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Brexit Foments FX Frustrations for Nonprofit Treasurers

  • By Andrew Deichler
  • Published: 7/27/2016
The impact of the Brexit vote in the U.K. continues to roil treasury. This time, treasury professionals feeling the pain work for non-governmental organizations, or NGOs. At issue: When NGOs receive a donation, it’s typically in the donor’s currency. But what happens if that currency tanks, as the British pound did after the Brexit referendum?

“We had an award that was £5 million. It was worth US$7 million, and now it’s US$6 million. But the donor isn’t likely to give us more money,” lamented one NGO treasurer who was attending the recent Association of Global Development Treasurers Annual Conference in Washington D.C.

Said another NGO treasurer: “You have a Brexit and you get a weaker euro or kroner or pound, and then I get worried because now I have a five-year grant for €20 million and I thought that was US$30 million and it’s now US$22 million.”

Another treasury professional noted that this actually points to a bigger issue NGOs have of negotiating with donors when this kind of volatility occurs. “How do you deal with donors? Do your unrestricted funds have to fill in the gap if you’ve got an FX loss or will they accept it with you?” he asked.

The first treasurer responded that going back to the donors and renegotiating to fill in that gap is generally not something NGOs want to do. “It’s hard to go back to the Germans or the French and say, ‘Your currency tanked; I need more dollars,’” she said. 

She noted this particular donor works with several different NGOs and some of the other organizations it works with have not been implementing certain programs that the donor intended its funds to be used for. Therefore, it could potentially cut ties with some of them and add more money to her NGO, but that’s all speculative. But to for that to happen, her NGO would need to go back to the donor and renegotiate.

“It’s a difficult position to get back to them, and who does it? Our contracts people are typically just focused on contracts, so it’s our programs folks who say, ‘If you really want to get all of these activities funded, you have to give us more money,’” she said.

A key complication here is the effect that rapid currency fluctuations have on NGOs’ expenses. One treasury professional noted that NGOs often have large, program-related investments that are long-term in nature and have the potential to tap out a donor’s unrestricted funds. These situations have to be dealt with on a project-by-project, donor-by-donor basis, as different donors have different rules about their grants. They end result may be the NGO having to pitch in more of its own money to continue the project. “That’s the big worry,” he said.

NGO treasurers are between a rock and a hard place on the issue, because they cannot afford to be too demanding when working with donors. “Look at it from a donor’s perspective; if I’m giving you pounds, it’s up to you to manage that exposure,” he said. “I think it’s difficult to start a debate with the donors and say, ‘We want dollars.’ The UK is going to give you pounds, the Germans are going to give you euros. It’s your responsibility to manage it.”
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