Swiss francs and NGOs: An unappreciated appreciation

A euro coin next to a 2 Swiss franc coin. What impact does the Swiss National Bank's decision to abandon its fixed rate of 1.20 francs against the euro have on development organizations in Geneva? Photo by: Martin Abegglen / CC BY-SA

As nongovernmental organizations have come to understand, the economy never stands still.

From 2007 to 2009, for instance, the world saw a fiscal crisis that reduced government and donor spending on development aid budgets across the board.

Partly as a result of the financial turmoil engulfing much of Europe, the Swiss National Bank in 2011 set a fixed rate of 1.20 Swiss francs to a euro. Investors had flocked to the franc as a “safe haven,” leading to its value soaring. Many analysts feared that this would hurt the country’s export industry and — amid fears of hyperinflation — urged the SNB to take action.

Its decision to drop the fixed exchange rate in January 2015 was aimed at providing stability, but the franc immediately soared once more, leading a number of international organizations and NGOs based in Switzerland to voice concerns about the possible implications.

What would this mean for their costs in Switzerland, and overseas? How would this affect currency reserves?

As reported in Bloomberg, rising costs make it more difficult for organizations to convince donors to support activities in Switzerland. Organizations based in Geneva feel the same pressures as Swiss banks and manufacturers, which face profit warnings and job cuts.

“If you are a development agency, the future looks difficult,” said Ugo Panizza, professor of international economics and Pictet Chair in finance and development at the Graduate Institute of Geneva.

Wait and see

For the moment, though, sector insiders insist they aren’t panicking. They seem intent on ploughing ahead — no hasty changes, no risky decisions — until the long-term trend becomes clearer.

The World Meteorological Organization, a Geneva-based actor that receives its contributions in Swiss francs, will be holding its annual congress in May and June 2015. In advance, the organization will look at a number of issues to guide planning for the next four years, including work priorities and budgets.

“We are different from other organizations as a high proportion of our budget is from fixed contributions rather than voluntary,” said the WMO’s Clare Nullis. “So from that point of view we are subject to [fewer] fluctuations and we get our contributions in Swiss francs, so this means that we will not immediately feel the impact. But for our members, who are paying the contributions in Swiss francs, it will make a big difference to them.”

Nullis went on to explain that the WMO has a small professional staff, most of whom work on projects that are funded through these fixed contributions. It is too early to say whether the fluctuation of the Swiss franc will have an impact on hiring.

“At this stage it is quite difficult to say what impact it is going to have upon us. Obviously it will have an impact, but at this stage we can’t really quantify it,” she said.

Like the WMO, the International Committee of the Red Cross is also keeping in close contact with its donors and will discuss any steps that need to be taken to ensure that the work that they do continues on course.

The ICRC’s reference currency is the Swiss franc, however most of its income is received in foreign currencies and an important part of its expenditure in the field is made in foreign currencies as well. The ICRC has always been exposed to foreign exchange fluctuations and endeavors to protect itself through cautious foreign exchange policies.

But is this the smart approach?

Hedge and diversify

Panizza said everything depends on which currency the NGO raises money in, and in which currency they are storing the money. If they cash in converting funds raised earlier into Swiss francs, they are absolutely better off now. However, the costs outside Switzerland are actually increasing. To manage resources well, he said the organization should know what currency they will need to spend in from the beginning — and then hedge it.

“As operational budgets are mostly spent outside Switzerland, there shouldn’t be a very large impact. That is my feeling, but it would depend on the organization. If I have an operation in Rwanda, what happens to the Swiss franc is more or less irrelevant,” Panizza said.

The academic went on to explain that, if at all possible, it would be best for agencies to diversify their sources of funding as much as possible, so that they are less beholden to the movement — and volatility — of exchange rates.

Gavi, the Vaccine Alliance, undertakes currency hedging in managing exposure to exchange rate fluctuations among the currencies of its transactions, Rob Kelly, Gavi’s senior media relations manager, told Devex.

“The overall impact is not huge,” Kelly said, explaining that more than 90 percent of Gavi’s expenditures are in U.S. dollars, with only about 3 percent of its costs in Swiss francs.

Some upsides, but a caveat

For some, of course, there are even upsides to these developments.

Swissaid, a Swiss development agency that is partially funded by the Swiss government, has set out its projects for this year and is unlikely to be making any changes before the last quarter. Swissaid runs programs in nine countries and raised 19.43 million Swiss francs ($19.72 million) in 2014.

“The exchange rate has inflated our budgets. However, these are still exchange gains that have not been realized,” said Jeremias Blaser, head of development cooperation at Swissaid. “So we would rather program it properly for 2016 if these gains turn out to be real.”

However, there is one aspect that worries the Swissaid executive — how to raise funds at an equivalent level if the economy enters a recession, as some observers expect.

“If there is a recession coming to Switzerland, it is quite likely that the resources that we mobilize will go down a little and, as a result, the exchange gain will sort of balance out with the losses in raising funds in Switzerland,” he said.

Are you working for an NGO in Geneva? How are currency fluctuations affecting the work of your organization? Are you taking steps to mitigate these fluctuations, or are you waiting them out? Have your say by leaving a comment below.

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About the author

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    Aliyah Esmail

    Aliyah Esmail is a freelance journalist and communications professional with a fascination for the economic and political realities facing nongovernmental organizations. She holds a bachelor’s degree from Carlton University in journalism and film studies and is now working on a postgraduate certificate from the Humanitarian and Conflict Response Institute in Global Health. She has worked for the government of Canada as well as a number of international organizations.