Summary of Financial Information As of March 31, (Prepared by the Trustee)

Transcription

1 GEF/C.52/Inf.13 May 3, nd GEF Cuncil Meeting May 23 25, 2017 Washingtn, D.C. GEF TRUST FUND FINANCIAL REPORT Summary f Financial Infrmatin As f March 31, 2017 (Prepared by the Trustee)

2 Financial Reprt Prepared by the Trustee Summary f Financial Infrmatin As f March 31,

3 Table f Cntents Table f Cntents Intrductin... 3 GEF Financial Summary as f March 31, GEF Summary Inceptin thrugh March 31, Cumulative Resurces, Asset Mix and Funding Decisins a. Cumulative Resurces b. Asset Mix and Investment Incme c. Funding Decisins, Trustee Cmmitments and Cash Transfers t Agencies Funding Availability GEF-6 Specific Funding Decisins Update n Financial Reserve and Freign Exchange Risk

4 Intrductin The infrmatin cntained in this reprt is prepared based n financial infrmatin as f March 31, The (GEF) was established in 1994 as an independent financial mechanism fr prviding grants and cncessinal funding t cver the incremental r additinal csts f measures t assist in the prtectin f the glbal envirnment and t prmte envirnmental sustainable develpment. Tday, the GEF is the largest funder f prjects fcused n glbal envirnmental challenges and a glbal partnership amng 183 cuntries, internatinal institutins, nngvernmental rganizatins, and the private sectr. It prvides grants fr prjects related t the fllwing main areas: (i) bidiversity, (ii) climate change (mitigatin and adaptatin), (iii) internatinal waters, (iv) land degradatin, and (v) chemicals and waste. The reprt is prduced by the Trustee in accrdance with the Trustee s rle in the GEF as set frth in Annex B f the GEF Instrument paragraph 4 (b) which states: The respnsibilities f the Trustee shall include in particular [ ] the financial management f the Fund, including investment f its liquid assets, the disbursement f funds t the implementing and ther executing agencies as well as the preparatin f the financial reprt regarding the investment and use f the Fund s resurces [ ] This reprt prvides (i) a snapsht f the financial situatin f the GEF since its inceptin t March 31, 2017, and sme f the recent develpments since the previus reprt; (ii) the details f financial activities f the GEF Trust Fund; (iii) the status f implementatin f the GEF-6 Replenishment; and (iv) update n financial reserve and freign exchange risk. 3

5 GEF Financial Summary as f March 31, 2017 Pledges and Cntributins GEF Cntributing Participants have pledged SDR 11,582 millin (USDeq. 16,606 millin) 1 t date, f which SDR 11,541 millin (USDeq. 16,545 millin) has been cnfirmed by Dnrs depsiting Instruments f Cmmitments (ICs) r Qualified Instruments f Cmmitment (QICs) with the Trustee. Of the ttal pledged amunt, GEF-6 pledges ttal SDR 2,460 millin (USDeq. 3,716 millin) 2, f which Dnrs have depsited SDR 2,440 millin r 99% f the amunt with the Trustee as ICs r QICs. Investment Incme As f March 31, 2017, cumulative investment incme earned n the GEF balances amunts t USD 1,271 millin. An investment incme f USDeq. 134 millin is prjected t be earned ver the GEF-6 perid. Thus far in GEF-6, USD 103 millin has been earned and the balance f USD 31 millin is prjected t be earned ver the rest f the GEF-6 perid. Funding Apprvals and Cmmitments As f March 31, 2017, cumulative funding decisins (apprvals by the GEF Cuncil/CEO) amunt t USD 16,093 millin net f USD 1,201 millin in cancellatins and reductins at endrsement, and USD 12 millin pending decisins f intersessinal and Cuncil meetings. The GEF-6 funding decisins frm Octber 1, 2016 t March 31, 2017 amunt t USD 349 millin. Of the ttal funding decisin amunt f USD 16,093 millin, cumulative cmmitments amunt t USD 14,320 millin. Cash Transfers Cash transfers were made n an as-needed basis t meet prjected disbursement requirements. As f March 31, 2017, ut f the cumulative cmmitment f USD 14,320 millin (including administrative expenses and funding allcatins t the GEF Secretariat), the Trustee has transferred USD 11,531 millin. A balance f USD 2,788 millin remains payable as f March 31, Funds Held in Trust and Funds Available fr Cuncil and CEO Funding Decisins Funds Held in Trust reflect financial activities related t new dnr payments (cash and prmissry ntes), encashment f prmissry ntes, investment incme, cash transfers, and the revaluatin f the balance f prmissry ntes at mnthend. As f March 31, 2017, Funds Held in Trust including the reserve amunt f USD 150 millin, ttal USD 4,888 millin, 27% f which represents unencashed prmissry ntes. Funding availability t supprt Cuncil r CEO decisin amunts t USD millin as f March 31, This represents a net increase f USD 71 millin cmpared t September 30, Des nt include c-financing under the GEF Pilt Prgram. 2 Valued based n GEF-6 agreed exchange rates. 4

