ONIONS
Peeling the onion triggers crying. It’s important not to be blinded with tears, indeed.
Two colours dominated the United Nations 75th Anniversary celebrations: blue on banners and red in accounting books. In 2020, the UN system suffered the most severe financial liquidity crisis in decades. Some member states failed to pay their contributions to the budget; USD 5.1 billion shortfall has threatened UN operations worldwide. The UN personnel was affected by “a recruitment freeze which means nobody can be recruited and nobody can be promoted because of the liquidity crisis.” The last-minute UN 2021 budget was approved on the New Year’s Eve. Financial problems have hardly disappeared after the mid-night fireworks.
Many of the UN system organizations, programmes and agencies have activated emergency “peeling the onion” protocols to identify protection measures against financial threats to their existence.
There are two onions in a financial basket of UNIDO: budgetary and non-budgetary. Peeling the budgetary onion exposes regular (RB) and operational (OB) budgets. Some layers of the non-budgetary onion of technical cooperation (TC) portfolio - financed by voluntary contributions from organizations, funds, member states and other donors - are peeled and transferred to RB and OB. TC project support costs and attributable direct costs must be recovered for the Organization to be able to sustain its services. UNIDO Constitution requires to allocate 6 % of RB for TC projects financing. To complicate the issue more, UNIDO financial onions can be peeled in different sets of layers, following double side accounting or result-based budgeting (RBB) principles.
Introduction of RBB is a huge milestone for UNIDO on its financial efficiency and transparency path. The member states do have a reason to applaud. The Full Costs Recovery (FCR) scheme shields against an increase of their assessed contributions. However, donors of TC programmes and projects (often the very same member states) are now charged more for TC project implementation.
Projected TC delivery for 2022-2023 is EUR 345.1 M. Related supporting costs reimbursed to operational budget amount to EUR 37.8 M. Through the FCR scheme additional EUR 4.2 M costs will become a budgetary income. UNIDO does not instantly become more expensive, or rich if you will, from budgetary point of view. The real zero-growth rate of the budget has been imposed by the member states for years.
The Organization has not suffered any major financial or organizational stress in 2020. The gloomy socioeconomic future of the world - gripped by the COVID-19 pandemic, with widespread loss of life, human suffering, lost livelihoods, and approaching climate catastrophe - that UNIDO DG so dramatically describes in his foreword to Annual Report 2020 - poses no threat at all. The 2022 – 2023 biennium budget optimistically foresees bright years to come for the financially stable and generously funded Organization.
Has the phrase from The Merchant of Venice, by William Shakespeare : "All that glisters is not gold", been forgotten by the UNIDO's Member States? The Permanent Representative of Japan to the International Organizations in Vienna, stated at the 49th Session of the Industrial Development Board of UNIDO: "Japan believes that upholding the principle of a Zero Nominal Growth budget is important in the current situation. However, for the sake of consensus in support of UNIDO, Japan has accepted the Zero Real Growth budget proposal for the next biennium at the last PBC. ... At the same time, Japan requests the Secretariat to engage in further efforts to increase efficiency and effectiveness, by optimizing the use of its resources, including staff costs, through scrap-and-build."
In the middle of pandemic crisis, UNIDO expanded its top managerial structure that results in a substantial increase of the management costs for the next biennium. The budget proposal also foresees additional increase in managerial staff cost emanating from another 3 positions upgrades in the directors’ category made to strengthen the delivery of technical cooperation services.
The External Auditor report discloses that the key management personnel remuneration increased in 2020 by 54.87% or EUR 0.66 M (total amount EUR 1.86 M) as compared to 2019. In 2022-2023 biennium, total 7 persons' key management costs may reach EUR 4.0 M, including increase of costs related to top management privileges. The zero real growth rate budget's arithmetic is simple: more funds in directors’ budget lines less in other budget lines.
Before the next biennium budgets are finally approved by UNIDO General Conference in November, its governing bodies peeled all layers of the onions. The Informal Working Group on Programme and Budget Committee (PBC) - related issues requested additional information on “financial impact of staffing changes and the potential for additional downgrades”.
The External Auditor’s early warning system has been activated as well. Recommendations include full justification of proposed budgetary expenditure for 2022 - 2023, full information about the purpose of using regular budget funds, and introduction of quality control of the implementation of UNIDO’s projects portfolio.
Indeed, quality control is “the Achilles heel” of UNIDO. Even an unexperienced viewer of UNIDO Open Data Platform can see it with the naked eye. Some projects are supervised by project managers who retired from UNIDO, other are “ongoing” more than a year after its implementation timeline expired.
Introduction of RBB and FCR scheme brings back a dilemma that UNIDO has faced since 1996 financial crisis. “UNIDO needs to strike the right balance between operating as a normative organization and as a development organization but has not clearly articulated how it does so. Operational processes and organizational culture are still weighted towards technical co-operation.“ – observes MOPAN in its evaluation report.
When the member states’ standing ovation for the RBB introduction ends, UNIDO’s management and staff may realize that TC project implementation control needs to go beyond timesheets reporting. Every delay or failure of projects implementation fires back as the potential budgetary gap caused by missed income. UNIDO’s flagship Programme for Country Partnership (PCP) in Peru entailed 5 years’ (2017-2021) coordination budget of EUR 1.99 M and 14 projects’ budget of EUR 54.78 M. Total budget of 6 ongoing projects that UNIDO has implemented in Peru since 2016 is only USD 9.82 M, excluding project support costs.
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There are plenty of “sleeping beauty” projects on the UNIDO’s Open Data Platform. Very often their preparatory phase has been financed from 6% layer of the regular budget onion, as approved by the Organization's Executive Board.
This could not be a problem for non - member states’ donors, as they do not make any assessed contribution to the budget. As the External Auditor points out, they may even enjoy extra benefits.
The list of top funding partners of UNIDO programmes and projects in 2020 includes the United States ranked 7th for donating USD 4.3 M. The country left UNIDO in 1996. Fast forward to 2021, the Report by the DG on Financial Situation of UNIDO claims that the amount of arrears owed to UNIDO by the US is EUR 69.1 M. If paid with compound interest it would be enough to finance more than a half of the next biennium regular budget.
UNIDO Programme and Budgets 2022 – 2023 proposal have two onions in its EUR 524.75 M financial basket: budgetary and non-budgetary. The price tags attached are EUR 179.64 M and EUR 345.11 M respectively. The External Auditor will peel the onions and publish the findings in April 2024. Then, it will be clearer how much people-in-need in developing countries benefitted from each 1 EUR spent.
“Just as we entered the Decade of Action … The progress made in the field of development over decades is likely to be undone, as hundreds of millions of people revert into poverty.” – lamented UNIDO DG, at the time he proposed the new biennium budget.
Peeling the onion triggers crying. It’s important not to be blinded with tears, however.
Updated July 16th, 2021
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