7 Underspent European Development Funds
| (24893)
12658/03
COM(03) 491
| Commission Communication on Financial information on the 6th, 7th and 8th European Development Funds 2002.
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| Legal base | — |
| Document originated | 7 August 2003
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| Deposited in Parliament | 24 September 2003
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| Department | International Development
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| Basis of consideration | EM of 2 October 2003
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| Previous Committee Report | None
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| To be discussed in Council | No date set
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| Committee's assessment | Politically important
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| Committee's decision | Not cleared; further information requested
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Background
7.1 The European Development Fund (EDF) is the main instrument
for development cooperation between the European Community, the
ACP countries[9] and the
Overseas Countries and Territories (OCT). In April 2003, the
9th EDF became operative and all unspent funds from
previous EDFs were absorbed.
The Commission Communication
7.2 This Communication reports to the Council, European Parliament
and Court of Auditors on the financial performance of the previous
EDFs (6, 7 and 8) for the year 2002. Net spending was €1.853
billion. Of this, the UK contributed around 12.7%, or €222
million. The total was less than the original EC estimate of
€2 billion. The main cause of the underspend was the delay
in making a large single payment to the European Investment Bank
as part of the large Heavily Indebted Poor Countries Initiative
(HIPC). Although the final figure was down on the previous year's
figure (€2.1 billion), the Commission points out that it
was still higher than the average for the previous 12 years.
7.3 A backlog of around €11.3 billion remains
unspent from the old EDFs, made up of around €8.4 billion
where funding commitments have been made but not disbursed, and
of €2.9 billion which has not been committed or spent. The
Commission does not regard such a backlog as unusual for major
donor agencies and has identified only €1.4 billion of the
backlog as "abnormal" or problematic. These are the
"sleeping" commitments on which there has been no movement
in the last two years and the "historic" outstanding
commitments made some time ago which remain unpaid.
7.4 The Commission says that the ACP countries include
some of the world's poorest, with serious governance problems.
A significant number are in crisis and aid often has to be suspended.
It says:
"The 'poverty reduction' and economic performance
of those ACP countries receiving direct budgetary aid is variable.
If the 'good governance' criteria which the international community
sets and the technical conditions agreed for disbursement are
not fulfilled, then payments are withheld."
7.5 The Commission says that it is exploring new
ways of working in partnership with ACP countries;
"for instance, the increased use of direct part-financing
of ACP countries' public budget within an agreed government 'poverty
reduction' framework. These 'budgetary support decisions' represented
€550 million in 2002, and do away with the long wait for
individual project design, implementation and accounting, although
partner governments must fulfil certain policy and economic performance
'standards' for payments to be made."
7.6 Other short-term steps taken include fast disbursing
initiatives such as contributions to international agencies or
donors such as the World Health Organisation and HIPC, and to
global funds.
7.7 In the medium term, measures taken to speed up
the expenditure of commitments and to stop the continued occurrence
of unspent problematic commitments include the introduction into
the new EDF Financial Regulation of a "sunset clause",
which limits the time between commitment and disbursement, thus
unlocking funds, and "deconcentrating" management of
resources to delegations.
7.8 The largest share (almost 25%) of EC commitments
(planned spending) went to structural adjustment/ direct budget
support/ balance of payments support. Transport also received
significant resources (around 15%).
The Government's view
7.9 The Secretary of State for International Development
(Mr Hilary Benn) says:
"Concern remains over the backlog of unspent
money. However, the funds are not sitting in bank accounts.
EDF funds are only called down from Member State treasuries when
required for disbursement; therefore Member States can spend the
funds in other ways if not called down in any given year.
"However, despite this dip since last year,
the trend in EDF implementation rates is still upward. Significant
progress has been made in changing the system for identifying,
unblocking and reallocating funds from 'old' commitments that
have not begun spending. This operation is made easier in EDF
9 with the incorporation of the sunset clause in the new EDF9
Financial Regulation.
"The Communication also outlines the process
of devolving some responsibility to Commission Delegations in
the field. We have welcomed the 'deconcentration' process, although
it has been slower to roll out in EDF countries. However, we
also believe that effectiveness could be improved with even more
delegation of responsibilities, including higher delegated authority,
to the Delegations. We hope to see this addressed in further
stages of reform.
"The Commission equates better financial performances
and increasing disbursement rates with greater effectiveness.
This is very important, but the UK will continue to promote a
broader notion of effectiveness, which includes a stronger focus
on the quality of programmes and on organisational behaviour (e.g.
how well partnerships are managed). In policy terms, the EDF
performs better than the main EC budget with 89% of funding going
to low-income countries (compared with 31% for the budget) and
more prolific use of modern development tools, such as joint direct
budget support programmes. Poor countries have more say in decision
making in the EDF, which we support. New flexibility mechanisms
(linked to mid-term reviews) under EDF9 will come into play next
year, which will make it easier to move money to countries which
are performing in terms of spend".
Conclusion
7.10 The Minister says that the Government will
continue to promote a broader notion of effectiveness than the
Commission's current tendency to equate better financial performance
and increasing disbursement rates with greater effectiveness.
We support this aim, though we recognise that slow disbursement
rates have attracted considerable criticism in the past, so perhaps
it is not surprising that the Commission places so much emphasis
on this issue.
7.11 The Commission tells us that a large proportion
of the European Development Funds are programmed to the poorest
countries, a significant number of which are in crisis. The European
Court of Auditors (ECA) has emphasised for some time in its Special
Reports, and most recently in its Special Report on the effectiveness
of the Commission's management of development assistance to India,[10]
the need for the Commission to ensure, before contributing to
budget support, that the country concerned has satisfactory systems
for reporting, accounting and auditing its public finances.
7.12 In this Communication, the Commission assures
us that, if the "good governance" criteria set by the
international community, and the technical conditions for disbursement,
are not fulfilled, payments are withheld. We recognise that in
some of these countries the systems to which the ECA refers may
not be state-of-the art, but we emphasise that the increased resort
to quick disbursing instruments, such as direct budget support,
should be accompanied by a sufficiently rigorous check on these
systems and that the EU funds concerned should be accounted for
in accordance with acceptable standards. We are not reassured
by the Minister's response to us on this issue in regard to the
Communication on India. In the case of the present Communication,
we ask the Minister whether he is confident that support in the
form of direct budget contributions to poor countries in crisis
is being adequately and effectively monitored, or whether improved
arrangements need to be put in place.
7.13 Meanwhile, we shall not clear the document.
9 Africa, the Caribbean and the Pacific. Back
10
See paragraph 5 of this Report. Back
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