Speakers Debate Merits of Proposed Reforms, as Fifth Committee Examines Methods to Address Inflation, Currency Fluctuations in Biennial Programme Budget
As the Fifth Committee (Administrative and Budgetary) today scrutinized how exchange rate fluctuations and inflation had impacted the United Nations expenditures, developed nations pushed for reform of “recosting”, the method of factoring in those elements to subsequently revise an initial budget, while developing countries rejected any changes.
Under consideration was an independent study by the High-Level Panel of Experts, commissioned by the United Nations Secretary-General. It proposed a number of reform measures, including putting a cap on recosting, which had increased the United Nations regular budget cumulatively by $1.5 billion in the past decade.
“Without progress on recosting reform or new efficiencies in the regular budget, it is difficult to see how UN Member States, including my own Government, will be able to make the case for providing the funding sought by the Secretary-General’s request for this biennium or future ones,” said the representative of the United States, pointing out that other international organizations and national Governments performed their missions without requiring recosting to cover actual expenditures.
The representative of the European Union Delegation said the practice of recosting was unsustainable and in need of a complete overhaul. The Panel’s study had illustrated that over the past five bienniums the Organization’s programme budget had increased $291 million per biennium on average due to recosting. Recosting reform had been on the General Assembly’s agenda since 1986, but it had yet to be achieved, he said, calling on Member States to employ a step-by-step approach to create a more predictable, sustainable funding arrangement.
Japan’s delegate said that the habit of managers accustomed to expecting more resources at the end of the budgetary cycle rather than operating within resources initially approved, must be corrected.
Disagreeing with those delegations, Bolivia’s representative, speaking on behalf of the “Group of 77” developing countries and China, reiterated its long-standing position that recosting was a fundamental element of the budgetary methodology agreed by Member States. The existing methodology ensured that activities planned for the biennium were not negatively impacted by exchange rate and inflation fluctuations, which were an unavoidable reality for a global organization.
Cuba’s delegate said that the composition of the Panel, which impacted its conclusions and recommendations, could have been made more equitable and geographically balanced. If the proposed cap was applied, the Fifth Committee would enter into the practice of indiscriminate budget-cutting.
Carlos Ruiz Massieu, Chair of the Advisory Committee on Administrative and Budgetary Questions (ACABQ), who introduced that body’s report on the matter, said that imposing such a cap may lack technical merit and could have programmatic implications. He pointed out that the Panel’s analysis contained several limitations, including a limited examination of the entire regular budget. In particular, the budgets of the special political missions were excluded from the Panel’s review, even though there were elements of recosting included in those budgets.
Mr. Ruiz Massieu also questioned the Panel’s rationale for further assessing methodologies used by the International Civil Service Commission (ICSC) in determining post-adjustment multipliers for costs relating to international staff.
Johannes Huisman, Director of the Department of Management’s Programme Planning and Budget Division, introduced the Secretary-General’s note containing the Panel’s study.
The Fifth Committee will meet again at 3 p.m. Thursday, 11 December, to discuss the financing of United Nations Multidimensional Integrated Stabilization Mission in the Central African Republic (MINUSCA).
Recosting Study
JOHANNES HUISMAN, Director, Programme Planning and Budget Division, Department of Management, introduced the Secretary-General’s note entitled “Study on recosting and options for the Organization in dealing with fluctuations in exchange rates and inflation” (document A/69/381), which contained the report of the High-level Panel of Experts on the matter.
He said that upon the General Assembly’s request for an independent study, the Secretary-General has established the High-level Panel of Experts with extensive backgrounds in finance and budget at national and international levels to conduct an analysis of the existing recosting methodology and experience. The study found that over many budget cycles volatility due to increased deployment of personnel in the field had created variances between initially agreed proposed budgets and final costs. Addressing such budget variances through recosting, as was done in the past, took extra time and effort and led to long and difficult debates. More streamlined processes and greater certainty about actual budget levels over the biennium would enable the Organization to advance its substantive objectives more effectively.
