Mind the gap: WFP funding framework under review

Without a core budget and relying only on voluntary contributions from member states, how is the World Food Program planning to address financial uncertainty and close the funding gap? As the United Nations agency set to embark on a root-and-branch review of its financial framework, answers to this question are set to be the talk of the town during a meeting of the executive board in Rome this week. Devex learned that a range of measures aimed at mainstreaming private sector fundraising and broadening the agency’s funding base are either under discussion or in their pilot phase. These include the Capital Budgeting Facility to fund long-term investments, instruments to better identify cost drivers to improve transparency and operational effectiveness, and an increase for the Working Capital Facility — a tool that provides cash advances where they are most urgently needed. Managing uncertainty Discussions around a new financial framework and a raft of sustainable funding measures are particularly timely. For 2014, WFP estimates it will need about $6 billion to continue all its planned operations, but it only expects to receive $4.2 billion. If the 33 percent funding gap is not met, long-term rehabilitation and resilience programs, food-for-work, food-for-asset or certain capacity-building mechanisms could be cut. Indeed, the agency has struggled for years to find ways to make its funding model more efficient — and even more important, how to manage the uncertainty of never knowing exactly how much money it will get. At present, WFP funding comes primarily through voluntary donations from about 60 governments, corporations and individuals, with additional resources raised to cover emergency interventions through fundraising campaigns and formal and informal donor meetings. Funding levels are therefore not predictable and can fluctuate, forcing the agency to scale its activities up or down according to the resources available. Managing this uncertainty is precisely the job of Manoj Juneja, WFP’s assistant executive director for resources management and chief of the financial office, who spoke to Devex ahead of the executive board meeting about how the organization is trying to overcome the constraints of a funding model that hampers operations and impacts heavily on beneficiaries and implementing partners. So what happens when there is a gap between operational forecasts and actual funds available? “We may have to cut the number of rations we provide for food distribution … or we may have to cut the number of beneficiaries that we feed. We may also have to reduce some of our nutrition activities or school feeding,” Juneja admitted. “These are the critical decisions that managers have to take,” he said. According to WFP’s finance chief, country managers have to analyze priorities and allocations in case of a shortfall on a weekly and monthly basis. The official explained that this uncertainty can negatively impact on the agency’s implementing partners, which include a host of nongovernmental organizations and contractors. “If we have peaks and troughs in our business, they live with the same uncertainty. This means that we have to redouble our efforts to ensure that — despite the voluntary funding — we maintain as much stability as possible in our country operations.” Improving advance financing The nature of its work means that the agency invariably has to act quickly to respond to emergencies, even before having received contributions from donors. Always being prepared is therefore crucial to avoid disruptions. “If we had to wait for pledges, we would, for example, have had pipeline breaks in our refugee and [internally displaced persons] operations in Syria,” Juneja said. To combat this, WFP makes use of a number of advance financing tools to ensure that it has resources readily available, including so-called revolving facilities such as the Working Capital Facility that can advance cash, or the Forward Purchase Facility, that can provide cash and loans or allow commodities to be purchased in advance. According to Juneja, the facilities have compressed the agency’s lead time in delivering services to beneficiaries by 37 and 75 percent respectively. In operations where the agency uses both facilities in tandem, lead times have been reduced by up to 85 percent. Despite apparent successes with these facilities, however, resources for the Working Capital Facility have this year fallen to $270 million — some $200 million lower than in 2010 — while demand has increased significantly. “We’re now at the point where we feel that our country operations are suffering. What we cannot change overnight is the timing and the amount of donor contributions, but [what] we feel we can change internally — with the help of our executive board — is to increase the level of the WFC,” Juneja said. Long-term investments According to the official, a constant challenge faced by WFP is how to convince donors of the value of making long-term investments To overcome the problem, in November 2013 the executive board approved establishing the Capital Budgeting Facility, an internal funding tool — currently in its pilot phase — that hopes to provide seed capital for investments which the agency believes can improve the efficiency or efficacy of its work on the ground. “What it allows us to do is to overcome the problem of having to convince a donor to give us contributions for something that could be a very good idea, but that requires a longer-term return on the investment,” Juneja said. Although it currently counts on just $20 million of funds, in the short-term the pilot facility aims to fund improvements to housing and office security in Afghanistan, Iraq and South Sudan. Broadening resources But how does the agency plan to increase and diversify its resource base going forward? According to Juneja, although still at an early stage, WFP plans to pilot a number of additional innovative financing mechanisms in the year ahead. “We’re trying to look at ways of packaging planned interventions that are different from the traditional way of seeking resources for projects within a country operation,” Juneja said. One example is climate resilience for food security. According to the official, rather than waiting for the effects of a drought and then raising funds for projects to counteract them, objective measures could be outlined in advance that once triggered would automatically disburse resources to the agency and its partners. Another area of action is resource mobilization among non-traditional donors, including the private sector. Juneja noted that outreach could include emerging economies in the Middle East, and the agency is set to invest about $7.4 million to mainstream private sector fundraising. “We’re thinking about the private sector in two ways: As a funding partner [where we can] mobilize anything between $80 million and $130 million per year; and we’re also looking for the expertise it can bring to the work of WFP — this could be in the area of technology, such as the partnership with MasterCard on cash and vouchers, or in the area of logistics,” Juneja explained. Transparency and costs Improving financial management also signals a shift towards improved transparency. This means not only making data available for public scrutiny, but also being “internally transparent … being able to have an open dialogue and to challenge each other,” Juneja said. WFP’s finance chief added that the agency will also continue to make further improvements to better understand the drivers of costs and their impacts. “Programs at country level can grow quickly and then they have to be scaled down quite quickly as well. It’s partially the nature of the job and sometimes it’s partly the nature of our funding. It’s difficult to follow the same trajectory of increasing and decreasing resources.” To counter this problem, Juneja explained that the agency has recently launched a country office resources management initiative to ascertain cost drivers — crucial to better allocating resources. “We’ve gone to three countries already in order to understand the breakdown of the costs of our operations and how they link with delivery in order to find those cost drivers,” Juneja said, and pointed how WFP also implemented just two months ago a new costing model for projects, segmenting costs between food, cash and vouchers, capacity development and augmentation costs. Ahead of this week’s executive board meeting, the agency has several options on the table, but will they be enough to address WFP’s myriad budget challenges? The ongoing discussions should shed some light on the future direction of the organization’s funding model — a long overdue reform. 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