CHAPTER II - Global Dimensions of Co-financing
Introduction
A review of the dimensions of UNDP's co-financing initiatives to date in the fifth programming cycle helps to define what has been accomplished, where, and by what means. The evaluators had hoped to provide a more comprehensive up-to-date profile of co-financing for the fifth programming cycle. However, data were not available from all of the country offices, some data were incomplete and databases at UNDP headquarters are not all compatible and up-to-date. Therefore, the figures provided below are partial and give only the best approximations feasible at this time.Total Co-financing by Modality
Table 1 summarizes the total recorded commitments for the fifth programming cycle (1992-1996) for each of the modalities.6 It also shows that resource mobilization through co-financing arrangements exceeds the IPF budget for this cycle by about 5 per cent. This substantial shift in the source and character of the predominant part of UNDP funding is requiring a major reorientation within UNDP. (Table 2 shows that most of this funding is in the LAC region; thus, this reorientation is not yet worldwide).
Table 1 Fifth Programming Cycle Commitments by Co-financing Modality
|
Co-financing Modality |
$ million |
Per cent |
|
Cost-sharing (govt. and IFI loans) |
1 953.4 |
62 |
|
Cost-sharing-bilateral donors |
330.6 |
11 |
|
Cost-sharing-multilateral donors |
54.1 |
2 |
|
Trust funds |
751.3 |
24 |
|
Parallel financing-not recorded |
N/A |
N/A |
|
Govt. cash counterpart contributions |
50.5 |
1 |
|
Total UNDP co-financing |
3 140.0 |
+5% over IPF |
|
Total IPF for the fifth programming cycle (Indicative) |
2 983.8 |
Source: UNDP ICM database, 1995
Cost-Sharing
The sources of funds for co-financing are for the most part in the category of cost-sharing of government funds which are transferred to UNDP's accounts for its administration. Cost-sharing with governments includes funds from IFI loans. These latter are government funds and the decision to transfer these funds to UNDP is the Governments' with the encouragement or requirement of the IFIs. The available data do not separate out the amounts from the IFIs such as the World Bank and the regional banks. Such data would be particularly helpful in planning co-financing strategies. Cost-sharing also includes direct transfers of grant funds from bilateral donors and IFIs to UNDP.
Trust Funds
The trust-funds item includes a wide assortment of 95 trust fund accounts for both country programmes and regional and global objectives. The item for UN-administered funds is the sub-trust fund and cost-sharing portion for these programmes,7 which also receive about $152 million in voluntary contributions-not included in the co-financing totals. To the extent that the global and regional funds-voluntary contributions and sub-trust funds-are allocated to the country offices, they are considered a form of local co-financing from the country office perspective. However, this is an aspect of co-financing that needs further clarification.
|
Evaluation Questionnaires: Responses Received, by Region Responses to part one: statistical data on co-financing Regional Bureau for Africa Responses to part two: co-financing programmes (U=UNDP, G=Gov't., D=donor, I=IF) Regional Bureau for Africa Angola (U), Benin (U), Botswana (U,G), Ethiopia (U,D), Mozambique (U,G,D), Sao Tome and Principe (U), Uganda (U,D), Zambia (U), Zimbabwe (U,G,D) Regional Bureau for Asia and the Pacific Cambodia, (U,G,D), Indonesia (U,G,D), Lao People's Democratic Republic (U), Mongolia (U), Nepal (U,G,I), Papua New Guinea (U), Viet Nam (U,G,D) Regional Bureau for Arab States Lebanon (U), Morocco (U,G,I) Regional Bureau for Latin America and the Caribbean Argentina (U), Bolivia (U), Brazil (U), Chile (U), El Salvador (U,D), Nicaragua (U,D), Panama (U,I), Peru (U) Regional Bureau for Europe and the Commonwealth of Independent States Kyrgyzstan (U,G), Turkey (U,G,I) Countries without any cost-sharing or trust fund arrangements during the fifth programming cycle Regional Bureau for Africa Burkina Faso*, Central African Republic*, Equatorial Guinea, Gabon*, Côte d'Ivoire*, Lesotho, Mauritania, Seychelles Regional Bureau for Arab States Jordan Regional Bureau for Asia and the Pacific Bhutan, Democratic People's Republic of Korea, Fiji, Kiribati, Pakistan*, Philippines*, Solomon Islands, Thailand*, Tonga, Tuwalu, Vanuatu Regional Bureau for Europe and the Commonwealth of Independent States Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Cyprus, Czech Republic, Georgia, Hungary, Kazakhstan, Slovakia, Slovenia, Tajikistan Regional Bureau for Latin America and the Caribbean Cuba*, Haiti, Saint Helena * Countries with an asterisk have funding from either the Montreal Protocol, GEF, or Capacity 21
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Government Cash Counterpart Contributions
The government cash counterpart contributions come from payments by countries in Latin America (44 per cent) and the Arab States (46 per cent). Over one third of the amount is provided by Saudi Arabia; the other largest contributors are Brazil and Bolivia.
