Mr. President, Distinguished Delegates, Colleagues and Friends,

I would like to thank you Mr. President and the Executive Board, for providing us with an opportunity this morning to follow up on our exchange during the last Annual Session of the Executive Board regarding UNCDF’s financial situation.

At the annual sessions of the Board in 2001, 2002 and 2003 and at the September 2002 session, I informed you that the resource situation in UNCDF was a matter of great concern. Today, I would like to provide you with an update on UNCDF’s current resource situation and the way forward with regard to core resources, programme approvals and expenditures and the administrative budget.

UNCDF core resources: As shown in the Summary Table attached to the printed version of my statement, UNCDF’s core contributions declined by nearly 45% from 1992 to 2002. Despite the good results produced in recent years in our two areas of concentration, core contributions to UNCDF decreased from US$33.4 million in 1996 to US$23.9 million in 2000. In 2001, for the first time, the negative trend in UNCDF’s core contributions was reversed with a small increase of 1% from US$23.9 million in 2000 to US$24.3 million in 2001. But in 2002, core contributions to UNCDF again dropped, to roughly US$22.3 million. The main reason for this decline is that one of our most generous supporters decided in 2002 to reduce, for burden-sharing reasons, its core contribution to UNCDF.

The Executive Board has taken UNCDF’s financial situation very seriously and has adopted two decisions on this matter between September 2002 and June 2003.

In its decision 2002/26 the Board invited the international community to help achieve UNCDF's core resource mobilization target of US$ 30 million/year. The adoption of this decision by the Executive Board was based on its explicit recognition of the excellent results produced by UNCDF in its two areas of concentration. Furthermore, decision 2002/26 recognizes that UNCDF's mission is consistent with the main objective of poverty reduction of the Millennium Declaration and relevant to the implementation of the Brussels Plan of Action for the Least Developed Countries (LDCs) adopted in 2001. The decision also reaffirms the unique role played by UNCDF, within the international development financing architecture, as a small-scale multilateral investment organization in support of the LDCs. It also deplores that the current level of UNCDF resources falls far below the demand of the programme countries for its investment and capacity building services.

The substance of the 2002 Decision was reiterated again recently, at the June 2003 session of the Executive Board (decision 2003/9), when the Executive Board reaffirmed “the unique contribution of UNCDF to the achievement of the MDGs and the Brussels Programme of Action for the Least Developed Countries.” The June 2003 Decision also “urged the international community to follow up on decision 2002/26 in order to allow UNCDF to fulfil its mandate.” The Board recognized the efforts of UNCDF to broaden its donor base, and requested UNCDF to inform the Executive Board in September 2003 of its strategy to achieve its regular resources mobilization target of US$30 million per year set out in decision 2002/26.

These appeals by the Board are having a positive affect. I am pleased to report to you that core contributions to UNCDF will likely increase from US$22.3 million in 2002 to more than US$26.0 million in 2003 – or roughly a US$4 million increase. This increase has resulted from various factors, including the variation in the rate of exchange of the dollar in 2003, and an increase in contributions made by several donor and programme countries. I would like to thank UNCDF’s long-standing contributors for their support. I would like to express my appreciation to the countries that have increased their contributions to UNCDF in 2003. I also know that some countries are considering contributing to UNCDF as of next year and we stand ready to provide them with any additional information they may require.

I would also like to thank the United Kingdom and its Department for International Development (DFID) for its contribution of US$100,000 towards the implementation of the Executive Board-requested impact evaluation of UNCDF. So far, the UK is the only country that has directly contributed to UNCDF for that important undertaking. More is needed. Finally, I would like to acknowledge the very significant contributions to UNCDF made by many countries through their JPO programmes. No doubt that these young professionals have contributed tremendously and continue to do so to the concrete results produced by UNCDF on the ground. Many new opportunities are coming up and we count that JPOs will continue to play an important role in support of our work.

UNCDF programme approvals and expenditures against its core resources: During the period 1992 to 1999, UNCDF maintained a level of annual programme approvals higher than its annual total core income. As indicated in the Summary Table attached to my printed statement, after the adoption in 1995 of a new approach in two areas of focus, UNCDF’s annual approvals during the subsequent five years ranged from US$40.4 million and US$65.1 million. The strategy adopted then by UNCDF for this high level of annual approvals was consistent with the partial funding system formula and was aimed at achieving two main objectives: maximum impact on the ground and reduction of accumulated liquidities.

Until 1999, drawing on its accumulated liquidities, UNCDF was able to maintain – against its core resources - a level of annual programme expenditures averaging US$40.0 million. However, Mr. President, declining core contributions and a reduction in accumulated liquidities necessitated that we adopt drastic measures beginning in 2000 to ensure the financial integrity of UNCDF. This was achieved through a combination of reduced levels of programme expenditures from US$39.3 million in 2000, to US$32.9 million in 2001, to US$22.6 million in 2002 and reduced levels of programme approvals, down to US$9.5 million in 2002.

