range of +/- 2 percent (net of Board budget), of which: • Board-related FY15 funding to comprise: 1 o An indicative budget of $73.8 million for Executive Directors, using a preliminary price factor based on standard rate for HQ units, of which $22.8 million are reimbursables. The price factor will be adjusted subsequently to reflect the decisions of the Joint Committee on Remuneration and approval by the Board of Governors. The total administrative budget will be adjusted accordingly; o $13.0 million for Board of Governors, Development Committee, and Inspection Panel, of which $3.4 million are reimbursables; and o $14.1 million for the Corporate Secretariat of which $5.0 million are reimbursables. • The Grant-Making Facilities (GMFs) to be funded as follows: o $47.0 million for the Consultative Group on International Agricultural Research (CGIAR); o $32.8 million for the Development Grant Facility (DGF); o $25.0 million for the State and Peace Building Fund (SPF); o $0.3 million for the Institutional Development Fund (IDF); and o $5.0 million for the Global Partnership for Social Accountability (GPSA). • $370.1 million to be contributed to the Staff Retirement and related Plans, and $15.5 million to be put into the Post-Retirement Contribution Reserve. • That the capital budget be set at $178.9 million. 1 The Independent Evaluation Group’s (IEG) budget is subject to a separate Board approval process, in which IEG is proposing a budget of $34.1 million, including $7.6 million of reimbursables. 7 FY15 BUDGET DOCUMENT 2. WORLD BANK FINANCIAL AND BUDGETARY CONTEXT This section discusses the two main determinants of the size of the overall expenditure envelope: the World Bank financial outlook in the context of the new financial sustainability framework; and the Expenditure Review. 2.1 WORLD BANK FINANCIAL SUSTAINABILITY FRAMEWORK 9. The World Bank’s new strategy-driven budgeting model anchors the expenditure envelope in the new WBG financial sustainability framework. The goals of this framework are to: • Increase the WBG’s business revenues at an underlying trend rate of above 5 percent p.a., including lifting the IBRD’s growth rate from a 2-3 percent p.a. baseline and nurturing IFC and MIGA growth rates; • Increase the WBG’s annual commitment capacity by $5-10 billion per year and mobilize more external resources in alignment with the WBG strategy and corporate priorities; and • Reduce costs by improving efficiency, including reducing the Group’s overall annual expenditures by at least $400 million (all else equal) over three years, improving cost recovery on fee-based business and trust funds, and rationalizing budget-funded grants. 10. The framework and its goals bear on the three main funding sources for World Bank administrative expenditures (IBRD, IDA, external funds) to a varying degree. 11. The IBRD revenue/capacity measures will, over time, increase IBRD loan spread revenues, reserve accumulation and lending capacity. The Expenditure Review (discussed in Section 2.2) will generate cost savings across the Bank’s work program, whether funded by IBRD, IDA or external resources. The external funds agenda seeks to increase inflow, while at the same time, enhanced cost recovery will contribute to IBRD’s increased financial capacity. 12. The Medium-Term Business and Finance (MTBF) paper introduced and discussed a policy objective of budget sustainability, as a replacement for the flat real budget paradigm that had governed the sizing of the Bank’s net administrative budget since FY06. 2 The mechanism behind the flat real sizing exercise was straightforward. The starting point was the previous year’s budget multiplied by a price factor which reflected price changes the Bank was facing globally. The calculation of the price factor was stable, well documented and approved by Executive Directors along with the budget. 13. Management proposes moving from the flat real budget paradigm, a static anchor, to a dynamic anchor consisting of the financial sustainability framework encompassing budget sustainability rules. This anchor will guide Management’s annual presentation of the budget envelope for Board approval. 14. Management proposes that budget sustainability have two dimensions in regards to the World Bank’s own resources, and the revenues generated by its lending operations: 2 The total administrative budget consisted of the net administrative budget (“above-the-line”) and the Board-related budgets, the GMF, and staff retirement accounts contributions (“below-the-line”). 8 FY15 BUDGET DOCUMENT • For IBRD, budget sustainability means, in the medium term, IBRD expenses do not exceed business revenue (IBRD loan spreads after waivers); 3 and • For IDA, budget sustainability means that IDA expenses do not exceed IDA revenue from credit charges, while minimizing recourse to the commitment charge. 15. The sustainability rules set the trajectory for the World Bank expenditure envelope (Bank Budget or “own resources”) through to FY18, when IBRD business revenues are expected to cover IBRD administrative expenses. 16. Consistent with the budget sustainability rules, Expenditure and Revenue (E&R) Statements have been introduced to inform corporate planning discussions, improve transparency and increase awareness of budgetary sustainability and expense-to-revenue ratios. Management has adopted a soft launch for E&R statements at the VPU level, initially using them to bring transparency to sources and uses of funds. Over time, their use will be strengthened after paying careful consideration to any negative incentives that may arise. 17. Regarding sustaining budget discipline, the first priority, and the path to FY18 when IBRD business revenue is projected to exceed IBRD administrative expenditure, lies through successful implementation of the Expenditure Review and increasing IBRD loan margins. Management agrees, however, that it is important to begin work on appropriate indicators and benchmarks to strengthen the framework so that efficiency gains are not lost once the Expenditure Review is fully implemented and business revenues exceed administrative expenses. Over the coming year, as we gain experience in implementing the Expenditure Review, Management will turn its attention to sustaining and institutionalizing efficiencies, and developing thinking on a corporate benchmarking framework to help “right-size” programs and incentivize budget discipline on an ongoing basis. 18. Regarding external funds, reported revenue is equal to reported expenses. To the extent that there is under-recovery of revenue, the uncovered expenses are embedded in the IBRD/IDA expenses and the shortfall is covered through IBRD/IDA resources (or Bank Budget). 19. In this context, the Bank revised its approach to costing in FY14, moving from a “marginal” to a “full absorption” costing methodology. The way in which the cost of facilities, IT and communication is attributed to staff and consultants was also revised as part of this exercise, lowering the Indirect Rate applicable to staff and Extended Term Consultants and attributing some of these costs to Short Term Consultants. The revised costing methodology is aligned with the new planning and budgeting framework, providing information about external funds split across the new budget envelope structure (see Section 3.1). 20. External funds now account for over one-third of the Bank’s expenditures on Client Engagement. The Bank is currently reviewing its cost recovery policy for all types of external funds and will provide an update to Executive Directors during the first half of FY15. 3 This is a change from the MTBF. This definition now excludes Loan Loss Provision (LLP). Management’s view is that this is appropriate given the potential volatility and changes to LLP. 9 FY15 BUDGET DOCUMENT 2.2 EXPENDITURE REVIEW 21. Status of the Expenditure Review and link to the Medium-Term Budget Framework. The objective of the Expenditure Review exercise is to reduce the World Bank’s cost base without curtailing client services through efficiency measures, thereby: (i) contributing to IBRD net income, reserve accumulation, and lending capacity; (ii) supplementing IDA commitment authority; (iii) increasing the efficiency of external fund use; and (iv) reducing WBG cost structures. The Expenditure Review is also expected to contribute to longer term budget discipline by informing the broader strategy and performance review process, including planning, benchmarking and support for the Group Business Reviews to improve organizational effectiveness. 22. Phase one of the Expenditure Review started with the determination of a cost baseline and an internal and external benchmarking exercise. Using external benchmarking metric distributions (median and fourth quartile performance), an analysis was undertaken of IBRD/IDA and IFC general services and administration, advisory and convening services, and financial services. Based on this analysis the WBG leadership team committed to achieving $400 million in WBG savings over FY15-17. Phase two identified a plan for achieving the savings, including price/cost saving measures (e.g., travel related) and business process changes (e.g., centralization of functions). Phase three, starting FY15, supports, implements and monitors the realization of savings. 23. Since the MTBF, the implementation of the Expenditure Review has advanced in four areas: (i) the SMT endorsed further plans for Group-wide savings initiatives in April; (ii) where plans were sufficiently detailed, the savings estimates were integrated into the FY15-17 budget framework; (iii) the cost of delivering the Expenditure Review savings has been estimated; and (iv) the SMT has endorsed a governance framework for implementing the Expenditure Review. 24. Integration of savings into the FY15-17 budget framework. Further work on fine-tuning estimates and detailed implementation planning has led to a revision of the FY15-17 budget framework. The expected savings for FY15 have been adjusted to $90 million, of which $80 million in Bank Budget. The targeted savings for FY17 remain at $336 million (which, combined with savings in IFC and MIGA, would meet the $400 million or more WBG target). These adjustments have three drivers: 1) The phasing of savings in operations has been further reviewed and back-loaded to FY17 to allow time for the Global Practice restructuring. 2) Some revisions were made to individual savings measures and phases were changed. 3) Finally, since savings estimates are being firmed up as detailed implementation plans are being developed, as anticipated the original buffer for loss of savings has been utilized. There is now little flexibility. 10 FY15 BUDGET DOCUMENT 25. These revised savings estimates have been embedded in the overall budget framework. Where planning is sufficiently advanced, measures have also been reflected in VPU budgets; and the impact of Expenditure Review savings on unit level budgets has been communicated as part of the budget process. Half of assumed Bank Budget savings is still to be clawed back from units, mostly to be allocated for FY16 and FY17. 26. Investment cost to deliver Expenditure Review savings. The investment costs (one-time costs needed to realize the savings) have been reviewed and Management’s planning assumption still remains 75 cents of one-time investment for every dollar of annual saving. To date, investment costs of $218 million have been identified for the WBG, but these estimates will be further revised as detailed investment plans are finalized. 27. For FY15, it is estimated that $30 million would be set aside to finance up front investments associated with Expenditure Review savings initiatives. These investment costs include provision for business process redesign and support for staff transitions. Management will monitor Expenditure Review developments and implementation costs and report regularly in the Quarterly Business and Risk Review (QBRR). For investments related to future Expenditure Review initiatives, estimates will be validated once detailed implementation plans are presented for SMT approval. 28. Governance Framework for Expenditure Review Implementation. The governance framework for implementing the Expenditure Review includes the following elements: (i) A lead Managing Director (MD) or VP is in charge of developing the detailed implementation plans for each initiative and delivering the associated Expenditure Review savings targets. (ii) The process will be coordinated by a dedicated team, working in close collaboration with other units. This unit would manage the overall portfolio of initiatives and track progress, ensuring consistent support for implementation. The unit will track all savings initiatives and provide customized support to the respective lead VPs. Qualitative indicators will also be monitored and reported to the SMT to monitor the sustainability of the measures. (iii) The unit would also help integrate work streams, provide direct support to the lead VPs/individual business units as needed, and bring a consistent rigor and discipline to the process until savings are realized, and capacities required by the business have been built in the accountable units, including business modeling and planning. (iv) Once the Expenditure Review implementation support is complete, the unit would scale back to a steady state, to maintain functions related to strategy and organizational performance, including future benchmarking, promoting additional efficiency initiatives, and supporting the strategic planning processes and regular Group Business Review meetings. (v) Finally, HRDVP is also scaling up its capacity to manage the organizational design and strategic staff planning elements of the process, including helping to ensure that staffing decisions are handled in a fair and transparent manner. 