United Nations Educational, Scientific and Cultural Organization Executive Board ex

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1 United Nations Educational, Scientific and Cultural Organization Executive Board ex Hundred-and-twenty-second Session 122 EX/32 PARS, 30 August 1985 Original: English tem 8.4 of the Drovisional agenda REVEW OF BUDGETNG TECHNQUES (VALUE OF THE CONSTANT DOLLAR) FOR FUTURE BENNA / d :. SUMMARY Pursuant to decisions 3.1.1, paragraph 4 and 5.1.2,, paragraph 8(a), taken by the Executive Board at its ; 120th session, the Director-General submits to the j General Conference a document concerning the applica- tion of the constant dollar principle in 23 C/5 and in future C/5 documents 6 z

2 e - General Conference U'ESE' Twenty-third Session, Sofia C 23 C/35 30 August 1985 Original: English 'tem 8.1 of the provisional agenda REVEW OF BUDGETNG TECHNQUES (VALUE OF THE CONSTANT DOLLAR) FOR FUTURE BENNA SUMMARY Pursuant to decisions 3.1.1, paragraph 4 and 5.1.2, paragraph 8(a), taken by the Executive Board at its 120th session, the Director- General submits to the General Conference a document concerning the application of the constant dollar principle in 23 C/5 and in future C/ 5 documents -~ NTRODUCTON 1. This document has been prepared in pursuance to the following decisions taken by the Executive Board at its 120th session: - decision 3.1.1, paragraph 4, which endorses the recommendations of the Temporary Committee of the Executive Board. The relevant recommendations stipulate (a) that the decision as to whether future C/5 documents should be prepared on the basis of the current value of the dollar, instead of continuing to apply the constant dollar principle, should be left to the General Conference at its twenty-third session (recommendation (2).2(a)) ; and (b) that the Director-General should submit to the Executive Board and the General Conference for information 'a set of parallel documentation' on 23 C/5 (recommendation F. (2).2(b)); - decision 5.1.2, paragraph 8 (a), which invites the Director-General 'to prepare the Draft Programme and Budget for (23 C/5) in accordance with 22 C/Resolution 44, adding to it for the benefit of the General Conference at its twenty-third session a set of parallel documentation, as described by Working Group 11, in order to assist it in deciding whether the proposed changes meet the request for "clarity, reality and comparability"'. (N.B. The reference to 22 C/Resolution 44 implies that in 23 C/5, the constant dollar principle should continue to be applied. ) 2. The Consulative Working Group on Budgeting Techniques and Budget Presentation, which the Director-General established in July 1984, recommended that 'the old constant dollar should be applied in compiling the budget for the next biennium' (i.e French and 2.01 Swiss francs to one United States dollar). However, it was the majority view of the Group that 'the rate be changed biennially to reflect the prevailing exchange rate at the time the budget is approved. n members' views this would bring the constant dollar closer to the prevailing rates and make the budget easier to understand' (120 EX/9, Annex 1 (A), paragraphs 2 and 3). 3. Similarly, some members of the Finance and Administrative Commission at the 121st session of the Executive Board, expressed doubts as to whether the constant dollar principle was generally understood and suggested that budgeting in current dollars may be more appropriate. Other members of the Commission proposed that the value of the constant dollar should be modified every two years to bring it closer to the real value in terms of French francs and thus avoid distortion of budget estimates.