As reported in our ROAR for 2002, the reduction of our programme expenditures had a negative impact on our performance on the ground in the area of local governance and microfinance, despite efforts from all concerned to minimize the shock. Indeed, we had to rephase activities and cancel some of our previous commitments in light of our lower than anticipated resources. I appreciate that this has resulted in slowing down and delaying operations on the ground and in frustrations at various levels. I very much regret that situation. I know that many countries where UNCDF is working – present here today – have been disappointed by that situation. I also know that many LDCs who have requested UNCDF support in 2002 and 2003 have been disappointed by our incapacity to respond positively.

Now, let me also give you some good news. As of 2003, UNCDF expenditures and income will be aligned, thus ensuring the continuing financial health of the Fund. As of 2004, with the increase in core contributions in 2003, we will be able to increase once again our programme approvals to US$ 15.0 million and maintain our programme expenditures at roughly US$ 22.0 million. Another good news is that UNCDF non-core resources are increasing steadily, with non-core income increasing from US$ 3.5 million in 2002 to an estimated US$ 8.5 million this year. Parallel funding is also significant. Therefore, in the next biennium, we can forecast an annual level of UNCDF total programme expenditures of US$35 million (US$25.0 million against core and US$10.0 million against non core), which would allow us to work – when including parallel funding – on a programme surface of roughly US$70.0 million/year.

UNCDF administrative budget for the period 2004-2005: UNCDF’s annual administrative budget has remained quite stable and at a rather low level during the entire period 1992 to 2002, varying between US$5.1 million and US$6.0 million. In 2002, our expenditures against our administrative budget reached US$5.5 million. Almost 50% of our administrative budget (US$ 2.8 million) was used for the provision of technical support services by UNCDF technical staff. Therefore, the cost spent to administer the organization was actually much less than the administrative budget itself. In addition, six of our technical staff were funded out of the cost-recovery income generated through our technical advisory services. The recent review of our cost-recovery experience was used to fine-tune our cost-recovery policy in order to guarantee full recovery in 2003, up from 24 % in 2002.

For the next biennium covering the period 2004 and 2005, we have submitted for the consideration of the Board at this Session, an administrative budget proposal that in real terms will represent a reduction of more than 16% of the current administrative budget. Streamlining of functions and improved efficiency allowed us to reduce our core posts from 38 to 32. This reduction in real terms was, however, offset by inflation and mandatory salary related increases, resulting in the proposed budget of US$ 14.4 million, as compared to US$13.6 for the previous biennium. This represents a nominal increase of 6%.

Mr. President, I would now like to highlight – as was requested by the Board in its decision 2003/09 - UNCDF resource mobilization strategy aimed at reaching its core resource mobilization target of US$30.0 million/year set out in decision 2002/26:

• We will continue to do our very best to produce concrete and useful results on the ground in our two areas of focus. Through these concrete results on the ground, we will continue to demonstrate that UNCDF has a role to play in support of the LDCs within the international development financing architecture. We hope that this will continue to help us secure the confidence and support of the international community, thus assuring growth in both core and non-core resources.
• We will continue to maintain our administrative budget at its current low level so as to ensure that future increases in core resources are entirely directed to produce concrete results on the ground, thus contributing to reduce the tremendous gap existing between the demands of the programme countries for our small-scale, capacity-building, pilot investments and our ability to respond.
• We will continue to concentrate our efforts on what we can do best, strengthening our partnerships and ensuring complementarity with other development players. The memoranda of understanding signed with UNDP articulating our operational relationship in our two areas of focus provides a good example of what we really mean by complementarity. Similarly, our partnership with the World Bank and other multilateral and bilateral funding institutions confirms that we do what we say we should do.
• We consider the endorsement of our work by the programme countries themselves to be of critical importance in our efforts to mobilize resources. For the programme countries to endorse what we do, we know that they need to see concrete results on the ground and have a sense of total ownership of the results we help them to produce.
• We know that it is not good enough simply to produce good results. We have to inform the international community of what we do so that decision makers know that investing in UNCDF is a sound investment, an investment consistent with their policies and their development goals. We have to show the international community that we are an efficient organization, concerned about results, costs and fitting into the overall international development financing architecture. There is only so much, however, that a small Organization like ours can do in this area, For example, our Results-oriented Annual Report (ROAR), praised by the Board for its openness and quality as a whole, is helping us make the case for UNCDF. Similarly, other publications – brochure type but also more substantive and analytical – are also helpful. Visiting donor capitals and engaging Representatives of donor countries when we undertake field visits are also considered to be a must. But while necessary, all of what UNCDF can do itself cannot be sufficient.
• To mobilize resources, UNCDF needs the full support of its Executive Board. I am pleased to say that we have benefited greatly from the Board support and that this, in our opinion, has made a big difference in the increase of core contributions to UNCDF for 2003. The Executive Board owns UNCDF. It has the responsibility to determine what needs to be done to ensure its viability and its sustainability in the long run.
• It is also very important for the international community to be clear about the complementarity between UNDP and UNCDF. The signing of the two memoranda of understanding I have just mentioned should help. We also very much appreciate the support we receive from the UNDP Administrator in his capacity as Managing Director of UNCDF and of the Associate Administrator. Whenever the opportunity arises, they are making the case for UNCDF. Indeed, it is important for the members of the international community to hear from the Administrator of UNDP that he values UNCDF and wants this Organization to be funded at an appropriate level. It is also important that the UNDP Resident Representatives in the field who are also UNCDF Representatives make the case for what we do in partnership with them and invite the members of the international community present in their respective country to support UNCDF – through core and non-core contributions.
• Programme countries themselves have an essential role to play in informing the donor community of what they think of UNCDF and in inviting additional support to UNCDF to help them produce key results in the two areas in which it is working. I am pleased to say that the programme countries have constantly – in various fora and bilateral meetings – indicated that UNCDF needs to have more resources to reduce the gap between their demands for its investments and capacity-building services and its ability to respond. We are particularly appreciative of the support we have received from the programme countries at the various sessions of our Executive Board. Many programme countries have also expressed confidence in UNCDF by contributing to its core resources. This is a very important action taken by the programme countries in support of UNCDF. We also very much appreciate the growing number of programme countries that have pledged to contribute to our core resources in 2003. We see this as a vote of confidence.

