Background

The draft Chapeau to the CEB discussion on fitness for purpose highlights the need for the United Nations system to deploy its normative and operational mandates through robust partnerships, which includes leadership from local and national actors, civil society, private and public sectors and a broader range of transnational and regional actors, funding partners and stakeholders. The Committee’s contribution to the fit-for-purpose discussion will have to take into consideration, among other elements, emerging funding and partnership models.  

Discussion

Setting the scene for the Committee’s discussion on this subject, the Chair recalled that, at present, public sector financing is diminishing; however, demands on the international public sector are increasing. In parallel, a significant number of new actors have begun operating in the space occupied by the United Nations system. As a number of United Nations system entities and International Organizations are already successfully employing innovative financial instruments and mechanisms, the Committee was to hear presentations from five organizations about their experiences to date and their plans to further develop these experiences.

Financing for Development Office, UN-DESA, provided some background on innovative financing for development, including an overview of its various context-dependent definitions and history in the intergovernmental context since its first use in 2000. The presentation depicted the complex landscape of innovative finance, categorizing the mechanisms in three groups: 

  • Innovative sources of development finance;
  • Innovative intermediation mechanisms;
  • Innovative distribution mechanisms. 

It was stressed that most existing mechanisms are not designed to generate new or additional resources; indeed, funds raised are currently very small as compared to the total value of Official Development Assistance. Potential “new” sources of innovative financing – which could have significant impact if governments would demonstrate the political will to implement them and channel the revenue to development – include internationally coordinated taxes (e.g., financial transaction tax, currency transaction tax, carbon tax, airline transportation tax, billionaire’s tax) and IMF Special Drawing Rights for development. Innovations in intermediate mechanisms are those that (a) leverage resources by better managing or pooling risks (e.g., advance market commitments, Caribbean Catastrophe Risk Insurance Facility); (b) better match cash flows with needs through securitization (e.g., the International Finance Facility for Immunisation (IFFIm)) or debt swaps; and (c) leverage citizen and philanthropic resources (e.g., Project REDD). Innovative disbursement mechanisms pool public and private funds. To date, they have proved most successful when tied to specific purposes, most notably in health (e.g., the Global Fund to Fight AIDS, Tuberculosis and Malaria) and climate finance (e.g., climate funds). 

UN-DESA sees a critical role for innovative development finance in financing sustainable development in the post-2015 era. In particular, global sources of finance could provide a means to protect global public goods. Innovations in the private sector and on the national level are important complements to innovative financing and provide models that can be replicated by or adapted to the public sector. 

The Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund) introduced the key features and implementation of its new funding model, formulated on the basis of experience gained in its ten years of operation in over 140 countries. The new model differs from the previous in a number of ways including: more active portfolio management to optimize impact; timelines largely defined by each country; engagement by Global Fund Country Teams in country dialogue and concept note development; high predictability of recipient countries in terms of timing, success rates and allocation amounts; and disbursement-ready grants with a differentiated approach to better meet the countries’ needs. 

The Committee was informed that the model is built around six critical elements, namely: predictable funding, flexible timing, longer grant life, early feedback, incentive funding and easier grant-making. The new approach places more emphasis on alignment to country processes and incentivizes development of robust, costed and prioritized disease-specific national strategic plans and national health strategies. The presentation elaborated on the Fund’s eligibility requirements. 

The representative of the Global Fund indicated that both “indicative funding” (providing for the prioritized expression of needs) and “incentive funding” (a special reserve available on a competitive basis) are available within four country bands based on income level and disease burden. Total resources for allocation from the Fund are now 20 per cent higher than in the past, and more than $1 billion is available for incentive funding and new regional grants. This translates to most countries receiving more funds, with sub-Saharan Africa benefiting by approximately 30 per cent more. It was explained that, based on the core principles of sustainability, additionality and country ownership, the Global Fund imposes a mandatory minimum requirement of counterpart financing and also provides incentives for “willingness-to-pay” commitment from recipient governments. 

The new funding model cycle and the role of multi-stakeholder partners were both elaborated in the presentation. The opportunity for the United Nations system organizations to collaborate in implementing grants was also highlighted. 

The World Health Organization (WHO) presented outcomes to date on its Financing Dialogue. In the aftermath of the 2008 financial crisis and with only 25 per cent of its budget funded by assessed contributions, WHO was significantly challenged to meet its budget requirements. Its voluntary contributions were earmarked, varied in predictability and did not fully cover administration and management costs. In an effort to address these realities in partnership with Member States, the Financing Dialogue was launched in June 2013 to facilitate the funding of WHO’s 2014-15 programme budget. The Dialogue aims to ensure a match between WHO’s results and deliverables (as agreed in the approved programme budget) and the resources available to finance them, with the ultimate objective of enhancing the quality and effectiveness of WHO’s work. It is one part of a three-phase approach to financing, namely: World Health Assembly approval of the Programme Budget (phase 1), Financing Dialogue, which includes bilaterals with major contributors, and two meetings (phase 2), and coordinated and targeted organization-wide resource mobilization throughout the biennium to fund remaining programme budget shortfalls (phase 3). The Dialogue is underpinned by WHO’s new programme budget web portal, a tool to help WHO stakeholders better understand WHO’s programme, budget and financing, increasing transparency.

