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Why UN financing matters for effective multilateralism

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The raising of the flags at United Nations headquarters in New York. The substantial shift in UN financing patterns is not (just) a technical matter. It builds on and contributes to dysfunctions that threaten the UN’s legitimacy and relevance, the writer says. – Picture: Manuel Elías / UN Photo

By Max-Otto Baumann and Sebastian Haug

The United Nations (UN) had a record income of US$ 74 billion in 2022 (the last year for which complete numbers are available). That is almost double what it was a decade earlier.

Yet, instead of celebrations, the UN financing year began with a letter by the UN Secretary-General warning member states of an “accelerating liquidity crisis” in the UN Secretariat.

As of mid-June 2024, the two largest contributors — the United States and China — together with 51 other member states have still not paid their annual mandatory contributions that were due by February 8.

While it may seem paradoxical for the UN to simultaneously have a record budget and face a liquidity crisis, this speaks to the long-standing complexities of UN funding dynamics. A closer look at UN financing provides insights into how UN multilateralism works, or fails to work, as we argue in a recent study.

Charter provisions and the reality of UN financing

In theory, financing the UN should be a straightforward and largely unpolitical matter. The UN Charter mentions funding in one sentence only: “The expenses of the Organisation shall be borne by the Members as apportioned by the General Assembly,” (Art. 17, § 2).

This seems to stipulate a system of membership fees — referred to as assessed contributions — on which the regular budget of the UN Secretariat is based, and which is also used for the UN’s specialised agencies. By contrast, UN funds and programmes — like the UN Development Programme (UNDP) and the UN Children’s Fund (UNICEF) — have always been funded through voluntary contributions, with Northern donors providing the bulk of resources, even though these entities predominantly operate in Southern countries.

However, in the 1980s, Western member states started to adopt zero-growth policies on assessed contributions to the UN’s regular budgets, partly to counter the increasing influence of member states from the Global South that, through several waves of decolonisation, had grown in numbers and come to enjoy a comfortable majority in the UN General Assembly.

Today, assessed funding accounts for just 27 percent of total income across the UN system. Similarly, in UN funds and programmes, donors have shifted from core contributions — voluntary resources that come with no strings attached and which therefore are also referred to as “multilateral” contributions — to funding that is tightly earmarked by donors for specific purposes.

For UNDP, these earmarked or “bilateral” resources accounted for 88 percent of its income in 2022, according to the latest data. For UNICEF, that number was 87 percent; for the World Food Programme, 97 percent. UN Women received “only” 65 percent of its income in the form of earmarked contributions.

Implications for UN multilateralism

This substantial shift in UN financing patterns is not (just) a technical matter. It builds on and contributes to dysfunctions that threaten the UN’s legitimacy and relevance. If member states are serious about a “more effective multilateral system” — one of the framings used for the UN’s Summit of the Future scheduled for September — they should address four areas of concern.

First, funding practices have exacerbated interstate hierarchies in the UN’s intergovernmental space that, on paper, operates on the principle of one-country-one-vote. In 2022, more than one third of all voluntary (and predominantly earmarked) funding to the UN system — 38 percent — came from only three (Northern) donors: the United States, Germany, and Japan.

It is important to note that voluntary contributions and earmarking are not bad per se: they allow multilaterally inclined member states and UN bureaucracies to join hands and get things done when and where needed, sometimes in support of key UN norms and values.

Yet, the result of Western dominance in voluntary funding is UN portfolios that often reflect Western priorities, including on sensitive normative issues such as governance standards (SDG 16) and reproductive rights (SDG 3), while a number of non-Western countries feel that their voice and ownership are undermined. It also reinforces donor-recipient, or North-South, divisions that are in friction with the UN’s universal aspirations.

Assessed contributions are similarly concentrated among a small number of states, with 38 percent of regular budget contributions in 2022 coming from three donors: the United States, China, and Japan.

This also reflects a pronounced funding power hierarchy, as greater assessed contributions come with higher levels of general influence at a multilateral body whose basic functions depend on the regular payment of membership fees. At the same time, assessed contributions are based on a collectively agreed formula and are not at the discretion of member states, and with China’s emergence as the second largest contributor to the UN’s regular budget, the group of top providers is more diverse than the de facto Western dominance over voluntary funding.

In both theory and practice, then, assessed contributions are a “more multilateral” funding modality, and the general shift toward voluntary contributions undermines the multilateral underpinnings of the UN.