3 23 C/35 - page 2 CONSTANT DOLLAR PRNCPLE 4. n order to present budget estimates for the ensuing biennium that are strictly comparable with the budget approved by the General Conference for the current biennium, the constant dollar principle has been adopted since the biennium. This means that the budget figures in the draft programme and budget documents are presented on the assumption that the exchange rate and the purchasing power of the United States dollar are the same as in the budget which was adopted by the General Conference for the current budget period, i.e. no account is taken of the modifications in the United States dollar value, both in terms of purchasing power and the rate of exchange. t / 5. The major advantage of the use of the constant dollar principle in budget presentation is that it permits the identification of real programme growth as distinct from cost increases. f fluctuation in the dollar's value on account of inflation and decline in the rate of exchange vis-%-vis other currencies is included in budget estimates, the budget increases or decreases due to currency, inflation or programme factors are not directly visible. 6. The use of the constant dollar implies that the budget figures presented in the C/5 document are completed-by three sets of figures : - - Appropriation Reserve (Part V) - provision for Currency Fluctuation (Part V) inflation occurring during the previous biennium 7. While the United Nations have no comparable system in this respect, LO, FAO and WHO have made efforts to distinguish cost increases from real programme growth. Among these agencies, the Unesco budget is, however, presented in the most clear-cut manner. 8. n the preparation of 23 C/5, the Director-General used the techniques based on the constant dollar principle. The rate of exchange was 6.45 French and 2.01 Swiss francs for one United States dollar, as in 22 C/5. However, the cost of inflation in was included in the budgetary figures, in the column 'Recosted', as recommended by the Executive Board on the basis of the findings of the Consultative Working Group on Budgeting Techniques and Budget Presentation. This is, in fact, a partial departure from the applicatior of the constant dollar principle as defined in paragraph 4 above. 9. n the table used in 23 C/5 (Appendix - reproduced here below), the (negative) provision for currency fluctuation (i.e. $88,705,000) is shown in its entirety (Part V) and the budget proposals and comparisons are made without taking into account its effect on each major programme. The costs of inflation estimated to occur in (i.e. $21,493,000) are also shown globally, as in the preceding table (where they are, however, different, due to the revaluation to 9.65 French and 2.67 Swiss frances). The cost of inflation in is however shown in the column 'recosting requirement' and is thus included in the 'recosted base'. ALTERNATVE PRESENTATON 10. As recommended by the Consultative Working Group (see paragraph 2 above), the Director-General prepared Appendix V to 23 C/5 (Budget Summary - Comparison between the proposals and the budget with distribution of inflation and currency fluctuation costs) which shows, for each appropriation line, (i) adjustments due to the change in the exchange rate and (ii) a distribution of the estimated cost of inflation in This presentation was referred to as 'a set of parallel documentation' in the proposed format for constructing the budget (120 EX/9, Annex 1 (A.11, page 81, on the basis of which the General Conference should take its decision on the continuation of the application-of the constant dollar principle, or ifs substitution by the use of current dollars. The presentation in Appendix V permits a synoptic view of the real costs which would occur under each appropriation line if.the exchange rate in force at the time the budget is drafted and the projected rate of inflation continues to prevail. For easy reference, Appendix V is reproduced herebelow. This means that the funds presently included in Parts V11 and V1 of the budget are distributed among appropriation lines.

4 1) C/ page 3.*, :PART :RP J :AP 1 :RP 11 :w Y :RP v :ip Y :RP V1 :P Y :fip X :RP x :nr X ilp X1 :w X :np XY 2,4?4;109 39, 272, ,372, P Zit dti?, 73ir i i6, 953, OO 30 ~ 18, J24,?03 f , ,000 2,743,400 1,595,500 3? 45k1200 1, k63.mo 7,501, 204 1,3?k,300 1,939, ?1947,?Pe?.iOf,?0( , , 316, ,?00 38,999,130 17,362. ZOO 30, 766 ~ 13,166,400 19?592,500 A, ,965,360 27, , R31. FOO 265,536 ( , (309, i00) 523. k00 842, ,390 ( , 109, 000 1,066.?00 7,630 13: ,000 -io, z #4 J,b J ?,3e7,000 : 33.a : 17.k75,?00 : 38,aBY,400 : i7,8e5 703 : ,400 ; 13,560,100 : 19, : : jk.oik,30# : 38,i?E.500 :?, ; : i : :iotal ,774,900 :PART 19 37,131,100 (2,771,530) -i,y :TOTAL C 19,504 2,352, :PART i.36 ~ 401,604 2,856,300 ( 1, ) -3.3 :PART Y 39, L94,r)Q) 2,905, :PART V 33,4dd, 06J 5,006,600 rd9.500) -4.2 :PART V 4,845,060 4,845,300 id, 303 1,D :OR RESERYE 1, 000,030, :TOTAL -Y 391,164, ,621, CO0 :PAR Y 29 ~ ~ :PART V11 i i6, i4s1 000) ii'gta , 4!4,c)03 f ADJUSTED EY CORYRATUE TRARSFERS

