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Speech of Joseph Connor, 5 February 1996 Joseph E. Connor
Under Secretary General for Administration and Management
Speech to the General Assembly Working Group on the Financial Situation
New York
February 5, 1996
Once more, I appreciate the opportunity to speak to this group concerning the financial situation of the United Nations.
On more and more occasions and in more and more fora, I have been called upon to deal with this subject-a measure of the seriousness of the matter and the serious attention which must be given to it by Member States.
In my statement to this Group today, I should like to cover essentially two topics. The first part of my presentation will serve to remind the members of the Group of some pertinent features of the Organization's financial position at the end of 1995 and to update that information as to the position at the end of January 1996. In the second part of my presentation, I will cover the issue of what we can now foresee as the likely developments for the rest of 1996.
Status of contributions at the end of 1995
The key point which characterized the financial position of the United Nations at the end of 1995 is that overdue amounts continue to rise, at a very steep rate, as compared with prior years. The rising pattern of unpaid assessments over the past ten years can be seen in Chart I. At 31 December 1995, assessed contributions unpaid by Member States totaled almost $2.3 billion. That amount is $500 million higher than a year earlier, $800 million higher than two years earlier.
Of the total of $2.3 billion, $564 million related to the regular budget (up from $480 million at the end of 1994); and $1.7 billion related to the peace-keeping operations (compared to $1.3 billion at the end of 1994).
Because of the size of its rate of assessment, contributions from the United States are particularly important. Of the $2.3 billion which Member Sates owed the United Nations, over $1.2 billion - more than 50 per cent of the total - was owed by the United States, $414 million for the regular budget and $816 million for peace-keeping operations. The United States shortfall in payments is very severe. But the United States is not alone.
By 31 December 1995, only 94 Member States, or just half of the full membership, had paid their regular budget contributions in full. This is actually an improvement over end-1994, when only 75 Member States had paid in full. During 1995, 22 Member States made no payment at all for the regular budget. This is also an improvement, the comparable figure was 39 Member States at the end of 1994.
To summarize the situation: the good news is that more Member States are paying and paying earlier . . . but the bad news is that too many don't and the payment situation of one Member State is of overwhelming significance in assessing our financial viability.
Chart 2 looks at the payment problem another way. The number of Member States owing more than the current year's regular budget assessment has risen sharply over the past ten years. In 1986, 24 per cent of the Member States owed more than one year's assessment; in 1995 from 71 at the end of 1994.
In the circumstances, it is not surprising that the total level of unpaid assessments for the regular budget has increased to unprecedented levels.
In the face of a persistent pattern of partial and non-payment of current year's regular budget assessments, how did the United Nations manage in past years to finance the regular budget expenditures?
Chart 3 shows some relevant data - a comparison, 1990 through 1995 of assessments made under the regular budget with payments received from Member States for regular budget purposes. I would like to emphasize that the "payments" column includes payment that year of both current year's assessments and prior years' assessments.
In some earlier years - when the combinations of current and arrearage payments fell short, we financed the shortfall from reserves. Those reserves are now used up. More recently, as chart 3 shows, regular budget expenditures for the current year were paid from funds provided by Member States not only in relation to their current year's assessment but also by late payments for prior years' assessments.
Chart 3 shows that in 1990, 1993 and 1994 we had aggregate regular receipts - from Member States paying both arrears and current assessments - that about equaled or exceeded the current year's assessed amounts. This reflected a special effort on the part of some Member States to comply with their treaty obligations under the Charter.
But this pattern did not continue in 1995. The percentage payment by all Member States dropped to less than 93 per cent of the amount assessed. The United States rate of payment dropped to 47 per cent of its 1995 assessment.
In the case of peace-keeping operations, Chart 4 shows a similar comparison of assessments versus payments made - but with a significant comparison of assessments versus payments made - but with a significant difference. Total payments by Member States exceeded assessments only in 1990 and 1991. Since that time, the United Nations has consistently received in total payments each year substantially less than the amounts assessed for peace-keeping. While in 1994 the equivalent of about 90 per cent of all peacekeeping assessments levied in that year were received, in 1995 payments received dropped to 86 per cent. The United States rate of payment dropped to 41 per cent.
If the combined payments for current and past-due peace-keeping assessments fell short, how did we finance the shortfall? The answer is very straightforward. We didn't pay or delayed payments to those Member States providing troops and equipment for peace-keeping operations. At the end of 1995, such unpaid debts reached the unprecedented level of $1 billion.
At this point let me make an observation:
Observation 1
The United Nations is suffering from a chronic illness. Member States have mandated it to pay out more than it takes in.
Let me turn to another subject.
Cash situation at the end of 1995
Chart 5 shows our regular budget cash balances each month from 1 January 1991 to 31 December 1995. The peaks show those months where the United Nations had positive cash balances.