6 1. GEF Summary Inceptin thrugh March 31, 2017 Ttal (in SDR millins) Dnr Pledges and Cntributins (in SDR millins) Received ICs 11, GEF-4 ICs nt yet depsited 4.00 GEF-5 ICs nt yet depsited GEF-6 ICs nt yet depsited Ttal Dnr Pledges and Cntributins (in SDR millins) 11, Ttal (in USD millins) Cumulative Resurces (in USD millins) Resurces received Cash Receipts 13, Unencashed prmissry ntes 1, Investment Incme earned 1, Ttal Resurces Received 16, Resurces nt yet received GEF-6 ICs nt yet depsited GEF-5 ICs nt yet depsited GEF-4 ICs nt yet depsited 5.43 Installments Receivable frm GEF Installment Receivables frm previus replenishments Ttal resurces nt yet received 1, Ttal Cumulative Resurces (A) (in USD millins) 17, Cumulative Funding Decisins (in USD millins) Apprvals by Cuncil and CEO 17, Cancellatins and reductins at endrsement (1,200.55) Pending Decisins f Intersessinal and Cuncil Meetings Ttal Funding Decisins Net f Cancellatins (B) (in USD millins) 16, Cumulative Resurces Net f Funding Decisins (A) - (B) (in USD millins) 1, Funds Available (in USD millins) Funds Held in Trust with n restrictins 4, Apprved Amunts Pending Cash Transfers t Agencies 4, Ttal Funds Available t Supprt Cuncil r CEO Decisins (in USD millins) a/ a/ Excludes the Fx reserve amunt f USD 150 millin. Nte: Ttals may nt add up accurately due t runding 5

7 2. Cumulative Resurces and Funding Decisins In USD millins March 31, 2017 September 30, Cumulative Resurces 17,510 17,716 Resurces nt yet received 1,143 1,678 GEF-6 ICs nt yet depsited with the Trustee GEF-5 ICs nt yet depsited with the Trustee GEF-4 ICs nt yet depsited with the Trustee 5 6 Installment Receivables frm GEF ,487 a/ Installment Receivables frm previus replenishments Resurces received 16,366 16,038 Cash receipts frm installments and encashments 13,769 13,503 Unencashed prmissry ntes 1,326 1,276 Investment Incme earned n undisbursed balances f GEF 1,271 1, Cumulative Funding Decisins 16,093 15,760 Apprvals by Cuncil and CEO 17,281 16,932 Cancellatins (1,201) (1,184) Pending decisins f Intersessinal and Cuncil Meetings b/ 3. Cumulative Resurces Net f Funding Decisins (3 = 1-2) 1,417 1,956 a/ Excludes installments in prmissry ntes amunting t USD eq. 246 millin received in Octber b/ Excludes Octber 2016 Intersessinal Wrk Prgram f $302 millin. Nte: Ttals may nt add up accurately due t runding. Snapsht f cumulative resurces and funding decisins: The table abve shws cumulative resurces and cumulative funding decisins f the GEF since inceptin. Of the cumulative resurces f USDeq. 17,510 millin, USDeq. 1,143 millin (7%) represents resurces nt yet received. Of these, ICs nt yet depsited with the Trustee ttal USDeq. 53 millin, GEF-6 installments receivables amunt t USDeq. 953 millin, and installment receivables frm previus replenishments amunt t USDeq. 137 millin. Cumulative net funding decisins amunting t USDeq. 16,093 millin representing abut 92% f the ttal cumulative GEF resurces. As f March 31, 2017, cumulative resurces net f funding decisins amunt t USDeq. 1,417 millin. 6

