FC 108/5

FINANCE COMMITTEE

I. Executive Summary

1. In accordance with a resolution of the Conference at its 26th Session in 1991, the Director-General should seek the Finance Committee’s concurrence with the discount rate to be used in applying credits to contributions, in this case for 2005.

2. Paragraph 3 of the paper highlights the rules for the discount scheme, most notably the requirement that a discount is earned if the full assessment is paid prior to 31 March of the year of the assessment, and that the discount earned is applied in the year after payment.

3. The methodology currently in use in the determination of the incentive discounts was approved by the Finance Committee at its 88th Session in September 1997, as described in paragraph 4 of the paper.

4. Statistical information on the scheme in recent years is provided in paragraph 5, while a full list of eligible countries in 2004 is provided in the Appendix. Paragraphs 6, 7 and 8 show how the market rates have been used to arrive at the determination of the discount rate of 0.28% for the US dollar and 0.52% for the Euro assessments. Paragraph 9 shows that the total discount for 2004 amounts to US$ 29,843.83 and Euro 57,078.24 to be applied to the 2005 assessments.

II. Draft Decision

5. The Finance Committee concurs with the recommendation of the Director-General in relation to the the discount rate to be used in applying credits to contributions, in this case for 2005.

6. The purpose of this paper is to request the Finance Committee's concurrence with the discount rate to be used in applying credits to 2005 contributions.

7. The Conference, at its 26^th Session in November 1991^1/, noted, in fact, that in determining the rate of discount to be used in the test discount scheme, the Director-General should consult the Finance Committee. The purpose of this paper is therefore to identify an appropriate rate of interest for 2004 discounts and to quantify the amount of discount earned on qualifying contributions in 2004 using the suggested interest rate.

8. The Committee’s discussions at its 72^nd Session in September 1991 and considerations by the Conference^/ resulted in rules for a proposed discount scheme, as follows:

1. A Member Nation could earn a discount if the full amount of its assessment were paid prior to 31 March of the year of assessment.
2. The discount earned would be credited to the Member Nations in the year after the payment.
3. The discount credited to Member Nations would not exceed the interest earned on Regular Programme funds during that year. Therefore, the scheme would not create a deficit in earnings from investments.
4. Member Nations who have arrears outstanding would not qualify for the discount treatment on their remittance until the arrears were settled in full.

9. The Committee at its 88^th Session in September 1997 considered the proposal made by the Director-General to modify the methodology used for the calculation of the incentive in the interests of an equitable application of the rules and the need to reduce the potentially high cost of the scheme. Under this revised methodology, contributions received on the first day of the discount period would qualify to receive 100 percent of the discount whereas contributions received on the last day of the period would receive only 1/90^th of the discount. The Conference at its 29^th Session in November 1997 approved this refinement and agreed that it should be applied with effect from 1 January 1998.

10. The assessed contributions of Member Nations that have met the criteria as described in (a) and (d) above are shown in the table below. Those Member Nations qualifying for a discount for prompt payment in 2004 are detailed in the Appendix.

11. As in the past, the Director-General suggests that the Finance Committee consider an average of the euro and dollar interest rates for the first three months of 2004 as the most appropriate rate to use in determining the amount of discount to credit to the Member Nations who so qualify. The Director-General further suggests, as approved by the Committee at its 76^th Session, that the discount rate be determined by allocating one fourth of this average annual rate to the first ninety-one days of 2004.

12. The interest rates (Libor 1 month) on euro and dollar deposits during the first quarter of 2004 are shown below:

13. A numerical average of the interest rates is 1.1025% per annum for US dollars and 2.06072% for euro. By employing the methodology suggested by the Director-General in paragraph 6, discount rates of 0.28% and 0.52% respectively are determined.

14. The application of these rates to the qualifying assessments of US$23,400,883.43 and Euro24,099,178.08 shown in paragraph 5 result in total discounts of US$29,843.83 and Euro57,078.24, respectively. In accordance with the rules stated in paragraph 3, this discount would be credited to the 2005 assessments of the Member Nations who paid the full amount of their assessment (in both US Dollars and Euro) by 31 March 2004. The rules also provide that the amount of such credits would not exceed the interest earned on Regular Programme funds during the year. Accordingly, a final decision on this matter cannot be taken until year-end when the amount of interest earned on Regular Programme funds is known.

15. The Director-General requests the Finance Committee's concurrence on the discount rate to be used in applying credits to 2005 assessed contributions.

______________________________

1 C 91/REP, para 338 & 339

Appendix