Fifty-sixth General Assembly

Fifth Committee

49^th Meeting (AM)

FINANCIAL SITUATION IN 2001 'OVERALL BETTER', SAYS

UNDER-SECRETARY-GENERAL FOR MANAGEMENT

But Significant Remaining Arrears, Depleted Reserves

Could Cause Serious Cash Difficulties in Future, Fifth Committee Told

The financial situation of the United Nations in 2001 could be summed up in just two words:  “overall better”, Under-Secretary-general for Management Joseph E. Connor told the Fifth Committee (Administrative and Budgetary) this morning.

Presenting his biannual statement on the financial situation of the United Nations, Mr. Connor said that last year the United Nations had finally been able to begin “to put its financial house in order”.  The year 2001 was characterized by better financial liquidity and flexibility.  All three components of the Organization’s financial base -- cash on hand, the level of unpaid assessments and debt owed to Member States -- had improved.  Payments of “assessments long in arrears” had brought about changes in all three indicators.  They included a payment totalling some $1.67 billion from the Organization’s largest contributor, the United States.

Thus, the achievements in 2001 included a significant inflow of cash from Member States and the highest-ever aggregate cash balance at the end of the year.  Total cash -– the amounts for the regular budget, peacekeeping and the Tribunals together -- aggregated some $1.33 billion, up 32 per cent over 2000.  However, concerns over the chronic regular budget deficit remained unresolved, and he foresaw the need for continuing cross-borrowing relative to the Tribunals.

Mr. Connor said the improvements in the financial situation were accompanied by managerial and administrative accomplishments, but there were also new challenges which could have impact on 2002 -- particularly the challenge to operate within a reduced regular-budget appropriation in real terms.

Among the achievements in 2001, he noted, were enhanced staff security with the entire United Nations system sharing the costs; plans to completely renovate the Headquarters complex; further development of the Integrated Management Information System (IMIS); progress in the implementation of the responsibility and accountability system; and a support plan for peacekeeping operations.  None of those activities could be sustained without an adequate financial base, however.

For the Organization to continue to progress towards financial stability, not only must Member States pay on time, but they must also pay in full, he said.

From a steady increase reaching 141 in 2000, the number of Member States paying their regular budget assessment in full dropped to 135 in 2001.  Regarding debt to Member States, considerable reduction in the usually intractable aggregate level of debt had been made, thanks to the substantial arrears payment from the United States and elimination of the arrears owed by the Russian Federation. 

New challenges now faced the Organization, including the level of real resources budgeted for 2002-2003, he said.  The budget request for 2002-2003 had been reduced by $75 million in real terms.  To accommodate that reduction, the Secretary-General was putting measures in place in several support areas to allow the Organization to function within the resources appropriated. 

He said that, notwithstanding the improvements, the situation of the regular budget remained “very fragile”.  Current projections for 2002 were for a zero cash balance for the regular budget and related reserves at the end of the year, against the balance of $2 million on 31 December 2001.  It was expected that the regular budget, however, would experience a cash deficit at various points during the second half of the year, before ending the year with a zero balance.

The Fifth Committee (Administrative and Budgetary) will meet again at

10 a.m. on Thursday, 14 March, to take up matters related to the 2000-2001 programme budget, as well as the programme budget implications of the draft resolution on the Durban World Conference against Racism.

Statement by Under-Secretary-General

JOSEPH E. CONNOR, Under-Secretary-General for Management, said that the situation of the United Nations during last year could be summed up in just two words:  overall better.  It was characterized by better financial liquidity and flexibility.  It was, in fact, a year in which the United Nations had been finally able to begin to put its financial house in order.

The improvements in the financial situation were accompanied by accomplishments in the management and administrative arena, but there were also new challenges, which could have impact on 2002 -- particularly the challenge to operate within a reduced regular budget appropriation in real terms.  Among the achievements of 2001 were enhanced staff security with the entire United Nations system sharing the costs; plans to completely renovate the Headquarters complex; further development of the IMIS; progress in implementation of the responsibility and accountability system; and a support plan for peacekeeping operations.  None of those activities could be successfully sustained without an adequate financial base, however. 