5 23 C/35 - page 4 Budget Summary - Comparison between the Proposals and the Budget with Distribution of nflation and Currency Fluctuation Costs \ \ m 7

6 c, ' L 23 C/35 - page A further dternative presentation would consist of showing budget data in a table containing a comparison by appropriation line between the budget base: - Tecosted to take account of inflation estimated to occur in , and - revalued to the exchange rates of 9.65 French and 2.67 Swiss francs (i.e. the rates of exchange used for computing Part V11 of 23 C/5) to the United States dollar, and the proposals in current dollars, at the rates of, exchange mentioned above. This alternative presentation enables the immediate identification of the budgetary provisions, at the constant dollar rate, which are likely to be required for each individual appropriation line at the time when the governing organs of the Organization meet. t differs from the presentation in Appendix V in so far as the costs of inflation likely to occur in are not distributed among appropriation lines, but are shown separately in Part V. :TUTAL 1 :PART 111 :PART V ;PART V :PART V

7 23 C/35 - page A comparison of the budget table in 23 C/5 (i.e. at the constant dollar level) with the table showing the alternative presentation, using Major Programme 11 - Communication in the service of man, as an example is as follows: M.P. / programme Constant Dollar as presented in 23 C/5 Alternative presentation nc/ nc/ ApprovedkRecosted Proposed (Dec) ApprovedkRevalued (Dee) $000 $000 $000 % $000 $000 $000 % Studies on communication 1, , ,104.4 (7.6) 1, (7.6) Free flow 2, , ,985.3 (6.8) 2, , ,400.1 (6.8) Development 9, , , , , , Participation programme 1, , , , , , Total 15, , , , , , t appears that, although the figures under the alternative presentation show significant decreases from those in 23 C/5, due to the revaluation from 6.45 French and 2.01 Swiss francs to 9.65 French and 2.67 Swiss francs equal to one United States dollars, the comparability of the figures is preserved and the real growth rates are identical and readily identifiable in both cases. USE OF CURRENT DOLLAR 15. With a view to facilitating the discussion of the question as to whether future budgets should be prepared in the same way as that for , or on the basis of periodically adjusted exchange rates, some advantages and disadvantages of using the alternative presentation in current dollars can be summarized as follows: Advantages: ' - presentation of budget data as realistically as possible; - better understanding of budgeting techniques, both in Member States and within the Secretariat; - a certain simplification of the examination of, and decisions on, budget proposals; - elimination of Part V11 of the budget, currency flucation, or no provision therefor, although it may be necessary to identify gains and losses due to changes in exchange rates. Disadvantages : - the advantages of using a constant dollar for the entire period of the Medium-Term Plan, with the possibilities of budgetary comparisons within the planning period, would be lost;. % Adjusted by comparative transfers - see Appendix to 23 C/5.

8 23 C/35 - page 7 r.t - as it is unlikely that the exchange rate would remain stable during the ten-month period between the preparation and the adoption of the C/5 document, individual budget figures and budget summaries appearing in the main document, as well as in the appendices, might not reflect accurately the rates prevailing during the session of the General Conference. t would therefore be necessary to develop a procedure in order to convert che budget data so as to reflect the actual costs in current dollars. This could consist of a series of tables showing the original figures in the C/5 document and the revised figures.,