UNRWA FINANCIAL REPORT

1. UNRWA FINANCIAL REPORT As at end- December 2010

2. Slides 4 and 5: A brief explanation of the key factors causing variances to UNRWA’s General Fund (GF) Income Statement in 2010, - slide 4, year to date results as compared to annual budget and slide 5, November end of year forecast to year to date results. Slides 6 and 7: UNRWA’s December GF Income Statement, identifying for December and Year to Date (YTD), actual results, budget and variances in a resource format ( ie salaries, travel rent.. etc). Slide 8: GF donor income, per donor country, identifying for the year: annual budget, amount received variance to budget, foreign exchange impact on amounts received (for non US currencies – please note UNRWA functional currency is the USD), total amount received variance to budget (ie net of FX impact) and total 2010 income received per donor country. Please note foreign exchange (FX) variance is due to the difference between the actual monthly spot rate (as monthly advised by the UN) less the (fixed) budgeted rate, times the actual amount received. UNRWA cannot influence the FX variances as reported with donor income, the budgeted rate is set and fixed before the commencement of the financial year and the monthly spot rate is set by international capital markets – hence, inevitably there will always be FX variance as reported with income. UNRWA can, and did in late 2010, undertaken FX hedge agreements with banks to minimize future FX variance, however, the financial impact of the hedges is reported against the “ financial derivatives (gain)/losses” line in the Income Statement. Slide 9 Donor Income, same aggregate numbers as Slide 8, however presented in a manner which identifies: i) total income received by donor up to the budgeted amount ($398.2m) and ii) amount received per donor in excess of budget amount ($105.1m). Slide 10 Total GF expenditure for 2010 per Programme Slide 11 Total GF expenditure in terms of Human Development Goal (HDG) Slide 12 Brief explanations on sources and types of FX movements Slide 13 Identification of UNRWA bank balances at the end of the year per currency. Dec 2010 – Index

3. Slide 14 Identification of opening and closing cash balance for 2010 along with a reconciliation of movement from reported Income Statement surplus (+$4.2m) to closing cash balance ($79.5m). Slide 15 Table identifying performance of UNRWA’s Provident Fund ( ie 401k or Superannuation etc) for 2010 and historical performance from 2000. Slide 16 Table identifying key reasons for financial variances for both the Total Programme and the downsized budget. Slide 17 List of Appendices Slides 18,19 and 20 reports UNRWA total operating expenditure, not in terms of an Income Statement but in terms of Programme and Sub Programme expenditure. Slides 6 & 7 total YTD operating expenditure is $546.7m, add capitalization/depreciation ( Cr of $1.6m), is the total operating expenditure in the Programme/Sub Programme report, $545.1m. Please note depreciation/capitalization is posted to cost centres & thus included in this report. In 2011 the Income Statement & Programme report financial results will be identical. Slides 21, 22 and 23 reports UNRWA total operating expenditure in terms of Human Development Goal and sub Goal, total operating expenditure same as per Programme report, $545.1m. Slide 24 UNRWA Balance Sheet, per fund group. Slide 25 - General Fund total cash inflow for 2010 Slide 26 Headcount report for all local area staff ( ie excluding 205 international staff), per month, per Field and Headquarters. Slide 27 Aged accounts payable and advances report per Year and Field Dec 2010 – Index

4. On 1 January 2010 UNRWA's General Fund (reduced downsized Budget, excluding the Unfunded Requirement of $57m) was forecasting a deficit of -$54.6m - due to planned expenditure being greater than budgeted voluntary donor contributions. UNRWA has typically started the financial year with a deficit of around 10% of budgeted expenditure – expected to be sourced through increased voluntary donor contributions throughout the year. Actual December YTD 2010 result was a surplus of + $4.2m, whilst there were many variances throughout the year, the key factors were: a) $60.7m increase in donor income over budget (please refer to slides 8 & 9 for disaggregation by donor) b) total operating expenditure $5.2m greater than budget, chiefly due to inaugural accrual of 2011 severance provision of $14.2m due to efforts to be fully IPSAS compliant by 2012, which was partially offset by savings across a range of inventory and other non labour costs c) adverse foreign exchange result of -$18.2m due to dramatic decrease in non-US FX rates and nil hedging of 2010 funds (note 97% of non US receipts for 2011 are hedged) and d) prior period accounting adjustments net gain of +$14.4m due to i) capitalization of inventory incorrectly expensed in 2009 ($5m) and ii) reclassification of 2009 income accrual from Restricted Funds to General Fund ($10m). Dec 2010 General Fund Financial SummaryBudget-Actuals US$ m

