Select Committee on International Development Minutes of Evidence

Memorandum submitted by the Department for International Development



Question 1: How do the Department's specific objectives for 2002-03 support the Millennium Development Goals?


  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.


(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.


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.]


  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.


  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

    —  to promote growth.

  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.


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.


  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.


  Sierra Leone
  St Helena
  Indian States


  ‡ 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.


  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.


  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.


  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?


  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

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