Behind the UN liquidity crunch, a multilateral system in crisis?

After months of gridlock, the United States Congress finally approved on 23 March a spending package for 2024, including what it owes to the United Nations and other international organisations such as the World Health Organization and the World Trade Organization. Compared to the US’s massive $1.2 trillion budget, the UN’s share of $3 billion, including for peacekeeping operations, appears minimal. Yet its absence – along with that of other key states – has been enough to kneecap the organisation for months.

While the UN’s financial woes are not new, they are telling of a multilateral system under increasing pressure as states look out for their national interests at the expense of their commitments to the international system.

The scale of the problem

The UN essentially funds its operations through voluntary donations and mandatory contributions from member states to finance the UN’s regular budget and peacekeeping operations. The regular budget is what keeps the UN’s main organs, such as the General Assembly, the Security Council and the Human Rights Council, running, but also what keeps the lights on in its duty stations in New York, Geneva, Vienna and Nairobi.

Every year for the past decade, some 40 to 50 states have failed to pay their part of the bill fully or in time, and the situation has gotten progressively worse. In 2019, alarm bells also went off when the UN ended the year with a $230 million deficit and was forced to impose a hiring freeze and other cost-saving measures to account for the shortfall. The UN secretariat cushioned the fall somewhat by drawing from its reserves as well as from other funds that were not intended for that – a measure of last resort that displeased Russia and other states.

The economic fallout from the Covid-19 pandemic didn’t improve things and by the end of 2023, that figure went up to a record $800 million. The UN secretary general once again rang alarm bells and imposed measures to avoid defaulting on payments.

So far in 2024, 98 states have paid in full, a record number by this time of the year compared to the past decade. The problem is who hasn’t paid. Mandatory sums required from states are assigned depending on the national gross income and other factors such as debt. The United States is the only country whose contribution reaches 22 per cent, a ceiling set years back to avoid the UN relying too heavily on one country.

As its largest contributor, the US is also its biggest debtor, currently owing over 1.1 billion in assessed contributions for the UN’s regular budget for 2023 and 2024. Add to that $1.9bn for UN peacekeeping operations. Other key donors have also been dragging their feet. China, the second largest contributor to the UN’s regular budget at 15 per cent, only completed last year’s payment in November and has yet to pay its dues this year. Other top contributors such as Japan, Brazil, Russia, South Korea and Israel also have pending bills.

This has forced the UN to once again adopt measures to cut spending and avoid a default on legal payments. “We thank member states, including Switzerland, for these payments, which are monitored by the Secretariat in the context of the crisis,” Alessandra Velucci, spokesperson of UN Geneva told Geneva Solutions in an email. “But it is also important that member states settle the backlog of contributions from 2023 to steer our organisation back towards financial health and ensure our capacity to fulfil our mandates.”

Domestic politics at play

An end to the political impasse facing its largest donor may come as partial relief for the UN. A spokesperson from the US State Department told Geneva Solutions by email that the US will soon pay $322 million in arrears, while the $789 million owed for this year will be paid through next year’s budget – a practice of deferred payments to international organisations initiated by the Reagan administration in the 1980s to make up for a growing deficit, according to an in-depth report by the International Peace Institute on the history of the UN’s liquidity crisis.

To make up for the late payments, the US has come to pay in instalments. Louis Charbonneau, UN director at Human Rights Watch, told Geneva Solutions: “When the UN knows that that's how it's going to happen, it's not a problem, because it simply works around that.”

President Joe Biden has been trying to redress that to some extent. “Failure to meet financial obligations undermines US credibility and leadership, and it jeopardises the influence the country requires to push back on bad actors,” his 2024 fiscal plan reads.

In an increasingly polarised political climate compounded by upcoming elections, US budget discussions have become a political football, and so has the UN. New conditions attached to the 2024 package are telling: no US funds can go to the UN Palestinian aid agency, UNRWA, nor to the UN-backed Commission of Inquiry on Occupied Palestinian Territories and Israel, a group of investigators set up by the Human Rights Council in 2021 whose legitimacy has been questioned by the US and Israel from the start.

Both bodies receive funds from the UN’s regular budget (the amount that goes to UNRWA is minimal as most of its operations are funded with voluntary donations, with the US providing nearly a quarter of its budget).

Asked whether states could impose conditions on UN regular budget spending, a spokesperson to UN secretary general António Guterres declined to comment.

A spokesperson for the UN Human Rights Office in Geneva, which oversees human rights mechanisms including the COI on Palestinian territories and Israel, said: “The Human Rights Council is an intergovernmental body that adopts resolutions with mandates to be implemented by the UN Human Rights Office. We, as an Office, will continue to implement these mandates as instructed by member states. Any change to any mandate must be made through a new resolution.”

Jeremie Smith, Geneva office director for the Cairo Institute for Human Rights Studies, said: “I don't think that these particular measures by the US Congress will do much of anything more than deeply undermine the US’s position as a credible actor on international human rights and international law.”

