Memorandum submitted by the Department
for International Development
RESPONSE TO WRITTEN QUESTIONS RAISED BY THE
COMMITTEE
AREA 1: THE
LINK BETWEEN
RESOURCE ALLOCATION
AND DFID'S
OBJECTIVES
Question 1: How do the Department's specific objectives
for 2002-03 support the Millennium Development Goals?
Answer:
1. DFID's objectives for 2002-03 are covered
in our 2001-04 Public Service Agreement (PSA). This provides the
link between the Millennium Development Goals (MDGs) and DFID's
work. It sets poverty elimination in the poorest countries as
DFID's central aim and lists the key targets that DFID aims to
achieve by 2004. These support the MDGs by focusing on: poverty
reduction (including targets on the amount of resources we spend
in the poorest countries and joint targets with other government
departments on debt and conflict reduction); sustainable development;
and education and health outcomes.
2. The recent NAO study on DFID's performance
management noted that DFID had successfully internalised the MDGs.
However, they noted—and we agree—that the PSA itself
did not enjoy full ownership around the office and so was not
driving performance at the level of delivery. To address this,
DFID has restructured its PSA for the period 2003-06 to set MDG-related
outcome targets which map directly onto our internal organisational
structure. Senior managers are directly accountable for delivering
PSA targets and every member of staff will be able to see the
link between their work-plans, the PSA and the MDGs. The revised
PSA will be published as part of the Government's 2002 Spending
Review in July.
Question 2: Can the Department provide an analysis
of planned expenditure by objective, and where possible an estimate
of the planned expenditure by Millennium Development Goal.
Answer:
(a) analysis of planned expenditure by objective
3. We provide an analysis of planned expenditure
against our 1997 policy objectives in Schedule 5 of the DFID Resource
Accounts. An extract from the 2000-01 Resource Accounts is reproduced
in Annex 1. This expenditure breakdown also reflects the priorities
in our first PSA, which are grouped under these 1997 policy priorities.
We are unable, however, to provide an analysis of planned expenditure
by PSA objectives under the present PSA 2001-02—2003-04.
This is because the structure of the PSA does not permit us to
attribute spending against the objectives. It should also be noted
that the PSA objectives are not mutually exclusive and do not
cover all DFID spending. We have recognised this constraint and
plan to resolve this issue in the new PSA to be agreed as part
of Spending Round 2002, by defining PSA objectives in a way that
will enable us to map budget allocations more clearly against
them.
(b) estimate of the planned expenditure by
Millennium Development Goal
4. The Millennium Development Goals set
out an internationally agreed set of targets and indicators of
international efforts to reduce poverty. The Goals are interrelated
and progress is needed against all of the Goals in order to tackle
poverty. We cannot attribute planned expenditure by Millennium
Development Goal because so much of DFID's work seeks to combat
more than one aspect of poverty and contribute to progress against
several of the Millennium Development Goals. DFID is currently
revising its policy information marker system to ensure better
coherence with the Millennium Development Goals. The new set of
12-15 markers will focus on a sub set of the targets within the
Millennium Development Goals. It is planned to commence reporting
against the revised system in September 2002 with data becoming
available mid 2003.
AREA 2: THE
EXTENT TO
WHICH COUNTRY
PROGRAMMES ARE
INFLUENCED BY
HIGH LEVEL
TARGETS
Question 3: Can the Department analyse the
planned bilateral expenditure by country and objective, and where
possible provide an estimate of the planned expenditure in each
country by Millennium Development Goal. [Note: to avoid unnecessary
detail, only country plans over £10 million need be analysed.]
Answer:
5. The Departmental Report (Annex 1, Table
4) analyses bilateral spending plans by country. We are unable
to analyse these spending plans by objective or MDG, for the reasons
given in answer to Q2. Country planning processes identify in
broader terms how far PSA objectives and MDGs are to be addressed
in country programmes, but not in terms of specific allocations
or spending forecasts. We are currently reviewing our resource
allocation system in order to identify how better we can relate
resource allocation to our objectives and the MDGs.
