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C06/93-E
Council 2006 – Final MeetingAntalya, 4 November 2006 /
Document C06/93-E
22 September 2006
Original: English
Draft Financial Plan 2008-2011
This document has been prepared on the basis of the results of the work done by the Council Working Group for the elaboration of the Draft Strategic plan & the Draft Financial Plan.1Introduction
1.1Purpose and objective
The Financial Plan of the Union is quadrennial, covering two biennial budget periods. Main purpose is to translate the objectives and their relative priorities set forth in the strategic plan in monetary terms. It also consolidates the anticipated expenditure and the estimated income. The primary objective of the Financial Plan is to allow Member States to know at the end of the Plenipotentiary Conference the framework of their financial commitments to the Union for the 2008 to 2011 timeframe, based on the approved amount of the contributory unit.
1.2Process
The process for setting the amount of the contributory unit involves the following steps (see CSArticle 28):
a)A provisional choice of the class of contribution by Member States is to be made one week before the Conference and the definitive choice before the end of the Conference. Sector Members have the possibility to make that choice within a period of three months after the Conference.
b)Member States need to know on which basis they may make that choice. For that purpose, the Council has to prepare a draft financial plan to be submitted to the Member States.
c)When establishing the draft financial plan, the Council can include in it only the level of activities consistent with the level of activities for the previous period as well as new activities already authorized in order not to prejudge decisions of the Conference on proposals that may be submitted to it.
d)Derived from the draft financial plan a provisional value of the contributory unit shall be indicated in the report to Member States.
e)The Conference, taking account of the results of the review of the priorities of the Union as they appear in the adopted strategic plan, will review the draft financial plan so that the consequences of its decisions are included. This will result in a modified value of the contributory unit that will be considered as an upper limit that will serve as basis, together with other pertinent provisions of Decision 5, for establishing the budgets to be adopted by the Council during the 2008-2011financial period.
f)When adopting the definitive Financial Plan, the Plenipotentiary Conference needs to give Council the possibility to authorize additional expenditure necessary because of future changes in conditions of employment in the United Nations common system, in the exchange rate between the Swiss franc and the United States dollar, and in the purchasing power of the Swiss franc in respect of non-staff items of expenditure (See draft Decision 5 in Annex V).
2Summary
2.1Options
Two options for the quadrennial Financial Plan for 2008-2011 are proposed, with as only difference between the two the ratio for determining the contributory unit payable by Sector Members. Council at its 2006 session set the provisional amount of the contributory unit at CHF 318,000, or zero nominal growth compared with the 2006-2007 approved budget. Option 1 reflects the current ratio of 1/5 of the contributory unit payable by MembersStates, or CHF 63,600. Option 2 reflects a revision of the ratio to 1/4 of the contributory unit payable by MembersStates, or CHF 79,500. Background information is provided in DocumentC06/94. Table 1 below summarizes the two options. Option 1 indicates a shortage of income of CHF 33.3 million, corresponding to 5% of the expenditure estimates. Option 2 indicates a shortage of income of CHF 12 million, corresponding to 1.8% of the expenditure estimates.
Table1
2.2Income and expenditure estimates
This document reflects option 1 only with regard to the income estimates. The quadrennial Financial Plan for 2008-2011 amounts provisionally to an income level of CHF 628.9 million, whereas the expenditure level is CHF 662.2 million. On this basis, assuming zero nominal growth in the amount of the contributory unit, either additional sources of income or further reductions in the programme of activities, or a combination of both, would need to be identified for a total value of CHF 33.3 million in order to arrive at a balanced financial plan.
Table 2 below shows the 2008-2011 estimates in relation to the 2004-2007 plan (Decision6, Marrakesh, 2002), and the total of the 2004-2005 actual and of the 2006-2007 budget.
Table 2
Note: By excluding the costs of the RRC from the 2004-2007 figures, the R-Sector would show a variance of CHF7.5 million, of which CHF 5.2 million relate to the post RRC-06 work (see table 16).
3Strategic dimension
In accordance with the Draft Strategic Plan 2008-2011 seven goals are identified for the Union, and a number of objectives and outputs for each of the three Sectors and for the General Secretariat. The ITU-R has five main objectives and twelve outputs. The ITU-T has seven main objectives and twelve outputs. The ITU-D has seven main objectives and thirteen outputs. The General Secretariat has five intersectoral objectives and six intersectoral outputs.
3.1Goals and objectives
The strategic dimension of the Financial Plan is linked to the goals and objectives of the draft Strategic Plan for 2008-2011. This relationship constitutes a key factor for implementing successfully the Results Based Budgeting framework, and forms the essential part of an integrated planning process that aims at bringing efficiency gains to all the activities of the Union. This innovative dimension refers to Resolution 107 (Marrakesh,2002) on the improvements to the management and functioning of ITU, and to Resolution 72 (RevMarrakesh, 2002) on the linkage of strategic, financial and operational planning in ITU. The linkage mechanism follows a systematic process by which Sector outputs are linked to Sector objectives, Intersectoral outputs to General Secretariat objectives, and Sector and General Secretariat objectives to the overall goals of the Union, as set out in the draft Strategic Plan2008-2011. The logical relationship between outputs, Sector and General Secretariat objectives and the overall goals of the Union, provides a clear basis for understanding the level of contribution of outputs to the ITU goals. Table 3 and figure 1 below show the proportion of the draft financial plan in relation with the seven goals of the Union, and figure 2 indicates the breakdown of the draft financial plan between the outputs of each of the three Sectors and of the General Secretariat.
