Introduction

The world is at an inflection point. United Nations Member States have agreed that global challenges are interconnected across borders, thus an equally interconnected response must address the challenges through reinvigorated, more inclusive multilateralism with a reformed UN at the centre. The year 2023 marks the halfway point for implementation of the Sustainable Development Goals (SDGs) — and the urgency of reigniting SDG action. The scale of natural and climate-induced crises as well as violent conflict the world over requires more concerted efforts to respond through increased humanitarian support, enhanced resilience and more sustainable development outcomes.

A well-functioning, impact-oriented UN development response at a time of development crisis depends, in part, on adequate, predictable and sustainable funding – not only the quantity, but the quality of funding matters. As the history of UN development system (UNDS) reform has shown, if the right incentives are set, funding can indeed help transform the way the system works. Yet, funding patterns, including at a country level, are slow to change. What’s more, the situation regarding core resources has deteriorated further in 2023, with several major donors announcing substantial cuts (see the accompanying piece in this report ‘Sustainably Funding the UN’s Development Work: A fast approaching perfect storm?’).¹ Strictly ear-marked and project-tied funds overwhelmingly remain the most common funding modality. This has hampered the shift towards a more coherent UN offer to countries and often favouring donor, rather than national, priorities.

While the Funding Compact has had only a limited impact on increasing core funding to the UNDS, it has helped enhance the quality of earmarked financing through its target for doubling pooled funding by 2023 – a target that was, in fact, already met in 2020 actual expenditures – albeit from a low level.²

Given this, and the current fragile state of multilateralism and financing to the UNDS, it is important that the next iteration of the Funding Compact agreed for 2024 onward enhances the focus on quality financing. This will render it a more strategic and effective instrument in changing overall funding behaviour and enhancing mutual accountability.

Current situation

The Funding Compact (FC) indicators against the most current financial figures available (2021), again reflect the imbalance seen during 2022 with the UN Sustainable Development Group (UNSDG) continuing to register significant overall progress, with 83% of FC commitments either making full or rapid progress (57%) or in progress (26%), compared to just 48% of Member State commitments (24% full or rapid progress and 24% in progress).³

Overall, important advancement has been made by UNSDG entities and UN country teams (UNCTs) in system-wide reporting, enhanced transparency of operations, better linking of resources to SDG results, and business efficiency gains. There is still work to be done though: only 42% of UNSDG entities report at least 15% of their development-related expenditures on joint programmes, and only 68% of UNCTs have a common and updated budgetary framework.⁴

On the Member State side of the ledger, the 12.3% of non-core funding that goes via pooled funding is a significant increase from the 2017 baseline of 5%. Total contributions to development-related inter-agency pooled funds increased in 2021 to US$ 1.6 billion, up from US$ 1.5 billion the year before. Hence, pooled funding is not only the one financing target of the Funding Compact that has already been achieved, but the most viable option to improve the quality of funding and facilitate the UN moving towards a more impact-oriented, joint offer at country level.

Nevertheless, concern remains regarding the core share of voluntary funding for UN development-related activities. While the most recent figures show core contributions comprising 21% of total development-related funding – an important increase over 2020 – it is just marginally up from the Funding Compact’s 19.4% baseline target (2017) and a long way from the 2023 target of 30%. When assessed contributions are included, the core/assessed share of UN development funding exceeds the target of 30% for the first time since the Funding Compact was adopted (2017 baseline for core plus assessed is 27%).

It should be noted that part of this growth was due to a 2021 increase in multi-year core contributions, some of which were recorded in their entirety, as well as an increase in the assessed budget of the World Health Organization (WHO). While this is a most welcome development, with Member States committing to ensure assessed contributions make up 50% of WHO’s approved budget by 2030, the overall improve ment seen in 2021 is not indicative of a wider positive trend. In fact, 10 out of 16 donor countries surveyed by the UN Department of Economic and Social Affairs (UN DESA) indicated that they currently had no plans to increase the amount or share of their core funding to the UNDS in 2023.⁵

Key instruments for change: A refreshed, refocused Funding Compact and funding dialogues, especially at country level

While some metrics question the broad impact the Funding Compact has had on significantly improving how the UN is funded, given the precarious situation facing UN development financing today and that it is the first serious systemic attempt to change the quality of UNDS funding in over two decades, it is critical to stay the course. With this in mind, it is important that the next iteration of the Funding Compact addresses some of some of the weaker elements of the current Compact – especially that it’s overly technocratic and often devoid of real political influence over how funding decisions are made. While the process to be followed for developing the next Funding Compact is the prerogative of Member States to decide, it is important that it is in place before negotiations on the next Quadrennial Comprehensive Policy Review (QCPR) Resolution begin in earnest during the autumn of 2024.

Given its potential importance and system-wide perspective, it is also important to subject the current Funding Compact – and its continued relevance, results and performance – to an independent evaluation facilitated by the UNSDG System-Wide Evaluation Office, as was done for the UNDS socio-economic response to the COVID-19 pandemic and the Joint SDG Fund.