11 FY15 BUDGET DOCUMENT 2.3 SIZING THE BUDGET ENVELOPE 29. As discussed above, sizing of the World Bank expenditure envelope is anchored in the financial sustainability framework and its associated budget sustainability rules. Over the planning period, the size of the expenditure envelope is largely determined by the constrained revenue outlook. 30. In order to protect reserve accumulation and strengthen sustainability, growth in the World Bank expenditure envelope (all funds) after incorporating Expenditure Review savings and re-investments will be constrained to around 0.5 percent 4 a year for the next three years, compared to around 5 percent a year over the past three years. 31. IDA’s budget envelope is expected to be at a sustainable level over the planning horizon. It is expected that the IDA commitment charge will be zero in FY15. 32. IBRD’s budget envelope is expected to reach sustainable levels by FY18, when IBRD net loan spreads are expected to surpass IBRD expenditures. IBRD expenditures decline over the planning period due to savings from the Expenditure Review and the proposed phase-out of the GMFs. 33. Taking the constrained short-term revenue picture into account, adjustments have to be mainly made on the Bank Budget expenditure side during the FY15-17 planning period. Table 2.1 provides an overview of the available FY15-17 Bank Budget envelope and demonstrates the effect of the Expenditure Review and GMF phase-out plans against the baseline of the FY14 Budget framework. Table 2.1: Administrative Bank Budget Summary Projection Baseline Baseline Baseline Baseline in $ million FY14 FY15 FY16 FY17 FY18 FY14 Budget Framework (FY$14) 2,566 2,553 2,559 2,559 2,559 Budget Envelope before ER, GMF adjustments (nominal $)* 2,566 2,619 2,672 2,732 2,793 Less, Gross ER Savings Target (80) (150) (285) (292) Add, 75% one time cost of ER 30 70 114 - Add, 25% of net savings for corporate priorities 12 20 43 73 Less, Net ER savings = Reduction in WB Expenditure Envelope (37) (60) (128) (219) Budget Envelope after ER adjustments 2,566 2,582 2,612 2,604 2,575 Less, Savings from Proposed GMF Phase-out (5) (47) (91) (115) Budget Envelope after ER, GMF Adjustments 2,566 2,577 2,566 2,512 2,460 * Budget Envelope after applying price factor to FY14 Budget and updating pension projections. 34. Figure 2.1 shows the adjustment to the Bank Budget trajectory following the implementation of the Expenditure Review and GMF measures. After Expenditure Review adjustments, the Bank Budget 4 Shifts in the implementation plan of Expenditure Review savings led to the adjustment from the 0.7 percent growth presented in the MTBF. 12 FY15 BUDGET DOCUMENT begins to decline in nominal terms from FY16. Excluding the 75 percent one-time investment costs, the nominal decline begins in FY15. For context, Figure 2.2 shows an all-funds view. Figure 2.1: WB Bank Budget Envelope Figure 2.2: WB All Funds Envelope FY14-18 Trajectory FY14-18 Trajectory 2,900 4,500 2,800 2,700 4,000 2,600 3,500 $ million 2,500 $ million 2,400 3,000 2,300 2,200 2,500 2,100 2,000 2,000 FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18 FY14 Budget Framework after ER adjustments after ER, GMF adjustments FY14 Budget Framework after ER adjustments after ER, GMF adjustments 13 FY15 BUDGET DOCUMENT 3. FY15-17 BUDGET FRAMEWORK AND PROPOSAL This section highlights key changes to the budgeting framework and institutional priorities agreed in the business planning process. It presents the specifics of the FY15 administrative budget proposal, including use of corporate budget flexibility, allocations by work program, unit type, and operational unit, an expense line view, non-unit specific accounts and budgets, and the capital budget. 3.1 NEW STRATEGIC PLANNING AND BUDGETING PROCESS 35. The FY15 budget framework is the result of a more holistic, strategy-driven business planning approach. The new budget, performance review, and strategic planning process was introduced to better align resources with the strategy and corporate goals. It emphasizes the interplay between top- down priority setting and funding decisions by Senior Management and bottom-up work program planning by VPUs. Spanning five main events, the cycle consists of two phases – strategic planning followed by detailed budget formulation. 36. Implementation of the new budget and business planning process was challenging in light of the extensive agenda of change initiatives affecting the institution – a new strategy, a new financial sustainability framework, reorganization of the matrix with creation of and re-mapping staff to the new Global Practices, centralization of key support functions, the Expenditure Review, and compressed timeframe for FY15-17 planning. See Box 3.1 on how the new budgeting approach has been implemented. 37. To better link with the financial sustainability framework, budget discussions have shifted to being in nominal rather than real terms. Real comparators, based on the World Bank price factor, will still be available for analytical purposes, but the Board will be asked to approve a nominal budget in the context of a Board-endorsed multi-year plan. 38. New budget structure: One of the key features of the new approach to corporate planning and budget is a new budget structure - both at the aggregate level as well as the unit level. Hitherto, the aggregate budget was divided into two parts. The "above-the-line" part consisted of the net administrative budget for the work program that Management is considered most directly responsible for. The "below-the-line" part consisted of the Board-related budgets, the contribution to the Staff Retirement Accounts, and the GMF - areas for which direct Management responsibility varies in degree. The problem with this approach is that it diluted focus on the full administrative budget. Consequently, the new budget structure dispenses with this line. While pension contributions are moved to the centrally-managed accounts, Board-related budgets (which continue to be ring-fenced and determined by the Board) are placed within the All Unit Total, and the GMFs (which will also be ring-fenced, subject to the proposed phase out) continue to be listed separately. 39. This change has consequences for the 2 percent flexibility band, which until now has been applied to the net administrative budget. Management believes that the scope should be expanded to cover the total administrative budget (funded from IBRD/IDA resources) net of the Board-related budgets. The recommendations set out in Section 1.2 reflect this view. While the flexibility band is applied at the 14 FY15 BUDGET DOCUMENT corporate level, a carry-forward policy for units is being developed for application at the end of FY15. 40. At the unit level, the new approach to budgeting moves away from unit-based incremental budgets to a work program approach for operational units. Three core work programs that are non-fungible in their funding are distinguished: • The Country Engagement (CE) envelope: This includes all preparation and supervision work with respect to financial services (such as lending, grants, and guarantees), knowledge services (advisory, economic and sector work) and convening services (country strategy, and partner coordination/mobilization). • The Global Engagement (GE) envelope: This work program encompasses all the GE activities, without a specific client country. The work program scope includes: (i) Global Public Goods, (ii) global knowledge services, (iii) global convening services, and (iv) global programs administrative services. • Program and Practice Management (PPM): This envelope funds the cost of running the operational work program, and includes funding for management, support services, space and IT costs, overseas assignment benefits plus knowledge management, innovation and learning. Box 3.1: Implementing the New Budgeting Approach The budget reform has been implemented in parallel with the organization’s restructuring, requiring an extensive re- mapping of unit budgets. Key elements of this process included: a. Regions and Networks are reorganized into the new Global Practice delivery model beginning July 1. All sector management and sector staff, along with associated budgets are remapped to the Global Practice VPU. b. Breaking down operational budget into work program envelopes comprising the CE, GE, and PPM envelopes. The CE envelope is notionally allocated to Regions, which then agree on a work program with Global Practices. At the conclusion of this process, the budget is allocated to the Global Practice VPU, which will execute and is held accountable for delivering the agreed work program. A portion of the CE envelope is retained by the Region for client engagement activities. c. Budget for enabling and support services is also being reorganized. A number of functions are moving to a centralized VPU model, with all relevant functional staff and associate costs mapped to a single VPU, rather than multiple operational and administrative units. 3.2 INSTITUTIONAL PRIORITIES 41. To increase the focus on absolute poverty, taking shared prosperity into account, Management prioritized the regions with the largest number of people in absolute poverty for budget allocation. The Budget envelopes for Africa (AFR) and South Asia (SAR) will be increased by 3 percent p.a. in nominal terms. 42. Given short-term revenue constraints and the need to implement the net Expenditure Review savings, Bank Budget spend is expected to decline in nominal terms over the planning period. Constrained resources require tough choices and selectivity, guided by the strategy. 15 FY15 BUDGET DOCUMENT • During business planning deliberations, Management took a hard look at client engagement needs, challenges and opportunities – with the current funding proposal as the result: increasing CE shares of the regions with highest poverty rates. Given the limited funding flexibility, corresponding adjustments had to be made for other regions. • The appropriateness of these choices needs to be assessed in the context of total revenues, total costs of providing services to our clients, lending capacity, opportunities and risks, as well as the overall WBG effort in each region. • The new budget process provides opportunity for review and feedback to adapt to changing circumstances. Management will revisit VPU trajectories on an annual basis, and is building regional and corporate contingencies to ensure that we can respond rapidly where needed and will not miss opportunities to promote development and corporate goals in any region on account of funding constraints. 43. Institutional emphasis will further be placed on IDA17 commitments, FCS, strong engagement in Middle-Income Countries (MICs), growing the RAS business in the regions, and more transformational engagement work. Lastly, attention will be given to high quality Strategic Country Diagnostics (SCDs) and Country Partnership Frameworks (CPFs) within the Regions’ budgets. See Boxes 3.2 and 3.3 for more details on FCS and IDA17. Box 3.2: Increased focus on Fragility, Conflict and Violence During this year’s planning cycle, Management continued to place particular focus on Fragile and Conflict-Affected situations (FCS). Scaling up the Bank’s work in FCS remains an institutional priority, as can be seen from Regional efforts, and an increase of the Bank’s spending on these countries. In FY13, 14.8 percent of the Country Engagement (CE) Bank Budget envelope was spent on FCS (16.3 percent of all funds), with projections indicating further growth: by FY15, the FCS share of CE is expected to reach 17.6 percent for Bank Budget and 18.4 percent for all funds. The new CCSA on Fragility, Conflict and Violence (FCV) will place emphasis on addressing the root causes of fragility, conflict and violence and developing FCV-sensitive development programs. Part of IDA17 efforts will be directed at: (i) Addressing drivers of fragility and conflict, responding to opportunities in turn-around countries, and building resilience; (ii) ensuring more agile operational policies and practices; and (iii) enhancing FCS financing by revising the allocation framework to target IDA’s exceptional support and financial engagement in FCS. 44. In addition, Management will find and implement additional efficiency gains in the Bank’s support functions (i.e., IG&A units) and in the regional and management costs of Operations. • Regional and Global Practice management costs, i.e., the PPM envelope will be reviewed, while recognizing their importance for the Bank’s client relationship management with savings to take place in FY16. • Bank Budget for GE will be held stable in FY15, but reduced thereafter – with the exception of climate change, which will be increased. A review of global engagements will be undertaken to ensure alignment with the WBG strategy and to remove overlap and duplication. 