II. FINANCIAL FRAMEWORK

52. The financial context against which the 2004-05 Programme of Work and Budget is being developed, is summarised below.

Working Capital Fund

53. The purpose of the Working Capital Fund (WCF), which is specified in Financial Regulation 6.2, is primarily to advance monies on a reimbursable basis to the General Fund in order to finance budgetary expenditures pending receipt of contributions to the budget, and to finance emergency expenditures not contemplated in the current budget.

54. In accordance with Conference Resolution 15/91, the authorised level of the WCF is US$ 25 million. Receipts from Member Nations to the WCF in 2000-01 have been negligible, and contributions receivable from Member Nations have decreased from US$ 1.6 million to US$ 1.5 million. During 2000-01, US$ 8.4 million was advanced from the WCF to cover redeployment and separation costs pending eventual receipt of assessed contributions in arrears from the major contributor, as authorised in Conference Resolution 3/99.

55. During 2002, the balance of the fund has improved, largely due to the payment of arrears from the major contributor which included a payment of US$ 1,250,000 of arrears to the WCF as well as the reimbursement of US$ 8.4 million to the WCF which had been advanced to cover redeployment and separation costs pending receipt of the said arrears.

Special Reserve Account

56. In accordance with Conference Resolution 13/81, the purpose of the Special Reserve Account (SRA) is to protect the Organization's Programme of Work against the effects of unbudgeted extra costs arising from adverse currency fluctuations and unbudgeted inflationary trends. Net gains or losses on exchange as well as the currency variance on staff standard costs (i.e. the difference between the US dollar value of staff costs expressed at the budget rate for the biennium and the UN operational rate at the time of payment) are charged to the SRA. The SRA can also advance monies on a reimbursable basis to the WCF.

57. The SRA is authorised at a level of 5% of the effective working budget, or US$ 32.6 million and the contributions receivable at 31 December 2001 stood at US$ 10.5 million. The balance on the SRA was US$ 0.5 million at 31 December 2001. This balance however, has since improved: the receipt of arrears resulted in an increase of US$ 6 million and currency gains arising from the revaluation of balances resulted in a further increase of US$ 3.3 million to arrive at a balance of US$ 9.8 million as at 31 December 2002.

General Fund

58. Receipts from current assessments on Member Nations, miscellaneous income, support cost reimbursements, income from jointly funded investment activities and technical support services comprise the sources of funding for the Programme of Work and are credited to the General Fund. The related expenditures to execute the Programme of Work are charged to the General Fund.

59. In arriving at the General Fund balance at the end of the financial period, account is also taken of receipts against past assessments on Member Nations, and any indebtedness of the General Fund to the WCF and the SRA. Also included are charges or credits outside the Programme of Work that are authorised by the Governing Bodies including the amortisation of after service medical liabilities, and movements arising from the actuarial revaluation of staff related schemes, which are now charged on an accruals basis.

60. The Audited Accounts for 2000-01 show a deficit under the General and Related Funds of US$ 75.4 million. This is a deterioration of the situation compared with the deficit of US$ 63.6 million as at 31 December 1999.

61. The weaker equity position in 2000-01 arises from a number of movements, with the most significant being the amortisation of after service medical liabilities of US$ 14.1 million. To ensure that this issue does not continue to contribute to the deficit, it is proposed in the 2004-05 budget to appropriate US$ 14.1 million for this purpose, as explained further under the Cost Increases section.

62. It is emphasised that the accumulated deficit of US$ 75.4 million is fully covered by arrears in assessed contributions. At 31 December 2001, these stood at US$ 163.1 million, out of which US$ 94.5 million was due from the largest contributor. Indeed, the situation in 2002 has substantially improved due to the receipt of arrears of assessed contributions from the major contributor of US$ 92.7 million.

63. It is difficult to anticipate the evolution of the accumulated deficit in 2002-03 and the likely position at the end of the present biennium. The following factors could influence the result:

1. the extent to which full implementation of the 2002-03 authorised budget of US$ 651.8 million is achieved as planned;
2. the amortisation of after service medical liabilities, which will continue in 2002-03, will add a further US$ 14.1 million to the deficit; and
3. the investment income or losses on assets held for staff related schemes and the next actuarial valuation of these schemes.

Use of Arrears

64. A total amount of US$ 100 million was received as a payment against arrears of assessed contributions, the SRA and the SCF. In agreement with the major contributor the amount has been allocated as follows:

65. The application of the amount of US$ 92,747,867 paid to the General Fund would, according to Resolution 6/2001, be as follows:

66. The use of arrears was authorised up to a maximum amount of US$ 50.7 million as follows:

67. Given the shortfall of US$ 5.8 million versus this figure along with the fact that the estimates on which the resolution was based were developed in April 2001, it is essential that the proposals behind these figures be verified and re-confirmed or amended as necessary. This process is currently under way and will be completed shortly. Any changes in the use of resources under this resolution will be reported to the Finance Committee in the usual way.

³ 98.2% represents the amount received as a proportion of the total due to the General Fund and is applied to the adjusted accumulated deficit of US$ 40,222,000