RESTRICTED  
  
WT/BFA/W/453  
 
15 June 2018  
(18-3474) Page: 1/7 
Committee on Budget, Finance and Administration    
 
 
PROPOSED UTILIZATION  OF THE ACCUMULATED   
BUDGETARY SURPLUS  
1  OVERVIEW  
1.1.  The WTO has an accumulated Budgetary Surplus , as at 31 December 2017 , of 
CHF 52.026 million.  
1.2.  According to Financial R egulation 23 the Director -General shall make proposals to the 
Committee on Budget, Finance and Administration ( CBFA) regarding the use of the Budgetary 
Surplus . These may be:   
a. application as income against the budget for the second financial period following that in 
which the surplus occurs, thereby reducing Members'  contributions;  
b. transfer to the Working Capital Fund; or  
c. use for any other purpose decided upon by the General Council.  
 
1.3.  The Director -General's  three proposals for the use of the Budgetary Surplus  are guided by 
the following considerations:  
a. CHF 26 .012 million for ASHI : Since the adoption of International Public Sector Accounting 
Standards (IPSAS) in 2012, the WTO is obligated to reflect several long -term liabilities in 
its accounting records. These include pension fund liabilities and ASHI liabilities.   
The absence of assets to offset the ASHI liabilities has been identified as a critical risk for 
the WTO. By definition, ASHI liabilities are existing obligations of the WTO to cover the 
future health costs of current staff members after retirement, retir ees from the WTO 
Secretariat and their eligible beneficiaries.  
 
As at 31st December 2017, the balance of ASHI liabilities was CHF 229 million. This 
amount, which is calculated on an annual basis by external actuaries, represents the 
present value of estim ated future cash outflows to cover ASHI costs. The amount is 
derived taking several factors into account, including a discount rate, service costs and 
actuarial gains and losses. The amount of ASHI liabilities is highly responsive to the 
discount rate, thu s resulting in notable variations in the value even if there is a slight 
change in the discount rate.  
 
There are no assets in place to contribute towards the funding of the ASHI liabilities. It is 
thus crucial that funds are provided to build up ASHI asset s.  
b. CHF 13 .007 million to cover operational expenditure : The average monthly expenditure for 
the WTO Secretariat is CHF 19 million. On the other hand, contributio ns come in a different 
rhythm. Most inflows during the year are from January to March and then in November and 
December. There is a lull in contributions from April through October.   
 
c. CHF 13 .007 million to augment the Working Capital Fund : There is a financial risk of delay 
or deferment or suspension of contributions by key contributors. Were this to come about, 
there would be adverse impact on the WTO budget, which would jeopardize the 
Organization's ability to implement its key activities.  
 WT/BFA/W/453  
 
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  The Working Capital Fund is the vehicle that is designed as a mitigating measure were the 
above situation to arise. However, the current balance of CHF 10. 88 million in the Working 
Capital Fund is insufficient to cover even one month's expenditure.  
2  UTILIZATION OF THE BUDGETARY SURPLUS  IN PREVIOUS YEARS  
2.1.  Financial  Regulation 23 stipulates that the budgetary savings shall be transferred to the  
Surplus Account. In this context, budgetary savings are defined as the difference between the 
approved budget a nd the corresponding actual expenditure as presented in the WTO financial 
statements for the period. The actual expenditure does not take into account the variations in the 
actuarial provisions for the long -term liabilities associated with Staff Pension an d After Service 
Health Insurance (ASHI) since they have not been included in the approved budget.  
The difference between the budgeted miscellaneous income and the correspondi ng actual 
miscellaneous income, as well as the variation of the provision for con tributions in arrears, shall 
also be transferred to the Surplus Account.  
2.2.  For previous years, t he CBFA made recommendations to the General Council for the 
utilization of the Budgetary Surplus  as follows:  
a. The Budgetary Surplus  of CHF 6,996,223 as at 31 Dece mber 2006 was allocated as 
follows1: 
i. CHF 1,500,000 to t he Restructuring Operating Fund ; and  
ii. CHF 5,496,223 was applied as  income against the budget for 2008 , thereby reducing 
Member s' contributions.  
b. Subsequent to a proposal in November 2008, the Budgetary S urplus  of CHF 12,051,716  as 
at 31 December 2007 was apportioned as follows2: 
i. CHF 8,051,716 to establish a Members'  Transition Operating F und (MTOF) . This Fund 
was used for the major building project that was undertaken from 2009 to 2013 ; and  
ii. CHF 4,000,000 was used as income against the 200 9 budget, thereby reducing 
Members' contributions.  
c. The Budgetary Surplus  of CHF 2,800,000 as at 31 December 2008 was used to reduce 
Member s' contributions to the 2010 budget3. 
d. During the course of 2010, the remaining Budgetary Surplus  from 2009, amounting to CHF 
1,036,988, was transferred to the MTOF.  
e. The Budgetary Surplus  of CHF10,527,319  as at 31 December 2010 was also transferred to 
the MTOF4. 
f. The last recommendation by the CBFA, to the General Council, relating to  the Surplus 
Account was made in September 20155. This covered the Budgetary Surplus es from 2011 
to 2014.  
i. The Budgetary Surplus  as at 31 December 2011, amounting to CHF  739,756,  was 
transferred to the Building Renovation Fund . 
ii. In 2012, the WTO migrated to  International Public Sector Accounting Standards 
(IPSAS). A significant change was that new accounting rules stipulated that provisions 
                                                
