Multilateral Debt Relief Initiative-II Trust
- International Monetary Fund
- Published Date:
- October 2008
Multilateral Debt Relief Initiative-II Trust: Balance sheets as at April 30, 2008, and 2007
(In thousands of SDRs)
|Cash and cash equivalents||3,165||1,483|
|Investments (Note 4)||39,000||39,000|
|Liabilities and resources|
|Accrued MDRI grant assistance (Note 5)||19,438||32,231|
|Total liabilities and resources||42,314||40,700|
|/s/ Michael G. Kuhn||/s/ Dominique Strauss-Kahn|
|Director, Finance Department||Managing Director|
Multilateral Debt Relief Initiative-II Trust: Statements of income and changes in resources for the years ended April 30, 2008, and 2007
(In thousands of SDRs)
|Balance, beginning of year||8,469||—|
|Investment income (Note 4)||1,614||1,682|
|MDRI grant assistance (Note 5)||12,793||6,787|
|Net income/changes in resources||14,407||8,469|
|Balance, end of year||22,876||8,469|
Multilateral Debt Relief Initiative-II Trust: Statements of cash flows for the years ended April 30, 2008, and 2007
(In thousands of SDRs)
|Cash flows from operating activities|
|Adjustments to reconcile net income to cash generated by operations|
|Change in accrued MDRI grant assistance||(12,793)||(37,015)|
|Cash used in operations||—||(30,228)|
|Net cash provided by/(used in) operating activities||1,682||(28,458)|
|Cash flows from investment activities|
|Net acquisition of investments||—||(14,000)|
|Net cash used in investment activities||—||(14,000)|
|Cash flows from financing activities|
|Net cash used in financing activities||—||—|
|Net increase/(decrease) in cash and cash equivalents||1,682||(42,458)|
|Cash and cash equivalents, beginning of year||1,483||43,941|
|Cash and cash equivalents, end of year||3,165||1,483|
Multilateral Debt Relief Initiative-II Trust: Notes to the financial statements for the years ended April 30, 2008, and 2007
1. Nature of operations
Effective January 5, 2006, the IMF adopted the Multilateral Debt Relief Initiative (MDRI) to provide full debt relief to qualifying low-income countries. For this purpose, the IMF established the Multilateral Debt Relief Initiative-I (MDRI-I) Trust and the Multilateral Debt Relief Initiative-II (MDRI-II) Trust. The IMF acts as Trustee for both Trusts.
Under the MDRI, the IMF provides debt relief to HIPC and non-HIPC members with annual per capita income of US$380 or less and to HIPCs with annual per capita income of more than US$380. Qualifying members at or below the per capita income threshold receive grant assistance from the MDRI-I Trust, which was initially funded by resources transferred from the Special Disbursement Account (SDR 1.5 billion). Grant assistance to the remaining HIPC members with per capita income above the threshold is provided from the MDRI-II Trust by resources contributed by individual members. The initial contributions to the MDRI-II Trust were received through the transfer of a portion of members’ contributions to the PRGF-ESF Trust Subsidy Account (SDR 1.12 billion). Grant assistance from the MDRI Trusts (together with assistance under the HIPC Initiative) provides debt relief to cover the debt owed to the IMF (including the PRGF-ESF Trust) as at December 31, 2004, that remains outstanding at the time the member qualifies for such relief.
2. Summary of significant accounting policies
Basis of preparation and measurement
The financial statements of the MDRI-II Trust (the Trust) are prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have been prepared under the historical cost convention. Specific accounting principles and disclosure practices, as set out below, are in accordance with and comply with IFRS and have been applied consistently for all periods presented.
Use of estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, such as accrued MDRI grant assistance, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The determination of estimates requires the exercise of judgment based on various assumptions and other factors, such as historical experience and current and expected economic conditions. Actual results could differ from those estimates.
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
Unit of account
The functional and presentation currency of the MDRI-II Trust is the SDR. The value of the SDR is determined by the IMF each day by summing the values in U.S. dollars, based on market exchange rates, of the currencies in the SDR valuation basket. The IMF reviews the SDR valuation basket every five years. The latest review was completed in November 2005, and the new composition of the SDR valuation basket became effective on January 1, 2006. The currencies in the basket as at April 30, 2008, and 2007 and their amounts were as follows:
As at April 30, 2008, one SDR was equal to US$1.62378 (US$1.52418 as at April 30, 2007).