8 2a. Cumulative Resurces Instruments f Cmmitment t be Depsited Status as f March 31, 2017 (in USDeq. millins) Cntributing Participant Replenishment Currency f Obligatin Amunt in Currency f Obligatin USDeq. Percentage Nigeria GEF-4 SDR % Ttal GEF-4 ICs Nt Yet Depsited % Greece GEF-5 EUR % Nigeria GEF-5 NGN % Pakistan GEF-5 PKR % Prtugal GEF-5 EUR % Ttal GEF-5 ICs Nt Yet Depsited % Brazil a/ GEF-6 USD % Russian Federatin GEF-6 USD % Ttal GEF-6 ICs Nt Yet Depsited % Ttal GEF-4, GEF-5 and GEF-6 ICs Nt Yet Depsited 53.5 a/ An amunt f USD 1.7 millin has been received and negtiatins arund the IC are nging. As f March 31, 2017, ICs t be depsited with the Trustee amunt t USDeq millin. Of this amunt, USDeq millin represents GEF-6 ICs, USDeq millin represents GEF-5 ICs, and USDeq. 5.4 millin represents GEF-4 ICs. Austria has depsited its IC fr GEF-6 which is lwer by EUR 248,000 cmpared t its GEF-6 pledge f EUR millin. STATUS OF QUALIFIED INSTRUMENTS OF COMMITMENT (QIOC) UNDER GEF-6 As f March 31, 2017, the fllwing Cntributing Participants have depsited QICs with the Trustee and are making payment arrangements in accrdance with a payment schedule agreed with the Trustee. Cntributing Participant USD Eq. (millins) a/ Canada b/ Finland Netherlands Nrway Spain United States Ttal a/based n exchange rates as f March 31, b/unqualified and paid CAD 58.9 mil in April

9 INSTALLMENT ARREARS BY REPLENISHMENT As f March 31, 2017, installment arrears under ICs and QICs depsited with the Trustee amunted t USDeq millin, representing arrears under GEF-1, GEF-2 and GEF-3. Cuntributing Participant Repl. Currency Installment Receivable Amunt USD eq. (millins) Egypt GEF-1 SDR United States GEF-2 USD Nigeria GEF-3 SDR RESTRICTED RESOURCES Restricted resurces represent funds received frm Cntributing Participants but nt available fr funding decisins by the GEF Cuncil and the GEF CEO. As f March 31, 2017, restricted resurces amunted t USD 150 millin fr financial reserves. Apprximately 70% f ttal GEF-6 resurces i.e., installment receivables, unencashed ntes balances and IOCs nt yet depsited are in nn-usd currencies. The significant strengthening f the US dllar against all majr currencies ver the past year wuld negatively impact the estimated value f cash available fr making the payments against the apprved funding decisins. The Trustee clsely mnitrs the currency exchange rate mvement and determines adequate reserve 3 levels. The Trustee is currently evaluating measures t address the financial risk t the GEF arising ut r exchange rate mvements. 3 Please refer t sectin 5 fr an update n the financial reserve and freign exchange rate risk. 8