Parallel Financing
Comprehensive data on parallel financing are not available although in UNDP's guidance, it is listed as a form of co-financing. It can be quite substantial. From field visits outside of the LAC region and some responses to questionnaires, the evaluators found considerable interest in parallel financing along with uncertainty as to how it should be structured and reported.
Management Service Agreements
Some figures on management service agreements are instructive, although they are not included as co-financing arrangements. For the fifth programming cycle, $640 million has been committed in these agreements: about 60 per cent for Latin America, 25 per cent for Africa with the balance for the other regions. About three-quarters of the MSAs are funded by two donors: about half from Japan for the implementation of its bilateral programmes and another quarter by the World Bank.
Co-financing by Region
Table 2 Cost-sharing (CS), Trust Funds, GCCC for the Fifth Programmimg Cycle by Region and Source
($ million)
|
IPF |
|||||||||
|
Region |
CS Govt. |
CS Bilat. |
CS Multilat. |
Turst Funds |
GCCC |
Totals |
Per cent |
Totals |
Per cent |
|
Sub-Saharan Africa |
44.3 |
80.2 |
15.3 |
132.1 |
2.5 |
274.4 |
9 |
1 299.7 |
44 |
|
Arab States |
131.6 |
13.5 |
10.8 |
0 |
23 |
178.9 |
6 |
215.6 |
7 |
|
Asia and the Pacific |
76.3 |
45.9 |
4.2 |
48.7 |
2.6 |
177.7 |
6 |
1 043.7 |
35 |
|
Europe and the Commonwealth of Independent States |
10.6 |
12.7 |
6.5 |
134.9 |
.2 |
165.0 |
5 |
63.5 |
2 |
|
Latin America and the Caribbean |
1 687.9 |
134.6 |
13.6 |
22.1 |
22.2 |
1 880.4 |
60 |
236 |
8 |
|
Global |
2.7 |
43.7 |
3.5 |
340.1 |
0 |
390.0 |
12 |
125.3 |
4 |
|
Occupied Palestinian Territories |
0 |
0 |
.2 |
73.4 |
0 |
73.6 |
2 |
0 |
0 |
|
Totals |
1 953.4 |
330.6 |
54.1 |
751.3 |
50.5 |
3 140.0 |
100 |
2 983.8 |
100 |
|
Per cent |
62 |
11 |
2 |
24 |
2 |
||||
Source: UNDP ICM database, 1995
Cost-sharing
From a global perspective, cost-sharing is the overwhelming source of non-core funds and is predominant in the LAC region, accounting for 60 per cent of total co-financing. Ninety per cent of LAC co-financing is government cost-sharing. Of the total LAC cost-sharing, five countries in the $100-400 million range (Argentina, Brazil, Colombia, Panama, Peru) account for $1,200 million or about half of cost-sharing worldwide. Four countries in the range of $50-70 million (Bolivia, Ecuador, Paraguay, Venezuela) account for an additional $240 million or 10 per cent of the cost-sharing in the fifth programming cycle. The only non-Latin American countries on the list of leading cost-sharing countries (about $20 million and higher) are Botswana, China, Egypt, and Saudi Arabia, which represent $105 million or 5 per cent of total cost-sharing.
With five countries so dominant in cost-sharing arrangements for UNDP globally, the sustainability of the high level of cost-sharing is particularly dependent on circumstances in these few countries. For example, the Argentine Government-the largest participant in co-financing arrangements-has recently prohibited the hiring of consultants for the central government under cost-sharing projects unless at least 50 per cent of the funding comes from external sources. Previously, massive non-core funding had been used to re-staff the civil service. This recent decision will reduce the cost-sharing from central government funds; regional and municipal funds may offset this trend somewhat. While available data are incomplete, country reports indicate that IFI loans represent a predominant share of cost-sharing in some countries. For example, in Argentina, IFI loans are 54 per cent of the cost-sharing; in Bolivia, 79 per cent; in El Salvador, 56 per cent; and in Panama, 57 per cent.
Trust Funds
Trust funds are the second largest co-financing modality. As the country figures within these regional figures indicate, the trust fund modality is primarily for special situations which are not necessarily long lasting. For example, the major part of the trust funds for Africa is for Mozambique, Namibia, and Rwanda. In the Arab States, the trust funds are entirely for the Occupied Palestinian Territories. In Asia, the trust funds for Cambodia make up 73 per cent of the total while 65 per cent in Latin America are for El Salvador.
