FC 100/6

Finance Committee

I. Introduction

1. The Financial Highlights Report shows, at a summary level, the results for the first six months of the current biennium as of 30 June 2002. The report is organized to show:

• Income and expenditure by source of funds comprising Regular Programme (RP) appropriations and the Technical Cooperation Programme (TCP) shown separately, and extra-budgetary funds, Trust Funds and UNDP.
• Fund utilization summarizing the position of net assets, reserves and fund balances.
• The plan for the Regular Programme derived from the Programme of Work and Budget and the plan for Trust Funds/UNDP representing the expenditure plan formulated by project managers. Other plan figures are projections based on past experience;
• Balances for the comparative period from the 6-month period of the previous biennium as of 30 June 2000.
• The status of Contributions to the Regular Programme for the period ended 30 June 2002 showing receipts on current assessments and arrears presented as follows :
• Appendix A Summary status of contributions to the Regular Programme
• Appendix B Regular Programme Contributions, as at 30 June 2002
• Appendix C Member Nations with Arrears of Contributions as at 30 June 2002
• Appendix D Arrears paid in full during Calendar Year 2002 as at 30 June 2002
• Appendix E Arrears paid in part during Calendar Year 2002 as at 30 June 2002
• Appendix F Member Nations having made no payment in 2002 against outstanding arrears as at 30 June 2002
• Appendix G Member Nations with Potential Voting Rights Problems
• Cash Flow Statements showing movements in cash for the Regular Programme and the Extra-budgetary activities (Trust/UNDP funds) presented as follows :
  • Appendix 1 : Regular Programme Cash Position and Forecast January - December 2002
  • Appendix 2 : Trust and UNDP Funds Cash Position and Forecast January - December 2002

II. Regular Programme

2. Contributions received for the Regular Programme during the 6-month period to 30 June 2002 improved by 1% over the comparative period of the last biennium. Regular Programme expenditures for the 6 month period, including $ 11.7 million of TCP expenditure, totalled $151.9 million.

3. The net result of the Regular Programme expenditures and income is a deficit of $5.2 million, which increases the accumulated deficit on the General Fund to $80.6 million. However, based on planned full spending of the Regular Programme budget, it is expected that the biennium’s activities will result in additional charges of some $14 million to recognize the non funding of past after service medical care liabilities. This would further weaken the Organization’s financial position and increase the current deficit on the General Fund balance to some $89.4 million. The growing deficit, as shown in the Highlights Report, is being funded to the extent possible by other reserve accounts (the Working Capital Fund and Special Reserve Account, both undergoing depletion) and balances on net assets (for example, undisbursed obligations and TCP appropriations).

4. Miscellaneous income is normally made up of investment income, bank interest and other miscellaneous income. The loss in this income category is mainly due to net losses of $2 million in the long-term investment portfolio. This portfolio experienced ongoing volatility and the further decline of most equity markets together with an appreciation of the Euro against the USD. The portfolio’s return for year ending 30 June 2002 was –8.4% compared to the selected benchmark of –5.28% for the same period.

III. TCP

5. Total TCP expenditure in the first 6 months of the year amounted to $11.7 million, nearly all for the 2000-01 appropriation. The balances at 30 June 2002 available for the 2000-01 and 2002-03 TCP appropriations are $66.1 million and $46.1 million, respectively. Movements during the period are as follows :

IV. Extra budgetary activities

6. The income and expenditure figures for Trust Fund and UNDP are in line with the plan. As noted in the past, the increasing focus in recent years is in the area of emergency assistance and the Iraq Oil for Food programme.

V. Reserves and Fund Balances

General fund

7. The accumulated deficit of the General Fund for this biennium is expected to deteriorate further by some $14 million due mainly to the amortization of after-service medical care liabilities, i.e. the deficit of $75.4 million at 1 January 2002 is expected to reach $89.4 million. As a consequence of the decisions by the Conference (C 97/102) not to budget for past after-service medical care charges in the last two biennia (98/99 and 00/01) some $35.2 million have been applied against the General Fund.

8. It is important to note that certain major assets and liabilities are not shown on the financial statements, in line with UN accounting practices or FAO Financial Rules. More specifically, as at the date of the previous audited accounts :

• assets representing arrears in Member Nations contributions of $130.4 million are fully offset by a provision;
• liabilities in respect of staff related schemes amounting to some $126.4 million are not recorded.

Special Reserve Account (SRA)

9. In accordance with Conference Resolution 13/81, the purpose of the 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.

10. The SRA is authorised at a level of 5% of the effective working budget, i.e. $32.5 million, and the outstanding contributions at 30 June 2002 stood at $10.5 million. The balance of the SRA was $0.5 million at 30 June 2002, and movements during the period are as follows :

11. Conference Resolution 13/81 states :

“ 4. ... notwithstanding the provisions of Financial Regulation 6.1 (b), such portion of the Cash Surplus in the General Fund at the end of 1980-81 and of any subsequent biennium as is required to bring the level of the Special Reserve Account to five percent of the effective working budget for 1982-83 and for any subsequent biennium shall be withheld and credited to the Special Reserve Account.
 

5. Authorizes the Director-General, in the event that a cash surplus should not arise at the end of any biennium adequate to bring the Special Reserve Account to the level specified in paragraph 4, to apply to the Special Reserve Account, notwithstanding financial Regulation 6.1. (a), any sums received in the subsequent biennium in payment of arrears of contributions for previous biennia.
 

6. Requests the Director-General, in the event that the Special Reserve Account, replenished in accordance with the foregoing paragraphs, should not attain the aforesaid level of five percent of the total effective working budget for the subsequent biennium to submit proposals to the Conference, through the Finance Committee and Council, concerning the ways and means of bringing the Special Reserve Account up to the level of five percent of the total effective working budget for the subsequent biennium.”

12. However, before acting on Resolution 13/81, the Secretariat is examining the options open to the Organization, particularly in the light of the next steps to be taken with regard to the recommendations of the Finance Committee on the proposal to protect the Programme of Work through split assessments (see FC 100/4). Until such time, the Organization will work with the current reduced Special Reserve Account balance.

Working Capital Fund (WCF)

13. The Working Capital Fund balance of $15.5 million at 30 June 2002 is less than its paid up balance of $23.7 million due to an advance of $8.3 million as authorised by Conference Resolution 3/99 to be reimbursed on the eventual receipt of arrears from the major contributor. Movements during the period are as follows :

VI. Cash Flow

14. The Cash Flow statement, appendices 1 and 2 show the cash position and forecast of the Organization for the year 2002 for both the Regular Programme and the Trust and UNDP funds. The documents also compare the actual cash position for the first six months of the year 2002 to the relevant monthly planned collections and disbursements and forecast for the remaining six months of the year.

15. The document assumes that the donors’ contributions and disbursements will follow the prior years’ trend. In this connection, in the case of Regular Programme it is assumed that TCP disbursements will average $4.5 million per month. Furthermore, the Regular Programme plan for the second half of the year 2002 assumes that in July 2002 FAO will collect $55.5 million and that the major contributor will pay its yearly contribution in two parts, October ($60 million) and December ($12.5 million). It is highlighted that in case of delay in receiving the above contributions, the Organization will be exposed to severe liquidity problems, requiring recourse to borrowing.