Second, and relatedly, funding modalities are often not aligned with desired functions. The UN’s normative and global functions — including on human rights — should not be funded at the discretion of “a select group of donors who pick and choose the norms they want to support”, as the Dag Hammarskjöld Foundation argues.

Yet, this is exactly where the trend is going. The latest numbers show that the UN’s human rights arm receives more than half of its resources from voluntary contributions that are predominantly provided by a small group of Western member states. In the UN development pillar, earmarking has arguably made the UN “responsive but not responsible” — responsive to donors, but not responsible in fulfilling the UN’s mission of achieving sustainable development.

Funding practices that force UN structures and processes to follow the money provided by a limited number of member states are inherently flawed. They undermine the UN’s ability to provide global governance functions that are needed in an increasingly interdependent world, not least to address fundamental transnational challenges, including climate change and biodiversity loss.

Third, and despite its recent record budget, the UN is — sometimes severely — underfunded. In light of the tasks member states have mandated the UN to perform, the regular budget of currently US$ 3 billion is actually “incredibly low”.

The UN’s development funding has hardly increased over the last two decades, even though the 2030 Agenda — the most comprehensive development agenda to date — points to unprecedented challenges in meeting inter-governmentally set goals across the Global North and South. What is more, humanitarian appeals which are a cornerstone of the UN’s work, as well as climate funding targets, are left dangerously unmet.

This lack of funding reduces the UN’s ability to help solve problems through operational support. It also undermines the UN’s political weight and reduces trust in the UN among those states and individuals that depend on it most.

Lastly, the complexity of UN funding has become an issue in its own right. Even UN diplomats often find it difficult to understand and thus control how the UN and its entities, each with its own mix of funding modalities, are financed. To some extent, the complexity of current funding practices results from efforts to take different member state interests into account and thus reflects an inherent logic of multilateral co-operation.

But complexity also comes with costs to multilateralism. It points to a lack of “we together” (to paraphrase the opening words of the UN Charter), and an inability to focus the UN’s work on shared global priorities with accountability effectively centralised in the General Assembly and not dominated by a small group of Western donors.

The UN’s decentralised and atomistic funding approach also absorbs a considerable number of resources, including staff costs, that might more productively be used for substantive policy work.

Regulate earmarking, strengthen assessed contributions

What, then, is to be done about UN financing? While the overall picture is grim, there are steps member states can take to improve the status quo. To start with, the UN should adopt rules to make earmarking more transparent and accountable.

Earmarking should also be made more costly by raising fees on the most restrictive forms of earmarking that offer individual donors disproportionate influence over the UN’s work. There is also a need to raise awareness within the UN community about how earmarking contributes to undermining the UN’s effectiveness.

A more independent and thus more credible monitoring and evaluation system could help with that. Currently, UN entities run their own evaluation units. Too often, evaluations lack focus on sustainable impact, whereas monitoring is donor-driven and focuses on outputs.

Ultimately, member states should shift back toward funding an increasing share of the UN’s work through assessed contributions. They should also adopt measures to reduce the micro-management of budgetary questions (linking regular budget negotiations with discussions about individual staff positions, for instance) in the UN General Assembly. Recent developments point in the right direction.

The Peacebuilding Fund, a key funding mechanism for UN tasks in the peace and security pillar, will receive allocations from the UN regular budget for the first time in 2024. In a similar vein, member states decided to increase the share of assessed contributions in the budget of the World Health Organisation to 50 percent by 2030.

UN funds and programmes should be next. Their normative work related to children’s rights, gender equality and climate, and their commitment to the “leave no one behind” principle, provide a strong justification for making their financing truly multilateral.

Through the regulation of earmarking practices and a commitment to replace discretionary funds with assessed contributions, member states can reinforce the UN from within.

This is all the more important in a context of rising geopolitical tensions that shape UN negotiation processes and undermine the ability to identify common ground across member state groupings. China’s rise, in particular, highlights some of the ongoing challenges to the UN’s established — and in many ways still Western-dominated — normative and operational foundations.

As funding issues are a central dimension of how UN entities and member states (re)negotiate the contours of international cooperation, UN financing reform can be a key lever for strengthening multilateralism.

Max-Otto Baumann is a Senior Researcher at the German Institute of Development and Sustainability (IDOS). Sebastian Haug is a Senior Researcher at IDOS.

This article was first published on Global Observatory