Chart 5 shows the effect of paying out more than we take in. There has been a recurring - but usually minor and short-lived negative cash position around September of each of the years 1991 to 1994. 1995 was different!
After exhausting the Working Capital Fund and the Special Account, in 1995 it was necessary to borrow continually and extensively from peace-keeping operations to fund the regular budget from early August until the end of the year. At 31 December, the amount so borrowed totaled $176 million. Both the amounts borrowed were unprecedented. It should also be noted that never before 1995 did the Organization reach year-end without repaying the amounts borrowed from peace-keeping operations.
That borrowing source is diminishing. Even taking into account additional peace-keeping assessments that we expect will be approved later this year, the total amounts to be assessed for peace-keeping operations in the course of 1996 are expected to be significantly lower than in 1995. This will exacerbate the cash flow situation, since there will be less new peace-keeping money with which to pay old bills. And less of a source from which regular budget shortfalls can be covered.
After borrowing for the regular budget, the cash balance of peace-keeping operations totaled $728 million at 31 December 1995.
The amounts borrowed from peace-keeping operations for the regular budget would have been higher if the Secretary-General had not instituted cash conservation measures in September 1995. These were not intended to, and could not have, made up for the significant shortfall in the payment of assessments. They were, rather, designed to permit the Organization to minimize the need to borrow from peace-keeping cash to fund regular budget expenditures, and to continue to operate until 1996 regular budget assessments began to be received and the borrowing repaid. As a result of those measures, some $13 million of cash disbursements under the regular budget were avoided entirely, and some $20 million in disbursements, including those relating to statutory payments as well as early separations of staff, were postponed until 1996.
Again . . . the picture outlined above can be summed up in a few words. The reality is that for a number of years, and especially the past two years, the Organization has been forced, by the non-payment of assessments by Member States, to spend, at levels beyond its means, to fulfill the mandates approved by those same Member States. So let me add a second observation.
Observation 2
The scale must be balanced.
Member States must bring their commitments in line with their expectations.
Programme budget for 1996-1997
Let me say a few words about the budget for the current biennium which was approved by consensus by the General Assembly in the closing days of December. It has an important bearing on how the cash flow imbalance is addressed.
Chart 6 [eds: chart not available] shows that the programme budget appropriated for this biennium already contained a significant commitment to do more with less. All the mandates you have asked to be done have been provided for without an increase in cost. As shown in Chart 6, for the 1994-1995 biennium, the General Assembly authorized regular budget posts totaling 10,115 and an appropriation level of $2.6 billion. Adjusted for inflation and for the added dollar costs of payrolls and other expenditures made in currencies that have appreciated against the dollar, the level of appropriation in 1996-1997 would have grown by $267 million, about 10 per cent, more than in 1994-1995.
All of that recosting has been offset by cost reductions:
$98 million including efficiency gains identified by the Secretary-General in his proposed programme budget; $104 million more in efficiency gains he is determined to address as we go through the new biennium; and $50 million more, through arbitrary reductions in General Service staff funding. The result: $350 million in real savings produce a zero growth budget. I would estimate that personnel will drop by ten percent over the level of 1994-1995.
These requirements place enormous management tasks on the Secretary-General. He is being asked to handle a significant downsizing and to identify and institute further efficiency gains, without affecting programme delivery.
The prospect of significant cash savings through further fine-tuning the cost of delivery of these programmes you have mandated cannot be achieved. Simply speaking, the United Nations is facing a financing gap - not a cost reduction gap.
So let me make my third observation, somewhat facetiously.
Observation 3
Doing more with less does not mean doing everything with nothing.
Now let me turn to our cash flow situation. We start out with an upbeat.
Payments by Member States in 1996
As of 31 January 1996, 25 Member States had paid their regular budget assessment for 1996 in full. This represents a decided improvement over the pattern of the previous four years. By the same date, 16 Member States had made a partial payment against their 1996 regular budget assessment. This also represents a significant improvement as compared to prior years. We welcome this demonstration of commitment on the part of the Member States concerned, the names of which are set forth in Chart 7 [eds: chart not available, but to see the same data in a GPF presentation click here.
Between 1 and 31 January 1996, some $227 million of regular budget assessments were paid. This amount is some $42 million more than the comparable figure at the end of January 1995 and $131 million in January 1994.
Current status of unpaid contributions
Thus, at the end of January 1996, unpaid assessments totaled over $3.3 billion, over $1.4 billion for the regular budget and over $1.9 billion for peace-keeping operations. An additional $11.7 milli on was also owed for the international tribunals.
Forecast for 1996
That is how we began this year. Now how will be end the year?
Chart 8 shows an overview of actual regular budget cash balance for each month-end 1992 through 1995. An earlier chart showed the same information. Chart 8 goes beyond that earlier year's date and adds forecasted cash balanced each month-end in 1996. The overall position for 1996 shows that the regular budget goes into a negative cash position at mid year and a deep downward spiral thereafter. The year ends with negative cash of some $400 million.