Co-financing and IPF Relationships
While trust funds regularly respond to special situations not related to a country's development status, there is a relationship between cost-sharing and the IPF as a corollary of the country's development situation. This is depicted in the following two charts which separately display the relationship between recipient government cost-sharing and IPF, and bilateral donor cost-sharing and IPF. It should be noted that the charts depict total country IPFs, not actual UNDP contributions, which may be less. Hence actual cost-sharing per cents are likely to be higher.
Recipient Government Cost-Sharing
Among the recipient governments that cost share, a "continental divide" is apparent between the bulk of countries in the Latin America region in the upper left corner of the diagram (the "Latin Quarter") and the rest of the world. The relationship of cost-sharing to total programme cost in those LAC countries ranges from a little over 50 per cent in the case of Nicaragua, one of the LDCs in the region, to upper-middle-income countries, such as Argentina, Brazil, Colombia, Panama, Peru, Paraguay, Uruguay, and Venezuela, where cost-sharing approaches 100 per cent. The countries in Latin America are joined by a number of high-income net contributor countries in the Arab States region, including Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. In a group of middle-income countries in the Arab States region (Algeria, Egypt, Lebanon, Morocco, Syria, Tunisia) and the Asia and Pacific region (Iran, Republic of Korea, Malaysia), UNDP has also been able to attract significan
Bilateral Cost-Sharing
The list of countries most successful in mobilizing bilateral donor participation in cost-sharing includes several Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua) as well as Mongolia and the Europe and the Commonwealth of Independent States regional programme. In this group of countries, bilateral cost-sharing exceeds the IPF. The most successful initiative is the Central American sub-regional programme which is financed entirely by bilateral donors. The global and interregional programmes and other regional programmes (LAC, Africa, and Asia and the Pacific) also attract significant bilateral interest. So do least developed countries (LDCs) in particularly difficult situations, such as Angola, Cambodia, Liberia, Mozambique, Rwanda, Somalia and Sudan. Special circumstances prevailing in South Africa or the Baltic countries (Latvia, Lithuania, Republic of Moldovia) have also tended to favour bilateral donor interest in cost-sharing with UNDP. Obviously, for low IPF
Bilateral Donors as Sources of Co-financing
Twenty-two DAC donors for the fifth programming cycle are contributing about $617.3 million towards cost-sharing and trust funds. Table 3 lists those donors exceeding $20 million.
|
Country |
Cost-Sharing Contributions |
Trust Fund Contributions |
Total $ millions |
|
Canada |
8.9 |
12.2 |
21.1 |
|
Denmark |
12.1 |
10.6 |
22.7 |
|
Italy |
83.1 |
15 |
98.1 |
|
Japan |
11.9 |
78.8 |
90.7 |
|
Netherlands |
83.8 |
30 |
113.8 |
|
Norway |
14.3 |
18.7 |
33 |
|
Sweden |
32.3 |
41.1 |
73.3 |
|
United States |
26.8 |
24.4 |
51.2 |
|
Total |
273.2 |
230.8 |
503.9 |
|
Other bilateral contributions |
53.5 |
59.8 |
113.3 |
|
Total |
326.7 |
290.6 |
617.2 |
As noted earlier in the discussion of trust funds, the major part of these resources is for countries and programmes that are concerned with UNDP's responsibilities for peace accords and rehabilitation activities. They generally are for special short-term requirements such as support for national elections or troop demobilization and not for long-term development activities. Comments from some of the donors welcomed UNDP's role in these special circumstances that are often politically sensitive. They also are concerned about the number of trust funds having made substantial contributions to UNDP's core funds even though they are, in part, responsible for promoting the formation of the trust funds.
Charges for Incremental Costs of Country Office Administration
In Africa, only the country office in Botswana has a significant amount of government cost- sharing and is charging field office administration (FOA) to government ($141,000). In the Arab States, Egypt ($400,000), Lebanon ($190,000), Morocco ($187,000), and Saudi Arabia ($141,000) account for the bulk of the charges for FOA to government. Among the countries of the Asia region, only the country office in Mongolia has been charging FOA to government. According to UNDP rules, fees are not normally charged by country offices where government cost-sharing totals less than 25 per cent of the IPF (Programme and Projects Manual (PPM) 10203-1.4).
