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Everyone hates the UN's financing dysfunction, but no one has an incentive to change it

28 April 2024

By Katja Hemmerich

There are, however, practical ways you can enable change.

Stick figures in front of a globe with money falling from the sky,

This month, our spotlight is on UN financing and governance, aspects of which are going to be considered in upcoming meetings of the UN General Assembly’s Fifth Committee and the WHO Executive Board’s Programme, Budget and Administration Committee in May. It is also the subject of a fascinating new study published in recent weeks by the Friedrich Ebert Foundation, which stresses that “a systematic analysis of the status quo of funding structures is a necessary condition for addressing current challenges to UN multilateralism”.

In summarizing the excellent analysis provided by the Friedrich Ebert Foundation (FES) in collaboration with the German Institute of Development and Sustainability (IDOS) , we explain how this dysfunctional system arose and why none of the stakeholders actually have an incentive to change it. WHO is thus far the only organization that is starting to tackle the funding and related governance dysfunctions. Their approach comes with benefits and risks that the rest of the system should watch. More than that, we outline practical and concrete steps that those working in the multilateral system as implementers, programme managers or funders can take to enable positive change.

The financing and governance dysfunction in the UN today.

In April, FES-IDOS published a study titled "Financing the United Nations: Status quo, challenges and reform options" which outlines how UN financing has undermined the foundations of inclusive and effective multilateralism. The study makes a well-research argument that donor countries (particularly Western countries) have insisted on zero-growth in assessed (mandatory) budgets while channeling more of their support through voluntary funding streams. In doing so, donors have bypassed complex multilateral negotiations about UN programming and priorities and had a disproportionately strong influence over what the UN does and how it implements its mandates.

“The turn to earmarking occurred in a context where developed countries, no longer in the majority on UN governing bodies, were actively seeking ways to maintain or increase their influence across the UN system. They adopted a zero-growth approach to regular budgets and shifted their funding portfolios towards voluntary funding. This allowed them to fund priorities that would have been difficult to negotiate in governing boards and the UN General Assembly with its one-country-one-vote principle. Western donors also began to use UN entities more explicitly as implementing agencies for their own projects.” - FES-IDOS, "Financing the United Nations: Status quo, challenges and reform options", April 2024

The key point of the report is that this evolution in funding and simultaneous bypassing of multilateral governance processes has subverted the spirit of multilateralism that underpins the UN Charter. More specifically, it has fueled a ‘simmering resentment’ amongst member states from the Global South that their voices do not carry equal weight, thereby exacerbating the North-South divide in the multilateral system.

While developing countries may not be able to use voluntary funding to exert power, they do have the power of numbers within most governing bodies - particularly those that make decisions on assessed funding, such as the Fifth Committee. They have used that power in those fora, just as wealthier countries have used their financial power in those fora as well, for instance when the US Congress unilaterally decided on a 22% ceiling for assessed contributions to the regular budget. Currently the US and China combined pay more than one third of the UN’s regular budget, giving them immense influence over the decision making process. The G77 with its 134 members can potentially galvanize just over two thirds of the General Assembly’s membership to agree or undermine consensus on a budget. This gives them a significant amount of power.

Given these power dynamics, it is not surprising that the Fifth Committee in particular has been prone to politicking and horse trading on issues between groups of member states. This too has undermined the original spirit of the UN Charter, which set out assessed funding as a modality to facilitate equitable burden-sharing across all member states and predictable funding streams for the UN Secretariat. Neither of which exists under the current status quo.

A consequence of this politicking not mentioned by the FES-IDOS study is that UN managers are increasingly reluctant to seek assessed funding for new initiatives or to engage in discussions about the need for changes to programming, structures and staffing. The risk of one’s initiative or programme adjustment being held hostage to potentially unrelated disagreements by member states, or becoming the victim of horse trading to allow for compromise on a different programme priority, is too great. Especially when voluntary funding is available from other sources.

Voluntary funding, despite its short term nature and the risks associated with organizational incoherence and additional transaction costs, tends to be a faster and easier way to actually achieving what what management perceives as an urgent priority. Without necessarily considering the long term implications for the UN and multilateralism, UN staff themselves have become a key enabler of the disproportionate use of voluntary funding.

And, despite the FES-IDOS recommendations in favor of greater assessed funding from member states, UN managers currently have little or no incentive to shore up assessed funding mechanisms. This is because they are increasingly prone to late payments. The late payments create additional uncertainties about if and when funding is received, which results in greater managerial effort to plan and maintain operations. According to the Secretary-General’s latest report on the financial situation of the UN, under consideration by the Fifth Committee in May, the third quarter of 2023 had the lowest collection are of the past five years, with only 64% of assessed contributions paid (A/78/524). IOM's Council will consider a similar report on 29 April at its Special Session. In the case of the UN Secretariat, all the other cash reserves used to make up for the late payments have essentially been exhausted, meaning that there has been virtually no cushion to deal with late payments in 2024. Why would anyone take the political risk of presenting a new initiative to the Fifth Committee, when - even once agreed by member states - funding is potentially only available in the last quarter when you are already supposed to be reporting on the achievements of that initiative?

UN management is not alone in enabling and reinforcing the funding and governance dysfunctions. Amongst the countries of the Global South there are also those who benefit from the unequal burden-sharing inherent in the status quo. As the graph below illustrates, the growth of earmarked funding has underpinned an overall increase in funding for the UN in recent years, despite assessed funding levels remaining the same. That means some member states are paying more than what they would if all UN income were through the assessment formula of the Fifth Committee, and others are essentially getting a discount by only paying their assessed contributions.