16 FY15 BUDGET DOCUMENT • IG&A units will see the largest percentage reductions in their Bank Budgets over FY15-17, as a result of the Expenditure Review (see Section 2.2). Box 3.3: Meeting the IDA17 Commitments On March 25, 2014, the Board approved the IDA17 Deputies Report which provided for a total replenishment of SDR34.6 billion (equivalent to $52.1 billion) to support the overarching theme, “maximizing development impact” and the special themes: inclusive growth, gender, climate change and Fragile and Conflict-Affected Situations (FCS). IDA Deputies agreed on a set of operational, policy and financial recommendations (IDA17 policy measures) towards achieving the World Bank Group goals to sustainably end extreme poverty and promote shared prosperity in IDA countries. The WBG strategy and change process will enhance IDA’s impact by: (i) fostering more integrated, evidence-based engagement to meet the WBG goals; and, (ii) promoting selectivity through systematic country diagnostics, country partnership frameworks and learning reviews. Enhanced synergies across IBRD, IDA, IFC and MIGA through the One WBG approach will also position IDA to better leverage both public and private resources for clients. To track IDA’s progress in maximizing development impact in IDA17, including on the special themes, Deputies agreed on a strong package of policy measures and performance targets, that are monitored through a set of indicators under IDA’s four-tier Results Measurement System (RMS). The IDA17 RMS incorporates new elements: (i) it explicitly aligns IDA’s activities and results monitoring with the WBG strategy goals and the WBG change and reform process, including by adopting a more selective and evidence-based country engagement model, using knowledge more effectively, taking more informed risks, and expanding WBG synergies to achieve results; (ii) it enhances the focus on outcome and quality indicators, including to track IDA’s operational effectiveness and organizational efficiency; (iii) it strengthens IDA’s accountability to clients and shareholders through greater use of beneficiary feedback and public disclosure; and (iv) it places greater attention to managing and reporting the costs of delivering results. The RMS’ strategic relevance and coverage has been enhanced with closer links between the tiers, as well as with IDA commitments. The status of the RMS indicators will be reported by Management on an annual basis, with a detailed update on implementation progress of the policy measures at the IDA17 Mid-Term Review, which would take place in the second quarter of FY16, and in the IDA17 Retrospective. During FY15-17 business planning deliberations, Senior Management advised that the IDA17 policy measures and their implementation were corporate commitments and as such needed to be implemented as part of ongoing programs. Many of the policy actions are already mainstreamed into work programs as aligned with strategy goals and the WBG change and reform process, and have their funding identified through a mix of Bank Budget and trust fund resources. Regions have started working with country and task teams to ensure that the IDA17 policy measures are being reflected in the design of FY15 IDA operations. For example, gender considerations are being incorporated into the analysis, program content and results frameworks for all CPFs and SCDs for FY15 delivery. Analysis of the drivers of fragility and conflict is to be included in the CPFs and SCDs for IDA FCS. Country-specific examples include gender- disaggregated data collection and results monitoring in two FY15 operations in Djibouti, and rolling out the BOOST public finance analysis tool in Haiti. 3.3 CORPORATE BUDGET FLEXIBILITY 45. Taking into account (i) the constrained revenue picture, (ii) Management decisions to strengthen the Country Engagement envelope share, and (iii) the Expenditure Review, corporate budget flexibility 5 is limited, especially in FY15. Table 3.1 shows corporate budget flexibility of $56 5 Corporate budget flexibility is the amount of the overall expenditure envelope (BB) that remains unallocated to units or the centrally-managed accounts (including contingency). 17 FY15 BUDGET DOCUMENT million for FY15. With $30 million needed as one-time reinvestment to kick-start Expenditure Review initiatives, only $26 million was available to cover incremental funding requested by units. The flexibility for the outer years is forecast to be significantly higher. Table 3.1: Corporate Budget Flexibility (Available May 5th) Projection Baseline Baseline Baseline Baseline in $ million (BB only) FY14 FY15 FY16 FY17 FY15-17 Budget Envelope after ER, GMF Adjustments 2,566 2,577 2,566 2,512 Corporate Flexibility 56 137 229 422 of which, "75%" one time reinvestment 30 70 114 214 "25%" deployment for corporate priorities 12 20 43 75 residual flexibility 14 47 73 134 Corporate Contingency 20 10 10 40 Memo item: Regional VPU Country Engagement Contingency 15 17 17 50 46. In addition to the corporate flexibility discussed in the previous paragraph, the budget framework includes additional flexibility in the form of contingencies. The corporate contingency is $20 million for FY15 and $10 million for the outer years. In addition, the Regional VPUs held back a maximum of three percent of their CE envelope, which amounts to a $15 million CE contingency in FY15. These funds will be used for CE work, with the actual use to be determined during the year. 47. During the budget and business planning process, all units had the opportunity to request additional funding. Senior Management prioritized funding for specific items totaling $25.3 million and there was a separate process for Expenditure Review implementation. 3.4 ADMINISTRATIVE BUDGET PROPOSAL 48. The proposed FY15-17 budget and work program is in line with the strategic priorities, supports the Bank’s core business, and maintains some room for contingencies. It is consistent with directions set out in the MTBF paper. Table 3.2 summarizes the main components of the proposed administrative budget and the rest of this section provides further detail on each budget item. For a more detailed view see the Program Cost Summary (PCS) table in Annex A. 18 FY15 BUDGET DOCUMENT Table 3.2: FY15-17 Total Administrative Budget in $ million BB Al l Funds Budget by Work Program FY14e FY15 FY16 FY17 FY14e FY15 FY16 FY17 Total All Units 2,178 2,155 2,131 2,089 3,233 3,268 3,263 3,247 o/w Budget for Governa nce (Boa rd, SEC, IEG) 106 96 98 100 138 137 139 141 Centrally Managed Accounts (CMA) exc. Unallocated Budget 273 278 296 336 404 408 430 480 o/w Contingency - 20 10 10 - 20 10 10 o/w Contributions to Staff Retirement Accounts 394 386 410 435 394 386 410 435 o/w net other CMA items (121) (128) (123) (108) 10 3 10 35 Grant Making Facilities (GMF) 115 110 69 24 115 110 69 24 One-ti me ER Inves tments 1 - 30 70 114 - 30 70 114 2 Net Una l l oca ted ER Sa vi ngs - (4) (31) (109) - (4) (31) (109) Unallocated Budget - 8 31 58 - 8 31 58 Total Administrative Budget 2,566 2,577 2,566 2,512 3,752 3,819 3,832 3,814 1.      Over the FY15-17 period, 75% of the Expenditure Review savings will be invested to achieve the savings targets. 2.      Expenditure Review savings that have been identified but are pending assignment of reduction at unit level. 49. Management seeks approval of a FY15 budget envelope of $2,577 million. In nominal terms, this is an increase of 0.4 percent over the estimated FY14 total administrative budget. Over the planning period, the Bank Budget will decline by 2.1 percent at an average annual rate of 0.7 percent. The total FY15 envelope is expected to be around $3,819 million, increasing by 1.8 percent over the same period (at an annual rate of 0.5 percent). 50. In order to put the FY15 Bank Budget proposal in perspective, Figure 3.1 compares the proposed budget envelope with corresponding spend data from FY08 to FY13 and FY14 projections. From FY08 to FY14, Bank Budget expenditures grew by 3.3 percent per year, and the total envelope including all funds by 5.2 percent per year, in nominal terms. The corresponding rates for FY14-17 are a decline of 0.7 percent per year for Bank Budget and an increase of 0.5 percent per year for all funds. 19 FY15 BUDGET DOCUMENT Figure 3.1: FY08-14 Administrative Expenditures and FY15-17 Budget (BB and all funds) 4,000 3,750 3,500 3,250 in $ million 3,000 2,750 2,500 2,250 2,000 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 Nominal BB Nominal All Funds Real $FY13 BB Real $FY13 All Funds 3.5 BUDGET ALLOCATIONS BY WORK PROGRAM AND UNIT TYPE 51. Tables 3.3 and 3.4 present work program budgets along the new envelope structure (i.e., Country Engagement, Global Engagement, and Program and Practice Management). While the total all unit spend is stable, the allocation across the structure will continue to evolve as the allocation of costs associated with staff in new organizational units and the final staff transfers are completed. The largest shift, which is likely to be significant, is expected to be between Program and Practice Management (PPM) of the Regions and the Global Practices/CCSAs. 52. In line with the WBG strategic priorities, the strongest growth in the coming three years will be in the Country Engagement envelope. At the same time, the cost of running the business is decreasing over the planning horizon (for Bank Budget, external funds and, consequently, all funds). The sharpest decline will be in the IG&A units. While Management has made some progress in directing more resources to the Country Engagement envelope, more needs to be done and the allocations will be revisited in next year’s planning cycle. 20 FY15 BUDGET DOCUMENT Table 3.3: FY15-17 Budget by Work Program and Funding Source in $ million BB Externa l Funds Al l Funds Budget by Work Program & Funding Source FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 Client Engagement Country Enga gement (CE) 538 537 533 537 563 581 1,075 1,099 1,114 Gl oba l Enga gement (GE) 85 81 77 205 197 201 290 277 278 Sub Total 623 617 610 742 760 782 1,365 1,377 1,392 Cost of Running the Business Regi ona l Progra m Ma na gement (PPM) 406 407 406 22 22 23 428 429 429 Gl oba l Pra cti ce/CCSA Ma na gement (PPM) 195 188 184 43 46 47 238 233 231 Ins ti tuti ona l , Governa nce & Admi ni s tra ti ve (IGA) 932 919 889 305 305 306 1,237 1,224 1,195 Sub Total 1,533 1,514 1,479 370 373 376 1,903 1,887 1,855 Total All Units 2,155 2,131 2,089 1,113 1,133 1,158 3,268 3,263 3,247 Table 3.4: FY15-17 Budget Share by Work Program and Funding Source in $ million BB Externa l Funds Al l Funds Budget by Work Program & Funding Source FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 Client Engagement Country Enga gement (CE) 25% 25% 26% 48% 50% 50% 33% 34% 34% Gl oba l Enga gement (GE) 4% 4% 4% 18% 17% 17% 9% 9% 9% Sub Total 29% 29% 29% 67% 67% 68% 42% 42% 43% Cost of Running the Business Regi ona l Progra m Ma na gement (PPM) 19% 19% 19% 2% 2% 2% 13% 13% 13% Gl oba l Pra cti ce/CCSA Ma na gement (PPM) 9% 9% 9% 4% 4% 4% 7% 7% 7% Ins ti tuti ona l , Governa nce & Admi ni s tra ti ve (IGA) 43% 43% 43% 27% 27% 26% 38% 38% 37% Sub Total 71% 71% 71% 33% 33% 32% 58% 58% 57% Total All Units 100% 100% 100% 100% 100% 100% 100% 100% 100% 21 FY15 BUDGET DOCUMENT 3.6 BUDGET ALLOCATIONS BY OPERATIONAL UNIT 53. Under the new structure, each Region will receive two budget envelopes (not fungible) – for Country Engagement (CE) and Program and Practice Management (PPM). Table 3.5 presents FY15-17 envelopes by individual Region. These envelopes incorporate projected Expenditure Review savings as discussed in Section 2.2, and adjustments reflecting institutional priorities as highlighted in Section 3.2. Table 3.5: FY15-17 Regional Budget Envelopes in $ million BB External Funds All Funds FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 Region AFR CE 168 173 176 188 194 199 355 367 375 PPM 134 133 136 6 7 7 140 139 142 Total 302 306 312 194 201 205 496 506 518 EAP CE 80 79 77 117 123 128 197 202 205 PPM 60 61 59 1 1 1 61 63 61 Total 140 141 137 118 125 129 259 265 266 ECA CE 77 73 71 61 63 65 138 137 136 PPM 59 59 59 3 3 3 62 61 61 Total 136 132 129 64 66 68 200 198 198 LCR CE 86 85 83 48 51 53 135 137 137 PPM 57 57 57 0 0 0 57 58 58 Total 143 142 141 49 52 54 192 194 195 MNA CE 49 47 44 46 50 53 95 97 97 PPM 38 38 37 9 9 9 48 48 47 Total 87 85 81 55 60 62 143 145 143 SAR CE 78 80 81 77 81 83 155 160 164 PPM 58 58 58 2 2 2 59 60 60 Total 135 138 139 79 82 85 214 221 224 Total 944 943 939 559 585 603 1,502 1,529 1,543 All Regions CE 538 537 533 537 563 581 1,075 1,099 1,114 PPM 406 407 406 22 22 23 428 429 429 Total 944 943 939 559 585 603 1,502 1,529 1,543 54. The CE envelope will provide funding for regional, sub-regional, and country work programs. Regional VPs identified and sized the work program, and allocated associated budgets to countries reflecting top-down guidance provided through the business planning process. Country Directors are working with their respective teams to determine the work program at the country level. Figure 3.2 demonstrates the composition of the CE envelope, differentiating between resources for Global Practices, resources for Regions, and contingencies to be allocated. On average, 61 percent of CE deliverables are Financial Services. Approximately 94 percent of the total CE envelope will be 22 FY15 BUDGET DOCUMENT transferred from the Regions to the Global Practices. Of this, up to 3 percent of the envelope will be held as Regional contingencies, to be allocated to the Global Practices later during the year. The remainder, around 6 percent, will be allocated to the Regions' own managed work programs that include Country Partnership Frameworks, Systematic Country Diagnostics, and portfolio reviews. Many of these funds will be used to fund Global Practice and CSSA staff working on these activities. Figure 3.2: Projected Composition of the FY15 Country Engagement Envelope (Bank Budget) 100% 3% 3% 1% 3% 3% 3% 3% 4% 6% 7% 5% 7% 7% 6% 90% 5% 12% 4% 8% 7% 7% 7% Contingency for CE 80% 19% 24% 19% 24% 70% 24% 27% Own Managed CE 30% 60% Other Activities * 50% 41% 48% Knowledge Services 40% 41% 36% 41% 42% 35% 30% Financial Services (Supervision) 20% Financial Services 21% 22% 23% (PE LEN) 10% 19% 19% 20% 15% 0% AFR EAP ECA LCR MNA SAR All Regions * Other activities mainly consist of process tasks (i.e., not identified with a specific project) such as preparation, implementation, and support to Regions on SCDs, CPFs. Also included are estimates of yet unidentified actitivies. 55. As part of the new budget planning approach, the SMT endorsed a simplified Work Program Agreement (WPA) process, which is more consistent across the Regions and Global Practices, less transaction intensive, and does not involve budget loading at the task level. There will also be greater focus on managing the work program rather than costing task by task through the introduction of lending and supervision coefficients, and through encouraging the use of a programmatic approach for ESW and TA. 56. The Regional PPM envelope will finance the costs associated with running the business. This envelope will be determined on a normative basis, and includes funding for items such as management structures, Country Management Units (CMUs), country office administration and facilities, regional learning and internal knowledge management. 