While Norway is also conducting an evaluation of the Funding Compact, in terms of building broad Member State ownership of the next iteration and enhancing its effectiveness from various perspectives, it will be important to have an independent evaluation finalised as soon as might be possible to effectively inform final negotiations.

The recommendations of such an evaluation could also feed into the consultation process the UN Secretary-General (UNSG) has asked the chair of the UNSDG to conduct with Member States over the next year. It is anticipated that the UNSG’s QCPR Report to the 2024 Operational Activities Segment (OAS) of the Economic and Social Council (ECOSOC) will present the outcome of these consultations for consideration by Member States.⁶

As outlined in the 2022 Financing the UN Development System report: Joint Responsibilities in a World of Disarray, possible reforms to the Funding Compact based on the experience of the Grand Bargain after its first five years include:⁷

1. consider instituting an annual or biannual independent review of Funding Compact progress, conducted by the now established UNSDG System-Wide Evaluation Office, possibly in concert with the Multilateral Organization Performance Assessment Network (MOPAN). As the System-Wide Evaluation Office has the prerogative to share reports directly with ECOSOC, it could discuss its annual, or biannual, independent review and recom-mendations with Member States at ECOSOC’s annual OAS.⁸
2. Member States establishing ‘coalitions of the committed’, consisting of self-appointed ‘Member State champions’, to address some of the toughest barriers to change, such as the level of core resources or number of major contributing countries. While one or two donor countries have at different times assumed an informal ‘championing’ role for the Funding Compact, to the greatest extent possible this role should be formalised at a senior political level and on a rotating basis, with both donors and programme countries enabling more high-level political follow-up of Funding Compact com -mitments and facilitating a ‘race to the top’; and
3. significantly simplifying the number of commitments down to those that will really make a difference. This should include: increasing voluntary and assessed core commitments for the UNDS; providing more predictable funding; expanding the donor/contributor base (in 2021, 48% of all development-related funding to the UN from governments came from just five countries); fully funding the UN Resident Coordinator (RC) system; ensuring clear funding frameworks for each UN Cooperation Framework; and enhancing efficiency gains and solidifying broader reform imperatives across the UNDS.⁹

Given recent statements by the UNSG and Deputy Secretary-General as to what their top funding priorities are, it is important that the next Funding Compact includes clear annual targets for the three main flagship funds prioritised by the UN leadership (the Joint SDG Fund, the Peacebuilding Fund and the Central Emergency Response Fund), as well as the highest quality of earmarked funding possible – in other words, expansionary targets for pooled funding commitments that stimulate and facilitate priority system-wide work both globally and at a country level.

As MOPAN’s recent study on lessons from the overall multilateral response to the Covid-19 pandemic highlights, insufficient funding of pooled funding mechanisms prevents joint operations in support of collective goals being scaled up. The COVID-19 Response and Recovery Multi-Partner Trust Fund and the Joint SDG Fund enhanced inter-agency coordination by providing support to multiple agencies under a single policy framework or by prioritising joint programming and ‘whole-of-government’ approaches. However, the overall scale of these funds has been limited, reducing their ability to incentivise and scale the joint programming needed to achieve collective outcomes.¹⁰

Hence, it is important to continue prioritising making the Funding Compact as relevant as possible at a country level. Member States need to better translate their global commitments to the Funding Compact into concrete country-level commitments to the UNDS. Similarly, RCs should more actively engage in strategic dialogues with Member States on how to operationalise the Funding Compact at a country level, as well as co-create strategies for more effective country-level development cooperation. The UNSG gave this further momentum in his most recent report on implementation of the QCPR, calling on Member States, RCs and UNCTs to ‘seize back the momentum toward achieving the ambition of the Funding Compact’.¹¹

Here, some good progress is being made. While contribu-tions to UNSDG country-level pooled funds declined by 5% from US$ 401 million in 2020 to US$ 379 million in 2021, this is still a significant increase compared to 2019. That said, there is plenty of scope to grow as only 34 countries in 2021 had at least 15% of all non-core development expenditures channelled through pooled funds – the recommended minimum share that enables these funds to be gravity centres for a more coherent inter-agency UN response.¹²

These trends show increasing engagement by UN RCs in establishing effective country-level pooled funds, which are increasingly seen as vehicles for facilitating greater country-level impact. To further accelerate this trend, the UN Development Coordination Office (DCO) has been supporting inter-agency efforts improving the quality features of pooled funds, while also working with the Multi-Partner Trust Fund Office (MPTFO) to strengthen the capacities of, and provide technical support to, RCs and UNCTs on pooled funds.

