WORKING CAPITAL FUND: LEVEL AND ADMINISTRATION OUTLINE

Transcription

1 35 C 35 C/32 30 July 2009 Original: English Item 11.6 of the provisional agenda WORKING CAPITAL FUND: LEVEL AND ADMINISTRATION Source: Financial Regulation 6.2. OUTLINE Background: Under Article 6.2 of the Financial Regulations, the General Conference determines the level of the Working Capital Fund and the purposes for which it shall be used. Purpose: This document consists of two parts. Part I describes the establishment and the objectives of the Working Capital Fund and reports on the uses made of the Fund during the financial period Part II explains a proposal being made dealing with the continued operation, in , of the Coupons Programme established to assist Member States to acquire educational and scientific material they consider necessary for technological development. Decisions required: paragraphs 15 and 23.

2 35 C/32 INTRODUCTION 1. Part I of this document is divided into five sections as follows: Section A: Establishment and objectives of the Fund; Section B: Use of the Fund s resources during the financial period ; Section C: Proposed use of the Fund s resources during the financial period ; Section D: Section E: Currency or currencies of the Fund; Proposed resolution. PART I SECTION A: ESTABLISHMENT AND OBJECTIVES OF THE FUND 2. The Working Capital Fund has been established in conformity with the provisions of Financial Regulations 6.2 to 6.5. The main objectives of the Working Capital Fund as approved by the General Conference at its 34th session for the current financial period are: (i) (ii) to provide finance for budgetary appropriations pending the receipt of contributions; to provide finance within limits determined by the General Conference for selfliquidating expenditures, including those arising in connection with Trust Funds and Special Accounts. Amounts drawn from the Working Capital Fund must be reimbursed as soon as income is available for that purpose. 3. Amounts paid by Member States to the Fund are considered as advances, thus remaining the property of the individual Member States. The Director-General submits a report to each ordinary session of the General Conference on the collection of contributions and advances to the Working Capital Fund in conformity with Financial Regulation 5.8. At the present session of the General Conference this report is contained in document 35 C/31. SECTION B: USE OF THE FUND S RESOURCES DURING THE FINANCIAL PERIOD In accordance with established practice, the General Conference specifies the purposes for which the Working Capital Fund may be used at each ordinary session. At its 34th session, the General Conference authorized the Director-General to advance from the Working Capital Fund 1 such sums as might be necessary to finance budgetary appropriations, pending the receipt of contributions from Member States. The General Conference also authorized the advance of sums not exceeding $500,000 at any one time to finance self-liquidating expenditures, including those arising in connection with Trust Funds and Special Accounts, on condition that sums so advanced should be reimbursed as rapidly as possible C/Resolution 78, Part I.