For the United Nations, an adequate financial base continued to be defined in terms of three components -- cash on hand, the level of unpaid assessments and debt owed to Member States, he said.  In 2001, all three components of the financial base had improved.  Total combined cash -- regular budget, peacekeeping and the Tribunals together -- was substantially higher at the end of 2001, aggregating some $1.33 billion -- up 32 per cent over 2000.  Unpaid assessments were marginally lower at year end 2001 at some $2.11 billion -- down 7 per cent from 2000.  Amounts due to Member States for troops and contingent-owned equipment were down to $748 million -- a drop of 18 per cent from 2000.

There was a reason for those financial accomplishments, he continued.  Payments of assessments long in arrears had brought about changes in all three indicators.  In 2001, the United States had paid a total of $1.67 billion, including its 2001 regular budget assessment of $297 million; $43 million (most of its Tribunal assessments); and some $1.33 billion in peacekeeping payments (a large part of its current peacekeeping assessments and the arrears payment). 

Regarding other Member States’ payments, he said that his previous forecast of some $3.05 billion for 2001 had proven somewhat optimistic.  The final amount totalled some $2.77 billion.  That was not an unusual situation when peacekeeping assessments grew rapidly, and assessments were authorized late in the year.  In any case, total receipts of some $4.44 billion from all Member States represented the highest level of contributions received in any one year in the Organization's history.

Turning to the Organization’s cash situation at the end of 2001, he said that peacekeeping cash amounted to some $1.31 billion; Tribunal cash to

$9 million; and regular budget cash, including related reserves -- to $2 million.  Over the last six years, the only significant cash available had been for peacekeeping operations.  Both regular budget and Tribunal cash were very close to the zero line.  That was an important concern.

While the actual regular budget year-end cash balance of $2 million was positive, the monthly cash-flow variations followed the usual discouraging pattern of recent years.  High levels of payments from Member States were received in January, February and March; they declined from April to July; and only some payments were received in August and October.  That pattern of payment led to periodic cash deficits towards the end of the year -- a situation corrected only when the major contributor made its significant year-end regular budget payment.  Cross-borrowing during the year from peacekeeping operations was necessary to maintain ongoing regular budget operations.  That situation could only be corrected when all Member States started paying their regular budget assessments on the due date of 31 January each year. 

For the Organization to continue to progress towards financial stability, not only must Member States pay on time, but they must also pay in full.  From a steady increase reaching 141 in 2000, the number of Member States paying in full their regular budget assessment dropped to 135 in 2001.  It should be remembered that by comparison in 1994, only 75 Member States had paid all their regular budget assessments in full for that year and all prior years.  Each year after 1994 showed more Member States doing so, except for 2001.  He was pleased to report that the number of States paying their regular budget assessments in full by 31 January 2002 was 42 -- an increase from 39 in the prior year period.

Regarding the cash situation for the International Tribunals for the former Yugoslavia and Rwanda, he said that it was “not a good story”.  The year-end cash balance of $9 million for the two Tribunals was a very small amount for their activities, which together cost almost $200 million per year, with a staff of over 1,800.  The two courts’ disbursements, which largely related to salary and travel, had to be paid currently and could not be deferred.  Any negative cash-flow position had to be countered through borrowing.

Regarding peacekeeping cash, he said that its level followed upon the level of assessments.  Peacekeeping assessments for 2001 reached just over $3 billion, almost at the level of the highest years of 1994 and 1995.  The years between those dates showed a far different level, with diminishing levels each year from 1996 to 1999, and a very rapid rise thereafter.  Last year had begun with an available cash balance of $908 million.  Cash remained at about the same level throughout the year, but after the arrears payments of the United States of

$475 million in cash and $43 million from the Russian Federation, cash reached $1.9 billion at the end of November.  The payment to Member States of reimbursements from the arrears payments in 2001 and the usual disbursements for yearly obligations brought the year-end balance back to the same level as at the beginning of the year -- $1.3 billion.

Unpaid assessments were down at year end 2001, but only marginally from some $2.26 billion in 2000 to $2.11 billion in 2001.  The overall high level of unpaid assessments remained a concern.