The level of what countries are paying to the UN is not purely a reflection of what they are actually able to pay. In other intergovernmental organizations outside the UN, those same countries have agreed to higher minimum contributions, which illustrates they can pay more. Member states to the African Union, for instance, have agreed to a minimum contribution of $350,000 per year. In the UN, the Fifth Committee has established a minimum payment of  0.001% of the regular budget. That is currently equivalent to $31,509 per year, or less than one 10th of what countries pay to be a member of the African Union.

“If the share of assessed contributions is taken as a measure of burden-sharing fairness for the area of voluntary funding, some member states – such as the Nordic countries – cover a share of voluntary resources for development and humanitarian activities that far exceeds their regular budget shares . Others – including Southern powers, high-income Arab countries and many small developing countries – contribute less to development and humanitarian work than their share would be if the scale of assessments of the UN regular budget were applied.” - FES-IDOS, "Financing the United Nations: Status quo, challenges and reform options", April 2024

Is it even possible to fix the UN's financing dysfunction?

Although everyone is frustrated with the dysfunction of the current financing situation, none of the stakeholders amongst member states or within the UN have any real incentive to change it. Yet recent changes at the World Health Organization (WHO), agreed by its member states and its management, illustrate that change is feasible. While there are risks to this change process, research also highlights practical ways that those risks can be mitigated by working level staff in the UN and foreign ministries.

In 2022, the World Health Assembly, WHO’s governing body of member states agreed to rebalance the proportion of voluntary versus assessed funding in the budget. The aim is that by 2030, assessed funding will make up 50% of WHO’s budget, up from the 11% that it comprised in 2022. Similar discussion are underway in FAO, which saw its first increase in assessed funding in 2023 after 12 years of zero-growth. Depending on how these decisions are implemented, they should lead to more equitable burden-sharing, more predictable funding streams and therefore better performance by WHO and FAO.

But predictable funding alone does not lead to better performance by UN organizations. UN management needs to be able to manage those funds effectively. And herein lies the risk, already evident in WHO's change process. In 2022, the World Health Assembly also set up an Agile Member State Task Group on Strengthening WHO’s Budgetary, Programmatic and Financing Governance. One outcome of this Group, which has just begun implementation this year, is that any new initiatives of the Director-General or Secretariat costing $10 million or more needs to go through a a more detailed costing methodology which is then presented to member states for agreement. This is required irrespective of the funding source. The WHO Executive Board’s Programme, Budget and Administration Committee, which meets in May, will now start enforcing this measure and using the new detailed costing method for any such new initiatives.

While this is an important measure to reduce the risk of undue influence of voluntary funding and any related programmatic incoherence, it also creates potential risks of greater politicking and micromanagement by member states. As anyone who has presented detailed proposals and data to the Fifth Committee has learned, more detail can often make consensus-building more difficult and lead to greater specificity in member state resolutions which reduces the autonomy of management to actually manage. A growing body of research is demonstrating that this has negative consequences for organizational performance.

One such study, by Prof. Ranjit Lall of Oxford University, which includes a case study of WHO highlights that in the last 30 years, WHO has been caught in a downward spiral of greater micromanagement by member states, reduced managerial autonomy and weak performance.

Rather than the public health pioneer and leader envisaged by its creators, it [WHO] has come to be seen as a 'highly politicized' and 'fragmented organization with cumbersome governance' that does many things poorly and few things well.” - R. Lall, "Making International Institutions Work", 2023

That same research also highlights some of the techniques that organizations can use to get out of this downward spiral, many of which can be implemented already at divisional or unit level or as part of donors’ working methods.

The one and only stakeholder in the multilateral system who has a vested interest in changing the status quo are the beneficiaries of UN programming. They are the ones who suffer from the dysfunction and see the results of coherent programming priorities matched with funding and supported by strong organizational performance. That means establishing consistent feedback loops with beneficiary communities and sharing that feedback transparently with managers, governance bodies and donors is one concrete way of mitigating the impact of the current status quo and enabling better financing approaches. It is harder to continue with the status quo when transparent feedback from those who should be benefiting from multilateral cooperation indicate that it is not working.

Capturing those lessons about what is not working, or where adjustments to programmes as a result of community feedback have led to better outcomes, and building them into organizational learning, is another tool that can enable a change fo the current status quo. With collective agreement across the UN system about the importance of evaluation, there is no reason that programme manager and staff in host country or donor ministries cannot insist on such evaluations and seeing their results. Aggregating and analyzing evaluation results from across the UN system can further highlight the strategic level impacts of the current status quo or new approaches to financing (see our previous spotlight on how to use AI to do that). These are all things that are within the authority of UN managers to do as well as that of staff working in donor countries and organizations. Community feedback loops for instance are also starting to be included in organizational policies, such as WFP’s Protection and Accountability Policy and inherent in community complaints mechanisms already adopted by member of multilateral development banks (and UNDP).

Changing the status quo is therefore possible, irrespective of whether you sit on a governing body, or lead a smaller team in the field or at headquarters of a UN entity. This is not to say that fundamental change will require high level agreement on new approaches, like at the World Health Assembly. It does. But that may be slow in coming and that alone will not solve the financial dysfunction and performance challenges. As the world waits for those multiateral agreements, those who make the multilateral system work every day through programme implementation can enable change by making the consequences of the dysfunction clear and giving voice to those who suffer its consequences.


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