Budgetary Framework

75. The following table summarises, in a simplified manner, the projected income and utilisation of resources under all sources of funds in 2002-03 under the real growth (RG) and zero real growth (ZRG) scenarios together with comparative information for 2000-01.

Budgeted Income and Utilisation of Resources (Amounts in US$ 000)

76. The Programme of Work in the preceding table comprises those activities that are proposed to be performed on the basis of expected contributions from Member Nations, Miscellaneous Income and Other Income, and is designed according to the expected availability of these resources. The sub-category of Other Income comprises voluntary contributions available to execute the Programme of Work because they are at the disposal of the Organization and/or are managed closely with the Regular Budget Appropriation.

77. Trust Fund expenditure estimates are the Secretariat's forecast of the trust fund resources expected from donors to execute the extra-budgetary programme.

Overview of Total Resource Availability

78. The following table highlights the movements in budgetary resources.

Overview of Total Resource Availability (Before Cost Increases)

79. Overall, Miscellaneous Income is projected to remain close to current levels. An increase in interest earnings is offset by a lower estimate for the lapsing of accrued liabilities, which is due to further expected improvement in the accuracy of unliquidated obligations at the end of 2001. Proposals have been put forward for a suspension of the incentive scheme to encourage prompt payment of contributions, but at this stage it is assumed that some discounts will be payable in 2002-03. No surplus is expected to be earned on the Information Products Revolving Fund, and the 2002-03 budget for this fund is provided in Annex II.

80. The table also highlights a decline of US$ 0.3 million in Other Income. This consists of a number of movements, the more significant ones being summarised as follows:

1. an anticipated US$ 3 million increase in reimbursements of direct operating costs from trust fund emergency activities, carried out by the Special Relief Operations Service (TCOR);
2. the United Nations Population Fund (UNFPA) is expected to reduce its support to the population activities implying a reduction in income of US$ 0.8 million; its contribution will now be sufficient to support only one P-5 post, half a G-4 post and limited non-staff resources;
3. a decline of US$ 2.3 million in budgeted project servicing costs and administrative and operational support services (AOS) reimbursements, as well as US$ 0.4 million in reimbursements for technical support services (TSS) from non-emergency trust funds and United Nations Development Programme (UNDP) projects. Estimates are subject to some uncertainty and risk, as the achievement of the planned figure necessitates a turnaround in non-emergency trust fund project delivery from current levels; and
4. a decline of US$ 0.2 million in estimated reimbursements for administrative services to the World Food Programme (WFP), as the latter will complete the implementation of its own payroll system during the course of the 2002-03 biennium, thus requiring reduced services from the Personnel (AFP) and Finance (AFF) Divisions.

Developments Under Extra-budgetary Resources

81. Historical project delivery by funding source is shown in the following table and indicates that the total extra-budgetary field programme has increased from the low level of 1996. However, this increase reflects a growth in emergency assistance which has expanded from US$ 15.8 million in 1996 to US$ 168.5 million in 2000, while non-emergency assistance has continued to show a steady decline from a level of US$ 263.2 million in 1993 to US$ 129.1 million in 2000.

Extra-Budgetary Field Programme (All Amounts in US$ million, net of Project Servicing Costs)

82. UNDP project delivery has declined steadily from US$ 108.1 million in 1993 to US$ 13.2 million in 2000. With the exception of 1997, when UNDP project delivery was close to the level of 1996, there has been a consistent decline averaging 25 percent each year. New policy orientations in UNDP point to a diminishing role in project financing for agency execution or implementation. UNDP delivery is, therefore, projected to decline further to approximately US$ 10 million in 2002-03.

83. Non-emergency trust fund project delivery has shown a more gradual decline from US$ 130 million in 1997 to US$ 116 million in 2000. Activity in 2000 has undergone a period of adjustment due to the introduction of new financial accounting systems and the decentralization of project operations to country offices and technical units, with consequent structural and procedural changes. However, an improvement is expected from 2001.