5. The November Report forecast an end of year deficit of -$4.8m, however the December annual result was + $4.2m, key variances comprised: i) Donor income + $9.0m (comprising Australia $5.4m, Switzerland + $1.4m and other Non AdCom + $2.2m), ii) Staff, savings on actual headcount more than offset by increased accruals on retirement and severance benefits-$5.0m, iii) Non staff adverse by -$7.1m chiefly due to greater than forecasted accrual of material purchase orders (principally hospitalization) and service contracts, iv) FX/Derivatives net gain of + $1.2m due to favourable movement in monthly FX rates v) Net gain in prior period adjustments of + $8.7m, chiefly due to re coding of $10.0m in 2009 income accrual from Restricted Funds to General Fund vi) annual posting of depreciation and capitalization ( in 2011 to be recorded monthly). Dec 2010 General Fund Financial SummaryNov EOY to Dec Actuals US$ m

6. 2010 Income Statement, General Fund – Resources (Page1 of 2) Amount in $ Thousands

7. 2010 Income Statement, General Fund - Resources (Page2 of 2) Amount in $ Thousands

8. Donor Income - 2010 General Fund US$ m

9. Donor Income Against Budget - 2010 General Fund US$ m

10. Programme Total Actual Expenditure General Fund -2010 • This amount includes $23.9m International Staff costs • This amount excludes $2.7m costs comprises of ($18.2m Foreign exchange loss,($(1.1) Derivative gains and $(14.4)m Prior year adjustments

11. Human Development Goal Total Actual Expenditure General Fund -2010 • This amount includes $23.9m International Staff costs • This amount excludes $2.7m costs comprises of ($18.2m Foreign exchange loss,($(1.1) Derivative gains and $(14.4)m Prior year adjustments

12. Treasury – Foreign Exchange UNRWA Foreign Exchange gains and losses for 2010 were made up of the following: • FX Loss on Donor Income • The difference between the Donor Income at Budget Rates, and the actual UN exchange rate that the contribution is booked at when received. UNRWA cannot control the variance between these rates, unless the income is hedged. • The result for 2010 was a loss of USD14.9m, mainly due to the depreciation of the Euro against the USD. • In October, 97% of 2011 non-USD Donor Income was hedged. This is expected to offset the income volatility from movements away from the budgeted rate, but will be reported separately under the FX line. • FX Loss on Realised and Unrealised Foreign Currency Bank Balances and Transactions • The revaluation of Foreign Currency bank balances and any other assets or liabilities, and the realised gain or loss on any foreign currency transactions. • The result for 2010 was a loss of USD18.3m, primarily due to the devaluation of foreign currency bank account balances – particularly the Euro. • Unrealised FX Gain or Loss on Financial Derivatives. • In 2010, hedging contracts (FX Forwards) were entered into to protect the value of contributions received in late 2010 and 2011. Prior to maturity of these contracts, they must be revalued to market at the end of each month. If any income is received against any of these contracts, then the gain/loss must be reported in the income statement. • Realised FX Gain or Loss on Financial Derivatives. • After maturity of each hedging contract, a gain or loss is realised. • The result for 2010 was a gain of USD1.1m for the contracts hedging our 2010 exposures (EUR and GBP).

13. UNRWA Bank Balances

14. Cash Flow Forecast – December - General Fund -EOY US$ m US$ m • Note- Of the $79.5m cash balance as at 31/12/2010, this includes advances from 2011 income comprising: • $28m - USA • $0.91m - New Zealand, Pakistan and Czech Republic

15. Area Staff Provident Fund – December 2010

16. General Fund US$ m

17. APPENDICES • Financial Performance Report by Sub Programme • Financial Performance Report by HDG (Objective) • Balance Sheet as per UNSAS – As at 31 Dec 2010 • YTD Dec and EOY General Fund – Cash Inflow • Supplier Aging as on 31 Dec 2010 • Head Count as on 31 Dec 2010

25. YTD Dec and EOY General Fund – Cash Inflow US$ m US$ m

26. Head Count as at 31 Dec 2010 – Area Staff Budget

27. Supplier’s Accounts Payable & Advances – Dec 2010 Amount in US$

28. Questions ?