Memorandum submitted by the Department
of International Development replying to questions raised by the
Committee on the 2003/04 DFID spring supplementary estimate
Central Reserve
We understand that the Department is seeking
two further transfers from the central reserve: £25,269,000
towards the Heavily Indebted Poor Countries (HIPC) programme and
£6,500,000 towards Iraq Reconstruction. In addition to the
£120,000,000 central reserve transfer in the Winter Estimate.
Would you please confirm the basis upon which these central reserve
resources have been transferred. Specifically, will DFID have
to repay any of these amounts and will any offset against future
resource allocations be required or is all this funding to be
treated as additional to the original estimate for 2003-04?
The £25.269 million HIPC 100% call on
the Central Reserve resulted from the financing arrangements
for this initiative as set out in the Spending Review 2002 Settlement
Letter. Under these arrangements, any spending in excess of £6.5
million per year in 2002-03 and 2003-04 was to be financed from
the Reserve. The £26.269 million represented our best estimate
of expenditure (in excess of the £6.5 million) for 2003-04.
It was wholly additional to the original Estimate.
Under the Settlement arrangements, any
unspent balance from this Supplementary will return to the Central
Reserve. Treasury have however agreed in principle that if an
under-spend is forthcoming a new Reserve claim may be submitted
to the Chief Secretary to the Treasury for the remainder of the
funds in 2004/05.
The call on the reserve for the £120
million in the Winter Supplementary and the £6.5m in the
Spring Supplementary were both to finance humanitarian and reconstruction
needs of Iraq. These allocations are additional to the original
Estimate and will not be affected by any underspend on other allocations.
We are confident that full disbursement of these funds will have
occurred in 2003/04.
The Treasury have acknowledged that,
as the £120 million Reserve claim was part of the £544
million UK commitment announced at Madrid, there is a strong case
for DFID to carry over any unspent balances into 2004/05. Therefore,
although we cannot roll any unspent funds forward, the Treasury
have undertaken to consider whether, if there were an underspend,
part or all of it could be returned to DFID by way of a separate
Reserve claim in 2004/05.
Capital
We also understand that capital receipts are likely
to be £8,400,000 less than expected and there is an overall
increase of 39% in the capital budget (to £67,600,000).
To fund this increase all the End Year Flexibility from 2001-02
has been drawn-down, together with a number of transfers from
programme resources elsewhere in the estimate. Can further information
be provided regarding what projects the additional capital funding
is needed for, whether programme cuts suffered elsewhere to fund
this additional spend and details of what caused the £8,400,
000 reduction in forecast capital receipts.
The revised estimate of £67.6m for Capital
spending is made up of £33 million administration capital
(an increase of £5m from the £28 million set out in
the SR2002 Settlement Letter), £19 - £20 million of
existing programme capital (consistent with previous estimates)
and £15 million for a new capital item related to the European
Development Fund (EDF). The EDF capital spend results from a
technical adjustment whereby the part of our annual financing
of the European Development Fund that is passed on to the European
Investment Bank is now treated as Capital rather than Resource
spend.
The forecast increase in Administration Capital
expenditure was responding to the need for new offices to support
expanding country programmes. In the event, there were slippages
in capital expenditure and the latest figures for 2003/04 suggest
that the final outturn for Administration Capital will be in the
region of £29 - £30m.
The net transfer from Resource to Capital,
excluding the £15m related to EDF, is £3.9m. This will
be funded from anticipated resource under-spends and will not
have an adverse affect upon individual programmes.
The 2003/04 Main Estimate figure for Appropriations-in-Aid
of £37 million was based on the figure set out in the SR2002
Settlement Letter. Since that time we have revised downwards
our forecasts of repayments of multilateral and bilateral loans.
The £8.4m reduction is primarily due to the application of
HIPC terms to loans formerly held by CDC.
May 2004
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