1 WT/BFA/W/164 . 
2 WT/BFA/W/178/Rev.1 . 
3 WT/BFA/W 114, paragraph 15.  
4 WT/BFA/W/243, paragraphs 5 and 8.  
5 WT/BFA/W/373.  WT/BFA/W/453  
 
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  for long -term liabilities be booked in the financial statements of the WTO. This had  not 
been the case previously. In preparing financial performance reports , the Budgetary 
Surplus  was the initial result, to which  adjustments were made for long -term 
obligations and other accounting adjustments, in order to arrive at the financial result.   
iii. The CBFA agree d that, in accordan ce with the WTO Financial Regulations and IPSAS 
principles, an amount of CHF 43,665,433, corresponding to Budgetary Surplus es from 
the years 2012, 2013 and 2014 be allocated to cover the long term cost estimates of 
the same years in order to align budget ary and financial results.  
The above was the precursor for the establishment of the ASHI Working Group, which 
was succeeded by the ASHI Strategy Development Monitoring Group and the Working 
Group on an ASHI Fund.  Each of the working groups had a specific man date and a 
tenure that culminated in respective reports. For this paper, the relevant report is that 
of the CBFA to the General Council for the meeting that took place on 6th November 
20176. The salient points from the report are as follows:  
o Members urged that there be prudence and that only part of the  Budgetary Surplus  
could be transferred to an ASHI Fund. They noted that the accumulated  Budgetary 
Surplus  should also be used for other core a ctivities of the O rganization.  
 
o Consideration was given for  the creation of a Fund with the current accumulated 
Budgetary Surplus es, where the savings from the WTO  Medical Plan could also be 
included, without deciding at that stage  on its possible future uses and letting that 
decision be taken by the CBFA at a lat er stage. This drew comme nts that the 
aspect of how the Budgetary Surplus  should be used was outside the scope of the 
Working Group and could be taken up by the CBFA.  
 
o The Working Group  on an ASHI Fund , then made two recommendations to the 
CBFA:  
- One, for  the establishment of a Special Reserve Account (SRA).  
- Two, as consensus was not reached in the Working Group on the funding 
models, that the discussion be further taken up in the CBFA.  
g. The table below summarizes the Budgetary Surplus  and financial results of the WTO for the 
years ended 31st December 2012 to 31st December 2017. That is, since IPSAS was 
introduced.  
Table 1: Evolution of Budgetary Surplus  and Financial Deficit since the Introduction of 
IPSAS (kCHF ) 
Reconciliation of Budget ary 
and Financial Results  
(in 000' CHF)   2012  2013  2014  2015  2016  2017  Total  
WTO Budgetary Savings  11,328  10,090  14,476  4,557  1,056  503 42,010  
WTO Miscellaneous I ncome  2,224  -181 304 1,547  -51  635 4,478  
Other Income/Expenditures  1,311  4,140  -26 75  38  - 5,538  
Overall Budgetary Surplus   14,863  14,049  14,754  6,179  1,043  1,138  52,026  
IPSAS Adjustments  -   19,491  2,794  5,585  5,520  3,215  36,605  
Acquisition of Property, Plant 
and Equipment  5,430  2,048  1,922  1,046  304 1,113  11,864  
Depreciation and A mortization 
of Property, Plant and 
Equipment  -1,097  -4,068  -4,919  -4,973  -5,047  -4,997  -25,101  
Pension Benefits Actuarial 
Valuation  -25,386  -24,687  -13,231  332 -16,885  -20,357  -100,214  
ASHI Benefits Actuarial 
Valuation   -13,707  -11,907  -11,497  -14,755  -13,177  -11,058  -76,101  
Financial Result (IPSAS)   -19,897  -5,074  -10,177  -6,586  -28,242  -30,946  -100,922  
                                                
