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

Transcription

1 GEF/C.54/Inf.09 May 31, th GEF Cuncil Meeting June 24-26, 2018 Da Nang, Viet Nam GEF TRUST FUND FINANCIAL REPORT Summary f Financial Infrmatin As f March 31, 2018 (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 Table f Cntents... 2 Intrductin... 3 GEF Financial Summary as f March 31, GEF Summary Inceptin thrugh March 31, Cumulative Resurces 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, 2018, 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, 2018 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, 2018, cumulative investment incme earned n the GEF balances amunts t USD 1,328 millin. An investment incme f USDeq. 160 millin has been earned thus far in the GEF-6 perid, exceeding the prjected incme f USDeq. 134 millin during GEF-6 perid.funding Apprvals and Cmmitments As f March 31, 2018, cumulative funding decisins (apprvals by the GEF Cuncil/CEO) amunt t USD 17,032 millin net f USD 1,251 millin in cancellatins and reductins at endrsement, and inclusive f USD 12 millin pending decisins f intersessinal and Cuncil meetings. The GEF-6 funding decisins frm January 1, 2018 t March 31, 2018 amunt t USD 18 millin. Of the ttal funding decisin amunt f USD 17,032 millin, cumulative cmmitments amunt t USD 15,532 millin. Cash Transfers Cash transfers were made n an as-needed basis t meet prjected disbursement requirements. As f March 31, 2018, ut f the cumulative cmmitment f USD 15,532 millin (including administrative expenses and funding allcatins t the GEF Secretariat), the Trustee has transferred USD 12,358 millin. A balance f USD 3,174 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, 2018, Funds Held in Trust, including the reserve amunt f USD 150 millin and deferred cntributin frm Japan f USDeq. 141 millin, ttaled USD 4,877millin, 30% f which represents unencashed prmissry ntes. Funding availability t supprt Cuncil r CEO decisin is at a negative USD 91 millin as f March 31, This represents a net decrease f USD 105 millin cmpared t December 31, Des nt include c-financing under the GEF Pilt Prgram. 2 Valued based n GEF-6 agreed exchange rates. 4

6 UPDATE ON ACTIVITIES SINCE MARCH 31, 2018 GEF-7 Replenishment Cntributing Participants cmpleted the negtiatins under the seventh replenishment f the GEF ( GEF-7 ) in April Cntributing Participants t the GEF-7 agreed t prvide resurces t the GEF fr grant and ther financing t GEF recipient cuntries fr the perid between July 1, 2018 and June 30, The agreed ttal envelpe fr the GEF-7 perid was USDeq billin. This funding envelpe included USDeq 3.34 billin frm new pledges frm dnrs, USDeq 573 millin f resurces carried ver frm previus replenishments, and USD millin f prjected investment incme. Cntributin Receipts and IOC depsits since April 1, 2018 Pakistan has depsited its GEF-5 IC in the amunt f SDR 4 millin; Spain sthird installment t the GEF-6 in the amunt f USDeq. 6.7 millin was received in April The final installment payments fr GEF-6 were received frm Canada (USDeq. 19.6millin), France (USD 70.3 millin), United States (USD millin), United Kingdm (USDeq millin) and Finland (USDeq millin) in May Deferred cntributins were subsequently released fllwing the receipt f installments frm the United States and Canada. 5

7 1. GEF Summary Inceptin thrugh March 31, 2018 In USD 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 14, Unencashed prmissry ntes 1, Investment Incme earned 1, Ttal Resurces Received 17, Resurces nt yet received GEF-6 ICs nt yet depsited GEF-5 ICs nt yet depsited GEF-4 ICs nt yet depsited 5.82 Installments Receivable frm GEF Installment Receivables frm previus replenishments Ttal resurces nt yet received Ttal Cumulative Resurces (A) (in USD millins) 17, Cumulative Funding Decisins (in USD millins) Apprvals by Cuncil and CEO 18, Cancellatins and reductins at endrsement (1,251.00) Pending Decisins f Intersessinal and Cuncil Meetings Ttal Funding Decisins Net f Cancellatins (B) (in USD millins) 17, Cumulative Resurces Net f Funding Decisins (A) - (B) (in USD millins) 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/ b/ a/ Excludes the FX reserve amunt f USD 150 millin. b/ Negative due t a cntributing participant exercising deferral rights Nte: Ttals may nt add up accurately due t runding 6