Conditions from the US on UN spending are not new – the US has also asked for assurances for example that UN agencies have whistleblower protection programs in place and, since passing a law in 2014, that the Human Rights Council is taking steps to remove Israel from the permanent agenda by scrapping the infamous item 7 on the human rights situation in Palestine and other occupied Arab territories. These conditions have led to even further delays in payments or even withholding. However, observers worry that it is part of a wider trend by states to align support to geopolitical interests, undermining internationally agreed rules.

“Many western governments are beginning to, in many ways, condition their support of international human rights on extremely narrow political and immediate political interests. I think that the issue of Israel, Palestine and Gaza has demonstrated that more than anything in the past several years,” Smith added.

Smith, like others, has pointed out what they see as double standards in the west’s attitude towards Russia’s invasion of Ukraine and Israel’s retaliatory war against Hamas in Gaza. Germany and the US were among the few to vote against a Human Rights Council resolution last Friday that called for an arms embargo on Israel and spoke of a “plausible risk of genocide”, while France, the Netherlands and Japan abstained.

Friends of the UN Charter

The US isn’t the only one disputing the Human Rights Council’s legitimacy. Russia, China, Syria, Iran, Venezuela, Nicaragua, North Korea and other countries that are part of the so-called Group of Friends in Defense of the Charter of the United Nations have grouped together in recent years to try to block funding for human rights mechanisms that target them and their allies at budgetary discussions in New York at the Fifth Committee.

Charbonneau said the group has become “increasingly aggressive” in their efforts. “They haven't had a huge amount of success, but part of what they're trying to do is to steer the UN administration into being very careful what kind of budgetary resources they assign to things,” he said.

While that attempt might have failed, what has crippled the human rights mechanisms tasked with investigating serious abuses in Syria, Ukraine, Sudan, Gaza and other conflict-torn countries is the liquidity crisis, forced to work understaffed and limiting their investigations, as we recently reported.

“At the end of the day, this only supports the forces of impunity. If (human rights mechanisms) are doing less work and gathering less information, then this could help people get away with murder, literally,” said Charbonneau.

A perfect storm brewing

In recent years, other key country donors have also reviewed their priorities as the pandemic, compounded by the war in Ukraine and inflation, dealt a blow to the global economy. The United Kingdom slashed overseas aid spending because of Covid-19 in 2020. Then it was Sweden’s rightwing government’s turn to cut peacebuilding spending by nearly 40 per cent followed by Germany and France, which more recently reduced their humanitarian or development aid budgets, which can go to governments or to UN agencies and other aid actors.

All this at a time when climate change, conflict, poverty and other factors have caused the number of people needing humanitarian assistance to skyrocket.

Meanwhile, others have been seeking to increase their mark. In 10 years, China has risen to be one of the top 10 countries in mandatory and voluntary contributions to the UN.

“We're in the middle of a fragmentation of our world, where everybody thinks they can go their own ways and deal with the problems themselves. The perception of the UN has taken a dip, particularly on the political side,” Michael Møller, former under-secretary general of the UN and director general of the UN Office in Geneva, told Geneva Solutions.

Has the UN then taken on too much and should think about downsizing? The problem, according to Maya Ungar, UN analyst at the International Crisis Group, is that a large part of the UN’s workload is ordered by the states themselves.

“You have this weird dichotomy where member states are continuing to mandate things for the UN but then not giving them the funding and resources in order to do it properly,” she told Geneva Solutions.

For Møller, “member states have to improve their responsibility and their commitment to pay, particularly to the regular budget. This is something that they've signed up to in the General Assembly.”

Guterres has made proposals to improve the UN’s resilience, some of which have been taken on while others remain controversial. Among the latter include raising states’ annual contributions to the UN’s reserves and incentivising states to pay by lowering the debt threshold over which states lose their vote at the General Assembly – currently, states lose their vote if they accumulate two years' worth of arrears except if states can prove they cannot pay for economic reasons. Another suggestion would be to authorise Guterres to borrow from commercial creditors.

For Møller, Guterres and his office have done all they can. “For the past several years, the UN has been subjected to such a high level of micromanagement. Right now, we are in a situation where the secretary general cannot move one person from A to B without going to the fifth committee and the whole machinery,” he said.

“It's a completely ludicrous situation that the UN faces in terms of its management, and management of its money, where you have a chief operating officer like the secretary general who simply cannot do anything he needs to do in order to get the ship sailing.”

But the problem goes beyond that. “We need to rethink the multilateral system that has served us well for the last 80 years but is no longer up to the task,” said Møller.

Could a much-touted Summit of the Future offer an opportunity for the UN to herald the way in revamping the whole system? It’s doubtful, according to Møller. The hundreds of pages in comments by states to the first draft of the Pact of the Future expected to be adopted at the conference in New York are a testament to the relentless prevalence of national interests and short-term political goals, he noted, adding that “at the national level, the quality of leadership is not exactly what we need to undertake this massive transformation.”

Meanwhile, the world faces complex challenges from climate change to the advent of new technologies “which will either help us or sink us depending on how we manage them”, said Møller.

“We have a kind of a perfect storm brewing.” Despite the crisis above, hope isn’t dead. “The time when member states are the only ones sitting at the decision-making table is over. There's a whole slew of other actors that will be sitting around that table”, he said, highlighting youth-led organisations. ”And that structure and that system is in the process of being built.”