57. The Global Practices will receive three non-fungible budget envelopes – for Country Engagement (CE), Program and Practice Management (PPM), and Global Engagement (GE). The CCSAs will 23 FY15 BUDGET DOCUMENT receive the same, except for the CE envelope. These envelopes are presented in Table 3.6 and reflect projected Expenditure Review savings as discussed in Section 2.2, and institutional priorities as highlighted in Section 3.2. See Box 3.4 for details on budgeting within Global Practices. Table 3.6: Indicative FY15-17 Global Practice/CCSA Budget Envelopes in $ million BB Externa l Funds Al l Funds FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 Global Practices/CCSAs CE1,2 475 475 475 494 516 531 969 991 1,006 GE 75 70 66 169 170 176 244 240 242 PPM 191 183 179 21 21 22 211 204 202 Tota l 740 728 721 684 708 730 1,424 1,436 1,450 Climate Change CCSA GE 10 11 11 36 27 25 46 37 36 PPM 4 4 4 23 25 25 27 29 29 Tota l 15 15 15 59 51 50 73 66 65 Total 755 743 736 743 759 780 1,498 1,502 1,516 CE 475 475 475 494 516 531 969 991 1,006 GE 85 81 77 205 197 201 290 277 278 PPM 195 188 184 43 46 47 238 233 231 Total 755 743 736 743 759 780 1,498 1,502 1,516 1. This line shows the total CE envelope net of: (i) amounts retained by Regions as contingency and for own-managed work program; (ii) support for CE work from LEG, DEC and TRE; and (iii) half the cost of Program Leaders. These adjustments are the result of Work Program Agreement (WPA) transfers of CE funding from Regions to the Global Practices. Note that the Program Cost Summary (PCS) in Annex B shows CE envelopes before these adjustments. 2. Global Practice VPU BB envelopes are estimated transfer amounts for FY16 and FY17, and all External Funds envelopes are best estimates using available sources of data. 58. Distribution of the CE envelope is agreed with the Regions through the WPA process. Work program requirements and funding by individual Global Practice are still being reviewed by the Global Practices VPs. 59. Similar to the Regions, the PPM envelope will finance the costs associated with running the business. While management structures are to be funded for FY15, they may need to be adjusted in FY16 and FY17. 60. The GE envelope will finance non-region and non-country specific Analytical and Advisory Activities (AAA) and partnerships. 24 FY15 BUDGET DOCUMENT Box 3.4: Global Practice Budgeting All staff expenses for Global Practices are funded upfront, so budget management mainly deals with the allocation and use of variable expenses. In addition, there can be revenue targets (i.e., on Trust Funds and reimbursable activities). The variable expense budgets are allocated to Senior Directors and then given to each Practice Manager (PM) as a notional variable expense ceiling (for planning assumptions). The PM prepares variable expense plans for tasks assigned to him/her using the Task Planning Tool and reconciles the plans with the agreed ceilings. As before, Task Members charge variable costs to tasks, and the PM monitors use against plans on variable costs and staff time. PMs have full discretion to move allocated resources across tasks and within practices in a given region. In contrast, Program Leaders do not hold or monitor budget. They help formulate country work programs and monitor broad delivery to clients and cross practice collaboration. They also review/monitor burn rates against relevant tasks. The Global Practice VPs will hold back a contingency to encourage flexibility. These funds would be released during the year according to a clear, well defined process. Changes in work program that affect multiple Practices or Regions will follow a process to be agreed early in FY15. 61. The IG&A units will receive one budget envelope. These unit budgets are being reduced in line with measures to be achieved through the Expenditure Review, to ensure that their services are being delivered in more cost effective ways. 3.7 EXTERNAL FUNDS 62. Total external funds 6 are projected to increase by 5 percent to $1,243 million in FY15, with Bank- Executed Trust Funds (BETFs) expected to increase by 5 percent to $753 million. 63. BETFs: Disbursements from BETFs are expected to grow by around 6 percent in FY14. Last year’s Budget Document estimated a flat growth in FY14, which underscores the challenges associated with unit and corporate projections of external fund use. The FY15-17 MTBF Paper describes a new and more rigorous projection methodology that is expected to significantly reduce BETF under- projection. BETFs are expected to grow by 5 percent in FY15 and 4 percent during the FY15-17 planning period. The strongest growth is expected to be in Global Engagement activities and in Country Engagement activities in Africa and South Asia. 3.8 EXPENSE LINE VIEW 64. The Bank does not set specific budgets at the corporate level for major components of administrative expenses, such as a budget for staff salaries and benefits. This is because the Bank has adopted a dollar budget approach, where managers have the flexibility to vary inputs so long as they stay in line with broad indicators such as a fixed cost ratio. Nevertheless, Management monitors various categories of administrative expenditure in order to ensure maintenance of sufficient flexibility within the cost structure to respond to changing business needs. 6 In recent years, unit projections have systematically under-estimated BETF disbursements and Reimbursables. As discussed in the MTBF, the methodology that was applied to adjust unit projections has been revised. In this Budget Document, corporate projections have been used for external funds. 25 FY15 BUDGET DOCUMENT 65. The Bank’s budget data systems are designed to capture information on budgets and administrative expenditure through four main perspectives: by expenses, by services or business processes, by organization unit, and by sector/theme. 66. Table 3.7 provides an indicative decomposition of the FY15 budget, in comparison to FY13 and FY14 expenditures. 7 It represents the current view of the most likely outcome, however the actual composition of expenditure may vary as the work program evolves and units respond to the Expenditure Review reductions during the year. As is evident from the table, Management does not anticipate a material change in the expense line share from FY14 to FY15. This is consistent with stability that has characterized expense line shares over the past decade. 7 Based on reporting to date, this table is based on net administrative budget and the “below-the-line” categories (Board-related, GMFs, and pensions). Going forward, this approach will be revised to conform with the move to a total administrative budget construct. 26 FY15 BUDGET DOCUMENT Table 3.7: Projected FY15 Administrative Budget by Expense Line $ million FY13 Actuals FY14 Estimates FY15 Projections As % of As % of As % of ALL FUNDS ALL FUNDS ALL FUNDS Expense Type * UGE UGE UGE Fixed Expenses 1,776 60% 1,864 61% 1,921 60% of which: Staff Salaries & Benefits 1,422 48% 1,497 49% 1,543 48% Communications & Information Technology 78 3% 86 3% 88 3% Equipment & Building 277 9% 284 9% 289 9% Indirects recovery from Trust Funds (1) 0% (3) 0% 0 0% Variable Expenses 1,165 40% 1,192 39% 1,266 40% of which: Consultants and Temporaries 524 18% 547 18% 592 19% Travel 339 12% 337 11% 355 11% Representation & Hospitality 4 0% 3 0% 3 0% Contractual Services 251 9% 259 8% 269 8% Other Expenses 47 2% 45 1% 47 1% Total Units Gross Expenses (UGE) 2,941 100% 3,056 100% 3,187 100% Other Expense Items 654 633 632 of which: Independent Evaluation 35 36 35 Corporate Secretariat & Board 96 106 102 Grant Making Facilities 153 115 110 Contribution to SRP, SSRP, & RSBP 369 376 386 TOTAL ADMINISTRATIVE EXPENSES 3,595 3,689 3,819 * Impact of internal transfer pricing has been removed. 67. Staffing is the main expense category. As illustrated in Figure 3.3, World Bank full-time staff net of the shift of IFC/MIGA staff into the integrated service units rose by 4.2 percent. This growth, which was concentrated in operational units (largely the Regions), was mainly due to growth in external funds. The all funds fixed cost ratio is not rising. The figure also illustrates that growth in staffing slowed in Q3FY14, prior to the employment control measures that began in March of this year (and was practically zero in April). Management does not expect net staffing to grow over the coming quarters. 27 FY15 BUDGET DOCUMENT Figure 3.3: Full-time Bank Staff on Payroll 3.9 NON-UNIT SPECIFIC ACCOUNTS AND BUDGETS Centrally-Managed Accounts 68. In addition to unit specific budgets, the administrative budget includes several centrally-managed accounts that consolidate expenses not easily attributed to specific units, as well as institutional programs 8 typically managed by units but for which Management maintains discretion over the budget (see Table 3.8 for details). 69. Staff retirement accounts are now shown as part of centrally-managed accounts (see next section for details). 70. The net recovery from the HQ Real Estate strategy, 9 a separate reporting line item since FY10, is forecast to decrease by $1.1 million, or 29.5 percent. 71. The net recovery for Other Centrally-Managed Overhead and Benefits 10 is expected to decrease by $7.0 million, or 3.9 percent. This is mainly due to growth in depreciation expenses for IT, building 8 Management maintains discretion over the budget of Institutional Programs, which currently include programs managed by HRD (Staff Separation, Performance Awards, Voice Secondment, Young Professionals, etc.), ECR (Community Connections, and Client Survey), and GSD (Staff Association, 1818 Society, and Carbon Offset). 9 In 2009, the Board approved the HQ Real Estate Strategy for the 2022 return of the H-building to George Washington University. This also included sub-lease of the H-building to the US Government State Department until 2022, and the lease and subsequent purchase of the C-building, and other office moves. 10 The budget for Centrally-Managed Overhead and Benefits is the difference between (a) credits derived from internal pricing mechanisms (e.g., Office Occupancy chargeback) and cost recovery from externally-funded programs and former below-the-line units, and (b) debits for actual overhead and benefits expenditures. 28 FY15 BUDGET DOCUMENT and equipment, as well as reduction in HR related benefits. Expenditures for other centrally-managed overhead and benefits are projected to remain at current levels. 72. Funding for Institutional Programs will decline by $14.1 million, or 35.8 percent. 73. Corporate Contingency has been increased to $20.0 million in FY15, an increase of $9.8 million. Table 3.8: Centrally-Managed Accounts $ million FY14 FY15 $ Change % Change Staff Retirement Accounts and PCRF 1 376 386 10 3% Business Continuity (ITS & GSD) 16 16 0 2% 3 Data for Poverty Reduction Funding na 1 1 na HQ Real Estate revenue and expense, net (GSD) -4 -3 1 29% Other Centrally-Managed Overheads & Benefits -179 -172 7 4% Centrally-Managed Overhead -46 -23 23 50% Centrally-Managed Benefits -133 -149 -16 12% Institutional Programs 39 25 -14 36% Corporate Contingency 10 20 10 96% Unallocated Budget Flexibility na 4 4 na Other 0 5 5 na Total 258 282 24 9% 1 Pos t-Reti rement Contri buti on Res erve Fund 2 SMT a greed $1m fundi ng for poverty da ta to be confi rmed a t mi d-yea r, once i nterna l revi ew a nd needs a s s es s ment a re compl ete. Staff Retirement and Related Plans 74. Bank contributions to the staff retirement plans are based on actuarial recommendations approved by the Pensions Finance Committee. Using the Pensions Finance Committee’s approved rates for FY15, contributions to the Staff Retirement Plan ($217.8 million), the Retired Staff Benefits Plans ($91.2 million), and the Post-Employment Benefits plan ($61.0 million) are expected to decrease to an estimated total of $370.1 million in FY15. FY15 allocations are based on the funding methodology first applied in FY11 which involves the use of a five year asset averaging method and a hybrid funding method that includes 10 years of expected staff hires in the valuation model. 75. In FY13, the Post-Retirement Contribution Reserve Fund was established to protect the budget from fluctuations in the required contribution. The reserve is on the IBRD balance sheet, under Bank management and control, as it is a budgetary stabilization tool. It was agreed to maintain contributions at 35 percent of net salaries, above the rate currently recommended by the actuaries, in order to build up the Fund to an estimated target size of around $200 million. Annual contributions to the Fund are approved by Executive Directors in conjunction with the World Bank budget. The balance of the Fund is expected to be around $44 million at the end of FY14. An FY15 contribution 29 FY15 BUDGET DOCUMENT of $31.5 million to the Fund would be consistent with the 35 percent contribution rate. In light of the constrained budget flexibility for FY15, Management recommends that the contribution be reduced, on an exceptional, one time basis, to $15.5 million. The full 35 percent contribution would be maintained in FY16-17, consistent with the existing policy. Additionally, Management proposes that an additional contribution be made to the Fund in FY17, when budget flexibility is expected to have increased. Table 3.9 provides further detail. Table 3.9: Projected Contributions to Staff Retirement and Related Plans FY14 FY15 FY16 FY17 FY18 in $ million Staff Retirement Accounts Contribution1 389.1 370.1 365.2 369.6 369.7 Post-Retirement Contribution Reserve Fund Contribution 4.6 15.5 44.4 65.1 58.2 Total Contribution 393.7 385.6 409.6 434.7 427.9 Post-Retirement Contribution Reserve Fund Balance 44.0 59.5 103.9 169.0 227.2 1 Contri buti on Ra te Projecti ons ba s ed on 2014 Actua ri a l Va l ua ti on - Es ti ma ted Ma y 2, 2014 Board-related Budgets 76. At the time of writing, the total WBG budget for the Boards, SEC and IEG is expected to remain broadly flat in nominal terms. The WBG budget for Executive Directors, the Board of Governors, the Development Committee Secretariat and the Inspection Panel is expected to decline around 1.8 percent in nominal terms, reflecting recently approved cost savings measures. The World Bank's share of the total will decline by 9.5 percent, largely due to increased cost-sharing with the IFC for the Boards and SEC (see Table 3.10 for details). Highlights are as follows: • The proposed FY15 budget for Executive Directors is $73.8 million. • Board of Governors, Development Committee, and Inspection Panel budgets amount to $13.0 million. • Board reimbursable budget of $26.2 million represents cost sharing arrangements with IFC, MIGA and IMF. • The proposed FY15 budget for the Corporate Secretariat (SEC) is $14.1 million, including $5.0 million of reimbursables. • IEG’s requested resources to deliver its FY15 work program are $34.1 million including $7.6 million in reimbursables pertaining to cost of IFC and MIGA activities, $1.0 million in Trust Funds, and $0.02 million in other revenues. This resource envelope is consistent with the flat budget framework agreed with the Board in FY12 and adjusted to reflect planned savings from IEG’s Expenditure Review. The price factor used to adjust FY14 $ to FY15 $ is 1.88 percent and the projected Expenditure Review savings in FY15 are $0.7 million. 