Chart 9 takes a closer look at the 1996 forecast cash balances. Chart 9 shows the forecast of fund balances, month by month, to the extent that we can now foresee it.
Chart 10 [eds: chart not available] shows, in addition to the balance, amounts of receipts and disbursements. Receipts are based on the information we have received from the top 25 contributors as to their expected payments of regular budget assessments. Collectively, they are assessed over 91 per cent of the regular budget aggregate assessment. For those Member States which have been unable to provide information, our projections are based on their previous payment patterns.
As we saw earlier, at the end of 1995, the combined General Fund, that is, the regular budget and its reserves, had a negative cash position of some $195 million. This was the $176 million borrowed from peace-keeping funds, plus some $19 million of cheques that had been issued but not yet presented.
Even with the payments to the regular budget in January to which I referred a few moments ago, at the end of January we were still in a negative cash position. Although we had managed to repay a substantial part of the amounts borrowed from peace-keeping operations, we were still obliged to borow some $32 million.
As can be seen from Chart 10, if additional payments are received as projected, between February and June the regular budget will not be in a negative cash position. From the end of June onwards, however, the situation changes dramatically - and not for the better. By the end of September 1996, we will have reached a negative cash position of $210 million. And by year-end, the negative cash position would be $420 million.
Chart 11 [eds: chart not available] shows a forecast for 1996 for peace-keeping cash balances. The cash flow forecasts for the peace-keeping operations, taken together, are more difficult to make than for the regular budget. This is because the pattern of payments to peace-keeping operations is more complicated and less predictable, month by month, than for the regular budget. It is also due to the uncertainties surrounding the amount and timing of additional peace-keeping assessments. Nonetheless, working within these constraints, the pattern we see is as follows.
These forecasts reflect an assumption that the total amounts owed to Member States for troops and equipment will not rise above a level of approximately $1 billion throughout the year.
Once the amounts borrowed at 31 December 1995 from peace-keeping for the regular budget are repaid in February, the available cash in peace-keeping funds will be restored to approximately the same level as at the end of 1995, based on no borrowing. Over the course of 1996, without any further borrowings for the regular budget, available peace-keeping cash will continue to diminish. By the end of 1996, it will reach a record low of $340 million, barely enough to meet two month's requirements.
Now, let's put both the regular budget cash and peace-keeping cash together. Together, as shown in Chart 12 [eds: chart not available], we have combined cash on hand of $627 million at the end of June, which drops to $195 million by September and minus $80 million on 31 December.
My observation on this situation is really two-fold. From 30 June onward, the level of cash available to the Organization starts a deep, continuous decline. On 31 December we will have run out of cash. So let me repeat and expand my first observation.
Observation 4The United Nations' chronic illness - paying out more than it takes in - has become acute.
No cash left on 31 December 1996.
At this point, I would like to remind you that:
A FORECAST IS NOT A PREDICTION
A forecast is based on assumptions.
Will more or less peace-keeping effort be mandated than that which is now assumed? Will Member States pay more quickly or more slowly than that which is now assumed. Will Member States respond to or ignorethe need to clear their arrears. And so on and so on - a long list of assumptions included in the forecast you have been presented. The more important the assumption and the more unpredictable the assumption, the more the forecast is subject to increased volatility.
In this connection, two particular assumptions should be focused on.
The first important assumption is that the level of debt owed to troop and equipment contributing Member States will not rise above $1 billion at 31 December 1996. In other words, the forecast has a cap built into it. It has been assumed that in 1996, an amount equal to the $300 million of the costs that will be incurred in 1996 for troops and equipment, will be paid in 1996.
If alternatively, such payments were not to be made in 1996, the cash balances of the United Nations at 31 December 1996 would rise by $300 million. And so too would rise by $300 million the accumulated debt to Member States which provide the troops and equipment. In this alternative scenario, the accumulated debt at 31 December 1996 would be $1.3 billion.
A second important assumption, and one which at this time is not predictable, is the amount of contributions to be received from the United States after September 1996. I described that situation earlier. I will not repeat it at this time. Amounts to be received before that date have been assumed and included in the forecast, based on information provided by that Member State.
*****************Well, there you have it - a factual statement of how the United Nations ended last year, a forecast of where the cash situation of the United Nations is seen to be headed by 31 December 1996, based on the assumptions made.
The value of a forecasting effort is as much in the process as in the outcome. The rigorous process of forecasting focuses attention on areas where action can be taken to make the outcome more what is wanted.
For more than a year, you have been considering what actions need to be taken to place the United Nations on a firm financial basis.
The Secretary-General will discuss the situation further with you tomorrow.
More UN Documents on the Financial Crisis
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