Financial situation of UNRWA – Statement by the UNRWA Commissioner-General before the Extraordinary Session of the Advisory Commission

Opening statement by UNRWA Commissioner-General

Extraordinary Session of the Advisory Commission

30 April, 2008

Distinguished Chair; distinguished members and observers:

I thank you for responding to my call for this extraordinary session of UNRWA’s Advisory Commission. This call was not made lightly. On many occasions, I have brought to this Commission’s attention the persistent financial deficits which hamper our ability to serve Palestine refugees in a manner commensurate with their needs and to standards consistent with international norms. On those occasions, I have appealed for more generous levels of funding arguing that UNRWA’s financial situation is simply not sustainable in the medium to long term.

I was moved to request this extraordinary session because at this particular time, a variety of factors are coming together to sharpen UNRWA’s financial vulnerability and to heighten the operational risks associated with it. I believe it is appropriate for the Advisory Commission, which demonstrates such genuine interest in the UNRWA’s activities, to be fully briefed – well in advance – about the grave preoccupations regarding our financial prospects.

My remarks this morning will highlight some global features of UNRWA’s financial situation and draw out, in general terms, the reasons why an immediate response is required to prevent the Agency’s financial weaknesses from degenerating further. My remarks will be followed by a briefing from the Deputy Commissioner-General, who will provide the hard figures on which our concerns are based and outline the effects on our operations – currently and potentially – of the deficits we face.

Before I begin my remarks, I request the kind permission of the Chair and the Advisory Commission to invite the Chairperson of the Inter-Staff Union Council to join us for part of our proceedings this morning, in his capacity as representative of UNRWA’s area staff unions.

As you are aware, staff salaries constitute just under 77% of our expenditure. Any unbudgeted increase in salaries thus exerts huge pressure on the Agency’s finances. For some time now, UNRWA has been experiencing more frequent agitation for salary increases, as the staff struggle to cope with rises in the cost of living across the region. In our discussions with staff, we emphasize not only the importance of adhering to our pay policy, but also the funding shortfalls which prevent us from acceding to the entirety of their demands. Against this backdrop, and given the subject matter of this session, I believe it is useful to devote a part of our deliberations to an exchange of perspectives between the Advisory Commission and the UNRWA staff representative. With the permission of the Chair and the Commission, I will ask Hassan El-Arqan to join us from UNRWA Headquarters Gaza. Thank you Mr. Chairman.

Mr. Chairman, I will now turn to the features which together have raised the Agency’s financial exposure. I will focus on three of these, namely, our existing commitment to enhance service standards; the global economic volatility; and fluctuations in currency values.

UNRWA has undertaken to respond more efficiently and effectively to the humanitarian and human development needs of Palestine refugees. This commitment underpins many of the initiatives and practices we have embarked upon since I was appointed Commissioner-General. Our organizational development process, whose essential components include the drive to define, deliver and manage quality services; our adoption of a budget based on verifiable refugee needs; and our needs-based poverty approach to assisting special hardship cases. These are examples testifying to UNRWA’s determination to provide Palestine refugees with a level of services that will make a measurable difference in their lives. While improvements in service delivery are essential and our commitment to make these improvements strong, we are yet to secure the appreciably higher levels of funding necessary to bring those improvements into effect.

The result is the present situation, in which we are compelled to renege on express strategic undertakings to enhance service quality and instead, are forced to consider shrinking the scope of our services. As such, we shatter the expectations for meaningful change legitimately held by refugees and stakeholders, and in the process, lose their trust. Refugee needs remain – and even expand – when we fail to address them year after year. They do not go away, but constitute an ever-growing backlog which bodes ill for progress on vital reforms and for the stability of our operational environment.

We, our staff and the refugees, are sincerely grateful for the increased funding several donors have made available to UNRWA over the past two years. Still, the Agency’s "unfunded requirements", that is, the injection we need into the General Fund to enable us to work towards human development objectives, stands at US$ 98.8 million. Over and above this amount, of particular and immediate concern is the gap of US$18.5 million between our predicted income and our estimate of expenditure by year’s end. As in previous years, we will continue to scramble to manage this deficit, for example by addressing only the bare minimum of refugee needs and by delaying maintenance and repair work. It has become clear, however, that this less-than-ideal practice of constant deficit management cannot be sustained in a climate where global economic turmoil is contributing to escalating operational costs.

The world-wide economic downturn is taking a heavy toll on UNRWA’s finances. The outlook for the global economy is gloomy, as multiple demand and supply pressures drive food, energy and commodity prices upward to unprecedented levels in a climate of uncertainty in financial markets and slow growth. In our region, the reduction or removal of some government subsidies have made it more difficult for people to cope with the cost of living, creating hardship where there was none before and generating unrest among our staff. Earlier this month, the International Monetary Fund called on "prudent governments" to prepare contingency plans to mitigate the risks inherent in the international economic situation. UNRWA is not alone in feeling the impact of current economic circumstances. I returned this morning from the spring session of the UN Chief Executives Board, where discussions were dominated by the budgetary and operational consequences of food and energy price rises. Indeed, other agenda items were set aside to make room for this most pressing topic.

This much is clear. Global energy and food prices are set to continue their upward trend. [OPEC’s prediction that the price of oil will top $200 a barrel] As this will have significant consequences on our operational costs, we will need prompt and robust help from host and donor countries to keep our finances on an even keel.

Currency fluctuations are another feature contributing to our deepening financial challenges. At the moment, the flux appears to work in UNRWA’s favour but only to a limited degree. We receive substantial donations in euros while the greatest portion of our expenditure, notably for staff salaries, is denominated in US dollars. This means that as the value of the dollar declines against the euro, we are able to use – and have in fact extensively used – the exchange rate differential to bolster our finances and to manage our current deficit. Paradoxically, the weakness of the dollar relative to other major currencies is simultaneously the cause of losses as well as gains for the Agency because it contributes to steeper operational costs and to higher dollar salaries for our staff. What appears at first to constitute "exchange rate gains" are in effect siphoned away through higher costs. The uncomfortable reality is that currency fluctuations also work against us. And this justifies our alarm about UNRWA’s financial stability in the immediate future. And it underscores the acute weakness of a financial situation which obliges UNRWA to rely –to a dangerously extent – on ephemeral and unpredictable exchange rate gains to keep operations running from month to month. UNRWA deserves to be managed on a more secure footing.

Distinguished Chair; distinguished members and observers:

When we consider the blend of trends and features I have mentioned, we see a condition of chronic financial vulnerability which for the present, we are handling, albeit barely, with the help of prudent financial management and fortuitous exchange rate values. In a global atmosphere of deepening economic unpredictability, we also see a real potential for a precipitate decline into financial and budgetary free fall if we continue to rely on the current ad hoc approach. I convened this extraordinary session to share with you, well in advance, our concerns about UNRWA’s finances and to appeal for your help to establish a more solid and dependable basis for implementing our responsibilities towards Palestine refugees.

I look forward to your views and suggestions once we have heard from the Deputy Commissioner-General and the staff representative.