6 WT/BFA/168, paragraphs 5 to 5.10.  WT/BFA/W/453  
 
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  3  PROPOSED ALLOCATION OF THE ACCUMULATED BUDGETARY SURPLUS  AS AT 31ST 
DECEMBER 2017  
3.1.  The Director General's proposed allocation of the accumulated  Budgetary Surplus  of 
CHF 52.026 million as at 31 December 2017 takes sever al factors into consideration. It should be 
noted that there is a n accumulated  Financial Deficit of CHF 101 million. Any discussions regarding 
how the Budgetary Surplus  can be allocated must bear the reality of this situation in mind.  
3.2.  The Director General , in keeping with the mandate vested upon him by Financial Regulation 
23, propose s that 50% should be allocated to fu nding long-term ASHI Assets and 50% for other 
priorities of the organization. The proposed allocation of the Budgetary Surplus  takes several 
fundamental factors into account:  
a. The extent of the net assets of the Organization : Table 2 reflects that as at 31 st December 
2017, the total liabilities of the WTO exceeded the total assets by CHF515  million. The 
main drivers of this are the net mismatch of the WTO Pension Plan assets (CHF 596 
million) and its liabilities (CHF 1,034 million); and the unfunded ASHI ben efit obligations of 
CHF 229 million.   
Table 2: Statement of Financial Position  
Statement of Financial Position (expressed in thousands of CHF)  
 31/12/2017  
ASSETS   
Current assets   
Cash and Cash E quivalents  115,098  
Receivables from Members  23,366  
Receivables from Observers  590 
Inventories  393 
Other R eceivables  3,522  
Advances and Prepayments  4,766  
Total Current Assets  147,735  
  
Non -current A ssets   
Building  121,347  
Equipment  11,711  
Intangible A ssets 409 
WTO Pension Plan A ssets 595,921  
Total  Non-current A ssets  729,388  
  
Total Assets  877,123  
  
LIABILITIES   
Current L iabilities   
Payables  4,801  
Accruals  6,600  
Assessed Contributions Received in A dvance  9,372  
Volunta ry Contributions Refundable to D onors  32,916  
Short -term Employee B enefits  12,122  
Total Current L iabilities  65,811  
  
Non-current L iabilities   
Loan  54,000  
Pension B enefits  1,034,918  
After Service Health Insurance B enefits  228,938  
Other Long -term Employee B enefits  8,315  
  
Total non -current liabilities  1,326,171  WT/BFA/W/453  
 
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  Statement of Financial Position (expressed in thousands of CHF)  
Total liabilities  1,391,982  
  
