10.1 The European Court of Auditors' (ECA) Special Report examines the European Commission's monitoring of the use of the counterpart funds from the European Development Fund (EDF) to support structural adjustment programmes in countries of the ACP (African, Caribbean and Pacific) under the Fourth Lomé Convention. The structural adjustment programmes aim to restore economic equilibrium and reduce the domestic (budget) and external (balance of payments) deficits of the beneficiary countries.
10.2 In its general appraisal, the ECA commented that, because counterpart funds are made available as part of the national public expenditure procedures in beneficiary countries, and because of the inherent risk of those procedures, it is unrealistic to think that the quantitative objectives being pursued in the priority sectors can be achieved without any hitches, that expenditure will always be executed regularly, and that it will always have a positive impact on the situation in the social sectors.
10.3 However, the report made some criticisms of the Commission's performance, though it balanced these with an acknowledgement of the weaknesses in the national implementation and control procedures for public expenditure of the beneficiary countries. It included words of caution to the budgetary authority to be aware of the inherent risks of the approach adopted by the Community in providing this type of support to ACP countries and made a number of sound, practical, recommendations. In its defence, the Commission said that it was vital that developing countries improve their management of public finances.
10.4 When we considered the report in November last year, we decided to refer it to the International Development Committee for its Opinion, in the context of its inquiry into The effectiveness of the reforms of European Development Assistance. The Committee has now published its Report and the Chairman writes to say:
"We considered this as part of our inquiry and, although it was not specifically referred to in the report, the comments of the European Court of Auditors on the reforms made since 1998 on the management of budget execution in beneficiary countries concur with our overall assessment of the risks inherent in the provision of budget aid and that financial management capacity needs to improve".