Rome, 17 - 21 September 2001
Mechanisms Available to Meet Unbudgeted
1. The Committee, at its last session, requested that a document be prepared for its next session describing the existing mechanisms designed to enable FAO to deal in a flexible manner with urgent additional demands while protecting the implementation of the approved Programme of Work.1
2. This paper summarizes the existing mechanisms for the information of the Members of the Committee.
3. It is emphasized that "unbudgeted demands" are a normal part of FAO's day-to-day work and that they should not necessarily be seen as extra-ordinary. In fact certain parts of the Regular Programme of Work are implicitly designed to cover such demands. On the other hand, major new demands can be difficult to absorb even though mechanisms do exist for this purpose.
4. The following parts of the Appropriation are allocated to provisions which are essentially targeted at meeting demand driven activities:
5. To paraphrase the current PWB2, TCP responds to urgent or unforeseen requests for technical assistance from Member Nations, in close association with other components of the Regular Programme. Its main characteristics are its ability to respond to urgent requests; speed of approval; limited project duration; low costs; practical orientation; catalytic role; and complementarity to national efforts and other sources of assistance.
6. Within each technical programme, divisions may plan resources under technical service agreements. This type of programme entity is defined3 as follows:
...to cover demand-oriented services such as advisory services to Members or technical support to field projects. It can also include servicing of regular meetings.
However, both provisions have specific purposes and cannot be diverted to uses which fall outside the applicable criteria for their application.
7. Financial Regulation 4.5 (c) states as follows:
The expenditure of any sum (or part thereof) which may have been voted in the budget to cover unforeseen contingencies may be effected by the Director-General.
8. The current level of the contingencies provision, US$ 600 000, was set by the Conference as far back as 1979 for the 1980-81 biennium, when the approved total budget level was US$ 278 million. No change is proposed for the 2002-03 biennium.
9. On the other hand this provision has been rarely used, in part because the amount is not substantial. Moreover, it is not realistic to manage aggregate Regular Programme expenditures with such precision as to plan to spend the contingency provision without being at risk of over-spending the appropriation.
10. To cope with situations not covered by demand driven budgetary appropriations, the following statutory mechanism can be considered on a case by case basis.
11. Financial Regulation 4.5 (a) states as follows:
Transfers within the same chapter of the budget may be effected by the Director-General. He shall report such transfers to the Finance Committee in instances where funds are moved from one Division (or equivalent unit) to another and where, in addition, the amount involved in each such transfer exceeds a specific sum established in accordance with the provisions of Financial Regulation 10.1 (a) and of the General Rules of the Organization.
12. This provision is most commonly used by divisions in responding to unbudgeted demands where they redirect their own resources to meet a new demand. All other things being equal, this will result in resources being diverted from one planned programme output to another unplanned output. However, it should be recognized that unforeseen savings may also occur and, therefore, that there is not always an equivalent cancelled or postponed output in such cases.
13. Financial Regulation 4.5 (b)(i) states as follows:
Transfers from one chapter of the budget to another relating to expenditures which would not involve additional financial obligations for Member Nations and Associate Members, either current or future, may be effected by the Director-General after having obtained the approval of the Finance Committee, or by the Council between sessions of the Finance Committee.
14. This provision is also used quite frequently (i.e. every biennium) to address unbudgeted demand. In recent biennia, it has resulted in transfers from the technical and economic programmes to administrative programmes generally to cover such items as the under-budgeted cost of new administrative system or unforeseen declines in support cost reimbursements caused by diminishing field programmes.
15. Financial Regulations 6.2, 6.3 and 6.5 have certain relevant provisions for emergency expenditures:
6.2 (a) (ii) advancing moneys to the General Fund to finance emergency expenditures not provided for in the current budget;
6.3 Withdrawals from the Working Capital Fund for financing emergency expenditures shall be approved in advance by the Council.
6.5 (b) Advances made from the Working Capital Fund to finance emergency expenditure under Financial Regulation 6.2 (a) (ii) shall be reimbursed by such method as the Conference determines.
These provisions have been rarely used.
16. Similarly, there is a provision for reimbursable loans to be made from the WCF under Financial Regulation 6.2. (a) (iii):
making reimbursable loans for such purposes as the Council may authorize in specific cases. Advances made by the Working Capital Fund for these purposes shall be considered as forming part of the Fund.
17. This provision underlies the decision of the Conference in November 19994 which:
Authorizes the advance of funds from the Working Capital Fund up to an amount of US$9 million to cover redeployment and separation costs as may be necessary, as a one-time expenditure, to complete restructuring pending the eventual receipt of assessed contributions in arrears from the major contributor...
18. The Special Reserve Account was established and amended over the years under a series of Conference Resolutions including 27/77, 13/81 and 16/91. The Special Reserve Account is established at a level of 5% of the effective working budget and is generally funded from exchange gains on staff costs, such cash surpluses as may arise at the end of a biennium and occasionally through special assessments by Resolution of the Conference. In recent biennia the funding has come entirely from exchange gains.
19. The purpose of the Special Reserve Account was originally defined in Resolution 27/77 as being:
to assist in protecting the Organization's Programmes of Work against the effects of unbudgeted extra costs that may arise in the 1978-79 biennium or in any subsequent biennia.
20. The major use of the fund has been5:
to finance unbudgeted extra costs due to movements of currency exchange rates ...
and is used routinely for this purpose to great advantage; that is, it generally avoids managers being obliged to plan for the very significant losses or gains that can be incurred on staff costs because of exchange rate variations.
21. However, the same resolution has an additional clause6:
subject to prior review and approval by the Programme and Finance Committees, to finance unbudgeted extra-costs of approved programmes due to unforeseen inflationary trends, to the extent that such costs cannot be met through budgetary savings without impairing the implementation of such programmes.
22. This has been used several times over the years, the most recent application being to cover part of the retroactive cost of an award by the ILO Administrative Appeals Tribunal which set aside an International Civil Service Commission decision and obliged FAO to absorb unforeseen unbudgeted retroactive costs amounting to in excess of US$ 5 million.
23. It should be noted that use of the Account is not without problems, firstly because of the uncertainty of its sources of income and, secondly, because some Members see this mechanism as being a means for increasing the budget as approved by the Conference, something which is not acceptable to them under their national policies.
24. The mechanisms described above afford a reasonable degree of flexibility to the Organization in responding to unbudgeted demands. Of course, significant unbudgeted amounts will always present a problem and result in damage to the approved Programme of Work. On the other hand, it is difficult to envisage any other means by which such cases could be accommodated and hence the current case-by-case approach is probably the only practical solution.
1 CL 120/14 paragraph 67
2 C 99/3, paragraph 714
3 idem, paragraph 26
4 C 99/REP Resolution 3/99
5 C 81/REP Resolution 13/81