Question 4: In paragraph 4.21 of the Departmental
Report reference is made that 2001 was a difficult year for Kenya.
Please provide additional information on the problems faced in
Kenya and the measures that DFID has adopted to respond.
Answer:
6. For many years Kenya had the strongest
economy in East Africa based on agriculture—principally
tea, coffee and horticulture; tourism; and light industry. It
supplied its neighbours and most imports to the hinterland came
through the port of Mombasa. It had sound education and health
systems and a good infrastructure; and has had relative political
stability. However, falling commodity prices, economic mismanagement
and corruption have resulted in economic decline and with it increased
poverty. From 1994 to 1997 the poverty headcount increased from
44 per cent to 53 per cent; and is increasing.
7. Kenya is now suffering its worst economic
performance since independence. Five years of falling economic
growth, and declining per capita income, turned into economic
contraction in 2000 (-0.3 per cent GDP). The worst drought in
40 years exacerbated the underlying problems of poor investment,
deteriorating infrastructure, low agricultural productivity and
environmental degradation. Growth in 2001 was 1.1 per cent and
2002 is expected to be little better. All the key development
indicators are deteriorating. Without change Kenya will not attain
the Millennium Development Goals. Re-starting growth is a priority
for immediate poverty reduction and longer term sustained change.
Growth rates of 7 per cent pa are needed to reach the income Millennium
Development Goal. More widely, violent crime is pervasive, fuelled
by poverty, the breakdown of law and order and easy access to
firearms. About 13 per cent of the population is HIV/AIDS positive
and between 500 and 700 Kenyans die of AIDS daily.
8. Key to progress in Kenya is an improvement
in economic governance. Kenya is in the bottom five of Transparency
International's perceptions of corruption index, and has a poor
reputation among potential investors for providing effective government
and adherence to the rule of law. In 1999, the Government embarked
upon a comprehensive reform programme with a strong focus on improving
economic governance, public sector reform and privatisation, but
it was not implemented as envisaged. But IMF and World Bank programmes
to support these efforts have been suspended since early 2001
pending the implementation of a number of specific actions, and
evidence that new institutions set up to tackle corruption really
are working in practice.
9. In the run up to the Presidential and
Parliamentary elections expected by December 2002, Kenyan politics
is likely to be dominated by the succession to President Moi,
and an on-going constitutional review. This is creating uncertainty,
thereby further undermining business confidence and the prospects
for inward investment.
10. More positively, Kenya has run an exemplary
Poverty Reduction Strategy Paper process (though the Action Plan
is still awaited), the media has become increasingly free and
outspoken over the past 10 years (although very recent legislation,
on which the jury is still out, may undermine this freedom somewhat),
and Parliament has begun to exert its political muscles, though
it has yet to demonstrate an ability to have major positive influence
on policy and its implementation. Even if Parliament gains more
power, issue-based debate is likely to remain elusive.
11. DFID's top priority in Kenya is to encourage
the Kenyan Government to renew its commitment to implementing
its reform agenda, and to bring its programmes with the World
Bank and IMF back on track. This would pave the way for higher
growth and better public services, and would create an environment
that would attract additional donor support, including a resumption
of direct budget support from DFID. The interim challenge is how
to reduce poverty in the existing policy environment and how to
address short and longer-term constraints to development.
12. DFID seeks to meet this challenge by
re-organising our work around four themes:
— to build support for and advocate
pro-poor policy change in the short and longer term;
— to develop sustainable systems, particularly
in economic governance;
— to deliver benefits to the poor without
subsidising poor policy; and
13. Although the level of bilateral aid
is being maintained at around £30 million per year, the number
of programme activities is being reduced to enable us to focus
our efforts on a limited number of activities which can have major
impact, and to release staff time for policy dialogue and, improving
donor collaboration. In reviewing the new approach, the Secretary
of State noted that the experience of working in Kenya would provide
useful evidence of how to operate in a poor policy environment.
