The development impact of the UNDAF will largely depend on the capacity of the UNCT to optimally finance it. It is highly recommended to prepare an UNDAF financing strategy because it ensures that: UN activities are appropriately costed and resourced; UN resources catalyse larger financial flows to implement the 2030 Agenda; and incentives embedded into UN financing mechanisms promote inter-agency collaboration and coherence. (see UNDAF companion guidance on Shifting from Funding to Financing).
COSTING AND RESOURCING UN ACTIVITIES: Substantial over- or under-budgeting of the UNDAF carries reputational risks. It can be construed as a reflection of poor UNCT planning capacity or limited commitment to transparency and accountability. Most likely, it will affect fund mobilization. Accurately budgeted activities will facilitate resource mobilization for activities to be directly implemented by the UN system.
LEVERAGING: UN resources are generally an extremely small proportion of the overall resources required and available for achieving the SDGs. They are used to leverage much larger public and private financial flows for sustainable development. This ambition demands a paradigm shift from funding to financing in the UNDAF. While the former is centred on resource mobilization to close the funding gap for activities directly implemented by UN agencies, the latter aims at leveraging all existing financial flows and instruments to finance the overall development results to which the UN system contributes. The effectiveness of UN resources in catalysing larger financial flows for sustainable development can be measured through leveraging ratios.
INCENTIVIZING COLLABORATION: Money can be either a unifier or a divider. Collective funding mechanisms tend to incentivize collective action, while ad hoc funding can foster competition. Incentives embedded in different financing strategies and mechanisms should be assessed and aligned with the UNDAF’s objective to foster UN coherence and collaboration for the 2030 Agenda at the country level.
STEP 1: Mapping the financial landscape, including international and national, private and public sources of finance
This first step draws on the assessment of existing development finance flows and mechanisms conducted in the CCA. It enables the UNCT to assess its financing comparative advantages, and identify where the UNDAF could play a strategic role to leverage broader financial flows.
STEP 2: Preparing the Common Budgetary Framework
The multiyear CBF is the consolidated financial framework that reflects agreed costed results of the UNDAF. It lays out the funding gap for the UNDAF and is part of the UNDAF results framework. It shows the best financial estimates for delivery of outputs, planned financial inputs and the funding gap for the entire UNDAF period. It can be operationalized through more detailed annual costed frameworks. The estimated resources column in the UNDAF results matrix consists of an estimation of financial resources, including human capacity, that each UN organization will contribute or mobilize from core (regular) and non-core (other) resources.
Costing budget requirements can be complex and methodologies can vary. To ensure that estimates are realistic, UNDAF funding gaps make reference to historical funding data. It is highly recommended to not budget an UNDAF at over 130 percent of the expenditure of the previous UNDAF unless this increase can be specifically justified. To the extent possible, harmonized methods of estimating available funds are used by different members of the UN system. Consistency needs to be ensured between the UNDAF financing gap and the figures used in respective organizational planning documents. International Aid Transparency Initiative and CEB data can be used to triangulate the information. Within joint work plans, outputs are costed and funding gaps identified based on resources available.
STEP 3: Developing a Financing Strategy to Address the UNDAF Funding Gap
In line with the UNDAF objectives, the third step assesses opportunities for the UN system to:
- Access additional resources for activities directly implemented by the UN System. These non-core resources to be channeled through the UN system can be both traditional and non-traditional, including foundations, the private sector, emerging donors and innovative financing
- Sequence/blend its core (regular) and non-core (other) funding with international/national concessional/non-concessional public finance (Multilateral Development Bank, National Development Banks, commercial banks, social impact investors, etc.)
- Leverage larger resources, which include all public, private, national and international financial flows. Leveraging resources does not focus on bringing non-core resources into the UN or blending them with UN resources but on catalyzing larger public and private investment to achieve the UNDAF development goal.
STEP 4: Design the joint resource mobilization strategy
The new UNDAF guidelines require the implementation of joint work plans through Results Groups. Within each result groups, UNCTs should explore opportunities for joint resource mobilization. The joint resource mobilization strategy will provide a common narrative and allocate responsibilities for fund mobilization efforts. It aims to promote synergies, and avoid duplication of efforts, counter-productive competition among organizations and funding gaps. Regular review enables adjustments to take advantage of new or emerging resource mobilization opportunities. Wherever possible, coordination and periodic reviews should take place through existing mechanisms.
It will also consider pooled financing mechanisms to incentivize collective action and system-wide coherence. The United Nations employs collective finance mechanisms (pooled funds) such as joint programmes, trust funds or thematic funding to reduce aid fragmentation, increase the quality (predictability, timeliness and flexibility) of non-core resources, and incentivize advocacy, policy coherence, capacity development and operational coherence. In 2014, the Multi-Partner Trust Fund Office estimated that pooled funding mechanisms only need to mobilize between 15 percent and 20 percent of the overall non-core funding portfolio to leverage these comparative advantages. For guidance on pooled funding instruments, please visit http://mptf.undp.org/document/templates.