30 FY15 BUDGET DOCUMENT 77. The FY15 recommended budget for Executive Directors will be subsequently adjusted to reflect the decisions of the Joint Committee on Remuneration and approval by the Board of Governors. Table 3.10: FY14 and FY15 Board-related Budgets (Bank Budget) in $ million FY14 FY15 $ Change Executive Directors (EDs) total 74 74 0 Board of Governors 8 8 -1 Development Committee (DC) Secretariat 2 2 0 Inspection Panel 4 4 0 1 Total: EDs, Board of Gov, DC Secretariat and Inspection Panel 88 87 -2 SEC 14 14 0 IEG 33 34 1 Board Reimbursables -21 -26 -6 SEC Reimbursables -1 -5 -5 IEG Reimbursables -8 -8 0 Total 106 96 -12 1 Board's work program is fully funded by Bank Budget independent of any cost sharing revenues received from IFC/MIGA. Board also receives $0.75 million in Trust Funds for its advisors. Expenditure Review numbers are subject to change. Grant-Making Facilities 78. Plans for Grant-Making Facility (GMF) arrangements: Grant-Making Facilities have supported activities critical to development and complementary to IBRD work. The role and importance of GMF has been closely reviewed as part of the corporate planning and budgeting exercise. These activities are increasingly being integrated into the Bank's overall operations, and most of these facilities as a separate funding mechanism will be phased out. Management has put forward a careful approach for this: • Phasing out will happen over a three year period, with interim funding until 2017 to honor all existing commitments. • Facility sponsors are developing customized transition plans, appropriate for each facility and in close consultation with relevant partners and stakeholders. • Flexibility will be retained to manage select activities meriting continued Bank support, e.g., for certain situations of fragility, and will be addressed as a fully integrated part of the strategic business planning process – to ensure that trade-offs and relative use of funds are fully considered. 79. In light of the constrained income and budget environment, it is considered important that all of the associated budget savings are put into IBRD reserves, to have maximum impact on building IBRD's lending capacity. Management will ensure that the phase-out of the facilities is managed carefully and will make every effort to identify alternative sources of funding, in particular for CGIAR. For the 31 FY15 BUDGET DOCUMENT GPSA, the facility and its effectiveness will be reviewed in FY16, at which time future modalities for funding and other support will be determined. Table 3.11 sets out a proposal for the FY15-17 GMF budget envelopes. Table 3.11: FY15-17 Grant-Making Facility Envelopes Facility FY13 FY14 FY15 FY16 FY17 FY18 (in $ million) State and Peace-Building Fund (SPF) 33 0 25 Institutional Development Fund (IDF) 17 9 0 Development Grant Facility (DGF) 56 51 33 Global Partnership for Social Accountability (GPSA) 5 5 5 Consultative Group for International Agricultural Research (CGIAR) 50 50 47 GMF Total (new baseline) 161 115 110 69 24 0 GMF Total (old baseline) 161 115 115 115 115 115 Put in IBRD Reserves 0 0 5 47 91 115 3.10 CAPITAL BUDGET SUMMARY 80. The three-year capital program over the FY15-17 period is $491 million, with Technology and Systems accounting for $318 million (65 percent of the total envelope) and the remaining $173 million (35 percent) for Facilities. The FY15-17 capital program is $13.4 million (3 percent) higher than the FY14-16 approved capital program of $477 million. The increase is in Technology and Systems investments ($91 million) offset by a decrease related to investments in facilities ($78 million). See below Table 3.12 for a summary. Additional details are provided in Box 3.5 and Annex B. 32 FY15 BUDGET DOCUMENT Table 3.12: Capital Program Summary FY15-FY17 Investment Schedule Capital Funds ($ million) FY14 FY14 FY14-16 FY15 FY16 FY17 FY15-17 1 2 Approved Released Total AIP Budget Plan Plan Total AIP Technology and Systems 109 63 227 106 106 106 318 of which IBRD Only 0 0 - 80 80 80 240 WBG Projects 3 0 0 - 20 20 20 60 Small Investments < $200,000 4 0 0 - 6 6 6 18 Facilities 100 12 250 73 57 42 173 of which Washington 32 4 60 33 27 19 79 Country Office 68 8 190 40 31 23 94 Total Capital Budget (All Parts): 209 75 477 179 163 148 491 Percent Utilization (FY14 YTD Release/FY14 Approved) 35.82% 1 Da ta on ca pi ta l rel ea s e of funds a s of Ma y 21, 2014 2 Annua l Inves tment Pl a n (AIP) a s per FY14 Budget Document. 3 IFC a nd MIGA wi l l pa y thei r s ha re of the a dmi ni s tra ti ve cos ts a s s oci a ted to WBG projects through Sha red Servi ce Agreements wi th IBRD. 4 Sma l l ca pi ta l i nves tments under $200,000, dri ven by the recent pol i cy cha nge l oweri ng the ca pi ta l i za ti on thres hol d to $100,000. 81. Technology and Systems. The Technology and Systems three-year capital envelope of $318 million represents a 40 percent increase over the FY14-16 capital program of $227 million. The noteworthy increase is aimed at supporting the implementation of the WBG strategy and change agenda through transformative Information Technology (IT). To deliver transformative IT, the WBG Information Technology Solutions Group (ITS) developed an IT Implementation Roadmap which specifies outcomes to be achieved over a three to five year period. Each outcome will be delivered as part of one of three-waves- narrowing information and process gaps, improving WBG operations and performance, and bringing transformative capabilities. The IT Implementation Roadmap will deliver: • "Business Programs" solutions ($132 million) that directly support modernizing operations; information, knowledge and learning; modernizing HR; risk management; core financial and strategic budget systems; and end user / work experience. This includes $18 million of small capital investments that are under $200,000 and aimed at providing flexible and agile business solutions for rapid application development. • Necessary enhancements to IT capabilities ($136 million) in areas such as data management, analytics, information management, collaboration, connectedness, mobility, and security. This also includes the relocation of WBG systems from the downtown data center (in the H building) to a new data center. This relocation will be integrated into planning on the development of the new satellite campus. • "IT Foundations" ($50 million) represent cyclical replenishment investments to keep the business running. 33 FY15 BUDGET DOCUMENT 82. The proposed Technology and Systems capital budget also includes about $15 million of investments that are linked to IT-related Expenditure Review savings mainly for further consolidation of IT infrastructures and financial systems. 83. Facilities. The $78 million decrease in capital budget needs for Facilities (31 percent over the FY14- 16 capital program) is primarily due to the fact that the Global Footprint set-aside (for Expenditure Review-related Country Office property acquisitions) is not included at this time. A supplemental capital budget request will be submitted to the Board for these strategic property acquisitions. 84. The total proposed facilities capital budget for FY15 is $73 million. Box 3.5: Capital Budgeting - Overview Capital Budget is the expenditure plan approved by the Board to fund investments in: • Technology and Systems, mostly computing infrastructure, hardware, software and systems assessment and development (including staff time), and • Facilities, mainly land, buildings, building improvements, furniture, and equipment (including staff time), both in Washington and Country Offices. Key eligibility criteria for capital expenditures include a minimum threshold of $100,000 and the assets to be created or produced must have a useful life and provide an economic value that extends over a multiyear period. The Capital Budget is distinct from and not fungible with the Administrative Budget though both have similar processes for planning and reporting. They are linked through depreciation (straight-line based on estimated useful life of acquired assets) and operating and maintenance costs. Administrative budget expenditures that are planned to be spent in direct support of or in conjunction with capital projects must be explicitly noted in the capital budget submissions and built into unit budget trajectories (Regions, GSD and ITS for One-time project administrative expenses as well as Operating and Maintenance Costs; central account forecast for depreciation). Units submit their capital budget proposals (Washington Facilities and Country Offices facilities) to the Bank's Senior Management Team as part of the annual business planning process. The central budget department (BPSBP) is responsible for evaluating Annual Investment Plans (AIP) for affordability and reasonableness. A capital budget envelope is developed based on the prioritization of projects and submitted to the Board at the same time as the administrative budget (annually at end of a fiscal year for the next) for consideration and final approval. Major investments are clearly noted (e.g., a new building purchase) and details provided to the Board. Each investment incorporated in the current fiscal year capital budget is subject to a request for release of funds with an accompanying business case. The investment must be justified, financially viable and be authorized by the Vice President of the requesting Unit(s). BPSBP ensures compliance with the above conditions before the approved funds are released. The capital funding requested for the second and third planning year is indicative. The associated administrative expenses are not pre-approved and will be re-assessed on an annual basis. 34 FY15 BUDGET DOCUMENT 4. WORK PROGRAM AND DELIVERABLES This section provides an overview of the overall work program to be funded by the proposed FY15 net administrative budget – particularly in support of institutional priority areas. 4.1 REGIONAL WORK PROGRAM 85. The following provides an overview of Regional focus areas in light of strategic directions and resource trajectories agreed by Management during the business planning process. The summaries draw on this year’s Regional Updates to the Board, which provided information on individual regional contexts and strategic frameworks, and the Regions’ detailed work program plans. 86. Africa Region (AFR): With additional Bank Budget resources of 3 percent p.a. in nominal terms over FY15-17, AFR plans to scale up the work in Fragile and Conflict-affected Situations (FCS) and other low-income countries by allocating additional funding for project preparation and implementation as well as knowledge work to help identify and target the most intractable problems in specific country settings. Additional funding has also been given to support the Regional Integration portfolio and selected high-priority initiatives. Africa expects to maintain its engagement in Blend and IBRD countries, with budget allocations being increased by 10 percent over FY14 in some countries. 87. Support to FCS and particularly vulnerable states such as CAR, Guinea Bissau, South Sudan, and Somalia will be scaled up through a 5 percent increase in budget allocations over those in FY14. AFR is currently focusing on two transformational programs (i.e., Inga 3 and West Africa Power Pool), and funding has been incorporated into the respective country budget allocations. Additional programs will rely on contingent funding as they are identified. To efficiently manage PPM and reduce costs of running the business, AFR has identified potential economies such as green buildings or real estate ownership. 88. External funds: The current level of BETFs is expected to remain at around $170 million in FY15, before growing to $187 million over the planning period. 89. East Asia and Pacific (EAP) Region: The Region will protect and increase funding for countries with high potential for growth and poverty reduction, and FCS such as Myanmar and the Pacific. Some resources will also be programed towards specific transformative and regional strategic focus activities – notably to support implementation of policy recommendations under the China Urbanization study. Lower engagement on the other hand is expected in countries facing high political uncertainty and where reform traction is limited. The Region will also review potential efficiency gains in its knowledge activities. In addition, the Region places emphasis on proactive portfolio management to reduce project preparation time and increase the disbursement ratio to seek cost efficiencies in program delivery. 