Examples of initiatives to take forward the agenda include:
Pro-poor policy change: a new programme
in local government reform which gives voice to poor people in
allocation of resources; development of a stronger and more effective
Parliament and electoral commission including financing domestic
election observation; political empowerment through civic education
and other rights-based initiatives; and closer engagement in key
issue-based policy debates such as environmental governance. DFID
is building its capacity to understand, advocate and influence
the policy debate, working closely with the High Commission.
Economic governance: support to Kenya's
PRSP and poverty monitoring and evaluation systems, and to fiscal
and budget transparency through assistance to developing an Integrated
Financial Management System and re-introducing a Public Expenditure
Review system. Encouraging the Government to agree to a work plan
under the World Bank-led country financial accountability assessment.
Increase demand for public accountability through support to key
institutions such as Transparency International. Support to public
service and legal sector reform.
Pro-poor service delivery: support to
tackling malaria which will make an immediate contribution to
reducing infant and maternal mortality. A new £17.8 million
social marketing of bed net programme is underway, together with
other support to other elements of the Government's malaria strategy.
Health sector reform efforts (including decentralisation) will
be supported and additional support given to the provision of
condoms. A £26 million programme for HIV/AIDS prevention
and care is also underway. DFID is also leveraging additional
Kenyan Government funds for primary school textbooks by providing
funding for books on a matching basis.
Promoting growth: support to the preparation
of national private sector and pro-poor financial sector strategies;
and enhanced trade policy dialogue and strengthened capacity for
trade policy formulation including preparations for the East African
Community trade protocol negotiations and new EC trade relations.
AREA 3: THE
INCREASING USE
OF BUDGET
SUPPORT
Question 5: Please provide a financial analysis
of the total actual and planned direct budget support by country
commitments for each year 2001-02, 2002-03 and 2003-04.
Answer:
14. Actual expenditure for 2001-02 is presented
below. The main variations from planned expenditure were in Kenya,
Malawi and Zambia (in response to inadequate progress with agreed
reforms or poverty reduction milestones), India and Pakistan (in
response to a greater progress with agreed reform and increased
financing needs in 2001-02). We are currently providing or are
considering provision of direct budget support in 2002-03 and
2003-04 for the following countries and territories: Ghana, Malawi,
Mozambique, Rwanda, St Helena, Tanzania, Uganda, Vietnam, Bolivia
and Montserrat. As indicated in Question 6 a number of criteria
must be met before these plans can be turned into firm decisions.
Equally, it is possible that the performance of a country not
currently on this list may improve sufficiently to warrant commitment
of direct budget support.
15. As far as Indian States and Pakistan
are concerned, direct budget support has been under consideration
for both for 2002-03 and 2003-04. However, there is currently
a real threat of war which would put back development prospects
disastrously. No new commitments or disbursements in either country
are therefore being considered for the time being. The UK's priority
for the immediate future is to work with both protagonists to
try to avert conflict. As and when the situation calms, and begins
returning to normal, we will redouble our efforts in support of
poverty reduction, including direct budget support.
DIRECT BUDGET SUPPORT IN 2001-02 (£m)‡
| AFRICA |
| Ghana | 31.6+
|
| Kenya | —
|
| Malawi | 12.5
|
| Mozambique | 20.0
|
| Rwanda | 18.0
|
| Sierra Leone | 10.0
|
| St Helena | 4.0
|
| Tanzania | 35.0
|
| Uganda | 47.0†
|
| ASIA |
| Indian States | 65.0
|
| Pakistan | 20.0*
|
| Vietnam | 7.0
|
| WESTERN HEMISPHERE |
| Bolivia | 3.0
|
| Montserrat | 7.6
|
| EASTERN EUROPE |
| Kosovo | 2.0
|
| Macedonia | 3.0
|
| Serbia | 5.0
|
| TOTAL | 290.7
|
Notes:
‡ DFID has recently adopted a definition of direct budget
support (DBS) as programmatic aid in which funds are provided
a) in support of a government programme which focuses on growth
and poverty reduction, and transforming institutions (especially
budgetary); and b) to a partner government to spend using its
own financial management and accountability systems.