With regard to the diversification of our resource base, three additional OECD/DAC countries have joined the group of contributors to UNCDF since 1999. In terms of volume, however, this has not been sufficient to produce the needed boost in our core resources. We realize that the issue of burden sharing is an important one and needs to be addressed. Indeed, already in 1999, the Executive Board in its decision 99/22 warned us that that the over-dependence on a limited number of donors carries risks for the long-term sustainability of UNCDF. Accordingly, already in 1999 the Board invited all countries in a position to do so to make voluntary contributions to UNCDF to secure adequate funding for its programmes.

While there is no doubt that we need to enlarge the UNCDF donor club, the achievement of UNCDF resource mobilization target set out in decision 2002/26 will depend primarily on whether or not some donor countries already contributing to UNCDF - at a rather modest level - will be in a position in the near future to increase their contributions to UNCDF. This would help address the issue of burden sharing between donor countries and bring UNCDF on a sustainable resource path consistent with its resource mobilization target.

Greater predictability of core contributions would also be most helpful. We need to receive the payments of core contributions early in the year so as to have a healthy cash flow situation that would allow us to meet our programme expenditures in a timely manner.

Recognizing that non-core resources should serve as a complement and not a substitute for core resources and that they should be used to perform the core functions of the organization, UNCDF’s resource mobilization objective is to increase non-core resources from US$ 1.8 million in 2001 to US$10.0 million in 2003. I am pleased to report that non-core contribution agreements have more than tripled from US$ 4.1 million in 2001 to US$ 12.5 million in 2002. This is indeed a vote of confidence for the work UNCDF is doing.

Before concluding Mr. President, it is important to emphasize that core contributions to UNCDF have a much greater impact than the value of those core contributions themselves, making UNCDF a sound investment for the international community. For every $1 million channeled through UNCDF, we have calculated that there is another $1 million mobilized from programme country governments, local communities and other donor countries in the form of parallel funding. Furthermore, a significant proportion of UNCDF’s pilot initiatives are replicated on a much larger scale with the support of development partners like the World Bank, resulting in yet another increase in the value of that original dollar.

Mr. President, we consider the implementation of our core and non-core resource mobilization strategy to be an imperative in order to ensure a level of programme expenditures at roughly $35 million/year, a level that nevertheless would still fall far short of the demands of the LDCs for our small-scale investment support. We consider this strategy to be realistic and achievable. Indeed, if UNCDF is producing the results it is expected to produce, and if UNCDF – as a small-scale investment organization working in two critical areas for the poor — has a role to play within the international development financing architecture in support of the poorest, we believe that it should be feasible to build on the positive results achieved in 2003 and to mobilize an additional amount of US $4 million in core contributions for 2004. We are very much encouraged by the two recent decisions adopted by the Board (decisions 2002/26 and 2003/09) and would very much welcome your views and guidance on how we can best move forward on this issue so critical for the future of UNCDF.

Thank you.

Link: Financial Contributions, 1992-2003 [ pdf ]

Link: 2002 UNCDF Results-oriented Annual Report [June 2003] [ pdf English ]

Link: Statement by ZÉPHIRIN DIABRÉ UNDP Associate Administrator, to the Executive Board, regarding UNCDF [ pdf file ]