84. Overall, the prospects for 2002-03 point to an increase in non-emergency Trust Fund project delivery versus the levels achieved in 2000. This projection is considered achievable in the light of the very considerable effort being made for the further development of the field programme, including:

1. the Director-General's strategy to encourage developing countries to benefit from the technical resources of the Organization, particularly in the area of food security, through projects funded under Unilateral Trust Fund (UTF) arrangements;
2. the reinstatement of the Field Programme Committee with an enhanced mandate to revitalise the field programme and improve related administrative and operational procedures;
3. the reorganisation of the Technical Cooperation Department (TC) and of the decentralized structures in Regional Offices, including added emphasis on project pipeline development and field programme management and monitoring, as well as the improvement of the Field Programme Management Information System (FPMIS);
4. the decentralization of responsibility for operations to country offices, more in line with the approach that is now usual for donors' country level representatives; and
5. the strengthening of the Project Identification Facility (PIF), which has demonstrated its utility in mobilising resources under multilateral trust funds.

85. The estimates have been produced through a detailed project by project analysis of ongoing and foreseen projects. Available unspent budgets on current projects and newly confirmed projects are higher than in the past, and there are several significant projects in the pipeline. Of particular significance are some UTF projects, currently at the final stages of preparation in Nigeria, Venezuela and Libya, as well as the expansion of the ongoing UTF programme in Brazil, which should become operational in 2001. In addition, the Council of the Global Environment Facility (GEF) approved an initiative in May 2000 to expand opportunities for the United Nations Industrial Development Organization (UNIDO) and FAO as executing agency. FAO's expertise in newly emerging areas of interest to GEF, such as the Persistent Organic Pollutants (POPs) and agricultural biodiversity, should promote greater collaboration and extra-budgetary funding for FAO's Members.

86. To the extent possible, extra-budgetary forecasts reflect, therefore, known facts regarding ongoing projects and reasonable expectations for projects in the pipeline. However, clearly, some projects that might produce delivery in 2002-03 have not yet even been conceived. Moreover, the varying and unpredictable lead time required to transit from project conception to execution and the relatively short project duration of most existing projects implies that two-year forward estimates of extra-budgetary delivery are inevitably subject to some degree of inaccuracy.

87. Trust fund emergency activities vary with need. The large increase in emergency programmes since 1997 is related to the Iraq Oil for Food programme, which is assumed to continue through 2002-03 at close to current levels of activity.

88. The anticipated extra-budgetary non-emergency activities in 2002-03 will be handled by FAORs, Regional Offices, and Headquarters technical divisions, while emergency projects will be operated by TCOR. They are broken down by programme heading and major geographic areas in the following table.

2002-03 Extra-budgetary Expenditure by Region and Programme

Efficiency Savings and Organizational Changes

89. Numerous measures have been implemented since the Director-General took office in January 1994 to improve the Organization's efficiency. These include:

1. input-oriented measures, which are mainly aimed at taking advantage of favourable cost differentials; and
2. process-oriented measures, which focus on changing policies, procedures and ways of working, with the aim of streamlining operations and administrative functions.

90. Improvement in efficiency and related process change is an essential part of a dynamic organization and remains an ongoing management activity. Some of the input-oriented efficiency measures implemented in prior biennia are being further pursued. These include the ongoing efforts at reducing the average grade of professional posts, expanding partnership programmes, and implementing cheaper and better forms of communication between locations.

91. Process change, including modifications to systems and procedures, has had major implications for training, as new skills need to be acquired by existing (and future) staff, where the need for new or different skills is created. Moreover, such restructuring has had to be implemented within a fixed budgetary appropriation, which has been declining in real terms for several biennia, without recourse to additional financial or human resources. This has been an obstacle to achieving an effective transition from old ways of working to new processes.

92. Efficiency achievements since 1994 and estimated annual cost savings are outlined below.

Efficiency Savings: Input-oriented Measures

Efficiency Improvements in the Acquisition of Staff Inputs

93. New partnership agreements: the FAO partnership programmes acquire professional expertise through a variety of innovative arrangements. While the main objective is to enhance the spirit of cooperation and partnership based on mutual benefits, there is also a clear economic advantage. Although there is no means to actually determine the degree of substitution of international expertise for the new arrangements, savings can be estimated at US$ 11 million per year assuming that each work-month of expertise employed under these new agreements substituted the same number of work-months of international expertise.

