Background information

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Balancing the budget

ITU’s 17th Plenipotentiary Conference meeting in Antalya, Turkey, 6 – 24 November 2006 will lay down a Financial Plan for the 2008 – 2011 timeframe, covering two biennial budget periods. This will also allow members to decide on their financial commitments to the Union during this quadrennial.

Since the last Plenipotentiary Conference in Marrakesh in 2002, ITU has implemented drastic cuts to reduce expenditure. But the trimming has been accompanied by additional tasks and commitments, which leads to the question: can any more be accomplished with so much less? If not, what are the priorities that the Union must address to remain a viable and dynamic organization at the forefront of technological and policy developments in telecommunications and ICT?

Having led the successful process of the World Summit on the Information Society (WSIS), held in two phases in Geneva in December 2003 and Tunis in November 2005, the Union has been accorded the mandate for the implementation of many of its outcomes. The Doha Action Plan agreed at the World Telecommunication Development Conference (WTDC) in March 2006 and the decisions of the 2006 Regional Radiocommunication Conference have added to the expectations from the Union.

At the same time, the challenges imposed by a rapidly changing ICT environment carry significant implications for ITU. In fact, ITU members have recognized the need to expand the global mandate of the Union to reflect the increasing convergence between telecommunications, computers and broadcasting. The Strategic Plan addresses these developments and outlines a set of orientations and goals within the framework of achieving the overall mission of ITU as a pre-eminent ICT organization.

The main purpose of the Financial Plan is to provide an adequate level of resources to translate the objectives and priorities set forth in the Strategic Plan in deliverables, while striking a balance between anticipated expenditure and estimated income. This is a key factor in implementing ‘results-based’ budgeting as part of an integrated planning process aimed at bringing efficiency gains to the activities of the Union. Both strategic and financial plans are based on a set of mandatory outputs, defined as final products or services to be delivered, and represent a major reform in the operational set up of ITU.

Who contributes what?

Member States are required to determine their ‘class of contribution’, that is the number of Units they will contribute, and announce a provisional choice by 30 October, a week before the Conference. While Member States have to announce a definitive choice by the end of the Conference, Sector Members can make the choice within three months after the closing of the conference.

Until now, the Contributory Unit payable by Sector Members is based on a ratio of 1/5 of the Unit payable by Member States. Calculated on the basis of CHF 318 000 per Contributory Unit set by Council in April 2006, the ratio for Sector Members amounts to CHF 63 600 per unit. Proposals have been made to revise the ratio to � of the Contributory Unit, which would bring the amount up to CHF 79 500. At current rates and based on the membership figures as of 1 May 2006, this would represent an additional income of CHF 21.2 million.

Associate members are required to pay 1/6 of the Contributory Unit payable by Sector Members for the R and the T sectors, 1/20 for the D sector, and 1/40 by least developed countries for the D sector. ITU’s current membership consists of 191 Member States, 645 Sector Members and 132 Associates

Options on the table

Fundamental to the preparation of the Financial Plan is the determination of the Contributory Unit, payable in Swiss Francs by Member States. Over the years, the amount of the Unit has decreased rather than increased: from CHF 334 000 in 1997 to CHF 318 000 in 2006-2007. Expressed in real term values as of January 2006, this amounts to an erosion of 14 per cent over the ten-year period 1997-2007. See Figure 1.

Under present circumstances, with the Contributory Unit at CHF 318 000 and the ratio payable by Sector Members set at 1/5 of this amount, the income level would be CHF 628.9 million. With an expenditure level at CHF 662.2 million, the shortage of income will amount to CHF 33.3 million or 5 per cent of expenditure. Should the contribution of Sector Members increase to � of the Unit, the income level would be 650.2 million, bringing down the shortfall to CHF 12 million. On the other hand, if the Contributory Unit is increased to CHF 325 000 in keeping with zero real growth but with the ratio set at 1/5, the deficit would be around CHF 22 million. If the ratio were to increase to �, the Union would just about break even. See Figure 2.

ITU Sector Members participate in the Union’s day-to-day work at the grassroots level. Since the earliest days, they have contributed a great deal to the organization through their work in the Study Groups, expert ad-hoc bodies which churn out the all-important ITU standards on which global telecommunications systems are based. In today’s deregulated and liberalized marketplace, private sector organizations are playing an even more crucial role in helping to define and develop the new kinds of networks for the Information Society.

Today’s funding system no longer reflects the new realities. While a significant share of ITU’s output benefit the private sector, their financial contribution to the work of ITU represents a bare 12% of total budget. At its origin, the contributions paid by the private sector for its participation in ITU’s technical work were to defray the expenses of such participation. Under the current system, this goal is no longer met.

While Sector Members contribute 12 per cent of the Union’s total income, Member States contribute 69 per cent. The rest comes from Associates (1%), cost recovery (16%) and miscellaneous sources (2%). See Figure 3. Among Member States, 5 countries contribute 40 per cent, 24 countries provide 44 per cent and 16 per cent comes from the remaining 162 States.

Cutting cloth to measure

Efficiency measures implemented during the 2000-2003 and 2004-2007 financial plan periods have resulted in savings to the tune of more than CHF 75 million. Further cost reduction measures have also been incorporated, but having already cut to the bone with drastic reductions in staff and resources, scope for further optimization is very limited.

At the same time, real expenditure is steadily mounting while real income is decreasing.

Expenditure estimates are based on 1 January 2006 real term values. When adjusted to the 2008-2011 values, an additional increase of CHF 35 million is foreseen, assuming a statutory increase of 1.5 per cent per year on average after 2006. Additional costs of working in six languages, as adopted by the membership, could significantly add to the total: the cost of languages is projected at some CHF 69.3 million and interpretation for conferences estimated at CHF 6.7 million. This does not take into account the cost of additional resources required in various services to operate in six languages. Conditions of service under the UN Common System and the rising consumer price index for Geneva continue to build on the tab, while fluctuations of the US Dollar against the Swiss Franc could further add to the burdens on the Union’s finances.

The challenges facing the Union are significant. The draft Strategic Plan calls upon ITU to play a leading role in the follow-up and implementation of the goals and objectives of WSIS. This is aimed at enabling and fostering the growth and sustained development of telecommunications and information networks to facilitate universal access to the emerging Information Society. High-priority outputs have also been assigned to the three sectors and to the General Secretariat, all of which are now working within minimal resource levels necessary to implement them; any further reduction would result in the de-emphasis or discontinuity of the outputs.

If ITU is to achieve the shared vision of its members and retain its pre-eminent role in the growing field of telecommunications while broadening its mandate to cover new developments in ICT, the Union will need to match its resources to its deliverables. This calls for a fine balancing act in measuring up the budget and cut it according to the expectations demanded of ITU.