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Swiss franc surge puts strain on WHO's US$4b budget plan

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Switzerland's currency has gained 12 per cent against the euro this year, increasing salary costs for a United Nations agency that employs almost 1,900 people at its Geneva headquarters.

[GENEVA] After a year in which it was battered for its handling of the Ebola outbreak, the World Health Organization is facing another rising threat: the Swiss franc.

Switzerland's currency has gained 12 per cent against the euro this year, increasing salary costs for a United Nations agency that employs almost 1,900 people at its Geneva headquarters. The WHO is revising a proposed budget of more than US$4 billion in total for 2016 and 2017 and its executive board discussed an increase to adjust for the strength of the franc at a meeting last month, according to Sarah Russell, a spokeswoman. No consensus was reached, she said by e-mail.

The rising costs are complicating the WHO's efforts to convince donors that the agency represents value for their money. The side effects of the surge in the franc, which has prompted profit warnings and job cuts at Swiss banks and manufacturers, is also rippling out through Geneva's cluster of UN agencies and aid organizations. If the franc trades too closely to parity with the euro, there's a risk for an exodus of jobs, said Yves Flueckiger, the vice rector of the University of Geneva and a professor of economics.

"It will indeed create an incentive for international organizations and NGOs to remove part of their activities to other places," he said by e-mail. That would "reduce the level of employment in Geneva quite strongly."

The WHO's estimates for its next two-year budget range from US$4.17 billion to as much as US$4.38 billion, including a special adjustment for salaries, according to a Jan 16 document. The WHO doesn't expect to go beyond the higher amount, Russell said.

The Swiss National Bank abruptly ended the cap on the exchange rate with the euro on Jan 15, leading the franc to reach its strongest level since the common currency's 1999 debut. The WHO receives contributions denominated in francs of 220 million francs (S$320 million) a year and has expenses of 400 million francs in that currency, exposing it to an exchange rate risk for about 180 million francs, Mr Russell said.

Last year, the WHO started charging member nations half their annual fees in francs instead of dollars to reduce the currency risk. A decline in the US dollar against the franc between 2000 and 2011 reduced the WHO's purchasing power for payroll costs by 34 per cent, according to a 2012 report.

The agency has been cutting jobs and has moved about 100 positions to Malaysia. The WHO's board also adopted a set of reform proposals last month after the criticism on its Ebola response.

The agency plans to complete the budget review by April so the financing can be approved in May, the spokeswoman said. The WHO has more employees in Geneva than any UN body besides the United Nations secretariat. As of July 2014, 1,888 WHO employees were based at its headquarters, about a quarter of the total.

The franc has given up some of its gains against the euro since rising beyond parity last month, a development that may save the city from losing too many jobs, the University of Geneva's Flueckiger said.

Some international organizations based there are already seeking ways to cut costs. Unicef, the UN agency that works on children's rights, said last week it will cut costs by setting up a services center in Budapest employing about 200 people.

Still, others aren't as worried. The Global Fund to Fight AIDS, Tuberculosis and Malaria, which spends about US$4 billion a year fighting the world's three biggest infectious killers, said all its funds are raised and disbursed in US dollars, and less than 10 per cent of its costs are in francs.

GAVI, which last month raised US$7.5 billion to fund vaccinations in developing countries, said about 3 per cent of its costs are in francs. Because of hedging measures, the SNB's action "will not have any significant impact" on its finances, Rob Kelly, a spokesman, said by e-mail.

The International Committee of the Red Cross receives most of its income in foreign currencies, but has its budget in francs. The organization appealed for an additional 132 million francs in October to cover its 2014 budget of 1.3 billion francs as it faces increased costs associated with humanitarian responses in South Sudan, Ukraine and Syria.

It's too early to measure how the organization's funding will be affected, Alexis Heeb, a spokesman, said by e-mail.

"We will of course be affected in some way but are remaining calm and are waiting for the dust to settle," he said.

BLOOMBERG