90. External funds: External funds: The Region has a strong BETF program, and disbursements are expected to be around $110 million in FY15 reaching $122 million in FY17. 35 FY15 BUDGET DOCUMENT 91. Europe and Central Asia (ECA) Region: Efficiencies will be achieved through: (i) some budget allocation reductions in the work program, while protecting programs in lower income and fragile countries; (ii) increased work program expenditure efficiencies (e.g., reducing the costs of dropped projects); (iii) continued implementation of savings measures in line with Expenditure Review recommendations (e.g., reducing travel costs); (iv) cutting off-the-top regional programs; and (v) strategically focusing Bank Budget-funded AAA on corporate priorities and regional challenges. Resources will be focused on (i) countries with high poverty rates; (ii) sub-regions affected by fragility risk; (iii) countries affected by geopolitical tensions and/or internal instability with regional spillover effects; and (iv) knowledge partnerships to generate knowledge that can be shared with other countries. To scale up assistance to Ukraine to help the government cope with the immediate economic crisis, an additional $1 million will be provided through the corporate flexibility (see Section 3.3). 92. External funds: BETFs are expected to be around $37 million in FY15 reaching around $41 million in FY17. RETFs on the other hand are projected to decrease, with exception of those financing programs in the West Balkans. 93. Latin America and Caribbean (LCR) Region: As the Region’s economic growth slows down and poverty declines and improvements in the incomes of the poorest 40 percent come under threat, LCR’s program will seek to support countries on 5Gs – GINI, Growth, Governance, Global issues, and Guarding against disasters, through an integrated bundle of financial knowledge and convening services. Knowledge and convening activities will continue to be key instruments where the Region can add value and contribute to reforms by being at the frontier of regional and global knowledge and policy dialogue. LCR will seek efficiency gains through (i) further portfolio consolidation; (ii) greater use of additional financing and programmatic Development Policy Loans (DPLs), and limiting small stand-alone operations; and (iii) greater use of programmatic AAA that allows for consolidation of tasks. The Region also plans to seek efficiencies in Country Office footprint. 94. External funds: BETFs are primarily used for knowledge products and focus on Climate Change, Public Sector Governance, Urban Development and Economic Policy. 95. Middle East and North Africa (MNA) Region: MNA plans to deliver higher lending volume through increased efficiency where possible. The Bank will also use its convening power to strengthen partnerships and build upon existing relationships with Arab partners, to help scale up the impact and effectiveness of development assistance to the transition countries in MNA. IBRD countries will see reduced Bank Budget allocations, while funding for the Region’s IDA countries, Yemen and Djibouti, will be increased to support the Bank’s commitment to IDA17. Additional resources will be needed as opportunities arise in countries coping with fragility and/or transition, and in case of a possible re-engagement in Iran and Syria. At the same time, the Region continues to review its PPM costs through, for example, regular tendering of major contracts, tighter vehicle fleet management, and cost sharing with other institutions. Increasing security costs, however, remain of concern and will be supported with additional funds from the corporate center due to the centralization of security budgets for medium- and high-risk countries to GSD. 36 FY15 BUDGET DOCUMENT 96. External funds: BETF disbursements are expected to be approximately $27 million in FY15 and rising to $30 million in FY17, with an increase in resources expected from two regional Trust Funds (the Transition Fund established by the G8 Deauville Partnership and the MNA Region-Wide Technical Assistance Multi-Donor Trust Fund). 97. South Asia Region (SAR): For the period FY15-17, SAR plans to relatively increase funding for FCS and regional integration, while keeping all other country allocations stable in real terms over the planning period. Focus will be on: (i) delivering high-quality services focusing on lending and AAA to help make progress towards the global targets; (ii) maintaining strong supervision of the existing portfolio; (iii) continuing to manage Bank Budget funding effectively to leverage increasing external resources; and (iv) maintaining client facing support through a decentralized delivery model within expected funding for regional/country programs. With regard to transformational programs, SAR expects a third major transport program in India in FY15 in addition to disaster risk management and energy programs. 98. External funds: BETFs are expected to grow from $70 million in previous years to $75-82 million over the planning period. 4.2 GLOBAL PRACTICES AND CROSS-CUTTING SOLUTION AREA WORK PROGRAM 99. The following section focuses on the Global Practices’ and CCSAs’ broad work program plans for their GE in response to the strategic directions and resource trajectories agreed by Management. 100. Global Practices and CCSAs: In consultation with the Regions, the Global Practice VPs and their leadership team will review the GE program by the end of Q1 FY15 to ensure strategic alignment with priorities identified during the business planning process, selectivity and efficiency gains. They will also employ a 3-step process to govern allocation of GE resources across the different Global Practices and CCSAs: • Funds will be allocated to cover ongoing and committed activities, such as commitments to specific donors or international groups. • In order to promote flow of knowledge and expertise for the benefit of the Bank’s clients, remaining resources will be allocated to strengthen leadership and innovation in Global Practices and CCSAs. • The portfolio of GE will be regularly evaluated against four criteria to determine continued funding or phase-out: (i) clear links with the WBG twin goals; (ii) rationale for WBG involvement (i.e., global public goods, need for a global or regional solution, and need for an objective agency to provide evaluation, policy advice or convening authority, severe market or government failure); (iii) WBG expertise versus availability of other providers; and (iv) level of development impact. 101. External funds: External funds are expected to grow from about $178 million in FY15, to around $196 million in FY17. The majority of programs will be in trade and entrepreneurship, sustainable energy, forests and fisheries, water supply and sanitation, universal healthcare financial protection 37 FY15 BUDGET DOCUMENT and service coverage, road safety, education system benchmarking, debt management, financial integrity, and financial inclusion. Additional efforts will be made in mobilizing resources to support innovative work in the CCSAs. 102. Climate Change CCSA: The Climate Change CCSA has been in existence since January 2014, and is therefore more advanced in defining its role and structure in comparison to the other CCSAs. The solution area has set four objectives for the planning period, with all activities being assessed against their degree of alignment with these objectives. Priority will be given to funding those activities that best support successful achievement. The four objectives include: • Ensure the Climate Change CCSA is recognized as the team of solution providers with the best evidence of climate impact on the poorest and the most valuable tools for all those working on climate action. Particular focus will be on carbon pricing, subsidy reform and smart economic policies, climate smart agriculture, and livable cities and energy. • Embed climate risk and opportunities, and resilience into country strategies and internal processes, learning and knowledge. • Further develop climate indicators across the World Bank Group and harmonize those metrics with partners. • Mobilize finance for low carbon growth and resilient investments through the Bank’s own balance sheet, innovative treasury operations and by working with others. 103. External funds: Resource mobilization is underway or expected to start anew with key bilateral donors and philanthropies in the climate space. External funds in FY15 are expected to reach around $42 million, and remain around $37 million in the planning period. In addition, up to $100 million per year in Climate Change-related BETFs are expected to be used to finance CE activities managed by the Global Practices (these numbers are included in the regional BETF projections above). 38 FY15 BUDGET DOCUMENT 5. CHALLENGES AND NEXT STEPS 104. As discussed in Section 3, the FY15-17 strategic planning and budgeting process was challenging, but significant improvements have been achieved. 105. Lessons learned from this year’s exercise will be addressed in the FY16-18 planning cycle. While strategic planning and budgeting discussions for the Bank were compressed into a late January until early May timeframe in this transition year, the new framework has helped considerably with making choices and pointing to trade-offs. The new planning engagements provided a good balance between top down Management guidance on strategic directions and detailed bottom-up business planning and budget formulation at unit-level. Bank, IFC and MIGA processes were coordinated and Management teams exchanged ideas on respective planning considerations. The next fiscal year cycle will commence this fall as a fully joint WBG exercise, and integrated with the new GBR process. It will specifically focus on some key issues: • Further integration of WBG strategic planning and budgeting cycles; • Integration of external funds into corporate planning and budgeting requires continued attention; • Clarify systems, processes, and funding mechanisms for all integrated WBG services and joint Global Practices/CCSAs (terms of engagement); • Continue to develop and refine use of revenues/expenditure statements; • Further grow country engagement share of budget; • Further strengthen and integrate strategic staff planning into the corporate planning process; • Strengthen outer year regional planning to ensure full allocation of funds across Global Practices; • Enhance norms, benchmarks, and comparisons to inform future budget discussions; • Further reduce costs of doing business (in support functions and operations); and • Refine the new budget anchor and budget sustainability rules. 39 FY15 BUDGET DOCUMENT ANNEX A: PROGRAM COST SUMMARY TABLE 1. The Program Cost Summary (PCS) table shows the FY15-17 budget by work program and unit. All budget figures are now reported in nominal terms, consistent with the new World Bank financial framework, which considers revenue and expenditures holistically. 2. The restructuring in FY14 has been a major undertaking and is mirrored by significant changes to the budgeting framework (described in this document). While every attempt has been made to provide accurate and precise figures, there will inevitably be erroneous assumptions and omissions that will come to light only as the new structure is implemented. Accordingly, Management may make adjustment and corrections before budget “load” into the Bank’s systems in July, or during FY15. Material changes will be reported to the Board at mid-year. As the reorganization has been so fundamental in many areas, it has not been possible to recreate a meaningful FY14 comparative data set at the detailed work program and unit level. FY14, however, is reported in Section 3.8 at the expense line level for comparative purposes. 3. The PCS in this Budget Document is a revised layout compared with the FY14 Budget Document PCS and reflects the new budget construct, particularly with regard to the elimination of the “above” and “below” the line concept. In prior year budget documents, the net administrative budget was the main focus, whereas, in future, the total expenditure envelope should be the main focus. In order to compare the new PCS with prior year net administrative budgets, take the following: a. Starting with line F. Total Expenditure Envelope: b. Deduct line 14.9 Staff Retirement Accounts; c. Deduct total of Governance section 10.0; and d. Deduct total of Grant Making Facilities in section 16.0. Using this approach the net administrative budget for FY15 is $1,985 million, FY16 $1,989 million and FY17 $1,953 million. 4. Box 3.1 in the main body of the paper describes how the Budgeting process supported and responded to the business reorganization. As explained, the principle changes result from remapping budget to the new Global Practices and Cross-Cutting Solution Areas structure, centralization of staff of certain functions and from budget policy changes. The impact of these budget remaps and policy changes is better understood by considering a concrete example. 5. Taking the Africa Region’s budget, the FY14 Budget document reported a budget allocation for FY15 (in FY14$) of $355.3 million. The FY15 Bank Budget allocation for the Africa Region in the FY15 budget is $301.6 million. Of this reduction, the main changes resulted from remapping budget to other units in line with the organizational restructuring; of which transfers to the new Global Practice structure ($41.7 million) and to BPS ($12.1 million) and ITS ($6.2 million) accounted for the main elements. The Expenditure Review accounted for a further $7.1 million of the reduction. Budget reductions were offset by increases from external funds indirect and fee revenue converted to Bank 40 FY15 BUDGET DOCUMENT Budget and additional country engagement funding following Management business planning decisions. 