Warren Sach, the top UN budget official, rejected the notion of a complete UN shutdown but said on Tuesday it was possible that salaries might not be paid in full or on time and the UN might have to borrow from peacekeeping missions or freeze purchases to close a potential shortfall.

"There is no clear, easy way to work around a situation where more money has to go out than comes in," Sach said in a media briefing, adding later: "This place doesn't run on air, it runs on money."
 
The threat of a budget crisis arose last week when US Ambassador John Bolton said the UN should consider adopting an interim budget, possibly for three months, while diplomats hammer out a contentious reform package.
 
The US pays 22% of the UN's regular budget, which must be adopted by consensus. While Bolton has been careful not to tie the reforms directly to the budget, he argues that by deciding the budget now, many reforms that it wants would essentially be frozen.
 
In a bind

"Right now our focus is achieving these management reforms," US mission spokesman Benjamin Chang said on Tuesday evening, refusing to elaborate on the US plans.
 
UN Secretary-General Kofi Annan presented a $3.6 billion budget for 2006-2007 last month.
 

UN member states pay their dues
only after the budget is passed

The UN is in a bind because its finances are handled differently than national budgets. In the US, for example, tax revenue continues to come in even if a budget hasn't been determined.
 
But at the UN, member states only start paying once they are sent a bill, delivered only after the budget is agreed upon. The size of that bill is determined by a complex formula based primarily on a nation's economic output.
 
Sach said the US proposal could create a shortfall of up to $330 million in the first three months of 2006. He said that while the UN was looking at ways to scale back, the gap could "be managed and coped with".
 
Still, he said, "It's a very serious situation. It's fragile and creates real problems in terms of operational capacity in the organisation".