Thus, the Panel recommended an integrated and complementary set of proposals, which addressed both external and internal challenges, according to the study, he said. The Panel’s report presented an overview of steps needed to enable the Secretariat to manage those costs, based on what had been learned from other international organizations. Some proposals could be implemented immediately, while others required several steps. Even if the recommendations need to be implemented over time, all should be adopted together to produce a clear road map for reform.
The Secretariat should immediately focus on amending its calculation parameters to improve the accuracy of its budget forecasts and also should ensure that new systems facilitated higher visibility and seamless flow of information within the United Nations to improve efficiency in the recosting process, he said. That would enable the Secretariat to provide more accurate estimates to Member States and should facilitate a reduction in the frequency of recosting. As the Secretariat reduced variances between initial estimates and incurred expenditures, it should begin to manage a portion of the remaining currency risk exposure due to recosting through a regular hedging programme. The Assembly should decide on a series of steps in 2014. That way the Secretariat could update processes in 2015 in time to shape the 2016-2017 regular budget.
CARLOS RUIZ MASSIEU, Chair, the Advisory Committee on Administrative and Budgetary Questions (ACABQ), introduced that body’s eponymous report (document (document A/69/640). The Panel’s analysis contained several limitations, including a limited examination of the entire regular budget. In particular, the budgets of the special political missions were excluded from the Panel’s review, even though there were elements of recosting included in those budgets. The benchmarking analysis was not comprehensive enough and lacked contextual specificity. More detail would have been useful, including the potential application of other practices to the United Nations, considering the Organization’s biennial programme budget, decentralized global operations and reliance on assessed contributions. The Panel had not fully analysed the impact of its own recommendations, including its suggestions to base budget estimates on forward currency rates and to reduce the frequency of recosting on the existing budget methodology. Regarding the recommendation for the United Nations to institute a hedging programme, ACABQ noted that the Assembly had not yet had an opportunity to consider the Swiss franc pilot hedging project in place since 2013.
ACABQ also questioned the Panel’s rationale for further assessing methodologies used by the International Civil Service Commission (ICSC) in determining post-adjustment multipliers for costs relating to international staff, he said. Regarding the Panel’s call for further analysis on the feasibility of putting in place a recosting cap, imposing such a cap may lack technical merit and could have programmatic implications. The Panel had not fully analysed the impact of establishing a reserve fund as a solution to managing non-hedgeable costs. In terms of a previously discussed option with respect to active management of vacancy rates, the Advisory Committee did not consider it to be a viable means of reducing variances between estimated and actual rates. The Advisory Committee also raised concerns with respect to the composition of the Panel itself.
DAYANA RIOS (Bolivia), speaking on behalf of the “Group of 77” developing countries and China, reiterated its long-standing position that recosting was a fundamental element of the budgetary methodology agreed by Member States. The existing recosting methodology ensured that activities planned for the biennium were not negatively impacted by exchange rate and inflation fluctuations, which were an unavoidable reality for a global organization. The current methodology was sound as it was technically crafted to ensure that tools used in the regular budget, such as vacancy rates, were not transformed into budget-cutting tools. The Group shared the Advisory Committee’s view that the Panel’s analysis contained several limitations which called into question the utility of its recommendations and of other options presented in the report.
The Group was unpleasantly surprised to see that the Panel not only exceeded its mandates, but also entered into discussions and made recommendations that directly contradicted Assembly resolutions, she said. The study addressed issues handled by ICSC, such as the post-adjustment multiplier methodology. It was regrettable that the Panel transformed the debate on the accuracy of the budget into a political discussion on establishing a budget cap. “This approach, by itself, disqualifies the report and the recommendations it presents,” she said, adding that the Group would reject any discussion on the implementation of a cap, which would result in indiscriminate cuts affecting the substantive work of the Organization.