8 2. Cumulative Resurces and Funding Decisins In USD millins March 31, 2018 December 31, Cumulative Resurces 17,831 17,773 Resurces nt yet received 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 6 6 Installment Receivables frm GEF Installment Receivables frm previus replenishments Resurces received 17,278 17,225 Cash receipts frm installments and encashments 14,492 14,373 Unencashed prmissry ntes 1,458 1,528 Investment Incme earned n undisbursed balances f GEF 1,328 1, Cumulative Funding Decisins 17,032 17,014 Apprvals by Cuncil and CEO 18,271 18,250 Cancellatins (1,251) (1,248) Pending decisins f Intersessinal and Cuncil Meetings Cumulative Resurces Net f Funding Decisins (3 = 1-2) 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. 17,831 millin, USDeq. 553 millin (3.1%) represents resurces nt yet received. Of these, ICs nt yet depsited with the Trustee ttal USDeq. 55 millin, GEF-6 installments receivables amunt t USDeq. 361 millin, and installment receivables frm previus replenishments amunt t USDeq. 137 millin. Cumulative net funding decisins amunting t USDeq. 17,032 millin represent abut 95.5% f the ttal cumulative GEF resurces. As f March 31, 2018, cumulative resurces net f funding decisins amunt t USDeq. 799 millin. 7

9 2a. Cumulative Resurces Instruments f Cmmitment t be Depsited Status as f March 31, 2018 (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 a/ GEF-5 PKR % Prtugal GEF-5 EUR % Ttal GEF-5 ICs Nt Yet Depsited % Brazil b/ 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 55.0 a/ Pakistan has depsited GEF-5 IOC in May 2018 b/ An amunt f USD 3.34 millin has been received and payment arrangements are being finalzied with Brazil. As f March 31, 2018, ICs t be depsited with the Trustee amunt t USDeq. 55 millin. Of this amunt, USDeq millin represents GEF-6 ICs, USDeq millin represents GEF-5 ICs, and USDeq. 5.8 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, 2018, 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. 8 Cntributing Participant USD Eq. (millins) a/ Canada Finland Spain United States Ttal a/based n exchange rates as f March 31, Nte: Payments except last installment frm Spain were received subsequent t March 31, 2018

10 INSTALLMENT ARREARS BY REPLENISHMENT As f March 31, 2018, 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, 2018, restricted resurces amunted t USD 291 millin representing USD 150 millin fr financial reserves and USDeq. 141 millin f deferred cntributin frm Japan. Apprximately 80% 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. 3 Please refer t sectin 5 fr an update n the financial reserve and freign exchange rate risk. 9

11 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. * The Crprate Securities categry currently includes AAA-rated Eur Agency and gvernment bnds/ntes. By asset class, the largest allcatins are t gvernment securities, mrtgage backed securities 6 and cash and cash equivalents. 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. 6 The negative psitin in swaps as f March 31, 2018 is primarily due t changes in freign currency exchange (FX) rates in crss currency basis swaps. Such swap instruments are used t implement currency hedges n bnd psitins within the prtfli. 10

12 INVESTMENT INCOME Cumulative investment incme earned since the beginning f GEF Pilt phase is USD 1,328 millin. Since the beginning f the GEF-6 replenishment perid (July 31, 2014 t March 31, 2018), USD 160 millin has been earned. INVESTMENT RETURNS GEF investment returns fr calendar year 2017 was higher with a return f 1.78% when cmpared t the previus years. Fr the first three mnths f 2018, the investment return was 0.10%. 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 investrs (such as the GEF ) cntinues t be dim, as further increases in market interest rates culd result in lw r even negative investment returns. T mitigate this expsure t interest rate rises, the Wrld Bank has wrked with eligible trust funds t intrduce ptins fr diversificatin int their prtflis. Fr sme f the larger trust funds with stable levels f liquidity, ne f the ptins has been making allcatins t mdel prtflis that feature a five-year investment hrizn. These mdel prtflis have the same capital preservatin cnstraint that is currently applied t mst trust fund clients and t enhance diversificatin, including a limited allcatin t equities. A review f the GEF s investment management strategy, including the impact f including an allcatin t such a mdel prtfli, indicates that GEF investment prtfli wuld likely benefit frm such a change in investment strategy. The Cuncil reviewed the investment ptins presented at its 50th meeting and requested the Trustee t explre any Envirnmental, Scial and Crprate Gvernance (ESG) risks and pprtunities that may arise if such a change in strategy is implemented fr the GEF Trust Fund investment prtfli. 11

13 Envirnmental, Scial and Crprate Gvernance (ESG) Investing As the Trustee updated in the last iteratin f the reprt, the Wrld Bank is cmmitted t wrking with clients t implement respnsible investment strategies and plicies that align with its verarching fiduciary mandate. Over the past tw years, the Wrld Bank has been explring the establishment and implementatin f a Respnsible Investment plicy with fcus n Integratin. An integratin apprach as ppsed t Alignment r Impact is mre apprpriate fr the management f assets administered by the Wrld Bank as it wuld invlve having envirnmental, scial and gvernance (ESG) cnsideratins reflected in the entire investment prcess such that resulting prtflis reflect a wider Respnsible Investment apprach as ppsed t targeting a single issue. Effrts are underway t bring discipline t different perspectives that will give the institutin a cnsistent way f lking at the ESG investments. In terms f timing, the Wrld Bank is aiming t have Respnsible Investment plicy by September 2018 which will be translated int the Wrld Bank s investment prcess after that. 12