WHO reported that, as a result of this reform effort, predictability of financing has improved, with 70 per cent of the 2014-15 Programme Budget funded by 31 December 2013. There has also been some indication that several contributors are taking steps to increase the flexibility of their funding. The challenge remains to fully align resources to the Programme Budget results and deliverables.  It was observed that reducing vulnerability of financing will also take time. 

The Committee was also informed that WHO has adopted a new approach to financing administration and management costs whereby infrastructure costs and administrative support will be budgeted within technical programmes, while activities related to stewardship and governance will be budgeted separately and financed through assessed contributions.  

Future planned actions related to the Financing Dialogue include coordinating resource mobilization against remaining Programme Budget shortfalls, building full cost recovery into all proposals, presenting the Financing Dialogue evaluation to the May 2014 World Health Assembly, and strengthening reporting on programme delivery and results. 

The World Food Programme (WFP) briefed the Committee on its primary innovative financing tools. As a voluntarily funded organization that is highly operational and has a high level of earmarking of donations, WFP has developed a number of advanced financing mechanisms to cope with the time-lag before release of funds and delivery of food to beneficiaries as well as the mismatch of availability of funds for capital investment. The Immediate Response Account (IRA) is the oldest mechanism, dating to 1991, providing quick release loans to assist in life-saving emergencies. The different financial mechanisms within WFP’s Working Capital Financing Facility (WCFF) have distinct purposes: The Traditional Advance Financing (TAF) aims to meet the need for project funding, the Forward Purchase Facilities (FPF) contributes towards supply chain pipeline management and the Corporate Services (CS) financing mechanism addresses capital financing needs. 

WFP reported that it has achieved significant time efficiencies as a result of implementing these financing mechanisms, particularly in terms of timing. For example, with TAF, approximately 50 days are saved in the distribution of commodities to beneficiaries, and with FPF, as many as 100 days could be saved. WFP is considering taking additional steps to continue to develop and improve its advance financing, including extending the acceptable collateral for TAF and introducing new risk mitigation measures for the FPF that should allow for increased effectiveness. 

On the programmatic side, WFP explained that it has developed two climate risk management mechanisms. The first, an integrated drought early warning system for Ethiopia called LEAP (Livelihoods, Early Assessment and Protection), combines early warning with contingency plans and funding. It uses crop and weather information to estimate future crop yields, and based on projections, LEAP estimates the number of people, by region, projected to be in need of early livelihood protection. LEAP features a $220 million contingent fund that allows for the scale-up of Ethiopia’s national Productive Safety Net Programme and covers some 10 million people, many of whom are smallholder farmers. The second mechanism, the African Risk Capacity (ARC) Agency, was started as a hunger safety net pilot with a Rockefeller Foundation grant to WFP. It is currently hosted by WFP, but the African Union is due to take it over in 2015. Through ARC, AU members can access readily available resources where and when they need them. Benefits have included improved risk management through risk transfer and risk pooling, early response actions and improved targeting, and direct costs reduced through planned / timely action. 

The United Nations Children's Fund (UNICEF) shared experiences with its model for private sector resource mobilization. The Committee was informed that one third of UNICEF’s budget (which is 100 per cent voluntary) is raised from the private sector. Contributions from individuals and corporations are generated through the fundraising and sales activities of 36 National Committees in industrialized countries (which raised $1.1 billion in contributions or 90 per cent of UNICEF private sector revenue) and 50 UNICEF country offices (which generated $116 million in contributions or 10 percent of UNICEF private sector revenue). National Committees are partners unique to UNICEF. They are independent non-governmental organizations with independent governing bodies that advance the UNICEF mission through fundraising, public mobilization, advocacy and child rights education activities. In the 25 country offices where UNICEF maintains a country programme, private sector fundraising is managed as an integral part of the programme, raising funds for the country programme as well as regular resources for the global organization. 

UNICEF indicated that its model is special in that it employs an integrated approach to corporate engagement to mobilize resources for non-core supplemental programmes in specific countries and sectors and to support children’s rights in the context of business operations. It also pursues advocacy and child rights education in countries with National Committees. UNICEF elaborated on how its global strategy is translated into national level plans. 

In the presentation, UNICEF highlighted its Private Fundraising and Partnerships investment funds, through which a portion of its regular resources are channelled into advance financing to National Committees and UNICEF country offices to pursue fundraising opportunities that would otherwise be beyond their resources. The investment funds have been proven to drive growth in income, with a return on investment of around 3.9 after three years.  

UNEP also submitted a document on the design of a sustainable financial system which focused on mobilising public and private financial institutions, to develop options for financial market policy and regulations that will effectively channel capital towards environmentally sustainable investments.

During the ensuing discussion, members of the Committee inquired about the relationship between innovative development finance and other sources such as crowd-funding, south-south and triangular cooperation and also asked about the possibility of securitizing United Nations system procurement. The Secretary of CEB informed the Committee that the CEB would be discussing the topic of “Financing for Sustainable Development and Innovative Financing Modalities” and encouraged members to brief their Principals on the content covered in this session.  

Action

The Committee:

  • Recognized, within the context of the CEB discussion on fit for purpose, the need for the United Nations system to best deploy its normative and operational mandates through robust partnerships, including with funding partners and stakeholders.
  • Agreed to develop its contribution to the fit-for-purpose discussion also in light of the experiences presented on innovative financial instruments and mechanisms, and with due consideration to the emerging funding and partnership models.