10 2b. Asset Mix and Investment Incme The undisbursed cash balance f the GEF is maintained in a cmmingled investment prtfli ( Pl ) fr all trust funds managed by IBRD. The Pl is managed actively and cnservatively with capital preservatin as the ver-arching bjective. ASSET MIX GEF assets are invested acrss three f the Wrld Bank s investment mdel prtflis, ( Mdel prtfli 0 fr shrt term wrking capital needs, Mdel prtfli 1 with an investment hrizn f ne year, and Mdel prtfli 2 with a brader investment universe and an investment hrizn f three years). The investment bjectives fr the GEF are t ptimize investment returns subject t preserving capital and maintaining adequate liquidity t meet freseeable cash flw needs, within a cnservative risk management framewrk 4. While future returns will depend n market cnditins, the Investment Pl is actively mnitred and adjusted t preserve dnr funds ver the investment hrizns. Over shrter perids, hwever, market vlatility may result in negative actual r mark-tmarket 5 returns. Overall, the GEF cumulative returns have been driven by its investment in lnger-term mdel prtflis, which may be expsed t higher vlatility in returns ver shrter perids, but are expected t have higher returns ver lnger perids. By asset class, the largest allcatins are t gvernment securities, mrtgage backed securities, agency, and asset backed securities. * The Crprate Securities categry currently includes AAA-rated Eur Agency and gvernment bnds/ntes. 4 Risk tlerance is defined as the expected maximum lss, as measured by the Cnditinal Value-at-Risk (CVaR), at the prtfli s investment hrizn, nt t exceed 1% at prtfli s investment hrizn, with 99% cnfidence. 5 Mark-t-market returns r lsses represent unrealized returns r lsses reprted via accunting entries rather than the actual sale f a security. 9

11 INVESTMENT INCOME Cumulative investment incme earned since the beginning f GEF Pilt phase is USD 1,271 millin. Since the beginning f the GEF-6 replenishment perid (July 30, 2014 t March 31, 2017), USD 103 millin has been earned. INVESTMENT RETURNS GEF investment returns remained mdest fr calendar year 2016 with a cumulative return f 1.06%. In the first three mnths f 2017, investment return was 0.40%. The investment prtfli has maintained a defensive stance since early 2016, in terms f smaller risk psitining and shrter time hrizns, in an envirnment f lingering vlatility and reduced liquidity. Returns are expected t be mdest ging frward as the risk f rising market yields remains elevated, with an adverse effect n ttal prtfli returns due t lwer bnd prices. DIVERSIFICATION OPPORTUNITIES As a gradual mve t higher interest rates in the cming years is expected, the utlk fr fixed-incme investments cntinues t be fr mdest returns, as further increases in market interest rates wuld result in further unrealized (i.e., mark-t-market) lsses fr fixed incme returns in general. T prvide mre diversity f investment chices, a new mdel prtfli (mdel prtfli 4) is being ffered by Wrld Bank t eligible trust funds. Mdel prtfli 4 wuld feature a fiveyear investment hrizn with a capital preservatin cnstraint ver the same hrizn and include a limited allcatin t equities. A review f the GEF s investment management strategy, including the impact f including an allcatin t mdel prtfli 4, indicates that GEF wuld benefit frm such diversificatin f investment. The Cuncil reviewed the investment ptins presented at its 50 th meeting and requested the Trustee t explre Envirnmental, Scial and Crprate Gvernance (ESG) risks and pprtunities fr the GEF investment prtfli and revert with ptins t this effect at its 52 nd meeting in May

12 2c. Funding Decisins, Trustee Cmmitments and Cash Transfers t Agencies CUMULATIVE FUNDING DECISIONS Since inceptin t March 31, 2017 funding apprvals made by the Cuncil and CEO ttal USD 17,281 millin, f which 89% was apprved fr Prjects and Prject Preparatin activities, 7% fr Agency Fees and 4% fr Administrative budgets. FUNDING DECISIONS BY REPLENISHMENT Funding decisins by replenishment shw the cumulative Prject/Prgram funding decisins f USD 16,081 millin net f cancellatins and reductins at endrsement, and excluding pending decisins n intersessinal and Cuncil meetings. Cumulative funding cancellatins and reductins at endrsement ttaled USD 1,200 millin. FUNDING DECISIONS BY FOCAL AREA FOR PROJECTS Funding decisins by Fcal Area shw cumulative grss funding decisins fr prjects and prject preparatin nly, and exclude prject fees, administrative budget. Prjects in the areas f bidiversity and climate change represent apprximately 55% f the cumulative funding apprved t date. 11