14 2c. Funding Decisins, Trustee Cmmitments and Cash Transfers t Agencies CUMULATIVE FUNDING DECISIONS Since inceptin t March 31, 2018 funding apprvals made by the Cuncil and CEO ttal USD 18,270 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 17,032 millin net f cancellatins and reductins at endrsement, and including pending decisins n intersessinal and Cuncil meetings. Cumulative funding cancellatins and reductins at endrsement ttaled USD 1,251 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, and administrative budget. Prjects in the areas f bidiversity and climate change represent apprximately 53% f the cumulative funding apprved t date. 13

15 FUNDING DECISIONS BY AGENCY FOR PROJECTS Since inceptin t March 31, 2018, the majrity (71%) f all prject apprvals after cancellatins were fr implementatin by IBRD and UNDP. Implementatin by UNEP and UNIDO std at 12% and 5% f funding respectively, while the remaining Agencies implemented 12% 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, 2018, UNDP cntinues t be the implementing agency with the largest share (38%) f funding decisins fllwed by IBRD at 17% and UNEP and UNIDO at 14% and 7%, respectively 14

16 FUNDING DECISIONS, TRUSTEE COMMITMENTS AND CASH TRANSFERS TO AGENCIES Funding Decisins, Trustee Cmmitments and Cash Transfers shw the cumulative funding decisin (by Cuncil and CEO), cmmitments, and cash transfers t the GEF Agencies since inceptin. As f March 31, 2018, cumulative funding decisins (grss) 7 t Agencies cmprising f Prjects, Prject Preparatin Grants, and Agency Fees excluding administrative expenses and funding allcatins t the GEF secretariat ttaled USD 17,650 8 millin. Of this amunt, USD 14,773 millin had been cmmitted fllwing the apprval r endrsement by the GEF CEO. At the request f Agencies, a ttal amunt f USD 11,607 millin had been transferred. 7 Reflects initial Cuncil and CEO apprvals prir t drps and subsequent cancellatins. 8 Excludes the prgram/umbrella balances. 15

17 3. Funding Availability In USD millins As f Mar 31, 2018 (a) As f Dec 31, 2017 (b) Change (a) - (b) 1. Funds Held In Trust 4,877 4,987 (110) a. Cash and investments 3,419 3,459 (40) b. Unencashed prmissry ntes 1,458 1,528 (70) 2. Restricted Funds a. Deferred Cntributin in respect t the pr rata right a/ b. Reserve t cver freign exchange rate fluctuatins Funds Held in Trust with n Restrictins ( 3 = 1-2 ) 4,586 4,837 (251) 4. Apprved Amunts Pending Cash Transfers t Agencies 4,676 4,822 (146) a. Trustee cmmitted 3,173 3, b. Apprved by Cuncil but nt yet CEO Endrsed 1,491 1,736 (245) c. Requested amunts fr financing pending decisin Funds Available t Supprt Cuncil r CEO Decisins ( 5 = 3-4 ) (91) b/ 15 (105) a/ In March 2018, Japan deferred its 4th installment t the GEF-6 amunting t USDeq. 141 millin. b/ Negative due t a cntributing participant exercising deferral rights Nte: Ttals may nt add up accurately due t runding. Highlights fr the perid January 1, 2018 thrugh March 31, 2018: Funds Available t supprt Cuncil r CEO Decisins decreased by USDeq. 105 millin ver the prir reprting perid as a result f: A net decrease in Funds Held in Trust by USD eq. 110 millin driven by cash transfers; Increase in Restricted Funds by USD 141 millin due t deferral f cntributin by Japan; Offset by a net decrease in Apprved Amunts Pending Cash Transfers t Agencies by USD 146 millin. 16