3 35 C/32 page 2 5. The level of the Working Capital Fund was increased from $22.2 million to $25 million at the 28th session of the General Conference, from $25 million to $28 million at the 32nd session, and from $28 million to $29 million at the 34th session. Annex I to the present document shows the cash position of the regular budget of the Organization, the cash available in the Working Capital Fund and the combined net cash surplus of the regular budget and the Working Capital Fund taken together at the end of each month for the period January 2008 to June 2009 for Headquarters bank accounts. This Annex shows the Fund has only been used for its primary function of financing regular programme expenditure in January It should be kept in mind that as at 30 June 2009 the amount of contributions due and deferred to future years amounted to $183.5 million and any change in the payment pattern of large contributors could adversely affect the cash position. 6. Furthermore, the authority to make self-liquidating advances has been used from time to time during the current biennium to various Trust Funds and Special Accounts, in order to avoid costly disruption of related operational activities when donors have been late in meeting cash payment commitments. SECTION C: PROPOSED USE OF THE FUND S RESOURCES DURING THE FINANCIAL PERIOD Proposed use of the Fund 7. In accordance with Financial Regulation 6.2, the General Conference determines the purposes for which the Working Capital Fund may be used. To this end the Director-General proposes a draft resolution on this subject which foresees that the purposes for which the Fund could be used in would be identical to those approved by the Conference for Level of the Fund 8. The present level of UNESCO s Working Capital Fund at $29 million is equivalent to 4.60% of the approved budget for the biennium representing fewer than five weeks of average regular programme expenditure. The level of the Working Capital Fund was adequate until June 2009, but considering the present assumptions for the receipt of contributions for the remaining months of the biennium it would not be sufficient for the last quarter of 2009 when internal borrowing may be required. Owing to the persistent high level of contributions due and in arrears combined with the fact that the visibility on cash-flow prospects into the next biennium is not clear, there are no reasons to expect that those Member States with arrears will settle them in such a way as to preclude full use of a Working Capital Fund of $29 million to finance arrears of contributions during most of the next biennium and recourse to internal and external borrowing during difficult short-term cash-flow periods. Member States will note that the level of contributions due for previous biennia and deferred to future years, amounting to $34.5 million as at 30 June 2009, remain a cause for concern and require the maintenance of the Working Capital Fund at an appropriate level. 9. For these reasons, the Director-General considers that the level of the Working Capital Fund should be maintained at a level of at least 4.60% of the approved budget during Under the budget ceiling of $653 million scenario, he considers and recommends that the Fund s level should be increased to $30 million on the understanding that short-term borrowing authority would be renewed to tide the Organization over peak short-term adverse cash-flow problems that could arise. Such borrowing will be restricted in time and in amount to the strict minimum, in accordance with the recommendation made to the General Conference by the Executive Board at its 151st session. In the absence of borrowing authority, however, other measures would have to be envisaged among which a further substantial increase in the level of the Working Capital Fund would have to be considered.

4 35 C/32 page 3 The proposed increase can be illustrated in the following table: Biennium Appropriation Working Capital Fund Percentage 000 $ 000 $ % , , , , , , , , , , , , , ,000 20,000 15,000 15,000 15,000 17,200 22,200 25,000 25,000 25,000 25,000 28,000 28,000 29,000 30, The reduction in the level of the Fund in to $15 million, resulted from the withdrawal from the Organization of three Member States and the related budget reductions at that time. The Director-General would remind Member States that new Member States initially contribute to the Fund on joining (or on their return) at the United Nations assessed percentage and that pending a subsequent General Conference, such contributions are added on to the approved level of the Fund. Borrowing authority 11. For the biennium borrowing authority was approved by the General Conference in 34 C/Resolution 78 by which it authorized the Director-General to negotiate and contract shortterm external loans when necessary. A request for renewal of borrowing authority under the same conditions as approved for is included in document 35 C/31 in connection with the report of the Director-General to the General Conference on collection of contributions of Member States. 12. Internal borrowing in dollars was possible from certain self-financing and reserve accounts, the residual right of ownership of which belongs to the Organization. The accounts of these selffinancing funds are clearly identified and always recorded separately from funds held in a fiduciary capacity. The amounts expected to be available for internal borrowing purposes from these sources during cannot be reliably foreseen. The currency available for borrowing from these funds is the United States dollar and repayment must be made in that same currency. In view of rational management of the split-level assessment system, however, recourse to borrowing in euros may also be necessary. Euro borrowing must be arranged with external sources, in the absence of internal borrowing facilities in that currency to avoid exposure to adverse currency fluctuations on repayment of such euro loans. SECTION D: CURRENCY OR CURRENCIES OF THE FUND 13. Financial Regulation 5.6 provides that advances to the Working Capital Fund shall be assessed in dollars of the United States of America and paid in a currency or currencies to be determined by the General Conference. At its 34th session the General Conference decided by

