I have the honour to submit to the Conference proposals for the Programme of Work and Budget for 2004-2005.
This document reflects the considerable progress we have made in planning and budgeting since the introduction of the new Planning Framework which was approved by the Conference in November 1999 as part of the Strategic Framework. The value and uniqueness of the Strategic Framework was recently recognized by the Joint Inspection Unit when it commented that FAO “distinguishes itself apart by so clearly stating its core objectives over a 15 year horizon in a single integrated document”. It is recalled that these “core objectives” consist of 5 comprehensive corporate strategies and 12 strategic objectives to address Members’ needs, supported by complementary strategies to address 6 important cross-organizational issues. This important strategic aspect of the planning process is given increased emphasis in this PWB by including a section entitled “Strategic Budget” that I hope helps Members see how the multitude of outputs, which are intended to be produced, relate coherently to the Strategic Framework.
The PWB 2004-05 is based on the Medium Term Plan 2004-09 (MTP), which was endorsed by the FAO Council at its October-November 2002 session and which is consistent with the longer-term orientations of the Strategic Framework. The MTP is the stage where the application of the new programme model takes its full significance, defining the “programme entities”, or “building blocks”, of FAO’s substantive work over the medium-term. The model rests on results-based budgeting principles, particularly in stressing intended outcomes. Moreover, the MTP emphasizes the need, in certain areas, for cross-sectoral collaboration by highlighting sixteen Priority Areas for Inter-disciplinary Action (PAIAs).
Since the Summary PWB was developed and published, guidance on sectoral priorities was received from the Technical Committees of the Council in the early part of 2003 and on overall priorities from the Programme and Finance Committees and Council which met in May and June respectively. It is necessary to note again the paradox that growing demands from the Membership coincide with calls for budgetary stringency.
While the Secretariat must first respond to the specific priorities of Members as expressed through the above process, it must also be attentive to international pronouncements and commitments related to its mandate. In addition to the calls stemming from the World Food Summit: five years later, FAO is also expected to respond to the outcomes of other international Conferences and processes such as the UN Millennium Development Goals and the Plan of Implementation adopted by the World Summit for Sustainable Development, to name only two.
The Summary PWB proposals presented to the 124th session of the Council in June 2003, through the Programme and Finance Committees, were framed precisely to respond to the maximum extent possible to these demands, but they could not at that time take account of the comments made in the Technical Committees. The proposals called for a real growth (RG) percentage level of 5.5 percent over the present approved budget, at the same cost levels and budget rate of exchange. This proposed percentage was deliberately kept lower than the 8.4% indicated for the first biennium 2004-05 in the MTP 2004-09, in an effort to limit the burden of increased assessments on Members, while still seeking to fund major priorities at appropriate, if not optimal levels. The RG proposals were accompanied by indications of how a zero real growth (ZRG) scenario could be achieved, noting, as one would expect, the generally negative impact on the capacity of the Organization to meet many priorities.
There was no agreement on the budget level for the 2004-05 biennium at the June 2003 Council. On the contrary, the gap in positions has grown with strong support for real growth on the one hand set against calls for zero nominal growth (ZNG) or even “below” ZNG on the other hand. This happened despite the fact that ZNG, if taken to mean the same total US dollar figure as the approved Appropriation for the current biennium (i.e. US$ 651.7 million), would have devastating consequences, given the weakening of the US dollar.
I feel that I need to remind Members that the FAO budget has seen no growth in real or nominal terms in the last ten years since 1994-95, when the approved budget was US$ 673.1 million; that is US$ 21.4 million or 3% more in nominal terms than today’s budget of US$ 651.7 million. During that same period, inflation in Italy amounted to a cumulative 35.1%. Fortunately, the loss of purchasing power was not so severe as this because the strengthening of the US dollar over the same period partially offset the impact of inflation. Based on the approved level of budgets and associated cost increases for the Organization since 1993, the decline in real terms has been 15%.