94. Reduction of average professional grade level: a concerted effort has been undertaken to improve the average grade level by reducing the number of Director and P-5 posts and increasing the number of lower-graded posts. Further steps are taken in this regard in the 2002-03 biennium, where 43 additional entry-level professional posts are created and 16 P-5 posts are abolished. Thus, since 1 January 1994, the Organization has seen the elimination of 37 or 18 percent of director level posts and 61 or 17 percent of P-5 posts, whereas P-3, P-2 and P-1 posts have increased by 78 posts or 32 percent, even though there were reductions overall. Estimated savings amount to approximately US$ 5 million per annum.

95. Reduction in support staff: the Organization has protected, to the extent possible, its professional capacity and, therefore, concentrated staff reductions in the general service category where declines in workload justified such reductions. This has been achieved mainly through office automation (including the widespread dissemination of personal computers, and the installation of improved communication networks and planning and financial application packages) and through outsourcing. It is estimated that a reduction of 300 general service posts (including the proposed changes in the FAORs) can be attributed to these improvements with a net savings in the region of US$ 12 million per annum.

96. Increase in National Professional Officer (NPO) posts: since 1994, efficiency saving measures have been implemented in the FAO Representations, including replacing 65 internationally-recruited Programme Officers with National Professional Officers and removing D-2 level posts. These changes have generated savings of approximately US$ 6 million per annum. In 2002-03, efficiency is further increased by replacing 29 general service posts with 27 additional NPO posts, a cost neutral change which further enhances the professional expertise in the Representations.

97. Decentralization of posts: Regional Offices, which are among the primary sources of support to country offices, have been significantly expanded in recent biennia by the establishment of technical department groups, policy assistance branches, and operations branches. The decentralization of over 100 general service posts has created approximately US$ 2 million per year in savings due to the differential in salary rates for local staff in Rome versus other locations. Decentralization of professional staff has also moved people closer to field activities at limited additional cost.

Efficiency Improvements in the Acquisition of Non-staff Inputs

98. Change in contracts for purchase of airline tickets: FAO has changed its approach for the purchase of airline tickets by switching, wherever practicable, to non-endorsable tickets, and by offering the "80 percent" option⁶, originally offered only in the case of home leave travel, for all forms of entitlement travel. It is estimated that these changes have produced annual cost savings of approximately US$ 2 million.

99. Communication costs: the Organization is making significant improvements in its communications infrastructure. Already implemented is a switch in communications service providers, which achieved reduced unit costs and improved business process and quality. The planned installation of the Wide Area Network will greatly enhance the communication capabilities of FAO Representations and contribute significantly to FAO's image as a centre of excellence. It is expected that, notwithstanding these significant improvements, some net savings will be achieved. The amount is difficult to quantify in absolute terms because of the offsetting increase in the quality speed and volume of communications, but is estimated at US$ 1 million per year.

Efficiency Savings: Process-oriented Measures

100. Leaner management arrangements: as the number of layers of management can be a constraint to efficient decision making, FAO removed what was considered to be a superfluous layer of senior level posts of Assistants to Assistant Directors-General and Assistants to Division Directors. Resulting savings were approximately US$ 3 million per annum.

101. New arrangements for the production of documents and publications and for remote translation: the financial policies underlying publications' production were rationalised to increase the use of external suppliers for editing, translation and printing. In addition, remote translation is increasingly used for Regional Conferences, resulting in significant savings in travel and daily subsistence allowance (DSA). Total savings as a result of these changes amount to approximately US$ 6 million per year.

102. Savings in governance: with the full support of Governing Bodies, savings in the cost of running meetings have been achieved by reducing meetings' length and documentation. In addition, steps were taken to enhance the efficiency of governance by eliminating obsolete Statutory Bodies, and by limiting the creation of new Bodies to those that were strictly necessary⁷. Estimated savings are approximately US$ 2 million per annum.