Net assets/equity  -514,860  
  
NET ASSETS/EQUITY   
Working Capital Fund  10,885  
Actuarial Gain/(L oss) 246,687  
Accumulated Surplus /(D eficit)  -837,337  
Provision for Right of U se – Centre William Rappard  58,586  
Reserves  15,844  
Extra Budget Fund Allocation  -9,525  
Total Net Assets/E quity  -514,860  
The key concern , as further reinforced by the External Auditors, is that there ought to be a 
strategy to stem the growth of, and reduce, the unfunded ASHI liability. It is on the basis 
of this that various working groups had been tasked by the CBFA to look into this subj ect. 
The absence of assets to offset the ASHI liabilities has been identified as a critical risk in 
the WTO risk report. It is, therefore, imperative that a portion of the Budgetary Surplus  be 
apportioned to building ASHI assets to fund the ASHI liability.  It is proposed that 50% of 
the accumulated Budgetary Surplus  (CHF 26.012 million) be set aside for this.  
b. The cash -flow patterns of the Organization : The average monthly expenditure for the WTO 
Secretariat is CHF 19 million. On the other hand, contributions come in at a different 
rhythm. Most inflows, during the year, are from January to March and then in November 
and December. There is a lull in cont ributions from April through October.  Graph 1 depicts 
the pattern of monthly contribution flows for 2015, 2016 and 2017:  
Figure 1 Contributions R eceived per Month in 2015 -2017 (million CHF)  
 
 
On a rolling monthly basis, the net contributions (i.e. contributions less expenditures per 
month) were as follows, in 2015, 2016  and 2017:  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015 44.30 34.92 17.04 17.97 7.15 7.88 11.97 6.07 2.42 11.51 27.98 33.51
2016 30.17 32.51 32.71 15.70 7.87 9.48 16.71 12.58 6.95 2.05 22.23 47.13
2017 45.60 18.44 29.92 15.89 11.04 9.75 6.04 4.21 4.93 15.05 24.24 13.630.005.0010.0015.0020.0025.0030.0035.0040.0045.0050.00
2015
2016
2017WT/BFA/W/453  
 
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  Figure 2 Net Contributions per Month (Contributions less Expenditure) per Month 2015 -
2017 (in million CHF)  
 
 
As we can see, in the period between April (March in 2015) and October, the monthly 
balance of receipts after deducting the expenditure is negative. Due to a shift in 
contributions, the monthly balance in 2017 has also been negative in D ecember.  
If we look at the yearly balance for the past ten years, we can see that we had several 
years in which the expenditure exceeded the yearly receipts of contributions. This confirms 
the need to hold a cash reserve to cover for these periods.  
Figure 3 Net Contributions (Contributions less Expenditure) per Year 2007 -2017)  
 
 
Given the above trends, it is proposed that 25% of the accumulated Budgetary Surplus  
(CHF 13.007 million) be set aside for this.  
c. The importance  of having a n adequate buffer for financial needs , based on the risk  
assessment  of the Organization:  There is a financial risk of delay or deferment or 
suspension of contributions by key contributors. Were this to come about, t here would be 
an adverse impact on the WT O budget , which would jeopardi ze the Organization's ability to 
implement its key activities .  
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015 30.78 21.38 -0.64 0.06 -8.68 -10.85 -8.93 -10.16 -14.92 -8.09 11.05 12.03
2016 11.41 18.46 16.30 -2.77 -8.67 -8.55 -7.16 -4.25 -10.60 -15.56 5.13 19.44
2017 32.71 2.37 13.45 -0.99 -8.29 -8.90 -13.04 -15.32 -15.43 -3.03 5.18 -4.05-20.00-10.000.0010.0020.0030.0040.00Net Contributions per Month 2015 -2017
(million CHF)
2015
2016
2017-20.00-15.00-10.00-5.000.005.0010.0015.0020.0025.0030.00
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Net ContributionWT/BFA/W/453  
 
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  The Working  Capital  Fund is the vehicle that is designed as a mitigating measure were the 
above situation to arise. However, the current balance of CHF 10.88 million in the Working 
Capital Fund is insufficient to cover even one month's expenditure.  
We propose that 25% of the accumulated  Budgetary Surplus  (CHF 13.007 million) be used 
to augmen t the Working Capital Fund.   
In view of the above:  
The Committee on Budget Finance and Administration recommends to the General 
Council that the accumulated Budgetary  Surplus  as at 31  December  2017 , amounting to 
CHF 52,026,000 , be utilized as follows : 
 
a) 50% (amounting to CHF  26.012 million) should be allocated to funding 
long-term  ASHI Assets ; 
b) 25% (amounting to CHF 13.007 million) be held as a cash reserve to cover 
cash flow needs during the course of the year; and  
c) 25% (amounting to CHF 13.007 million) to be used to  augment the Working 
Capital Fund . 
 
 
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