Turning to the regular budget, he said the outstanding amounts of unpaid assessments at the end of the year had shown very little change over the past three years.  The years 1999, 2000 and 2001 had all hovered around $220 million to $240 million, a level far below that of 1998.  The lower level of 1999 to 2000 reflected efforts made by Member States, including the United States, which had begun to pay each year an amount equivalent to its full year's regular budget assessment.  The United States, Brazil and Argentina together owed some 85 per cent of all unpaid regular budget assessments, with the United States at 69 per cent, Brazil at 9 per cent, and Argentina at 7 per cent.  The remaining 15 per cent was owed by 51 other Member States.

Regarding unpaid peacekeeping assessments, the amount unpaid at the end of December 2001 aggregated some $1,823 million, representing a decrease of about $166 million from the year before, he said.  Changes in the position of two Member States -- the United States and the Russian Federation -- largely accounted for the decrease.  In the case of the United States, the receipt of long-overdue assessments in arrears was the principal factor in unpaid peacekeeping assessments decreasing by some $453 million.  He was pleased to note that the Russian Federation had completed its plan to pay all of its peacekeeping arrears.  At the end of 2001, the Russian Federation owed nothing.  An aggregate increase of peacekeeping arrears of some $334 million for other Member States, however, partially offset the significant payments.

Turning to the Tribunals, he said that, as of 31 December 2001, unpaid assessments for the Tribunals totalled about $44 million, which was a reduction of some $3 million from the previous year.  Some 81 per cent of the unpaid assessments were due from just three Member States:  the United States owed 33 per cent, the Russian Federation 32 per cent, and Brazil 16 per cent.  One hundred ten other Member States together owed 19 per cent of the total.  In summary, two Member States with significant amounts of outstanding payments had paid down their peacekeeping arrears, and a few Member States owed the bulk of outstanding regular budget and Tribunal assessments.

Regarding debt to Member States, he said that in 2001 a considerable reduction in the usually intractable aggregate level of debt had been made due to the substantial arrears payment from the United States and elimination of the arrears owed by the Russian Federation.  As a matter of policy, the Secretary-General paid out to Member States any amounts received from the collection of assessments long in arrears.  With the receipt of some $582 million from the United States as the second tranche of its arrears payment, about $530 million of that amount was paid to Member States before the end of December.  The remaining $52 million was pending final certification of claims and settlement of inter-mission loans.  At the end of the year, the Organization was current on all certified claims pending in accounts payable, except for the United Nations Transitional Authority in Cambodia (UNTAC), the United Nations Operation in Mozambique (ONUMOZ) and the United Nations Mission in the Central African Republic (MINURCA), where cash continued to be unavailable to make payments.

On debt for troops and contingent-owned equipment, he said that as of

1 January 2001, the Organization had owed Member States $917 million, including some $753 million for contingent-owned equipment and $164 million for troops.  During 2001, payments of about $181 million were made to Member States for 2000 obligations that had not been paid during the course of that year.  New obligations for 2001, which amounted to some $741 million, were higher than original forecasts.  The higher figure reflected mainly the full deployment of troops to a number of missions, in particular the missions in Ethiopia and Eritrea and the Democratic Republic of the Congo.  A total of $401 million for troops and contingent-owned equipment was paid out by the end of the year and, overall, debt had been reduced to $748 million at the year's end.

In summary, 2001 was a productive year with many achievements for the Organization and Member States, he said.  Overall, the aggregate debt level had been substantially reduced from a total of some $1.1 billion at the beginning of the year to about $800 million at the end of the year –- a dramatic drop and long-awaited achievement.  While there had been a substantial reduction in the amounts owed to Member States, efforts must continue to be made to collect unpaid assessments long in arrears. 

New challenges now faced the Organization, including the level of real resources budgeted for 2002-2003, he said.  The budget request for 2002-2003 had been reduced by $75 million in real terms.  While 2000-2001 budgetary levels for the next biennium had been augmented by $165 million to cover requirements for inflation and currency, Member States had, at the same time, decided to reduce the real level of resources by $75 million.  Although the overall level appeared higher, real resources were less by $75 million.  To accommodate that reduction, the Secretary-General was putting measures in place in several support areas to allow the Organization to function within the resources appropriated.

