Information annex No. 2

Details of cost increases

1. This Information Annex provides information on the cost increases which have been included in the budget and which are calculated either on the basis of the various classifications of expenditure (objects of expenditure) common to most major programmes, or on the basis of an analysis of a particular activity. A description of the various types of expenditure included in each object of expenditure is thus also given in paragraph 54 below.

Inter-agency co-ordination regarding calculation of cost increases in the Geneva-based portion of the budget

2. For a number of biennia, the ILO has used assumptions agreed upon in common with other organizations of the United Nations system having headquarters or major offices in Geneva as a basis for the calculation of cost increases in the Geneva-based portion of its budget.

3. In continuing this established practice, endorsed by ACC, representatives of these organizations held a meeting in September 1996 to consider rates of exchange and inflation to be assumed for Switzerland in their proposed budgets covering 1997 or 1998-99. The conclusions of the meeting were as follows:

US dollar C Swiss franc exchange rate

4. The rate of exchange assumed for budgetary purposes between the United States dollar and the Swiss franc was of particular importance for organizations whose budgets were denominated in dollars and whose expenditures were incurred to a significant extent in Swiss francs. However, the rate also had importance for organizations whose budgets were denominated in Swiss francs, since it affected the Swiss-franc equivalent of estimates for dollar income and expenditure, such as expected receipts of support-cost income in dollars from extra-budgetary sources, requirements for activities in which costs were incurred in dollars, and contributions to the United Nations Joint Staff Pension Fund, which were calculated in dollars.

5. As was the case in previous meetings, participants recognized that market conditions made it impossible for organizations to predict the evolution of exchange rates, especially for periods as long as the one extending from the time of preparation of proposed budgets up to the end of the financial period that they covered. The latest actual rate was therefore normally taken as a basis in drawing up budget estimates. Since governing bodies considered proposed budgets at different times and the timing of their reviews determined the dates at which the estimates had to be established, no common cut-off date, and hence no common rate, could be contemplated. Individual organizations could, however, adopt the last United Nations operational rate of exchange that was known when its proposed budget was completed. Adjusted estimates could subsequently be presented at the time of governing bodies' reviews where this was judged to be appropriate by the executive head.

Rates of inflation in Switzerland and other cost increases

6. The other cost changes for which it was necessary to make provision in proposed budgets included both the expected effects of inflation and "statutory" changes resulting from upgradings and downgradings of posts, recruitments and promotions, annual salary increments, etc. It was for each organization to make allowance for these latter factors in the light of its own experience and trends; there could be no uniform rates in this area. On the other hand, a common set of assumptions could be agreed upon with regard to the evolution of economic factors in Switzerland in the period considered. However, since for a variety of reasons the estimates for the preceding period embodied different assumptions on cost levels, each organization would need to decide on the adjustments required in its 1996 and 1997 estimates in order to provide an adequate cost base in budgeting for the economic conditions jointly assumed for 1998 and 1999. Elements that could involve changes in cost levels but depended on decisions still to be taken by  governing bodies might need to be included in proposed budgets, but, in that case, would be specially identified as conditional items.

7. The official Swiss consumer price index had shown an average increase of 1.8 per cent in 1995, the average Geneva index having increased slightly more (by 1.9 per cent). The projected average for 1996, assuming that the variation in the period from September to December would be the same as in August, was 0.8 per cent (as against a projected average of 0.7 per cent for Geneva). Economic analysts however seemed to regard the rate for 1996 as unusually low. One major bank was projecting an increase of 0.8 per cent in 1996 followed by increases of 1.8 per cent in 1997 and 3 per cent in 1998. After discussion, the meeting agreed that a 2 per cent inflation rate should be used for 1997, 1998 and 1999. However, it was understood that the general rates of inflation to be used by individual organizations in their budget estimates would be subject, as were budgetary rates of exchange, to the dates of preparation and review of their budget proposals. In view of the evolution of the inflation rate, organizations would need to take account of any new developments or revised predictions made up to those dates.