6. Within centrally-managed accounts, note that unallocated budget amounts are disclosed. This is essentially flexibility to respond to new demands in outer years of the three year budget horizon. Also note that investments to achieve the Expenditure Review savings shown in Section 15.0 of the table are best estimates with respect to timing, and could be accelerated depending on how quickly cost reduction initiatives are implemented. FY15-17 WB Budget by Work Program BB REIMB BETF All Funds $ million FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 1.0 Country Engagement 1.1 AFRVP 167.8 172.6 176.4 20.7 17.7 15.2 167.0 176.4 183.5 355.5 366.6 375.1 1.2 EAPVP 80.4 79.2 77.4 7.3 7.3 7.5 109.7 115.8 120.5 197.4 202.3 205.3 1.3 ECAVP 76.6 73.3 70.7 24.2 24.4 24.9 36.9 38.9 40.5 137.8 136.6 136.1 1.4 LCRVP 86.3 85.1 83.5 8.6 9.5 9.8 39.7 41.9 43.6 134.6 136.5 136.8 1.5 MNAVP 49.0 46.7 44.1 20.0 22.6 23.9 26.1 27.5 28.6 95.0 96.8 96.7 1.6 SARVP 77.6 79.8 81.1 3.6 3.3 2.2 73.3 77.4 80.6 154.6 160.5 163.8 Sub Total 537.7 536.6 533.1 84.4 84.8 83.5 452.6 478.0 497.2 1,074.8 1,099.4 1,113.8 2.0 Global Engagement 2.1 CCGVPU 10.3 10.5 10.8 12.4 11.4 9.3 23.7 15.4 16.0 46.3 37.2 36.1 2.2 GPVPU 74.6 70.1 66.2 11.8 3.4 2.6 157.6 166.8 173.5 244.0 240.2 242.4 Sub Total 84.9 80.6 77.0 24.2 14.7 12.0 181.3 182.2 189.5 290.4 277.5 278.5 A TOTAL CLIENT ENGAGEMENT 622.6 617.2 610.1 108.7 99.5 95.5 633.8 660.1 686.7 1,365.1 1,376.9 1,392.3 4.0 Regional Program Management 4.1 AFRVP 133.8 132.9 135.8 3.3 3.3 3.3 3.0 3.2 3.3 140.1 139.4 142.5 4.2 EAPVP 60.1 61.3 59.5 - - - 1.3 1.4 1.5 61.4 62.7 60.9 4.3 ECAVP 59.4 58.6 58.7 2.5 2.6 2.7 0.1 0.1 0.1 62.1 61.4 61.5 4.4 LCRVP 56.7 57.3 57.3 0.1 0.1 0.1 0.3 0.4 0.4 57.1 57.8 57.8 4.5 MNAVP 38.4 38.3 37.1 8.3 8.4 8.4 0.9 1.0 1.0 47.6 47.7 46.5 4.6 SARVP 57.7 58.4 57.9 - - - 1.7 1.8 1.8 59.4 60.2 59.7 Sub Total 406.0 406.8 406.2 14.2 14.5 14.5 7.4 7.9 8.2 427.6 429.2 428.9 5.0 Global Practice/CCSA Management 5.1 CCGVPU 4.5 4.4 4.4 4.3 4.0 3.6 18.3 20.5 21.4 27.1 28.9 29.3 5.2 GPVPU 190.5 183.3 179.5 0.2 - - 20.4 21.2 22.1 211.2 204.5 201.6 Sub Total 195.0 187.6 183.9 4.5 4.0 3.6 38.7 41.8 43.4 238.2 233.4 230.9 B TOTAL PROGRAM & PRACTICE MGMT. 601.0 594.5 590.1 18.7 18.5 18.1 46.2 49.6 51.6 665.9 662.6 659.9 41 FY15 BUDGET DOCUMENT FY15-17 WB Budget by Work Program BB REIMB BETF All Funds $ million FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 6.0 Other Operational Services 6.2 Development Economics 52.4 49.4 47.0 4.8 3.0 2.6 30.0 31.7 33.0 87.2 84.1 82.5 6.1 Operational Policy & Country Services 42.4 38.9 36.8 0.0 0.0 0.0 0.8 0.9 0.9 43.2 39.8 37.7 6.3 Leadership, Learning & Innovation 41.3 39.9 36.8 0.4 0.3 0.3 9.0 9.5 9.9 50.7 49.7 47.0 Sub Total 136.1 128.1 120.6 5.2 3.4 2.9 39.8 42.1 43.8 181.1 173.5 167.3 7.0 Finance Programs 7.6 Budget, Performance & Strategy 76.9 73.9 69.0 - - - - - - 76.9 73.9 69.0 7.3 Concessional Finance & Global Partnerships 15.7 15.1 14.3 8.8 8.7 8.3 12.0 12.0 12.0 36.5 35.9 34.7 7.8 Chief Risk Office 11.6 11.8 12.1 1.4 0.9 0.9 - - - 13.0 12.8 13.1 7.2 Controllers 31.1 30.5 29.7 15.3 14.8 14.7 - - - 46.4 45.3 44.4 7.1 Treasury 24.4 24.2 24.0 51.1 51.8 52.6 0.6 0.6 0.6 76.2 76.6 77.3 Sub Total 159.7 155.6 149.2 76.5 76.2 76.6 12.6 12.6 12.6 248.9 244.5 238.4 8.0 Administration Programs 8.3 General Services and Facilities 129.0 129.7 131.0 45.0 45.1 45.1 - - - 174.0 174.9 176.2 8.1 Human Resources 56.6 53.2 53.4 16.2 16.0 16.0 - - - 72.8 69.2 69.4 8.2 Information & Technology Solutions 230.9 231.7 213.2 42.8 42.8 42.8 - - - 273.7 274.5 256.0 Sub Total 416.5 414.6 397.7 104.1 103.9 103.9 - - - 520.5 518.6 501.5 9.0 Corporate Programs 9.1 Administrative Tribunal 1.5 1.6 1.6 0.5 0.5 0.5 - - - 2.1 2.1 2.1 9.2 Conflict Resolution System 3.6 3.7 3.8 1.3 1.3 1.3 - - - 4.9 5.0 5.1 9.3 External & Corporate Relations 43.9 42.1 41.3 9.8 9.8 9.8 1.2 1.2 1.2 54.9 53.1 52.3 9.4 Integrity Vice Presidency 14.4 14.6 14.9 4.1 4.1 4.1 - - - 18.6 18.8 19.1 9.5 Internal Audit 7.4 7.6 7.8 2.6 2.6 2.6 - - - 10.0 10.2 10.4 9.6 Legal Services 27.2 27.4 27.8 4.7 4.4 4.3 0.7 0.7 0.7 32.6 32.5 32.9 9.7 Managing Directors 8.7 8.8 9.0 - - - - - - 8.7 8.8 9.0 9.8 Office of Ethics and Business Conduct 3.7 3.8 3.9 1.4 1.4 1.4 - - - 5.2 5.3 5.4 9.9 Office of Suspension & Debarment 1.5 1.5 1.5 - - - - - - 1.5 1.5 1.5 9.10 Office of the President 7.5 7.7 5.4 - - - - - - 7.5 7.7 5.4 9.11 Sanctions Board 1.5 1.6 1.6 - - - - - - 1.5 1.6 1.6 Sub Total 121.0 120.3 118.7 24.5 24.2 24.1 1.9 1.9 1.9 147.4 146.4 144.7 10.0 Governance 10.1 Boards 86.8 88.7 91.1 26.2 26.2 26.2 0.8 0.8 0.7 113.7 115.7 118.1 10.2 Board Reimbursables (26.2) (26.2) (26.2) - - - - - - (26.2) (26.2) (26.2) 10.3 Corporate Secretariat 14.1 14.4 14.7 5.0 5.0 5.0 - - - 19.2 19.4 19.7 10.4 Secretariat Reimbursables (5.0) (5.0) (5.0) (5.0) (5.0) (5.0) 10.5 Independent Evaluation Group 26.5 26.3 26.0 7.6 7.5 7.5 1.0 1.0 1.0 35.1 34.8 34.5 Sub Total 96.1 98.1 100.5 38.9 38.8 38.8 1.8 1.8 1.8 136.7 138.7 141.0 11.0 Hosted Units 11.1 ICSID 2.2 2.3 2.3 - - - - - - 2.2 2.3 2.3 Sub Total 2.2 2.3 2.3 - - - - - - 2.2 2.3 2.3 C TOTAL INSTITUTIONAL, GOVERNANCE & ADMIN. 931.6 919.1 889.0 249.2 246.5 246.3 56.1 58.3 60.0 1,236.9 1,223.9 1,195.3 D TOTAL: RUNNING THE BUSINESS (B+C) 1,532.7 1,513.6 1,479.1 267.9 265.1 264.4 102.2 107.9 111.6 1,902.8 1,886.6 1,855.1 E TOTAL: ALL UNITS 2,155.3 2,130.8 2,089.2 376.6 364.6 359.9 736.1 768.1 798.3 3,267.9 3,263.4 3,247.4 42 FY15 BUDGET DOCUMENT FY15-17 WB Budget by Work Program BB REIMB BETF All Funds $ million FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 FY15 FY16 FY17 14.0 Centrally Managed Accounts & Miscellaneous 14.1 Business continuity 16.4 16.7 17.2 - - - - - - 16.4 16.7 17.2 14.2 Contingency 20.0 10.0 10.0 - - - - - - 20.0 10.0 10.0 14.3 Corp. Projections Adj. incl. HQ Real Estate Rev. (21.4) (21.1) (21.1) 62.4 85.3 79.4 16.5 17.5 18.2 57.5 81.7 76.5 14.4 Country Office funding (other) 4.8 4.9 5.0 - - - - - - 4.8 4.9 5.0 1 14.5 Data for Povert Reduction funding 1.0 1.0 1.0 - - - - - - 1.0 1.0 1.0 14.6 HQ Real Estate Expense 18.7 19.9 20.4 - - - - - - 18.7 19.9 20.4 14.7 Institutional Programs 25.1 25.7 26.3 - - - - - - 25.1 25.7 26.3 14.8 Other Centrally-Managed Overh. & Benefits (172.2) (170.5) (157.3) 51.3 31.0 45.8 - - - (121.0) (139.5) (111.5) 14.9 Staff Retirement Accounts 385.6 409.7 434.7 - - - - - - 385.6 409.7 434.7 Sub Total 278.0 296.3 336.3 113.7 116.3 125.1 16.5 17.5 18.2 408.2 430.0 479.6 14.10 Unallocated Budget Flexibility (shortfall) 7.60 31.0 58.3 - - - - - - 7.6 31.0 58.3 Sub Total 7.6 31.0 58.3 - - - - - - 7.6 31.0 58.3 15.0 Expenditure Review 15.1 Investments to Achieve Savings 30.0 70.0 113.6 - - - - - - 30.0 70.0 113.6 15.2 Unallocated ER Savings (4.3) (31.1) (109.0) - - - - - - (4.3) (31.1) (109.0) Sub Total 25.7 38.9 4.6 - - - - - - 25.7 38.9 4.6 16.0 Grant Making Facilities 16.1 CGIAR 47.0 30.0 10.0 - - - - - - 47.0 30.0 10.0 16.2 Development Grant Facility 32.8 12.3 - - - - - - - 32.8 12.3 - 16.3 Global Partnership for Social Accountability 5.0 5.0 - - - - - - - 5.0 5.0 - 16.4 Institutional Development Fund 0.3 0.3 - - - - - - - 0.3 0.3 - 16.5 State and Peace Building Fund 25.0 21.0 14.0 - - - - - - 25.0 21.0 14.0 Sub Total 110.1 68.6 24.0 - - - - - - 110.1 68.6 24.0 E TOTAL EXPENDITURE ENVELOPE 2,576.7 2,565.6 2,512.4 490.2 480.8 485.0 752.5 785.5 816.5 3,819.4 3,831.9 3,814.0 1 Funding for poverty data to be confirmed by mid-year, once an internal review and needs assessment is complete. 43 FY15 BUDGET DOCUMENT ANNEX B: CAPITAL BUDGET 1. The total proposed capital budget over the FY15-17 period is $490.6 million, with Technology and Systems accounting for $318.0 million (65 percent of the total envelope) and the remaining $172.6 million (35 percent) for Facilities. The FY15-17 capital program is $13.4 million (3 percent) higher than the FY14-16 approved capital program of $477.2 million. The increase is in Technology and Systems investments ($91.0 million) offset by a decrease in facilities investments ($77.6 million). See Table B.1. Table B.1: Capital Program Summary – Investment Schedule FY15-17 Capital Funds ($ million) FY14 FY14 FY14-16 FY15 FY16 FY17 FY15-17 Approved Released 1 Total AIP 2 Budget Plan Plan Total AIP Technology and Systems 109 63 227 106 106 106 318 of which IBRD Only 0.0 0.0 - 80.0 80.0 80.0 240.0 WBG Projects 3 0.0 0.0 - 20.0 20.0 20.0 60.0 Small Investments < $200,000 4 0.0 0.0 - 6.0 6.0 6.0 18.0 Facilities 100.3 12.1 250.2 72.9 57.2 42.5 172.6 of which Washington 32.2 3.7 60.1 33.2 26.7 19.2 79.0 Country Office 68.1 8.4 190.1 39.8 30.5 23.3 93.6 Total Capital Budget (All Parts): 209.2 74.9 477.2 178.9 163.2 148.5 490.6 Percent Utilization (FY14 YTD Release/FY14 Approved) 35.82% 1 Da ta on ca pi ta l rel ea s e of funds a s of Ma y 21, 2014 2 Annua l Inves tment Pl a n (AIP) a s per FY14 Budget Document. 3 IFC a nd MIGA wi l l pa y thei r s ha re of the a dmi ni s tra ti ve cos ts a s s oci a ted to WBG projects through Sha red Servi ce Agreements wi th IBRD. 4 Sma l l ca pi ta l i nves tments under $200,000, dri ven by the recent pol i cy cha nge l oweri ng the ca pi ta l i za ti on thres hol d to $100,000. THE CAPITAL PROGRAM FOR TECHNOLOGY 2. The Technology and Systems three-year capital envelope of $318 million represents a 40 percent increase over the FY14-16 capital program of $227 million. The noteworthy increase aims at supporting the implementation of the WBG strategy and change agenda through transformative Information Technology (IT). To deliver transformative IT, the Information Technology Solutions Group (ITS), a WBG provider, developed an IT Implementation Roadmap which specifies outcomes to be achieved over a three to five year period. Each outcome will be delivered as part of one of three-waves- narrowing information and process gaps, improving WBG operations and performance, and bringing transformative capabilities. 3. The FY15-17 Technology and Systems Capital Budget underpins the IT Implementation Roadmap which consolidates related business outcomes within three (3) segments: Business Programs, IT capabilities, and IT foundations: a. "Business Programs" solutions ($131.9 million) will directly support business facing requirements. It includes six programs around which specific business outcomes have been defined: 44 FY15 BUDGET DOCUMENT • Modern Operations: to improve the delivery of development solutions by enhancing the suite of tools, such as the Operations Portal, that task teams use to design and implement the Bank Group's Lending and Knowledge Advisory Services. The WBG will have modernized systems for operations that provide automation, simplification, and integration of processes, reporting and management - including initiatives for the Operations Portal, Loans systems, Externally Funded Outputs, and Trust Funds. • Information, Knowledge & Learning: to promote transparency & accountability, facilitate the knowledge flow and support learning for task teams and clients. WBG managers, staff, partners and clients will have simplified access to data, analysis, learning and knowledge products - including initiatives in creating a comprehensive online learning campus, leveraging social media and mobile connectivity for broadcast, and improved access to research and published studies. • Modern HR: to strengthen the foundations of the WBG talent value proposition with the implementation of modern and user-friendly systems. The institution will benefit from fully modernized HR systems - including initiatives to a revamped "myHR" system and a new end- to-end e-recruitment platform. • Risk Management: support standard and flexible price valuation and robust reporting/analytics with the goal to arm stakeholders with the right information to make better, more informed decisions. Risk will be optimized through updated capabilities - including initiatives to address independent pricing and verification, enhanced monitoring, reporting and analytics, a comprehensive valuation solution, a pricing system that supports standard and flexible price validations. • Core Financial & Strategic Budget Systems: to replace and modernize core financial systems that ensure compliance with international accounting standards and regulatory frameworks; implement a new strategic Budget Planning and Consolidation application (BPC) along with an upgraded Budget Control and monitoring System (BCS) and General ledger; and move towards industry-standard solutions that are more sustainable and robust and improve transactional integrity and reliability. Initiatives include new capabilities for RAMP, preparation of IDA financial statements/reporting, managing liquidity requirements for Trust Funds, modernizing cash management system, and automating manual transactions. • End User/Work Experience: to enhance the performance of the total user computing/workplace experience by providing WBG staff with seamless access to their information, documents and institutional applications - including initiatives such as an Enterprise Apps Store to enable self-service for staff to identify, download and manage WBG applications on their devices; standard catalog of devices, functionality and data access mechanisms that will provide staff the suite of tools and capabilities needed to effectively perform their duties regardless of location and device. b. The "IT Capabilities" ($136.4 million) are the building blocks that enable business applications and information systems to be delivered with speed and flexibility, and to adopt market 45 FY15 BUDGET DOCUMENT innovations. The following are the eight most critical areas where IT capabilities will be built and enhanced: • Connectedness: to enable WBG to more effectively connect with partners, find experts externally and within the Global Practices and locate other WBG resources that can contribute to solving problems. This includes initiatives that will leverage social media and portal technologies, and the ability to collaborate with development practitioners. • Analytics: to enable the WBG to identify patterns hidden behind data flows and documents. Analytics will provide deep insights, enable more informed risk-taking, and allow for stronger development impact evidence to be extracted. • Information: to provide mechanisms to create, curate, and find knowledge, integrating data from multiple unstructured data sources. It includes real-time search capabilities based on a robust next generation search technology platform for corporate clients, including the Board. • Business Enablement: to deliver tools and applications that enable staff to perform work efficiently and effectively by providing a work environment that is context-aware, supplying the right applications to the right person, in a seamless user experience. The Business Enablement sub-program includes the migration of large Applications from the Lotus Notes platform, the development of a WBG correspondence and delivery tracking system as well as a new WBG client relationship management platform. • Collaboration: To bring holistic and the most impactful development solutions WBG staff need to be able to collaborate effectively among its institutions. This includes the replenishment of the existing videoconferencing system as well as immersive Telepresence VC facilities for five Country offices. • Communication: to share its information assets with the global community and provide a mechanism for citizens to provide feedback about the effectiveness of development efforts. Improvements to existing services mobile, the WBG Integrated Communication Platform, audio video and teleconferencing are essential. • Mobility: to provide staff with the information and applications necessary to take advantage of non-traditional work settings wherever they are. Initiatives include improving the availability of industry standard and WBG customized tablet and Smartphone applications; and standardize WBG Remote Access capabilities to provide consistent and dependable access to the Intranet/internet, WBG cloud services, and resources wherever and whenever needed. c. The "IT Foundation" ($49.7 million) to build a modern, robust and flexible IT infrastructure to keep the business running while also enabling foundational capabilities. 