Table 4 FOA Charges for Co-financing Arrangements
($ thousands)
|
FOA Charges* |
Government |
IFI |
Third-party CS |
Total |
|
Global |
0 |
0 |
0 |
0 |
|
Africa |
140 |
0 |
240 |
380 |
|
Arab States |
1160 |
30 |
300 |
1,490 |
|
Asia |
50 |
0 |
370 |
420 |
|
Europe |
140 |
0 |
30 |
170 |
|
Latin America |
33 360 |
1 860 |
1 130 |
36 810 |
|
Total |
34 850 |
1 890 |
2 070 |
38 810 |
*Source: Project Financial Management System (PFMS) database
In contrast, country offices in Latin American countries with their vast government cost-sharing have charged for FOA on a rather systematic basis, yielding a total income of $33 million for UNDP to cover part of the resulting country office expenses. One should note that countries have not felt limited by the UNDP rules which provide for only a 3 per cent charge for that purpose (PPM 10203-1.4). Argentina, Bolivia, Colombia, Ecuador, Guatemala and Peru regularly charge between 3.5 and 4 per cent, sometimes up to 5 per cent but sometimes as low as 1 per cent. Something similar can be observed in Morocco and Saudi Arabia. FOA charges to third-party donors in Africa have been paid only by Malawi and Mozambique ($300,000), primarily for UNDP election support projects. In Asia, virtually all of the FOA income accrues to the Cambodia country office ($260,000), the bulk of it stemming from the Cambodian Resettlement and Reintegration (CARERE) Programme.
Charges for FOA for cost-sharing are, however, not the only resources accruing to country offices from co-financing activities. Cost-sharing contributions in UNDP accounts produce interest income, 85 per cent of which reverts to the country programme as extra-budgetary resources to be used for funding programme-related activities, including extra-budgetary posts, while the rest goes to headquarters. This income can be quite substantial, as in the case of Indonesia where, over the last five years owing to slower than anticipated disbursements, UNDP has accrued interest income from cost-sharing of between $50,000 and $500,000 per annum. On average, the amount was sufficient to finance five extra-budgetary programme and three general staff positions.
Administration charges for trust fund modalities are another source of income. While in the past UNDP has charged donors a flat 1 per cent fee, recently charges have become more flexible, ranging now from 1 to 4 per cent (e.g., Rwanda Trust Fund at 2 per cent, Burundi Trust Fund at 3 per cent). Again the issue of rules and standards versus discretion comes up. Finally, UNDP headquarters and country offices also earn income from supporting the execution of MSAs. The United Nations Office for Project Services (OPS) reimburses country offices on an actual cost basis for its support services to OPS. For example, in 1993, management service cost recovery amounted to $9.9 million of which 77 per cent ($7.6 million) was retained by OPS, 13 per cent ($1.3 million) by the country office, and 10 per cent ($1 million) by central services.
Recording and Reporting of Co-financing Data
The evaluators were confronted with large variations in co-financing data depending on their source. For example, at the time of this study, a comparison of project financial management system (PFMS) data and country office reports on cost-sharing data for Argentina shows discrepancies for 13 out of 121 projects; the figures for El Salvador are 19 out of 57 projects. The differences may be due in part to different reporting dates, but they also reflect incomplete reporting and recordings. Also, a sample analysis of reporting in Argentina showed a considerable gap totalling some $200 million between "receivables" data reported by the UNDP Treasury's income and cash management system and cost-sharing budgets reported by the country office for the fifth programming cycle within the span of a month. The confusion is not limited to a single country or even a region but is systemic. The cases of Argentina and El Salvador are cited only as
Standardization Needed
What is clear at this point is that some degree of standardization in reporting co-financing information is urgently needed to end the present confusion. The introduction of an organization-wide reporting format needs to be guided by management information needs. If the PFMS is to become a trusted management tool, its current deficiencies of data entry, in particular the lack of differentiation of cost-sharing with government's own budgetary resources versus loan-funded cost-sharing, must be quickly resolved. Given the importance co-financing now assumes with the organization, analytical reports on co-financing should be produced on a regular basis.
Thematic Focus Needed
Also, reports should be able to show the thematic focus of co-financing in order to provide UNDP with strategic information for its follow-up with donors. As things stand, UNDP is currently not in a position to report either on the six themes mandated by Governing Council decision 90/34 (while the PFMS has been set up to accommodate this information, nobody initiated the reporting) or on the new areas of focus emanating from Governing Council decision 94/14, including poverty eradication, environment and natural resources, advancement of women and other disadvantaged groups, job creation and sustainable livelihoods, and governance. UNDP's management information system still maintains a sectoral classification that was sufficient when UNDP was basically the coordinating organization for the UN executing agencies funding mainly sectoral projects, but with national execution and increasingly cross-sectoral programming, UNDP finds itself without an adequate management information system. In all fairness,
Final Note
If parallel financing is to receive the recognition it deserves as an important programmatic co-financing instrument, management information systems should also be adjusted to include this type of information as well.
6 These data are from the ICM database as of September 1995. The co-financing totals may be slightly understated for the fifth programming cycle since there may be some additional amounts committed in 1996. However, it is not likely that these amounts will change the overall picture of co-financing.
7 Both the trust fund and cost-sharing amounts have been included under the trust fund heading; a breakdown between the two forms of co-financing has not been made.