The Road to the SDGs

PURPOSE X In response to the financial crisis in 2008, MDBs responded with a scaled-up financing package to their MCs. X IsDB reported a linear annual growth in its approvals to scale up financing to MCs. This growth continued and led eventually to multiplying IsDB-approved financing per year beyond its means and capacity. The scale-up led to deterioration of key financial ratios (including risk-adjusted capital, among others). X Consequently, over US$ 20 billion of commitments, coupled with a low pace of disbursements, led to a major financial strain that put IsDB’s AAA-rating at risk. X When the FSM initiative was launched in 2017, it was estimated that IsDB could face a rating downgrade in 2019. This risk would have been imminent had IsDB not proactively tackled it in 2017. X The new model fully integrates with IsDB’s internal systems infrastructure and provides more powerful and dynamic scenario analysis capability. METHOD X The FSM provides 10-year projections for financial statements and prudential ratios through a detailed bottom- up approach using a predetermined methodology to calculate the maximum of new business projects manageable by IsDB at any one time, given the various operational and financial constraints. This information is used as input into the Integrated Work Programme to set the commitment capacity and prevent negative effect on the balance sheet. X The FSM is a platform which brings together all aspects of IsDB’s business model, including operations, investments and resource mobilisation. It does this in a unified and consolidated manner under one umbrella to help monitor IsDB’s key financial risk indicators and long-term sustainability through reliable forecasts of scenarios under both normal and stressed conditions. X The model provides IsDB with the cost benefit analysis of implementing any risk mitigation plan. X The FSM was developed and designed through a rigorous mapping process after careful consideration of the various interlinkages between individual projects/ investments and their implications at the portfolio level. X Designed to help management evaluate new strategic initiatives, the FSM considers interlinkages between the various business activities and their implications on IsDB’s balance sheet. Financial Sustainability Model T he Financial Sustainability Model (FSM) aims to support the implementation of the 10YS and the P5P while keeping IsDB financially sustainable The Financial Sustainability Model can calculate the maximum of new business projects manageable by IsDB at any one time, given the various operational and financial constraints [ 150 ] SDGs