8. Consideration was then given separately, for each of the organizations' major items of expenditure, to the cost increases that might be expected in 1998 and 1999, and to those increases which had actually taken place in 1996 and were expected in 1997. In this consideration account was taken of available official statistics, statements of competent authorities, the views of reputable economic analysts and information gathered from professional associations and other appropriate sources. It was noted that in some cases these data suggested rates of inflation for individual types of expenditure which differed from the overall rate assumed. The agreements reached are set out below, subject to review by individual organizations on the basis of any further information that may become available at a later stage.

(a)

Staff costs for the Professional and higher categories in Geneva

ICSC has decided to recommend to the General Assembly, effective March 1997, a 3.1 per cent increase in remuneration at each grade and step together with a restructuring of the salary scale which would give an average increase of 1 per cent, for an overall increase of some 4.1 per cent. ICSC is also recommending a change in the methodology by which out-of-area weights are determined. The effect of this change on Geneva would be a minus 4.6 point change to the Geneva post adjustment index. This, when added to the existing 10 point gap between the post adjustment index and the multiplier, means that it is very unlikely that there will be any change to the Geneva post adjustment multiplier in the next few years.

(b)

Staff costs for the General Service category in Geneva

A comprehensive salary survey was carried out in 1995. This indicated that existing pay scales were some 7.1 per cent higher than in the local market. The new salary scale is adjusted every year for inflation but it is still lower than the old salary scale and it would be several years before inflation closed the gap. It is therefore unlikely that there will be any significant increase in general service staff costs in the forthcoming budget period.

(c)

Contributions to the United Nations Joint Staff Pension Fund

The total rate of contribution to the United Nations Joint Staff Pension Fund, corresponding to 23.7 per cent of pensionable remuneration, was not scheduled for revision at present. The two-thirds share financed by member organizations would therefore remain at 15.8 per cent of pensionable remuneration in 1997, 1998 and 1999.

For staff in the Professional and higher categories, if the proposed 4.1 per cent increase in remuneration  is accepted, there would be a similar increase in the level of pensionable remuneration and thus in the cost of organizations_ pension contributions. This would affect the pension costs for Geneva-based staff notwithstanding the absence of any increase in post adjustment.

For staff in the General Service category, pensionable remuneration was the dollar equivalent of the sum of the local gross salary, any language allowance and any non-resident's allowance payable. Although the local gross salary may in practice be frozen for the next few years, any changes in the dollar-Swiss franc rates of exchange would impact the dollar costs of organizations' contributions.

ICSC is recommending a common scale of staff assessment which, if approved by the General Assembly, would be introduced with effect from March 1997. The impact would be cost neutral with regard to professionals and might produce a reduction of 2-3 per cent with respect to general service staff assessments.

(d)

Other common staff costs

ICSC is recommending an increase of 10 per cent in the maximum admissible education grant for Switzerland. There may be some changes in the mobility and hardship allowances but with minimal impact on Geneva staff costs. No major increases in dependency or language allowances for the General Service category are foreseen in the period 1997-1999.

(e)

Travel and Transport

Air fares C For 1998 and 1999, it was expected that the annual increase would be slightly less than 3 per cent, since, for some destinations, in particular European ones, the market trends should normally result in a decrease in costs. This would be due, especially, to tight competition between airlines and increased use of discounted fares by organizations.

Air and surface freight C According to the information obtained the increase should be in the order of 3 per cent for 1998 and 1999.

(f)

Contractual services

Contractual printing and binding C Leaving aside the factor of paper cost, it is expected that increases for printing and binding services will be at the general rate of inflation. In cases where the orders are placed in other countries than Switzerland different annual rates of increase need to be foreseen.

Other contractual services (including contractual maintenance of premises and equipment) C Costs of other contractual services including contractual maintenance of premises and equipment are expected to increase in the order of 1.0 per cent per year in 1997, 2.5 per cent in 1998, and 3 per cent in 1999.

(g)

General operating expenses

Fuel oil C It was difficult to estimate an increase since price variations are dependant upon the prevailing political/economic world situation. It was agreed that organizations should take into account the latest price levels in effect at the time of the completion of their proposed budgets.

Other utilities C It was estimated that water will increase by 8 per cent per year in 1998 and 1999. For electricity, it was anticipated that prices will increase by 5 per cent per year in 1998 and 1999.