Table 3
Figure 1
Figure 2
3.2Programme Outputs
The draft Strategic Plan and the draft Financial Plan are built upon a similar structure around a set of mandatory outputs. Outputs are defined as the final products or services to be delivered. It follows that the same structure will have to be applied in the two biennial budgets of the 2008-2011 plan period, along with the direct linkage between these budgets and the operational plans. This logical framework contributes to increasing transparency and consistency between the plans and the budgets.
The plan takes due account of the relevant resolutions and recommendations by the Council, and the results of Conferences and Assemblies of the respective Sectors. A list of the planned conferences and meetings is given in Annex III. The expected level of financial resources may however be insufficient to fully cover all the requirements. In case of a shortage of income, full implementation of the planned outputs would not be possible. A priority setting exercise would therefore be necessary, leading to a situation where some products and services could not be executed unless funds were made available. For that purpose, high priority outputs have been identified in the draft Strategic Plan for 2008-2011.
The estimated costs of outputs for each Sector and for the General Secretariat are indicated in Annex I, together with their contribution to relevant objectives.
4Main Financial Parameters and Targets
4.1Financial Values
The expenditure estimates are based on 1 January 2006 real term values. The conditions of service are those prevailing in the United Nations common system on 1January 2006.
The cost increase between 1 January 2005 and 1 January 2006 is estimated at CHF 16 million (see table of projected expenditure in Section 7).
Elements factored in for the re-costing process are: the United Nations operational exchange rate of Swiss franc against the US dollar (1 US$ = CHF 1.31), the conditions of service in the UN common system and the consumer price index reported by the Office cantonal de la statistique of Geneva – all prevailing at 1 January 2006. The average re-costing factor amounts to 2.4 per cent. On this basis, the estimates for 2008-2011 are in constant 1January 2006 prices, excluding any subsequent cost increases. They are thus comparable with the 2004-2007 figures in real terms.
4.2Basis for estimates
The sum of the actual expenditure incurred in 2004-2005 and of the approved budget for 2006-2007 is used as a basis for comparison. Any programme increase that may be required as a result of the decisions of the 2006 Plenipotentiary Conference will have to be considered in the plan estimates. The expected income in relation to activities subject to cost recovery is generally highly unpredictable, and large variations may occur. The projected amounts reflect conservative estimates which are generally based on the 2004-2007 levels.
4.3Resource planning
Tables 4 and 5 show respectively the number of budgeted posts and budgeted work-months since 2002-2003, including the planned levels for 2008-2011. These particularly highlight the reductions in resources made from the 2004-2005 budget, leading to a situation where the secretariat is currently operating at a reduced level of resources in spite of the increasing workload.
Table 4 (Short Term staff excluded)
Table 5
4.4Prospective Cost Increase
Assuming a statutory cost increase of 1.5% per year on average from 2006 up to 2011 included, the estimated costs would increase by approximately CHF 35 million. However, the draft Financial Plan does not include any provision for the prospective cost increase with regard to the period 1 January 2006 to 31 December 2011, due to the difficulty to project all the parameters of cost increase over a six years time span, and because of their uncontrollable nature. This planning method, which affects the purchasing power of the Union, implies that the price variation is kept as a separate consideration, to be dealt with via a budgeting mechanism similar to the one provided in Decision5 of Minneapolis, 1998. See decides 4 and 5 of the draft Decision 5 in Annex V.
4.5Exchange Rate
The United Nations operational rate of exchange in force on 1 January 2006 of 1.31 Swiss franc for 1 US dollar is applied. This rate is 4.8% over the budgeted rate of 1.25 for the 2006-2007 biennium. Approximately 15 per cent of the Union’s expenditure is based on US dollar, mainly in respect of the contributions to the United Nations Joint Staff Pension Fund (UNJPF) for professional and higher categories. In case of a strengthening of the US dollar against the Swiss franc, the risk exposure of a 10% fluctuation is estimated at some CHF4million over the four years plan period.
4.6Cost of Languages
The cost of languages covering the translation and composition services is included as part of the General Secretariat departments estimates. These costs are projected at some CHF69.3 million. Moreover, interpretation costs, which are included under the various sections for conferences and meetings, are estimated at CHF 6.7 million.
Table 6 below shows the workload estimates of the services of translation and typing in number of pages and of interpretation in number of days over the 2008-2011 timeframe, broken down by Sectors and Intersectoral outputs and for the Sectors Bureaux and the General Secretariat Departments.
Table 6
Table 7 below indicates the estimated costs of the activities related with the production of documents and of the interpretation services as planned for the period 2008-2011.