13 FUNDING DECISIONS BY AGENCY FOR PROJECTS Since inceptin t March 31, 2017, the majrity (73%) f all prject apprvals after cancellatins were fr implementatin by IBRD and UNDP. Implementatin by UNEP and UNIDO std at 11% and 5% f funding respectively, while the remaining Agencies implemented 11% f funding apprvals. Frm the GEF Pilt phase t GEF-5, the share f funding apprvals by Agency has changed fr example, IBRD s share fell frm 57% t 20%, while UNDP s share increased frm 40% t 41%, and UNEP s share increased frm 3% t 13%. The share f ther Agencies increased frm 1% in GEF-2 t 18% in GEF-5. These changes ver time are shwn in the chart belw. Lking at GEF-6 in islatin as f March 31, 2017, UNDP cntinues t be the implementing agency with the largest share (39%) f funding decisins fllwed by IBRD at 18% and UNEP and UNIDO bth at 9% f funding decisin respectively. 12

14 FUNDING DECISIONS, TRUSTEE COMMITMENTS AND CASH TRANSFERS TO AGENCIES Funding Decisins, Trustee Cmmitments and Cash Transfers shws the cumulative funding decisin (by Cuncil and CEO), cmmitments and cash transfers t the GEF Agencies since inceptin. As f March 31, 2017, cumulative funding decisins (grss) 6 t Agencies cmprising f Prjects, Prject Preparatin Grants, and Agency Fees excluding administrative expenses and funding allcatins t the GEF secretariat ttaled USD 16,180 7 millin. Of this amunt, USD 13,595 millin had been cmmitted fllwing the apprval r endrsement by the GEF CEO. At the request f Agencies, a ttal amunt f USD 10,810 millin had been transferred. 6 Reflects initial Cuncil and CEO apprvals prir t drps and subsequent cancellatins. 7 Excludes the prgram/umbrella balances. 13

15 3. Funding Availability In USD millins As f Mar 31, 2017 (a) As f Sep 30, 2016 (b) Change (a) - (b) 1. Funds Held In Trust 4,888 4, a. Cash and investments 3,562 3, b. Unencashed prmissry ntes 1,326 1,276 a/ Restricted Funds a. Deferred Cntributin in respect t the pr rata right b. Pre-paid Cntributins c. Reserve t cver freign exchange rate fluctuatins Funds Held in Trust with n Restrictins ( 3 = 1-2 ) 4,738 4, Apprved Amunts Pending Cash Transfers t Agencies 4,581 4, a. Trustee cmmitted 2,807 2, b. Apprved by Cuncil but nt yet CEO Endrsed 1,762 2,019 (257) c. Requested amunts fr financing pending decisin b/ - 5. Funds Available t Supprt Cuncil r CEO Decisins ( 5 = 3-4 ) a/ Excludes installments in prmissry ntes amunting t USD eq. 246 millin received in Octber b/ Excludes Octber 2016 Wrk Prgram f $302 millin. Nte: Ttals may nt add up accurately due t runding. Highlights fr the perid Octber 1, 2016 thrugh March 31, 2017: Funds Available t supprt Cuncil r CEO Decisins increased by USDeq. 71 millin ver the prir reprting perid as a result f: An increase in Funds Held in Trust by USD eq. 140 millin resulting frm: Higher cash installment receipts cmpared t cash transfers t agencies, Increase in the values f prmissry nte balances and depsits f new prmissry ntes. Increase in Apprved Amunts Pending Cash Transfers t Agencies by USD 69 millin. 14