Communications (Telephone, telex and facsimile services, pouch services, postage) C Communications costs in Switzerland are currently stable and increases beyond the general rate of inflation are not expected

.(h)

Supplies and materials

Paper and printing supplies C For 1997 onwards, it was anticipated that annual increases for paper will not be higher than the expected general rate of inflation. As far as printing supplies are concerned, the increases were estimated at 2 per cent higher than the general rate of inflation.

Other supplies and materials C Similarly to printing supplies, the cost of other supplies was also expected to increase by some 2 per cent higher than the general rate of inflation.

(i)

Acquisition of furniture and equipment

The steady price decreases for office automation equipment (hardware and software) during 1995 and 1996 were expected to continue. However, the necessity to replace the old equipment by more sophisticated equipment, which is more expensive, and the purchase of new software packages, were expected to completely offset the anticipated savings. For furniture and other equipment, average increases were forecast to be at the same level as the general rate of inflation.

9. In the ILO's programme and budget proposals these commonly agreed assumptions have been used to calculate cost increases in 1998-99 as regards expenditure to be incurred in Switzerland. For duty stations outside Switzerland, cost increases have been calculated on the basis of detailed analyses of price and salary movements at each duty station since these may vary widely from region to region and within each region.

Details of cost increases by object of expenditure

10. Cost increases are applied to the budget either on the basis of the various classifications of expenditure (objects of expenditure) common to most major programmes, or on the basis of an analysis of particular activities. A description of the different kinds of expenditure included in each object of expenditure is presented in paragraph 54 below. While details of the cost increases applied for 1998-99 to these objects of expenditure are given in the following paragraphs, it should be noted that in some cases, it has also been necessary to provide for actual increases in 1995 and 1996 which are higher than those provided in the 1996-97 Programme and Budget. These unbudgeted increases are however more than offset by decreases in other areas reflecting lower than budgeted increases in 1995 and 1996, especially in the area of Professional post adjustment and General Service salaries.

Staff costs

Staff calculated at standard cost

11. The increases in the standard costs are explained in paragraphs 31 to 53 below.

Interpreters, committee secretaries and short-term conference staff

12. In line with general inflation assumptions for Geneva, increases of 2 per cent per annum for 1997, 1998 and 1999 have been provided, with the exception of interpreters where no provision has been made for 1997 and 1998.

Locally recruited staff

13. Cost increases applicable to locally recruited staff in field duty stations are discussed in paragraph 30 below.

Travel on official business

14. Increases of 2 per cent per annum have been provided for the cost of air tickets after taking account of competitive pricing available in certain markets. Provision has also been  made for increases in daily subsistence allowance rates at the rates of inflation applicable to the ILO's area of operation.

Contractual services

External collaboration

15. Provision has been made for cost increases at the rate of 1 per cent per annum corresponding to the provision made for the standard cost of Professional staff.

External printing and binding

16. As agreed between the Geneva-based agencies, provision has been made for cost increases at the rate of 2 per cent per annum for contractual printing and binding and at the rate of 4 per cent per annum for paper and printing supplies purchased in Switzerland.

General operating expenses

17. The range of items under this object of expenditure is so varied that any significant cost increases provided for are mentioned below under the major programme concerned, in particular under major programme 175 Internal Administration Services (paragraphs 26 to 28).

Supplies, materials, furniture and equipment

18. Provision has been made at the rates agreed between the Geneva-based agencies. For other supplies and materials a rate of 4 per cent per annum has been applied and for furniture and equipment the general rate of inflation of 2 per cent per annum has been applied.

Fellowships, grants and field projects

19. Cost increases of an average of 3 per cent per annum have been provided depending on the type of fellowship or grant. The increases provided for field projects are described in paragraph 21 below.

Other expenditure

20. This is composed of joint administrative activities within the United Nations system, e.g. CCAQ, UN Joint Inspection Unit. The budget estimates for these bodies have been used as a basis where available; in all other cases, cost increases of 2 per cent per annum have been assumed.

Regular Budget Technical Co-operation (RBTC)

21. Professional staff work years under the multidisciplinary advisory teams funded from RBTC are costed at standard cost in the same way as are other such work years and the relevant cost increases are thus described under paragraphs 31 to 44 below. Other costs associated with these teams have been increased in accordance with the cost increase assumptions made for the duty station where the teams are located. Cost increases of 3 per cent per annum have been assumed for resources budgeted for RBTC field projects.