5 35 C/32 page 4 resolution 78 that the resources of the Fund shall be assessed and paid in United States dollars; these resources shall normally be held in United States dollars, but the Director-General shall have the right, with the agreement of the Executive Board, to alter the currency or currencies in which the Fund is held in such a manner as he deems necessary to ensure the stability of the Fund and the smooth functioning of the split-level assessment system; if such an alteration should be agreed, an appropriate exchange equalization account should be established within the Fund to record translation gains and losses on exchange. 14. In view of the high level of arrears of contributions of Member States that have to be financed in United States dollars and the need to provide a significant level of advances in dollars to field offices for their expenditure requirements, the Director-General proposes that the resources of the Working Capital Fund for should again be assessed, paid and held in United States dollars. With a Working Capital Fund in United States dollars, however, any advances made from the Fund for regular programme euro expenditure requirements would result in exposure to exchange losses on repayment of these advances. In accordance with the current financial procedures such losses would become a charge to miscellaneous income. At some future time, therefore, when the arrears of contributions decline, it could become appropriate to introduce changes to such arrangements, in order to allow advances to be made both in dollars and euros from the Fund to facilitate the smooth functioning of the split-level assessment system. Meanwhile the resolution proposed to the General Conference is identical to that approved in this respect at the 34th session. It again allows for possible change in the currencies in which the Fund will be held, subject to the approval of the Executive Board. SECTION E: PROPOSED RESOLUTION 15. Taking into account the considerations outlined in this document, the General Conference may wish to approve the text of a resolution concerning the level and administration of the Working Capital Fund for , as shown below, that follows closely the model approved by the General Conference at its 34th session: The General Conference, Resolves: (a) (b) (c) (d) that the authorized level of the Working Capital Fund for shall be fixed as % of the budget ceiling and that the amounts to be advanced by Member States shall be calculated according to the rates assigned to them under the scale of assessments approved by the General Conference for ; that a new Member State shall be required to make an advance to the Working Capital Fund, calculated as a percentage of the authorized level of the Fund, in accordance with the percentage assigned to it under the scale of assessments applicable at the time it becomes a Member; that the resources of the Fund shall be assessed and paid in United States dollars; these resources shall normally be held in United States dollars, but the Director- General shall have the right, with the agreement of the Executive Board, to alter the currency or currencies in which the Fund is held in such a manner as he deems necessary to ensure the stability of the Fund and the smooth functioning of the splitlevel assessment system; if such an alteration should be agreed, an appropriate exchange equalization account should be established within the Fund to record translation gains and losses on exchange; that the Director-General is authorized to advance from the Working Capital Fund, in accordance with Article 5.1 of the Financial Regulations, such sums as may be

6 35 C/32 page 5 necessary to finance budgetary appropriations pending the receipt of contributions; sums so advanced shall be reimbursed as soon as receipts from contributions are available for that purpose; (e) that the Director-General is authorized to advance during sums not exceeding in total $500,000 at any one time, to finance self-liquidating expenditures, including those arising in connection with Trust Funds and Special Accounts; these sums are advanced pending availability of sufficient receipts from Trust Funds and Special Accounts, international bodies and other extrabudgetary sources; sums so advanced shall be reimbursed as rapidly as possible. PART II FACILITY ESTABLISHED TO ASSIST MEMBER STATES ACQUIRE EDUCATIONAL AND SCIENTIFIC MATERIAL THEY CONSIDER NECESSARY FOR TECHNOLOGICAL DEVELOPMENTS (UNESCO Coupons) 16. The UNESCO Coupons Programme was created further to 2 C/Resolution adopted by the General Conference at its 2nd session in 1947 in order to permit educators, research workers and students to purchase publications, films and materials intended for educational, scientific and cultural purposes. This includes school textbooks, copies of courses, reproduction of art and sheet music, raw film, developing material, radio and television sets, tape recorders, videotapes and video recorders, and musical instruments, as well as scientific equipment, chemical products, machine tools and measuring instruments, computers, software related items. UNESCO Coupons have also been used to furnish and supply schools and universities and fully equipped research laboratories and hospital services for training purposes. They can also be used to pay for subscription to institutions of an educational, scientific or cultural nature, and for university registration fees and copyright dues. 17. The UNESCO Coupons Programme provides Member States with the possibility of buying, with their local non-convertible currencies, coupons denominated in United States dollars (the Organization s currency of account) and guaranteed by UNESCO. The latter undertakes to reimburse suppliers accepting these coupons in payment of their invoices in their own national currencies. Since 1949, the Programme has continued to grow, and some $429 million have been put at the disposal of Member States up to 31 December By its definition, the Programme can be of benefit to the maximum number of interested Member States only if there is rapid turnover of the non-convertible currencies received. If resources are tied up in a particular non-convertible currency for a long period of time it reduces the possibility of allocating funds for UNESCO Coupons to other Member States. With the objective of equitable distribution of UNESCO Coupons, it will be necessary to restrict or decline accepting a particular currency when it is foreseen that the amount already accumulated in the currency exceeds the projected utilization over the following 12-month period during the biennium Differences on exchange arising from the acceptance of national currencies for purchases of UNESCO Coupons under this scheme should continue to be borne by the purchasing Member State. 19. As provided in resolution 78 adopted by the General Conference at its 34th session, the Director-General has continued to make UNESCO Coupons available to Member States against payment in non-convertible local currencies in amounts over and above the immediate capacity that the Organization has to use such currencies, but subject to the limits and conditions stipulated in the resolution.