18 4. GEF-6 Specific Funding Decisins In USD millins 1. Target Replenishment Funding a/ 4, Prjected Available Resurces during the GEF-6 Perid 125 Estimated Funds Available t Supprt Cuncil r CEO Financing Decisins Ptential Amunt Available f which Prjected t be Available Receivables 216 Arrears b/ Installments past due c/ Installments due in FY18 b/ i/ Installments due in FY19 i/ 6 - Release f Restricted Cntributins Deferred Cntributins d/ i/ ICs nt yet Depsited with the Trustee i/ 0 GEF-6 e/ 31 - Previus Replenishments f/ 24 - Prjected Investment Incme - - g/ - Ttal GEF-6 Specific Funding Decisins 3,371 Apprvals by Cuncil 3,089 Prjects and Fees 2,033 Admin. Budget 97 Special Initiatives - Prgrammatic Initiatives 959 Apprvals by CEO 294 Prjects and Fees (MSPs. EEAs) 234 Prject Preparatin Activities and Fees 60 Net Changes t Initial Apprvals h/ (12) Reductins (cancellatins) n GEF-6 (12) Pending decisins n Intersessinal and Cuncil meetings - Prjects, Fees, Admin Budget, Special Initiatives, Prgrammatic Initiatives - 4. GEF-6 "Envelpe" as f March 31, 2018 (4 = 2 + 3) 3,496 5 Funding expected t be carried frward frm GEF-6 t GEF-7 i/ Changes in funding envelpe (USDeq.) in GEF-6 perid ( 6 = ) (449) 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, and 4th Installment frm the US fr GEF-6 in the amunt f USD millin which may nt becme available fr prgramming in GEF-6. c/ The Trustee and Nrway are negtiating the payment arrangements fr Nrway's 2nd, 3rd and 4th installments. d/ In March 2018, Japan deferred its 4th installment t the GEF-6 amunting t JPY 15 billin. This may nt becme available fr prgramming in GEF-6. e/ Represents GEF-6 ICs nt received by the Trustee as f March 31, f/ GEF-5 IOCs nt received frm Greece, Nigeria, Pakistan and Prtugal and GEF-4 IC nt received frm Nigeria. g/ The investment incme ver the GEF 6 perid thus far is USD 160 millin, which is mre than the prjected amunt f USD 134 millin. h/ T fit the GEF Secretariat's STAR mdel, pre-gef-6 prject net changes were excluded frm the calculatin. i/ Includes cntributin arrears, GEF-6 installments that may nt becme available fr prgramming befre June 30, 2018, Deferred Cntributins, ICs nt yet depsited with the Trustee and any funds unprgrammed at the end f GEF-6 perid. Nte: Ttals may nt add up accurately due t runding.

19 Highlights as f March 31, 2018: 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. Prjected Available Resurces thrugh the end f the GEF-6 perid amunt t USD 3,496 millin. Prjected resurces in the amunt f USD 216 millin is based n installments received and will becme available fr prgramming during the remaining GEF-6 perid. USD 125 millin is prjected t be available fr prgramming after ffsetting the current negative funding availability f USD 91 millin. GEF-6 Funding Decisins amunt t USD 3,371 millin. Funds expected t be carried frward frm GEF-6 t GEF-7 amunt t USD 488 millin, which include Cntributin Arrears frm previus replenishments, GEF-6 cntributin receivables that may nt becme available fr prgramming in GEF-6, Deferred Cntributins restricted fr prgramming, and ICs nt yet depsited with the Trustee. Receipts resulting frm shifting payment schedule f anticipated cntributins subsequent t finalizatin f wrk prgram are carried frward t GEF-7. In additin, internal resurces frm ptential cancellatin f pre GEF-5 prjects and reflws frm Nn-grant instruments are expected t becme available during GEF-7 perid, resulting in a ttal carry frward and internal resurces f USD 573 millin fr GEF-7. The estimated changes t the GEF-6 Envelpe Value as measured against the Target Replenishment ttals USD 449 millin (shrtfall) due t the revaluatin f GEF-6 cntributins, receivables and unencashed prmissry ntes. 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. 18

20 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 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. During the secnd GEF-7 replenishment meeting in Addis Ababa in Octber 2017, the Trustee presented ptins t manage FX risk, including the ptin f hedging and the ptin t intrduce a secnd perating currency. Fllwing the meeting, the Trustee explred the ptin f a secnd perating currency and wrked with GEF agencies t determine their demand fr EUR. All GEF agencies expressed little r n demand fr EUR, with apprximately 96% f cumulative funding allcatins expected t be disbursed in USD 9. In additin, a secnd perating currency wuld likely invlve an increase in administrative csts, cmplex implementatin, and have a negative impact n investment returns. As such, based n the Trustee s analysis, the GEF-7 participants agreed with the recmmendatin that this ptin nt be explred any further. During the third GEF-7 replenishment meeting in Brasilia in January 2018, the Trustee presented further detail n the ptin f hedging fr the GEF as part f the trust fund Pl, including a prpsed FX risk management framewrk, hedging csts and cllateral requirements. GEF-7 Participants had differing views n the hedging prpsal presented and, n balance, expressed a preference t defer the decisin t a later date. Hence the ptin f hedging will nt be pursued any further at this stage. The Trustee will cntinue hlding an FX reserve t address FX risk in GEF-7. 9 Based n GEF cumulative funding allcatins. 19