Details of cost increases by major programme

22. For certain programmes involving specific types of expenditure, it would not have been realistic to use the average rates of increase indicated above. In such cases, cost increases are based on an appraisal of the particular conditions applying to each case. Details of these increases, and of other cost increases which are considered sufficiently important to be mentioned separately, are given below.

Major Programme 50 C International Standards and Human Rights

23. No increase has been foreseen in the honoraria paid to members of the Committee of Experts on the Application of Conventions and Recommendations. The honorarium was increased to 4,000 Swiss francs in 1996.

Major programme 75 C Turin Centre

24. The cost increases provided take into account inflation in Italy which has been estimated, in dollar terms, at 2 per cent per annum.

Major programme 130 C International Institute for Labour Studies

25. The ILO's contribution to the Institute has been adjusted to take into account the anticipated increases in the average standard costs for Professional and General Service staff. The provision for internship courses has been adjusted for the increase in travel costs mentioned above in paragraph 14.

Major programme 175 C Internal Administration Services

26. The main non-staff items under this programme are: building running expenses (water, electricity, heating oil and maintenance, cleaning contracts); purchases of equipment, supplies and materials; telecom- munications, postage and pouch expenses; and rental and maintenance of furniture, equipment and vehicles.

Building running expenses

27. As agreed upon between the Geneva-based agencies, an increase of 3 per cent per annum in contractual cleaning, maintenance of premises and equipment has been provided to take account of the fact that the cost of these services is likely to increase at a somewhat higher rate than that of general inflation,. Increases of 8 per cent in 1998 and 1999 have been assumed for water while for electricity, increases of 5 per cent per annum have been provided.

Telecommunications, postage and
pouch expenses

28. As agreed between the Geneva-based agencies, increases have been provided at the general rate of inflation for postal charges. Increases for pouch services are provided at the rate used for air freight; i.e. 3 per cent per annum. These increases have also been applied to provisions for postage and pouch services budgeted under major programme 220 "Relations, Meetings and Document Services". No increase has been provided for telecommunication charges.

Cost increases in the regions C major programmes 250, 260, 265, 270,
and 280

International costs

29. Provision has been made for internationally recruited staff in the field on the basis of the standard costs described in paragraphs 31 to 53 below. The provisions for cost increases for RBTC are described in paragraph 21 above.

Local costs

30. Increases in local costs, including those for salaries and allowances of locally recruited staff, are calculated individually for each of the ILO's offices outside Geneva. The latest 1996 costs are increased for estimated inflation in 1997, 1998 and 1999, and take account of the effect of adjustments in the rate of exchange between the local currency, and the US dollar and the Swiss franc (where for budgeting purposes the local currency is assimilated to the Swiss franc). The annual rates of cost increases vary considerably between and within regions. The average annual rate for each region, in dollar terms, is:

Standard costs

31. Separate standard costs are used for Professional and General Service category staff in Geneva. They do not cover staff in grades D2 and above.

32. The standard costs are composed of a number of elements, the cost of which can vary from one biennium to another with changes in the cost of living, conditions of service, places of recruitment and assignment of staff, etc. The 1998-99 standard costs are essentially a projection of actual costs in 1996 with appropriate allowances for expected trends of inflation, changes in staff entitlements, and a greater number of staff being assigned to the field.

33. The composition of the standard costs, with comparative figures for 1996-97, are given below. The Professional category standard cost is based on an exchange rate of 1.46 Swiss francs to the US dollar. The General Service category standard cost is expressed in Swiss francs.

34. An explanation of the method of calculating the standard costs follows.

Professional category

Basic salaries

35. The estimate represents net basic salaries, i.e. gross salaries less staff assessment. It allows for an increase in salaries due to the net effect of such factors as annual increments payable in accordance with the Staff Regulations, regradings, retirements, new appointments, etc. and includes a provision for the commutation of accrued leave at the end of service. The increase in the base/floor salary scale of 5.68 per cent effective January 1997, as approved by the United Nations General Assembly has been included. It is recalled that of this increase, 5.26 per cent results from the consolidation of post adjustment into net base salary. Although further consolidations of post adjustment into net basic salary at the rate of 3 per cent per year in 1998 and 1999 have been assumed for the calculation of those elements which are based on the base/floor salary scale alone (mobility, hardship and terminal payments), they have not been applied in the calculation of basic salary in order to preserve as far as possible comparability with the 1996-97 cost of this category. Since such consolidations increase basic salary while at the same time decreasing post adjustment on the no gain/no loss principle, the net combined effect on these two categories of the standard cost would be nil.