16 4. GEF-6 Specific Funding Decisins In USD millins 1. Target Replenishment Funding a/ 4, Prjected Available Resurces during the GEF-6 Perid 1,332 Estimated Funds Available t Supprt Cuncil r CEO Financing Decisins Ptential Amunt Available f which Prjected t be Available Receivables 1,090 Arrears b/ Installments due in FY17 c/ Installments due in FY Installments due in FY ICs nt yet Depsited with the Trustee GEF-6 d/ Previus Replenishments e/ Prjected Investment Incme Ttal 1,175 1, GEF-6 Specific Funding Decisins 2,424 Apprvals by Cuncil 2,257 Prjects and Fees 1,296 Admin. Budget 61 Special Initiatives - Prgrammatic Initiatives 900 Apprvals by CEO 171 Prjects and Fees (MSPs. EEAs) 130 Prject Preparatin Activities and Fees 41 Net Changes t Initial Apprvals f/ (4) Reductins (cancellatins) n GEF-6 (4) Pending decisins n Intersessinal and Cuncil meetings - Prjects, Fees, Admin Budget, Special Initiatives, Prgrammatic Initiatives - 4. GEF-6 "Envelpe" as f March 31, 2017 (4 = 2 + 3) 3, Changes in the funding envelpe due t currency changes in the GEF-6 perid ( 5 = 4-1 ) (677) a/ Represents the target replenishment level as agreed, including new resurces frm Dnrs, prjected investment incme, and carryver f amunts frm previus replenishments. b/ Includes arrears frm the US fr GEF-2 in the amunt f USD 135 millin, Egypt fr GEF-1 in the amunt f SDR 0.5 millin, and Nigeria fr GEF-3 in the amunt f SDR 0.7 millin. c/ Trustee and Nrway are negtiating the payment arrangements fr Nrway's 2nd and 3rd installments. d/ Represents GEF-6 ICs nt received by the Trustee as f March 31, e/ GEF-5 IOCs nt received frm Greece, Nigeria, Pakistan and Prtugal and GEF-4 IC nt received frm Nigeria. f/ T fit the GEF Secretariat's STAR mdel, pre-gef-6 prject net changes were excluded frm the calculatin. Nte: Ttals may nt add up accurately due t runding.

17 Highlights as f March 31, 2017: Prjected Available Resurces thrugh the end f the GEF-6 perid amunt t USD 3,756 millin. The value f prjected resurces t be available is based n the fllwing assumptins: Arrears frm previus replenishments are paid; All GEF-6 ICs are received and paid in full during the remaining GEF-6 perid. GEF-6 Funding Decisins amunted t USD 2,424 millin. The Target Replenishment Funding amunt represents the targeted new resurces as agreed by Cntributing Participants during replenishment discussins; it includes the carryver f arrears, deferred cntributins, and paid-in funds nt yet set aside. The estimated changes t the GEF-6 Envelpe Value as measured against the Target Replenishment ttals USD 684 millin due t the revaluatin f cntributin receivables, unencashed prmissry ntes and the ICs yet t be depsited with the Trustee. The change is due t the significant strengthening f the US dllar against all majr currencies between the time the GEF-6 reference FX rates were set, and the FX rates as f March 31, The magnitude f this estimated shrtfall is cntinually shifting with changes in the value f the US dllar against all ther majr currencies. As f March 31, 2017 fr instance, the shrtfall std at USD 677 millin while it was USD 560 millin as f September 30, In rder t prvide a sense f the impact that a change in the US dllar has n the Envelpe Value f GEF-6, the fllwing tw scenaris 8 are included belw: (i) Scenari A - a 5% appreciatin in the USD, and (ii) Scenari B - a 5% depreciatin in the USD versus all ther currencies between March 31, 2017 and the end f the GEF-6 replenishment perid. The analysis shws that if the USD appreciates by a further 5% frm current levels, the shrtfall at the end f GEF-6 will be apprximately USD 771 millin, and if the USD depreciates by 5% frm current levels, the shrtfall will be apprximately USD 576 millin. These scenaris are presented fr infrmatin purpses nly and d nt in any manner reflect the Trustee s view f the freign exchange rate mvements ging frward. 8 Scenaris are presented fr infrmatin purpses nly and d nt in any manner reflect the Trustee s view f FX mvements ging frward. 16