The Membership will also recall that their most important programmes were largely maintained over these years, an accomplishment that can only be attributed to unprecedented efficiency savings achieved, affecting virtually every facet in the work of this Organization. However, in the light of the cumulative achievements summarized in this document, one has to ask the question whether it is realistic to expect such savings to be repeated ad infinitum. Surely, there must be a logical and finite limit to the underlying concept of “doing more with less”.
I turn now to the impact of the change in the US dollar/Euro exchange rate between budgets, which is of great concern to me. The current budget was approved at a rate of € 1 = US$ 0.880. However, we may now face a rate of, for example, € 1 = US$ 1.15 which means that the same US dollar contribution now buys 30% less Euros than it did during this biennium. And about 44% of FAO’s expenses are in Euros!
The solution is obvious and has been recommended by both the former External Auditor, the Cour des Comptes of France, and KPMG, a major international accounting firm; that is, to seek assessments from Members in the two key currencies of use – the US dollar and the Euro. By this means, your Organization would have the US dollars it needs to meet its US dollar obligations and the Euros it needs to meet its Euro obligations, and hence would not generally incur exchange losses or gains buying one currency with the other. Accordingly, we can eliminate both the risk to the Programme of Work and the confusing wild swings in amounts which result from considering the budget only in terms of nominal US dollar amounts. I trust that the proposals for split assessments, which are under active consideration by the Finance Committee, will be approved by the Conference so as to put in place the only workable means of protecting the Programme of Work from risks related to exchange rate fluctuations.
I have witnessed on so many occasions the difference FAO activities can make in setting the required norms and standards which facilitate trade, public health and the protection of the environment. I have also seen how FAO serves the international community through its valuable policy analyses, and its timely and impartial warnings about the risks and emergencies in the food and agricultural sector. Equally important, it can catalyse change in the most remote and poor areas of our globalized but threatened planet through modest but targeted interventions. In my opinion, preserving or increasing FAO’s capacity to satisfy the diverse needs of the Members for both normative and operational activities, requires the resumption of real growth under the Regular Budget after so many years of budget stringency. These considerations lead me to continue to present real growth proposals of US$ 36 million in the full PWB as the option which is more likely to satisfy most expectations.
In presenting a ZRG scenario, we have taken account of the calls of the Programme and Finance Committees and the Council, to further strengthen certain priority areas even under ZRG conditions. Resources have therefore been shifted from Major Programme 2.5 “Contributions to Sustainable Development and Special Programme Thrusts” to other Major Programmes, such as MP 2.1 “Agricultural Production and Support Systems” for the International Plant Protection Convention (IPPC), MP 2.2 “Food and Agriculture Policy and Development”to strengthen work on Codex and food safety, and MP 2.3 “Fisheries” and MP 2.4 “Forestry”, to increase the relative shares of these areas over those in the ZRG scenario of the SPWB. I wish to emphasize that these transfers have implied damaging reductions to valuable programmes, as explained in the appropriate sections of the document.
I note the Council’s acknowledgement of the need for a ZNG scenario to be developed. This places a great burden on the Secretariat in the absence of any firm indication from the Membership of where reductions could be made. Despite these difficulties and the uncertainties in determining the precise amount of cuts which would be required, I have made arrangements for a separate document to be prepared to evaluate the impact of such a scenario on the Programme of Work and Budget. Given the time needed to develop the detailed analysis inherent in any supplementary scenario, it is not possible to incorporate it in this document and still meet the constitutional requirement to submit the Programme of Work and Budget to the Membership at least 60 days before the commencement of the Conference.
In conclusion, it must be abundantly clear that the RG scenario is the one I would most sincerely hope could be accepted by the entire Membership, as it would cover most effectively all recognized priorities. ZRG is a viable option but I have to point out that, in respecting the views of the Programme and Finance Committees and the Council, it is weighted somewhat more heavily in favour of normative activities.
I commend these PWB proposals to the wisdom of Members. I am sure that they can reach a decision which ensures the best balance between the continuing need to contain public expenditures and the prerequisite requirement that this Organization receive sufficient resources to pursue its mission effectively.