+ Includes £6.6 million of support to the education and health
sectors which not strictly DBS as bypassed Central Exchequer
* Not strictly DBS as funds bypassed Central Exchequer
† Includes £12 million of Education Sector Budget Support
Question 6: Please provide details of criteria used by DFID
in undertaking assessments of countries prior to the adoption
of budgetary support: also provide a summary of the results for
each country in which budget support has been used, or is planned
in the next two years. Also, please provide more detailed information
on the measures that DFID is using to ensure the risks involved
in the use of budget support are adequately addressed.
Answer:
16. Eligibility for direct budget support is based on
three criteria: a) the extent of poverty, b) the government's
commitment to poverty reduction and c) the likelihood that the
resources provided will contribute to poverty reduction. These
are assessed as follows:
(a) Poverty: Countries should have a substantial
incidence of poverty and little or no access to private financial
flows—ie aid dependent Low Income Countries. Over 90 per
cent of DFID budget support is to such countries. The principal
exceptions have been the poorest two UK Overseas Territories,
given HMG's special responsibilities, and post-conflict countries
in the Balkans.
(b) Commitment to Poverty Reduction: A government
must demonstrate a genuine commitment to poverty reduction. For
Low Income Countries this is assessed in terms of a credible Poverty
Reduction Strategy (PRS) (or its equivalent), underpinned by sound
macro-economic management.
(c) Likelihood that resources will contribute to
poverty reduction: DFID must be satisfied that the resources
provided will be used in a manner consistent with the PRS. This
entails an examination of a government's financial management
and accountability systems, development of measures to buttress
these systems and a weighing of the remaining risks against the
expected developmental benefits. Internal DFID guidance, Managing
Fiduciary Risks When Providing Budget Support, is attached
at Annex 2.
AREA 4: IMPLICATIONS
OF ACCOUNTING
ADJUSTMENTS ON
THE AID
PROGRAMME
The financial papers for examination by the Committee are:
—Departmental Report 2002 (Cm 5414);
—Main Estimates 2002-03: Summary Request for Supply
(HC 795). International Development (pages 197 to 202) and Overseas
Superannuation (pages 203 to 207);
—Main Supply Estimates 2002-03: Supplementary Budgetary
Information (Cm 5510, pages 127 to 134).
Question 7: The Total Resource Budget 2002-03 for DFID as reported
in the Departmental Report (Annex 1) is £3,528 million. The
total of voted resources in the Main Estimates is £2,685
million plus £811 million of non-voted resources, giving
a total of £3,496 million. Please provide a reconciliation
of the Departmental Report figure of £3,528 million with
the Estimates figure of £3,496 million.
Answer:
17. The 2002-03 Total Resource Budget figure of £3,528
million in Annex 1 of the Departmental Report was a preliminary
figure calculated before the Estimates were finalised. As envisaged
in the loose-leaf note accompanying the Departmental Report, we
are issuing a corrected set of tables (copy enclosed at Annex
3), which are fully consistent with the Estimate.
Question 8: The main estimates identify significant changes
in provisions. What gives rise to these adjustments and how is
the Department able to accurately estimate these figures? Also,
what will be the impact on the Net Resource Outturn and Net Cash
Requirement if these figures are not accurately estimated?
Answer:
18. The amount recognised as a provision is our best
estimate of the expenditure required to settle a present obligation
at the balance sheet date. Provisions largely relate to new deposits
of Promissory Notes, which are made against an agreed schedule
of deposits, and other debt relief initiatives that are rather
more difficult to predict.
19. The increase/decrease in provisions in the Resource
to Cash reconciliation table of the Main Estimate is the value
of new provisions (for 2002-03, deposit of promissory notes) offset
by expected cash payments in relation to outstanding provisions
(for 2002-03, early retirements, ATP agreements in respect of
pre-1997 commitments, pre-independence pensions and promissory
notes).
20. Only new provisions (or changes arising from revaluation
in previous ones) are reflected in the Net Resource Outturn figure.
Were they to exceed the estimate the result would be a breach
of the Resource limit but it would not affect the cash requirement.
The cash requirement would only be breached where payments from
provision exceeded the estimate.
Department for International Development
June 2002
| 