103. Creation of a centralised Management Support Service (MSS): a new centralised Management Support Service (MSS) structure was created in 2000-01 (with final adjustments reflected in the current PWB) to replace the departmental Management Support Units (MSUs). The MSS reports to the Assistant Director-General, Administration and Finance Department (AF), and provides support for financial and personnel servicing to Headquarters departments and to the Regional Office for Europe (REU). Process-wise, the new arrangements have resulted in shortened approval chains, streamlined transaction processing, and improved access to data to support core budgetary management functions. In conjunction with the creation of the MSS, AFF has restructured and strengthened its professional staffing capacity, as outlined in the section entitled Posts below. The net savings attributed to the creation of the MSS, taking into account the offsetting costs incurred under AFF, but excluding other offsetting costs in AFI, amount to approximately US$ 3 million per annum.

104. Restructuring of field programme operations: the decentralization of field operations, beginning from 1994-95, followed a number of phases:

1. the regrouping of operational units into a single Field Operations Division (TCO) under the newly formed Technical Cooperation Department (1994-95);
2. the decentralization of most of TCO's functions to regional operations branches located at Regional Offices (1996-97); and
3. the further decentralization of responsibility for operations to FAOR country offices, where practicable, and the restructuring of the TC Department (initially indicated in the PWB 2000-01 and at the Conference in November 1999).

105. All of these changes coincided with a significant decline in the level of non-emergency field programme delivery, a change in the nature of extra-budgetary projects operated by the Organization, and the formal declaration and endorsement of a policy on support cost reimbursements. It is, therefore, difficult to attribute a specific amount of the cost reductions to "efficiency savings".

106. However, the initial stages of decentralization (through 1997) reflected savings of close to US$ 5 million per annum beyond those already attributed to cost differentials for General Service staff quantified above.

107. The latest stage of restructuring comprises the following transfers:

1. national projects from regional operations branches to FAO Representations;
2. regional projects from regional operations branches to technical units at Regional Offices;
3. inter-regional and global projects from TCO to technical units at Headquarters; and
4. projects in Europe from TCO to REU and the FAOR in Turkey.

108. These changes are expected to produce additional savings of approximately US$ 4 million per year, largely through reductions to the staff and non-staff budgets of regional operations branches, as well as to the staffing structure of Regional Offices' MSUs.

109. Internal financial and budgetary management practices are being reviewed in connection with this current phase of restructuring. The transfer of responsibility of country projects to FAORs will specifically result in the redistribution of project operational responsibility and funding from regional operations branches to FAORs, and has underlined the need for a more transparent and equitable income distribution system which better relates allocations of support cost reimbursements to the units and programmes earning these resources. At present, support cost income has been redistributed, using the new methodology, to FAORs and regional operations branches. Support cost income has not yet been assigned to specific programme entities and organizational units at Headquarters, pending further analysis.

110. As outlined in the section on Posts below, the restructuring of TC focuses on the need to strengthen its capacity to develop, coordinate and monitor the field programme in order to reverse the current declining trend in non-emergency field activities funded from external sources. Current estimates indicate that the TC restructuring will yield savings of approximately US$ 1 million per year.

111. In conclusion, a net total savings of approximately US$ 10 million per annum is identified in the context of the field programme restructuring, although, as indicated above, this total cannot be entirely attributed to efficiency as the level of operations and the related support cost income has declined during the same period.

112. A period of respite is needed to complete, absorb, and take advantage of changes that have already been initiated. For example, the downsizing of regional operations branches and the transfer of project operational responsibility to country offices has, inter alia, required the upgrading of the Field Accounting System (FAS) and information technology infrastructures; the training of country representatives who are assigned new responsibilities for operating and managing projects; the transfer, redeployment and separation of operations officers and their assistants; and the rewriting of relevant procedures. There are clearly limits to the capacity of the Organization and its staff to handle fundamental process change, on top of its regular work, when overall resources have been declining in real terms.

Posts

113. The PWB 2000-01 included the net abolition of 87 general service and 4 professional posts, bringing the total establishment down to 3,508 posts. In the PWB 2002-03, further implementation of restructuring and other ZRG programme changes, results in the net creation of 53 professional and NPO positions and the net abolition of 69 general service posts, as tabulated under the column entitled Total ZRG Change. Furthermore, 51 posts are added under real growth (31 professional and NPO and 20 general service posts), bringing the total establishment to 3,543 posts. The changes result in an overall improvement in the general service to professional ratio from 1.48 to 1.36, as the Organization continues to strengthen its professional capacity.