46 FY15 BUDGET DOCUMENT Table B.2: Programmatic View – IT Investment Schedule FY15-17 FY15-17 Capital IT Program Tracks Budget 1 Business Programs1: 131.9 2 IT Capabilities2: 136.4 3 IT Foundation - Infrastructure/Steady State: 49.7 Recommend Capital for Board Approval 318.0 1 Includes $18m related to small capital investments under $200k, driven by the recent policy change lowering the capitalization threshold to $100k for Business Programs. 2 Includes $4.6m related to the relocation of WBG systems from the downtown data center (in the H building) to a new data center. THE CAPTIAL PROGRAM FOR WASHINGTON AND COUNTRY OFFICE FACILITIES 4. The total Bank Facilities capital budget proposal for FY15-17 is $172.6 million, of which $79.0 million is for Washington Facilities and $93.6 million is for Country Office Facilities. The FY15-17 proposed envelope is $77.6 million lower than the FY14-16 capital plan primarily due to the fact that the Global Footprint set-aside (for Expenditure Review-related CO property acquisitions) is not included at this point. A supplemental capital budget request will be submitted to the Board for these Country Office property acquisitions. ADMINISTRATIVE BUDGET IMPACT OF THE CAPITAL BUDGET 5. The Bank’s administrative budget will be affected in subsequent fiscal years based upon the level of capital spending authority approved by the Board. Budget expenses such as operation and maintenance have a claim on a unit’s budget resources. Once a capital project is completed and becomes an asset, depreciation may be the responsibility of the business unit if not centrally funded. In general, VPUs are responsible for these expenses over the life of the asset. A VPU must demonstrate that it can fund carrying costs of a capital investment over the asset’s life cycle within their allocated budget before any release of funds. 6. Technology and Systems. Over the three-year planning period, Technology and Systems capital investments will increase administrative budget expenses by $33.5 million in FY15, $41.3 million in FY15, and $51.8 million in FY16. These administrative expenses include incremental one-time administrative, operating and maintenance and depreciation costs, starting with the FY13-15 trajectory. These costs will be funded through the net administrative budget. 7. In FY12, Senior Management endorsed the consolidation of IT depreciation within Central Accounts in order to ensure that: 1) the administrative budget was appropriately resourced to cover the existing IT asset base; 2) there was alignment between IT capital investment decisions and administrative budget planning; and 3) surplus or deficits in depreciation were handled at the corporate level. The three-year trajectory for IT depreciation is shown in Table B.3. 47 FY15 BUDGET DOCUMENT Table B.3. Technology and Systems – IT Depreciation in Central Accounts FY15-17 FY15 FY16 FY17 (In Millions $, FY15 $s) Budget Plan Plan Technology and Systems Depreciation Baseline Trajectory1 43.1 50.4 50.4 FY15-17 Incremental Impact/Adjustments2 (3.9) (9.3) 2.9 Total3: 39.2 41.1 53.3 1 As per FY14 Budget distribution. 2 Downward adjustment of the Depreciation trajectory (surplus) in FY15 and FY16 driven by reduced Depreciation Expense projection based on revised project completion period (18 to 24 months for Shared Services and 24 to 30 months for others). 3 Total w/o PC Program, BCC, Below-the-Line units, and Optional chargeback since such depreciation does not reside within the Central Accounts. Budget expense related to TF Fee Income excluded. Source: FY15, FY16 and FY17 are based upon FY13, FY14 and FY15 Business Planning decisions. 8. Washington Facilities. Over the three-year planning period, Washington capital projects will increase administrative budget expenses by $0.5 million per year FY15-FY17. The long asset depreciation life cycle 11 of the facilities projects tends to create minimal increases across fiscal years. 9. Country Office Facilities. Over the three-year planning period, country office capital projects will decrease administrative budget expenses by $1.0 million on average. Several projects previously included in the portfolio will now be reviewed under the Global Footprint set-aside study. 10. The above facilities related administrative expenses will be funded within the net administrative budget. 11 Land is not depreciated per accounting rules, acquisitions are depreciated over 50 years and construction/repair projects are typically depreciated over 10 years. 48 FY15 BUDGET DOCUMENT ANNEX C: ANALYZING EXPENDITURE PATTERNS BY EXPENSE TYPE This note provides background information on the Bank’s expenditure patterns over time, including FY13 data. 12 1. The expense type cut includes Fixed Costs (e.g., staff salaries and benefits, equipment and buildings) and Variable Costs (e.g., consultants and temporaries, travel, contractual services). Derived from strictly formulated accounting categories, these expense types are largely consistent across organizations and facilitate comparison exercises such as benchmarking. Figure C.1: Fixed and Variable Costs - $ Amounts (Growth p.a.) 3,000 3,000 2,500 2,500 2,000 2,000 1,500 1,500 1,000 1,000 500 500 0 0 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 All Funds (nominal $ millions) All Funds (FY13$ millions) Fixed Costs (5.2% p.a.) Variable Costs (5.0% p.a.) Fixed Costs (2.5% p.a.) Variable Costs (2.3% p.a.) 2. Over the past ten years, the ratio between fixed Figure C.2: Fixed and Variable Costs - % Share costs and variable costs has remained largely 100% constant, at around 60:40 (see Figure C.2). This is to be expected for a knowledge based 75% and human capital intensive organization, where staff costs account for the largest share 50% of expenses each year. Breaking down by source of funds, however, shows some 25% underlying trends. 0% 3. The fixed cost ratio of Bank and Reimbursable FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 (BB + Reimbursable) expenses has remained All Funds (% share) relatively stable, staying within 67-70 percent Fixed Costs Variable Costs 12 All data are either in actual nominal dollars or in constant FY13$ adjusted for inflation. 49 FY15 BUDGET DOCUMENT over the past ten years (see Figure C.3). In contrast, the low fixed cost ratio of Bank-Executed Trust Fund (BETF) expenses is rising, along with its growing work program share (see Figure C.4). Figure C.3: BB and Reimbursable Fixed Figure C.4: BETF Fixed and Variable and Variable Costs - % Share Costs - % Share 100% 100% 75% 75% 50% 50% 25% 25% 0% 0% FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 BB + Reimb BETF Fixed Costs Variable Costs Fixed Costs Variable Costs 4. Total staff costs have gradually increased, with the upward trajectory of BETF expenses more pronounced than that of BB + Reimbursable, especially since FY08 (see Figures C.9 and C.10). This is indicative of the growing confidence among managers in the availability of longer term BETF resources for staffing. BB + Reimbursable covered 87 percent of total staff expenses in FY13, down from 95 percent in FY04 (see Figure C.11). Fixed cost expenses such as equipment, building, and information technology investments had a steady growth and were covered mostly by BB + Reimbursable budget over the past ten years (see Figures C.7 and C.8). Figure C.5: All Funds Fixed Costs - Nominal Figure C.6: All Funds Fixed Costs - Real (Growth p.a.) (Growth p.a.) 1,500 1,500.0 1,250 1,250.0 1,000 1,000.0 750 750.0 500 500.0 250 250.0 0 - FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 All Funds (nominal $ millions) All Funds (FY13$ millions) Total Staff Salaries & Benefits (5.4% p.a.) Total Staff Salaries & Benefits (2.7% p.a.) Equipment & Building (4.5% p.a.) Equipment & Building (1.8% p.a.) Communications & Information Technology (5.4% p.a.) Communications & Information Technology (2.7% p.a.) 50 FY15 BUDGET DOCUMENT Figure C.7: BB + Reimbursable Fixed Costs - Nominal Figure C.8: BB + Reimbursable Fixed Costs - Real (Growth p.a.) (Growth p.a.) 1,400 1,400 1,200 1,200 1,000 1,000 800 800 600 600 400 400 200 200 0 0 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 BB + Reimb (nominal $ millions) BB + Reimb (FY13$ millions) Total Staff Salaries & Benefits (4.4% p.a.) Total Staff Salaries & Benefits (1.7% p.a.) Equipment & Building (4.6% p.a.) Equipment & Building (1.9% p.a.) Communications & Information Technology (5.2% p.a.) Communications & Information Technology (2.5% p.a.) Figure C.9: BETF Fixed Costs - Nominal Figure C.10: BETF Fixed Costs - Real (Growth p.a.) (Growth p.a.) 200 200 150 150 100 100 50 50 0 0 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 BETF (nominal $ millions) BETF (FY13$ millions) Total Staff Salaries & Benefits (16.7% p.a.) Total Staff Salaries & Benefits (13.8% p.a.) Equipment & Building (0.9% p.a.) Equipment & Building (-1.6% p.a.) Communications & Information Technology (8.7% p.a.) Communications & Information Technology (5.9% p.a.) 51 FY15 BUDGET DOCUMENT Figure C.11: Staff Salaries and Benefits (% share) 100% 75% 50% 25% 0% FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 Salaries & Benefits - BETF (13.8% p.a.) Salaries & Benefits - BB + Reimb (1.7% p.a.) 5. Variable cost spending on travel has grown at a slower pace than that of consultants and temporaries over the past ten years (see Figures C.12 and C.13). In fact, travel spending has dropped from being the top variable expense category for BB + Reimbursable, as a result of behavioral change (e.g., increasing use of video conference, booking tickets at least two weeks in advance, and combining operational mission trips) and policy change (e.g., preferred carrier, and reducing the frequency of staff and sector retreats). The share of consultants and temporaries expenses covered by BETFs has risen from 41 percent in FY04, to 53 percent in FY13 (see Figure C.18). Figure C.12: All Funds Variable Costs - Nominal Figure C.13: All Funds Variable Costs - Real (Growth p.a.) (Growth p.a.) 600 600 500 500 400 400 300 300 200 200 100 100 0 0 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 All Funds (nominal $ millions) All Funds (FY13$ millions) Consultants and Temporaries (6.2% p.a.) Consultants and Temporaries (3.5% p.a.) Travel (3.6% p.a.) Travel (0.9% p.a.) Contractual Services (6.4% p.a.) Contractual Services (3.7% p.a.) Other Expenses (0.2% p.a.) Other Expenses (-2.4% p.a.) Representation & Hospitality (-9.2% p.a.) Representation & Hospitality (-11.5% p.a.) 52 FY15 BUDGET DOCUMENT Figure C.14: BB + Reimbursable Variable Costs - Nominal Figure C.15: BB + Reimbursable Variable Costs - Real (Growth p.a.) (Growth p.a.) 300 300 250 250 200 200 150 150 100 100 50 50 0 0 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 BB + Reimb (nominal $ millions) BB + Reimb (FY13$ millions) Consultants and Temporaries (3.5% p.a.) Consultants and Temporaries (0.9% p.a.) Travel (0.9% p.a.) Travel (-1.7% p.a.) Contractual Services (7.0% p.a.) Contractual Services (4.3% p.a.) Other Expenses (-1.1% p.a.) Other Expenses (-3.6% p.a.) Representation & Hospitality (-9.8% p.a.) Representation & Hospitality (-12.1% p.a.) Figure C.16: BETF Variable Costs - Nominal Figure C.17: BETF Variable Costs - Real (Growth p.a.) (Growth p.a.) 300 300 250 250 200 200 150 150 100 100 50 50 0 0 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 BETF (nominal $ millions) BETF (FY13$ millions) Consultants and Temporaries (9.3% p.a.) Consultants and Temporaries (6.5% p.a.) Travel (14.3% p.a.) Travel (11.4% p.a.) Contractual Services (4.2% p.a.) Contractual Services (1.5% p.a.) Other Expenses (8.4% p.a.) Other Expenses (5.7% p.a.) Representation & Hospitality (0.1% p.a.) Representation & Hospitality (-2.4% p.a.) Figure C.18: Consultants and Temporaries (% share) 100% 75% 50% 25% 0% FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 Consultants & Temporaries - BETF (6.5% p.a.) Consultants & Temporaries - BB + Reimb (0.9% p.a.) 53