18 Scenari Analysis f changes in GEF-6 Funding Envelpe due t Changes in Freign Exchange Rates Status as f March 31, 2017 (in USDeq. millins) Scenari A: 5% USD appreciatin frm Mar 31, 2017 Scenari B: 5% USD depreciatin frm Mar 31, Target Replenishment Funding 4,433 4, Prjected Available Resurces during the GEF-6 Perid 1,238 1,433 Estimated Funds available t supprt Cuncil r CEO Financing Decisins f which Ptential f which Prjected t Amunt Prjected t be Ptential Amunt Available be Available Available Available Receivables 1,061 1,121 - Arrears Installments due ICs nt yet Depsited with the Trustee GEF Previus Replenishments Prjected Investment Incme Ttal 1,144 1,144 1,207 1, GEF-6 Specific Funding Decisins 2,424 2,424 Apprvals by Cuncil 2,257 2,257 - Prjects + Fees 1,296 1,296 - Admin. Budget Special Initiatives Prgrammatic Initiatives Apprvals by CEO Prjects + Fees (MSPs, EEAs) Prject Preparatin Activities + Fees Net Changes t Initial Apprvals (4) (4) - Reductins (cancellatins) n GEF-6 prjects, Administrative Budget and Special Initiatives (4) (4) 4. GEF-6 "Envelpe" as f March 31, 2017 ( 4 = ) 3,662 3, Changes in funding envelpe due t currency changes in GEF-6 perid ( 5 = 4-1 ) Nte: The ttals in this table may nt add up due t runding. (771) (576) Lking back ver previus replenishments, the change in the GEF s funding envelpe in USD terms frm the start t the end f a replenishment was psitive in the first five replenishments as the GEF benefitted frm a depreciating USD. Since the beginning f GEF-6, there has been a steep and prlnged appreciatin f the USD against mst ther currencies. If this trend cntinues, the prjected funding envelpe in USD terms culd be smaller than the target replenishment level fr GEF-6. Since inceptin t March 31, 2017, the impact f FX mvements n the GEF s funding resurces has been psitive, resulting in a net gain f USD 96 millin. The changes in funding envelpe in USD terms frm the start t the end f each replenishment since GEF-1 are shwn in the chart belw. 17

19 1,000 Changes in GEF Funding Envelpe (USDeq) ver each Replenishent Perid since GEF Excess/(Shrtfall) (USD) -500 Cumulative Excess/(Shrtfall) (USD) -1,000 (677) GEF1 GEF2 GEF3 GEF4 GEF5 GEF6 (as at Mar 31, 2017) 5. Update n Financial Reserve and Freign Exchange Risk The Trustee makes funding cmmitments t GEF Agencies in USD against GEF resurces which include nn-usd prmissry ntes (PNs) that are encashed ver a lnger perid. Adverse mvements in FX rates might impact the value f future encashments f thse PNs, thereby affecting the Trustee s ability t meet its legal bligatins in making payments t the GEF Agencies against the funding cmmitments. In rder t manage this risk and mitigate any negative impact f FX vlatility n the level and predictability f funding available fr GEF prgraming, the Trustee hlds a defined level f financial reserve estimated at apprximately 15% f unencashed prmissry ntes used fr cmmitment purpse. The current financial reserve amunt is USD 150 millin and the Trustee clsely mnitrs and adjusts this amunt t insulate the GEF frm adverse exchange rate fluctuatins withut unduly cnstraining the prgramming ability f the GEF. As part f GEF-5 negtiatins in May 2009, the Trustee presented a paper t the GEF-5 Replenishment Participants examining the csts, benefits and issues assciated with hedging FX risk. It was cncluded that there was limited scpe fr emplying additinal measures t manage FX risk in the GEF. In the current envirnment, sme f the challenges identified in the 2009 review have evlved, prviding an ptin t access capital markets t facilitate hedging transactins. The Trustee is in the early stages f a cmprehensive review f the pssibility f setting up an FX Hedging prgram fr the GEF within an verarching FX Expsure Management Framewrk. This prgram will aim t achieve a mre cmprehensive slutin t manage FX risk. This review will cnsider assciated csts, pssible cllateral requirement and its impact n the GEF s prgramming ability, and the legal implicatins f using the Wrld Bank s trust fund pl t supprt any hedging activity. The Trustee is cmmitted t identify the mst apprpriate and cst effective slutin fr the GEF and will reprt t the GEF-7 Replenishment Participants n prgress thrughut the GEF-7 replenishment prcess. 18