As of November 2022, there were 24 existing country-level pooled funds and an additional 16 in the design phase. Furthermore, 25 UNCTs have indicated an interest in setting up country-level pooled funds.¹³ In order to expand the number further, greater priority needs to be given to ensuring the new cooperation frameworks designed each year include clear funding frameworks disaggregated by funding type and funding source.¹⁴

These efforts are complemented by continued collaboration between the Dag Hammarskjöld Foundation (DHF), MPTFO and DCO, with regional and country dialogues held to enhance awareness and foster dialogue around Funding Compact commitments. These dialogues have helped demystify the Funding Compact while initiating joint dialogues for more shared analysis, systematic collaboration, integrated programming, and improved tools and modalities for greater collaboration. For example, follow-up to the country-level consultation in Kenya has resulted in a joint team of representatives from bilateral donors, the UNCT, the Development Partners Group secretariat and DHF developing a Kenya Funding Compact Scorecard with indicators such as improving joint results reporting, reducing fragmented project funding and increasing the share of contributions going through joint funding mechanisms.

Increased quality funding for clearer priority outcomes

In addition to the areas listed above for change or consoli - dation in the next Funding Compact, at laest four more remain. First, after four years of implementation it is clear that the Funding Compact serves as an important accounta - bility instrument driving operational reforms across the UNDS, whether in terms of increased efficiencies, enhanced transparency or more regular system-wide country reporting. In this context, it makes sense to include in the next Funding Compact iteration a few critical system-wide reform targets derived from the UNDS reform checklist currently being discussed in individual UNSDG entities’ executive boards and governing bodies.

Second, the Funding Compact is a much-needed strategic framework for change, and it is critical to have a clearer substantive perspective in the next Funding Compact on a few select development outcomes that the system aims to deliver, based on ongoing cooperation frameworks and around the key transitions required to get back on track towards the SDGs.

Third, in terms of further enhancing the quality of financing, more ambitious targets for pooled funding, especially at a country level, should be set. Given the critical importance of pooled funding facilitating a more integrated approach, and the recent trajectory, a doubling of non-core funding for development activities going via pooled funding – that is, from 12.3% (2021 figures) to 25% over the next Funding Compact – seems appropriately ambitious yet doable.

Fourth, one challenging commitment of the current Funding Compact that needs considerable unpacking and dialogue before conclusion of the next iteration is that of visibility. As highlighted in the DESA survey, donor countries that indicated that they had no plans to increase their core funding to the UNDS by the end of 2023 did so in part due to ‘continued concerns over limited visibility on how core resources are spent and the results achieved’.15 Yet, the most recent Funding Compact Indicator Table shows that both targets under UNSDG’s Commitment 10 ‘to increase the visibility of results from voluntary core contributions, pooled and thematic funds and programme country contributions’ have been reached.¹⁶

What’s more, the latest global UNSG report on QCPR implementation provides clear visibility for the efforts of key contributing countries in a few places including a table on ‘top government providers of core and pooled resources for development activities, 2021’ as well as a commendation, and listing, of the 13 Members States that provided greater voluntary contributions to the Special Purpose Trust Fund for Financing the Resident Coordinator System than they would have if it had been an assessed funding requirement rather than voluntary.¹⁷

Recent interactions with a couple of donors have highlighted the the importance for them of good visbility during country-level visits of ministers (‘project picture’ behaviour). In doing so it is important to not go back in time but instead move in the direction that stakeholders want the UNDS to go – that is, towards more integrated, scaled-up support to national SDG priorities. Hence, it would seem sensible for donors going forward to seek greater visibility on their contribution to high-level outcomes rather than simply specific project-level attribution.

This is an important discussion, as the continued decline – or at best stagnancy – in the share of core funding going to UN entities not only undermines the UNDS’s multilateral character but hampers its ability to rapidly address critical development crises in today’s world. It also weakens the UNDS’s leadership role in helping countries get back on track towards the SDGs and stimulating accelerated action on climate change.¹⁸

That said, the discourse on declining core funding has become quite problematic, with donors and UN entities increasingly speaking past each other at almost every turn. In many ways, it resembles the situation of 25 years ago, when there was also declining commitment to multilateralism in the midst of a pressing need for debt relief to highly indebted developing countries and more long-term measures to guarantee debt sustainability. Fortunately, this situation was soon countered globally by the introduction of ground-breaking agreements on debt (Heavily Indebted Poor Countries – HIPC – Initiative), on aid effectiveness and the new aid environment and the introduction of the Millennium Development Goals.19 The mid-to-late 1990s also saw a sharp decline in core funding for many UN funds and programmes. This was especially the case for the UN Development Programme (UNDP), whose core resources dropped to just over US$ 600 million in 1998, from a high of US$ 1.2 billion just a few years earlier.

In order to turn the situation around, an Open-ended Working Group on Funding was established with the UNDP Executive Board and, after a series of consultations, a new UNDP Funding Strategy was approved.20 In essence, the Executive Board agreed to an annual core funding target of US$ 1.1 billion in exchange for UNDP developing a multi-year funding framework that integrated programme objectives, resources, budgets and outcomes – the precursor to today’s strategic plans, which are now central to UN funds and programmes. A similar innovative reimagining of how to move forward on the core resource situation faced by some UNDS entities may also have to occur during the five-year timeframe of the next Funding Compact. This will be particularly important as core resources are not only important for funding critical functions and initiatives, but key to positioning the UNDS as a credible broker for the SDGs.