Turning to projections for 2002, he said that current projections were for a zero cash balance for the regular budget and related reserves at the end of 2002, against the balance of $2 million on 31 December 2001.  That projection assumed full payment by the major contributor of its 2002 assessment and a similar pattern of payment as in 2001 by other contributors.  On that basis, it was expected that the regular budget would experience a cash deficit at various points during the second half of the year, before ending the year with a zero balance.  The situation of the regular budget, therefore, remained very fragile.

Although positive cash balances of some $11 million were projected for the Tribunals by the end of 2002, one or both of the Tribunals would need to cross-borrow cash during the year, he said.  The Tribunals had already experienced a cash deficit in February.  Cross-borrowing from peacekeeping operations might become a necessity.

He said that current projections for peacekeeping -- the most difficult to make -- were that the cash balance for peacekeeping operations would be around $1.3 billion at the end of 2002, reflecting a similar level of peacekeeping assessments in 2002 as in 2001.  Peacekeeping assessments, which were concentrated in six large missions, namely, the missions in Sierra Leone (UNAMSIL), the Democratic Republic of the Congo (MONUC), Kosovo (UNMIK), East Timor (UNTAET), Ethiopia-Eritrea (UNMEE) and Lebanon (UNIFIL), were expected to total

$2.6 billion.  The remaining six missions were expected to require around $200 million in 2002.  The United Nations Mission in Sierra Leone (UNAMSIL) and the United Nations Organization Mission in the Democratic Republic of the Congo (MONUC) showed dramatic increases of some 54 per cent and 188 per cent respectively.  Projections for other missions, including those in Kosovo (UNMIK), East Timor (UNTAET), Ethiopia and Eritrea (UNMEE), Bosnia and Herzegovina (UNMIBH) and Lebanon (UNIFIL), showed decreases in assessment levels.

The year 2002 was expected to start and end with a similar amount of available cash -- some $1.3 billion, he said.  Regarding debt to Member States in 2002, the year had started with a debt level of $748 million.  New obligations in 2002 were projected to be substantially higher at $811 million.  Total disbursements, however, were expected to be large, around $890 million for troop and equipment debt.  The aggregate amount would be paid in instalments throughout the year, ending with a lower total level of debt at year's end of some

$666 million for troops and contingent-owned equipment.

Overall, at the end of 2002, it was projected that all troop obligations through July 2002 would be paid, leaving only six months of outstanding troop costs, he said.  Contingent-owned equipment obligations would have decreased substantially from much higher levels in earlier years.  Based on projections of income and expenditure, cash balances at the end of 2002 were expected to total some $1.328 billion, including a zero balance for the combined regular budget accounts, $11 million for the Tribunals, and $1.317 billion for peacekeeping operations.  That compared with $1.326 billion at the end of 2001.

That relatively healthy total, however, masked a potential problem for the financial management of the Organization, he added.  According to the terms of General Assembly resolution 53/241 on Kosovo -- and subsequently included in all similar resolutions -- the Secretary-General was no longer able to cross-borrow from active peacekeeping missions, only closed ones.  Also, he was only able to borrow from the Peacekeeping Reserve Fund for new or expanded peacekeeping missions.  Increasingly, therefore, overall cash resources might not be as available for cross-borrowing to meet short-term cash deficits in the regular budget or Tribunals.

At present, approximately $400 million was available in the accounts of completed peacekeeping operations, he said.  That was currently the only source of cross-borrowing for the regular budget and fluctuating needs for ongoing peacekeeping missions.  As final reports on several of the closed missions would be presented in 2002, those resources could rapidly be depleted.  If cash resources in other accounts were depleted, the Organization might face the real

possibility of further financial stress.  It was important that Member States be aware of the impending problem.  The Secretary-General would keep the situation under review and make additional proposals if required.

In conclusion, he said last year saw a significant improvement in the financial situation of the Organization.  Arrears were reduced, as were the Organization's debts, to troop and equipment providers.  Significant arrears remained, however, and reserves were depleted.  Decisions which had been taken or would be taken by the Assembly had reduced the Organization's flexibility in dealing with temporary cash shortfalls, which might lead to serious cash difficulties in future.  While the Secretary-General was committed to addressing these problems, success depended on the support and commitment of Member States to the Organization.

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