Foreign currency translation
Foreign currency transactions are recorded at the rate of exchange on the date of the transaction. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are reported using the closing exchange rates. Exchange differences arising from the settlement of transactions at rates different from those on the originating date of the transaction and unrealized foreign exchange differences on unsettled foreign currency monetary assets and liabilities are included in the determination of net income.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other highly liquid short-term investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Investments are made in fixed-term deposits. The carrying amount of fixed-term deposits, which typically have maturities of 12 months or less, approximates the fair value.
Investment income comprises interest income and currency valuation differences arising from exchange rate movements against the SDR.
Contributions are reflected as increases in resources and are subject to bilateral agreements stipulating how the resources are to be used.
The expenses of conducting the business of the MDRI-II Trust were paid by the General Resources Account of the IMF.
Adoption of new International Financial Reporting Standards
During the financial year ended April 30, 2008, the Trust adopted IFRS 7, “Financial Investments: Disclosures” (issued by the IASB in August 2005), which requires disclosures in the financial statements as to the significance of financial instruments for the Trust’s financial position and performance, the nature and extent of risks arising from such instruments, and how those risks are managed (see Note 3).
In September 2007, the International Accounting Standards Board (IASB) issued an amended standard, IAS 1, “Presentation of Financial Statements.” The amended IAS 1 requires presentation of nonowner changes in equity (comprehensive income) either in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income). The revised IAS 1 will become effective for the financial year ending April 30, 2010, and its implementation is not expected to have a significant impact on the financial position, results of operation, or cash flows of the Trust.
3. Financial risk management
In providing grant assistance to eligible country members and conducting its operations, the Trust is exposed to various types of risks, including credit, liquidity, and market risks.
Credit risk is the risk that a counterparty to a financial instrument will cause a financial loss to investments held by the Trust by failing to discharge obligations when due. Credit risk is mitigated by investing only in fixed-term deposits with a credit rating of A and above.
Liquidity risk is the risk of nonavailability of resources to meet the Trust’s obligations. The IMF, as Trustee, conducts semiannual reviews to assess the level of resources in the Trust, which are deemed sufficient to provide MDRI grant assistance to the remaining eligible members.
To minimize the risk of loss from liquidating long-term investments, the Trust holds resources in short-term deposits.
Interest rate risk
Interest rate risk is the risk that future cash flows will fluctuate because of changes in market interest rates. Interest rate risk is managed by limiting the investments to short-term fixed deposits.
Exchange rate risk
Exchange rate risk is the exposure to the effects of fluctuations in prevailing foreign currency exchange rates on the Trust’s financial position and cash flows. Exchange rate risk is managed by investing in fixed-term deposits denominated in SDRs.
4. Investments and investment income
Investments at April 30, 2008, and 2007 consisted of fixed-term deposits maturing in one year or less. Investment income for the financial years ended April 30, 2008, and 2007 comprised interest income of SDR 2 million for each year.
5. HIPC Initiative and MDRI grant assistance
During the financial year ended April 30, 2008, one HIPC member reached the completion point and received combined HIPC and MDRI grant assistance of SDR 10 million, none of which was disbursed from the MDRI-II Trust. Four HIPC members received combined HIPC and MDRI grant assistance of SDR 189 million during the financial year ended April 30, 2007, of which SDR 30 million was disbursed from the MDRI-II Trust.
MDRI grant assistance to the remaining eligible members is subject to the availability of resources and is accrued when it is probable that a liability has been incurred and the amount of such grant assistance can be reasonably estimated. The amount of liability recorded (SDR 19 million and SDR 32 million as at April 30, 2008, and 2007, respectively) is based on the evaluation of currently available facts with respect to each individual eligible member and includes factors such as progress made toward reaching the completion point under the HIPC Initiative, and the capacity to meet the macroeconomic performance and other objective criteria. As the qualification of members for MDRI debt relief is assessed, the amounts recorded are reviewed periodically and adjusted to reflect additional information that becomes available.
The reconciliation of accrued MDRI grant assistance for the financial year ended April 30 is as follows:
|(In millions of SDRs)|
|Beginning of year||32||69|
|End of year||19||32|