CARMEL POWER, a representative of the European Union Delegation, said the practice of recosting was unsustainable and in need of a complete overhaul. The Panel’s report showed that over the past five bienniums the Organization’s programme budget had increased $291 million per biennium on average due to recosting, pushing up the regular budget by almost $1.5 billion in the past decade. Recosting reform had been on the Assembly’s agenda since 1986, when it called for a “comprehensive solution to the problem of additional expenditures, including those deriving from inflation and currency fluctuation”. But such a solution had never materialized. While there was no one magical solution, a set of internal procedures, misleadingly presented as a comprehensive methodology, could be improved to achieve more predictability and sustainability.
She welcomed the Panel’s analysis, as it demonstrated that some of the assumptions underlying current recosting practices could be improved. While the Union did not share all the views expressed by the Panel and felt more far-reaching recommendations should have been issued, it saw the report as a first basis for fruitful discussions. Recosting reform should mobilize all Member States, as spending almost one quarter of the regular budget on recosting accumulated over the past 10 years was not the most strategic use of scarce resources. Instead, the recosting reform could be inspired by a step-by-step approach to create a more predictable and sustainable funding arrangement.
SHO ONO (Japan) expressed regret over the late issuance of ACABQ’s report on the agenda item under discussion, which took over three months to issue. He called on the Secretariat to present proposals for improvements and efficiencies to enhance the effectiveness of the Advisory Committee and the alignment of its work with the needs of the Assembly. Recosting was no longer a sustainable method for financing the Organization. The habit of managers accustomed to expecting more resources at the end of the budgetary cycle rather than operating within resources initially approved, must be corrected. Most national Governments were not allowed to spend beyond their initially approved resources. The Panel’s report was a start for Member States to discuss the issue of recosting. He called on the Organization’s Secretariat to express its view on the report’s recommendations to advance the discussion among Member States during informal meetings.
DONALD HAYS (United States) expressed his country’s commitment to greater budget discipline and a more up-to-date process that reflected current best practices. The United Nations existing budget process required broad-reaching and comprehensive reforms. The Independent Study on Budget Re-costing had some important suggestions that could serve as first steps in a reform of the process. But the United States was disappointed that the report did not thoroughly explore alternatives to the Organization’s existing recosting methodology, including the United States Government’s use of vacancies to balance cost increases. The proposal to institute a cap on recosting was worth considering. The recosting process was neither sustainable nor supportable in today’s world when Governments no longer employed such measures. To accomplish the reform, the United Nations needed to shift its focus from drafting budgets to managing the use of resources to the level approved by the Assembly. It also needed improved capacity to monitor costs to inform its management and Member States on a timely basis whether the Organization was staying within approved budget levels or whether adjustments to expenditure levels were necessary to ensure that it stayed within those levels.
Other international organizations and national Governments performed their missions without requiring recosting to cover actual expenditure levels and the United Nations should adopt similar procedures. “Without progress on recosting reform or new efficiencies in the regular budget, it is difficult to see how UN Member States, including my own Government, will be able to make the case for providing the funding sought by the Secretary-General’s request for this biennium or future ones,” he said. In light of difficult financial environments, it would be difficult to make the case twice, once for the initial budget level and then again for expenditures that exceeded the agreed level due to recosting.
JAVIER ENRIQUE SÁNCHEZ AZCUY(Cuba) took due note of ACABQ’s report, in particular its opinions on the limitations of the Panel’s study regarding recosting and options for the Organization in dealing with fluctuations in exchange rates and inflation, and the impact of those limitations on the quality of the Panel’s conclusions and recommendations. His delegation was struck by the fact that special political missions were not included in the Panel’s report. It was also struck by the composition of the Panel, which could have been more equitable and balanced because the composition would affect the content of recommendations. His delegation agreed with ACABQ’s view on a possible establishment of a recosting cap. He believed that if the cap was applied, the Fifth Committee would enter into the indiscriminate process of budget cutting, which was not favoured by his delegation. More explanations were needed from the members of the Panel during a question and answer session.
Mr. RUIZ MASSIEU, responding to the Japanese delegate, who expressed concern about the late issuance of the Advisory Committee’s report on the matter, said his body had to deal with a preliminary version of the Secretary-General’s note transmitting the Panel’s report, with additional information and explanations provided later.