Table 7
4.7Efficiency Measures
During the 2000-2003 and 2004-2007 financial plan periods, cost savings have already been implemented for a total of more than CHF 75 million, including the staff-cost reduction in 2004-2005, as well as the efficiency measures planned for the 2006-2007 biennium. The Union will endeavour to make any additional possible savings, in spite of the fact that what can be realized for the optimization of resources is limited. Further measures to reduce costs that are for most of them already incorporated in the draft expenditure estimates are listed in Annex II.
4.8Reserve Account
The minimum level of the Reserve Account was set by Council in 1981 at 3% of the budget appropriations. Following the withdrawal of CHF 14 million in relation to Resolution 1250, and the positive balance of CHF 19 million generated from the execution of the 2004-2005 biennium, the Reserve Account stands at CHF30.7million, of which CHF13million is set aside for activities subject to cost recovery. The latter being excluded, the Reserve Account is standing above its minimum advisable level of 3% of the budget or around CHF10million. The Reserve Account can also be used to replenish other funds and reserves.
In view of the uncertainty in terms of the income expected to be generated from the activities subject to cost recovery, it may be appropriate to reassess the minimum level of the Reserve Account and raise it to a higher share of the unpredictable/variable income. Currently the 3% coverage of the total budget corresponds approximately to 10% of the income, the assessed contributions from Member States being excluded. Table 8 below shows the variation of the level of the Reserve Account between 2002 and 2006.
Table 8
4.9Reserve for staff installation and repatriation
In its report to Council 06 on the 2004-2005 accounts (document C06/90), the External Auditor is recommending to raise the budget provision of 3% of the staff expenditure to replenish the reserve for staff installation and repatriation in view of the growing level of financial liabilities. The impact of an increase of the rate from 3% to 4% is estimated at CHF 3.7 million over the fours years plan period. This draft Financial Plan is based on the current rate of 3%.
4.10Other considerations
The costs of outputs are established by application of Decision 535 on the new cost allocation methodology, which has been elaborated with the aim of enhancing transparency of costs and attributing costs directly to the relevant cost objects to the extent possible. In order to translate the Strategic Plan in financial terms, the relationship between objectives and outputs is expressed in monetary value by attributing on an equal basis the planned costs of outputs to the objectives to which they relate.
Annex I gives a breakdown of the total costs for each intersectoral and Sector output, between the direct costs, consisting in planned expenditure, documentation costs and other services costs, and the indirect costs. In addition, the full costs of each sectoral output are assigned to the respective sector’s objectives and each intersectoral output to the intersectoral objectives as defined in the draft Strategic Plan 2008-2011.
5Contributory Unit
5.1Evolution
The amount of the contributory unit has decreased from CHF 334,000 in 1997 to CHF 318,000 in 2006-2007. Zero real growth in the amount of the contributory unit as per January 2006 would be CHF 325.000. Expressed in January 2006 real term values, the erosion over the ten years period of 1997 to 2007 amounts to 14%.As a reference, the provisional amount of the contributory unit of CHF 318,000 stays below the upper limit of CHF 330,000 set in decides 1.1 of Decision 5 (Rev. Marrakesh, 2002) for the current financial period. Figure 3 below shows the evolution of the contributory unit and of the budgeted income since 1995. Figure 4 shows the evolution of the contributory unit since 1995, expressed in January 2006 real term value.
Figure 3
Figure 4
5.2Decision 5 modalities
The draft Financial Plan assumes that Decision 5 should specify that Council, when drawing up the budgets of the Union, may authorize an amount of the contributory unit in excess of the upper limit in nominal terms, but not higher than the real growth value, so as to maintain the purchasing power of the Union (See draft Decision 5 in Annex V). The real growth value will be determined based on the cost increases in respect of the following elements:
a)the exchange rate between the Swiss franc and the United States dollar;
b)salary scales, pension contributions and allowances, including post adjustments, established by the United Nations common system and applicable to the staff employed by the Union;
c)the inflation rate based on the consumer price index in Geneva in respect of non-staff items of expenditure;
5.3Ratio between MemberState and Sector Member’s Contributions
According to CV480, the amount of the contribution per unit payable towards the expenses of each Sector concerned shall be set at 1/5 of the contributory unit of Member States. This ratio was introduced in 1982. However, in view of the increasing role and participation of Sector Members in the work of the Sectors, a different approach could be considered and a review of the ratio might be appropriate. See Document C06/94 on this issue.Based on the number of Sector Members and of Associates as of 1 May 2006, a change from 1/5 to ¼ would represent an increase of income of CHF 21.2 million. According to CV483A, Associates shall share in defraying the expenses of each Sector concerned as determined by the Council.
6Projected Income
6.1Income
Based on a contributory unit of CHF 318,000 reflecting zero nominal growth as compared with the approved amount of the contributory unit for the 2006-2007 budget, on the number of contributory units as of 15 September 2006 (406.78 full units Member States equivalents), and on conservative estimates in respect of the revenue from cost recovery activities, total income is expected to reach a level of CHF 628.9 million over the 2008-2011 plan period. Table 9 indicates the income by source and compares the 2004-2005 actual and the 2006-2007 budget with the 2008-2011 estimates.