Post adjustment

36. Estimates of post adjustment take account of the consolidation of post adjustment into basic salary described above. In line with the assumptions made by the inter-agency meeting which was held in Geneva in September 1996, no increases in post adjustment have been provided for in respect of staff based in Switzerland. A provision of 3 per cent per annum has been provided for officials serving in field duty stations.

Dependency allowances

37. The provision for dependency allowances takes account of the decision of the recently concluded United Nations General Assembly to increase the children's and secondary dependent's allowances by 7.98 per cent effective 1 January 1997. A further increase of 5 per cent has been provided for, effective 1 January 1999.

ILO contribution to pension fund

38. This category covers the cost of the ILO contribution to the United Nations Joint Staff Pension Fund (UNJSPF). The increase in 1995 of 6.47 per cent has resulted in a significant under-budgeting for this category. The increase in the scale of pensionable remuneration of 3.75 per cent in November 1996 and the adjustments resulting from the decisions of the recently concluded session of the United Nations General Assembly have been taken into account. Provision has been made for increases in the scale of 3.0 per cent in 1997, 1998 and 1999 based on estimates of inflation in the base duty station, New York.

ILO contributions to the Staff Health Insurance Fund and other staff insurance

39. This category is linked to basic salary, post adjustment, dependency allowances and mobility hardship and non-removal allowances, and thus the estimate changes in accordance with movements in the cost of these elements. The ILO contribution to the Staff Health Insurance Fund is maintained at the rate of 2.8 per cent.

Education grants and scholastic travel

40. Account has been taken of the increase in education grants approved at the recently concluded session of the United Nations General Assembly, and provision has been made for increases in fees charged by educational institutions in accordance with general inflation estimates.

Travel and removal expenses incurred on appointment,  home leave, transfer etc.

41. This category includes travel on appointment, transfer, separation and family visit, and removal of household goods and transportation of personal effects. Provision has been made in 1998 and 1999 for an increase in travel costs of the order described in paragraph 14 above. .

Allowances paid on appointment and relocation

42. This category includes assignment grant, mobility allowance, hardship allowance, non-removal allowance and per diem allowance for short term staff. Account has been taken of the effect on the mobility and hardship allowances of expected increases in the base/floor salary scale arising from the consolidation of post adjustment in 1997, 1998 and 1999 as noted in paragraph 35 above.

Rental subsidy

43. It has been possible to maintain in real terms the provision for this category at the same amount as was provided in 1996-97.

Terminal payments

44. This category is comprised of two factors, namely a provision of 3.5 per cent of the estimated average of the basic salary for eligible officials who entered service on or after 1 January 1964, and the estimated average cost of actual repatriation grant payments made to eligible terminating officials who entered service before 1 January 1964. The small increase results from the effect of increases in the base/floor salary scale, including the consolidation of post adjustment into basic salary described in paragraph 35 above, partially offset by a decrease in the number of eligible terminating officials who entered service before 1 January 1964.

General Service category

Basic salaries

45. The decrease in basic salary is due to the freezing of salaries following the ICSC salary survey in 1995. Provision has been made for the net effect of factors such as annual increments payable in accordance with the Staff Regulations, regradings, retirements, new appointments etc. An adjustment has been made to account for the impact of increased departures and the payment of accrued leave entitlements. No provision has been made for inflation as agreed at the Geneva inter-agency meeting.

Dependency allowances

46. Dependency allowances change as a function of basic salary and local conditions with respect to social benefits. The increase reflects the decisions taken by the ICSC in 1996 and includes a provision for the general rate of inflation as agreed at the Geneva inter-agency meeting.