7 35 C/32 page In order to avoid undue dispersal of the Organization s cash resources in currencies that cannot be readily utilized coupon sales of this nature must be contained within reasonable limits. The Director-General recommends that this facility be maintained at its present maximum of $2 million during the biennium During , as the resources of the Working Capital Fund were available, they have been used for sales up to an amount of $788,753 as of 30 June An accumulation of non-convertible currencies could also result from the acceptance of local currency for the payment of a Member State s contribution to the regular budget as provided for in document 35 C/31. Consequently it would be in the interest of the Member State to decide either to give preference to the purchase of UNESCO Coupons or to the payment of its assessed contribution, when submitting a request for acceptance of its local currency, it being understood that governments should firstly propose settlement in national currencies of arrears of assessed contributions for previous years, before requesting allocations of UNESCO Coupons under this scheme. 22. The services provided under the UNESCO Coupons Programme in recent years are reflected in the sales figures and the percentages represented by region, listed below: Regions Africa 3,351 80% 3,321 91% 1,992 70% Arab States % 184 5% 173 5% Asia and the Pacific 62 1% 97 3% % Europe Latin America and the Caribbean 92 2% 30 1% % TOTAL 4, % 3, % 2, % 23. The General Conference may wish to adopt a resolution along the following lines: The General Conference, Recalling the provisions made in pursuance of 34 C/ Resolution 78, 1. Authorizes further allocations in of UNESCO Coupons payable in local currencies, up to a maximum of $2 million, on condition that the accumulated totals in such currencies shall not exceed their projected utilization over the following 12-month period and bearing in mind that Member States should propose settlement in national currencies of arrears of assessed contributions for previous years before or at the same time as applying for allocations of UNESCO Coupons under this facility; 2. Resolves that any losses on exchange arising from the acceptance of national currencies for purchases of UNESCO Coupons under this facility shall be borne by the purchasing Member State.

8 35 C/32 Annex ANNEX CASH POSITION OF THE ORGANIZATION AT HEADQUARTERS (expressed in thousands of US dollars) Year End of month Cash surplus (deficit) of regular budget Cash balance available in Working Capital Fund Cash surplus (deficit) 2008 January -20,182 28,282 8,100 February 24,407 28,578 52,985 March 35,560 28,641 64,201 April 74,241 28, ,899 May 83,549 28, ,431 June 85,086 28, ,982 July 79,510 28, ,997 August 47,209 28,950 76,159 September 22,632 28,974 51,606 October 9,275 28,975 38,250 November 16,677 28,994 45,671 December 8,815 28,996 37, January 4,004 28,996 33,000 February 42,103 28,996 71,100 March 25,068 28,996 54,064 April 23,358 28,996 52,355 May 63,468 28,996 92,464 June 42,227 28,998 71,226 Printed on recycled paper