Evolution of Posts

114. The restructuring changes resulted in the net addition of 14 posts at Headquarters and the abolition of 45 posts at decentralized locations, as detailed in the following table.

Post Changes due to Restructuring Initiatives

115. The restructuring of AFF, already considered by the Joint Meeting of the Programme and Finance Committees⁸ in September 2000, is reflected in the PWB, together with further refinements to the Management Support Service which was established following the implementation of Oracle.

116. The ongoing decentralization of project operations to FAOR offices and technical departments has resulted in the abolition of 23 professional and 22 general service posts in regional operations branches, while FAOR offices which will operate substantial project volumes will receive additional support through temporary staff assignments.

117. Further post abolitions through the amalgamation of regional operations branches and Management Support Units are expected following the completion of the current review of project delivery and the regional MSU workload. Specific post abolitions cannot be identified at this stage and are, therefore, not tabulated above, although the budgetary provisions for 2002-03 foresee further staff savings of US$ 1.1 million in the regional operations branches and US$ 0.9 million in MSUs.

118. The restructuring of the TC Department was intimated to the Conference in 1999 and focuses on the need to strengthen TC's capacity to develop, coordinate and monitor the field programme, to reverse the current declining trend in non-emergency field activities funded from external sources.

TC Restructuring - Net Post Changes

119. The main elements of the restructuring are described below:

1. in TCO, a new Field Programme Monitoring and Coordination Service (TCOM) is created and the Special Programmes Coordination and Monitoring Service (TCOS) is strengthened;
2. the fellowships programme in TCO is downsized to match the decline in workload and its residual functions are transferred to TCD;
3. the Technical Cooperation Programme (TCP) unit, now Service, is transferred from TCD to TCO, so as to combine similar functions in the TCO Division; and
4. the Special Relief Operations Service (TCOR) is increased by 5 professional and 9 general service posts, funded by direct operating cost reimbursements from emergency project operations, in view of the substantially increased demand for emergency work as described above.>

120. Due to the complexity of the work involved in the restructuring of the TC Department, a phased approach is being undertaken which may result in further post change proposals in the PWB 2004-05.

121. The Net Other ZRG Programme Changes shown in the table on Evolution of Posts, incorporate a net increase of 62 professional and a net reduction of 47 general service posts. The changes include:

1. replacing 29 general service posts in the FAO Representations with 27 NPO posts;
2. establishing additional entry-level professional posts to provide for an increased intake of junior professionals, bearing in mind the future levels of retirement of professional staff; and
3. using opportunities arising from natural staff turnover and post vacancies in both the general service and professional categories to realign and strengthen technical expertise.

122. Under the RG Change, additional resources are proposed for high-priority programmes (9 professional posts at Headquarters and 8 at Regional Offices).

123. Annex I lists all new and abolished posts to the Regular Programme (total ZRG and RG change in the table on Evolution of Posts), excluding posts in FAO Representations.

124. Particular emphasis has been placed on creating entry-level positions, aimed at providing opportunities for attracting young professionals, given the significant staff turnover foreseen in upcoming years through retirements. Indeed, 43 new positions at the P-1 to P-3 level are foreseen in the PWB 2002-03. This, together with further efforts to downgrade professional posts where feasible and appropriate, will result in a reduction in the average grade mix of professional staff, with the overall grade point average (GPA) declining from 4.3 to 4.2.

125. The general service category has borne much of the burden of reductions in recent biennia due to the changing nature of the workplace and the impact of automation on many tasks, with remaining staff sometimes taking on additional and more demanding tasks. In this regard, a limited number of well-justified general service grade increases are included in the budgetary proposals. Furthermore, a review of general service posts in the office support area is underway and is expected to result in some further upward adjustments of the general service GPA. This is considered appropriate both in terms of the comparison across the United Nations system, where FAO's general service GPA is below average, and also as the means to creating a structure which has satisfactory career opportunities despite the overall reduction in the general service population at Headquarters.