ILO contribution to pension fund

47. This category covers the cost of the ILO contribution to the United Nations Joint Staff Pension Fund (UNJSPF). The small decrease in comparison with the previous biennium results from the freezing of basic salaries, which has a corresponding effect on pensionable remuneration. An under-budgeting occurred in 1996-97 due to the expected implementation of the revised methodology for calculating pensionable remuneration. Due to the transitional measures following the implementation of the 1995 salary survey, the implementation of this revised methodology was deferred. As a decision is still pending on the continuation of transitional measures for officials recruited prior to 1 December 1995, no reduction on contributions has been provided.

ILO contributions to Staff Health Insurance Fund and other staff insurance

48. This category is linked to basic salaries, dependency allowances, mobility hardship and non-removal allowances, and accordingly reflects the net impact of decreases in these elements. The ILO contribution to the Staff Health Insurance Fund is maintained at the rate of 2.8 per cent.

Education grants and scholastic travel

49. Account has been taken of the increase in education costs approved by the recently concluded session of the United Nations General Assembly and a slight under-budgeting in 1996-97. Provision for increases in fees charged by education institutions has been made in  accordance with the general rate of inflation agreed at the Geneva inter-agency meeting.

Travel and removal expenses incurred on appointment, home leave, transfer etc.

50. This category includes travel on appointment, transfer, separation and family visit, and removal of household goods and transportation of personal effects. Provision has been made in 1998 and 1999 for an increase in travel costs of the order described in paragraph 14 above. Account has been taken of an expected lower rate of non-local recruitment of General Service staff.

Allowances paid on appointment
and relocation

51. This category includes assignment grant, mobility allowance, hardship allowance and non-removal allowance. The decrease results from an expected over-budgeting in 1996-97 of the provision for assignment grant due to lower recruitment of non-local staff.

Rental subsidy

52. The provision for this category has been reduced due to the decline in the number of eligible staff.

Terminal payments

53. This category is comprised of two factors, namely a provision of 3.5 per cent of the estimated average of the basic salary for eligible officials who entered service on or after 1 January 1964, and the estimated average cost of actual repatriation grant payments made to eligible terminating officials who entered service before 1 January 1964. The decrease exceeds the decrease in basic salaries due to the decline in the number of eligible terminating staff who entered service before 1 January 1964.

Objects of expenditure

54. Cost increases included in the expenditure budget are calculated primarily on the basis of types or objects of expenditure. The object of expenditure classification used in this document, a description of which follows, is that which has been developed through consultations between the organizations in the United Nations system and approved by the ACC for inter-agency reporting purposes, compatible budget annexes, and, to the extent possible, for internal expenditure reporting. Information Annexes 4A and 4B also give information on the budget by type of expenditure (object of expenditure).

Staff costs:

This object combines two of the object of expenditure headings of the common inter-agency classification, namely salaries and common staff costs, as only a single heading for staff costs is required in the ILO programme and budget which uses a standard cost factor. Expenditure under this heading includes Professional and General Service staff at standard cost, salaries and related costs for officials at grade D2 and above, salaries for short-term conference staff, salaries for local staff in external offices, overtime, statutory representation allowances and travel on interview. Details of the composition of the standard costs are given in paragraphs 31 to 53 above. Since some staff costs in the budgetary tables are not covered by the standard costs, the dollar estimates for staff costs do not always correspond to the product of multiplying the work years and work months by the standard costs. Total staff costs are also reduced for an adjustment of staff turnover which assumes savings in connection with separation of serving staff combined with delayed recruitment of new staff.

Travel on official business:

Travelling expenses and subsistence allowances of delegates to meetings, and of ILO staff on mission and servicing meetings.

Contractual Services:

External collaboration, external printing and binding and part-time national correspondents.

General operating expenses:

Rental and maintenance of premises, utilities, rental and maintenance of furniture, equipment and vehicles, communications, hospitality and mis-cellaneous services.

Supplies and materials:

Stationery and office supplies, library books, public information supplies and other regular supplies.

Furniture and equipment:

Standard office furniture and equipment, computer and other special equipment, and transportation equipment.

Acquisition and improvement of premises:

New premises, improvements to premises, and amortisation of loans relating thereto.

Fellowships, grants and field projects:

Fellowships, seminars, grants and contributions towards programme-related activities.

Field projects funded from RBTC.

Other expenditure:

Contributions to joint administrative activities with- in the United Nations system.

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