Select Committee on European Scrutiny Thirty-Seventh Report

37 The Financial Management of the 6th — 9th European Development Funds in 2005



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COM(06) 405

Commission Communication: European Court of Auditors' annual report on the financial management of the 6th-9th European Development Funds in 2005

Legal base
Document originated19 July 2006
Deposited in Parliament22 August 2006
DepartmentInternational Development
Basis of considerationEM of 5 September 2006
Previous Committee ReportNone
To be discussed in Council16-17 October General Affairs and External Relations Council
Committee's assessmentPolitically important
Committee's decisionCleared


37.1 The European Development Fund (EDF) is the EU's main development co-operation instrument for 78 Africa, Caribbean and Pacific (ACP) countries and 20 Overseas Countries and Territories (OCT). The Lomé Convention established the 6th EDF in 1986. This was renewed in 1991 as the 7th EDF and again in 1998 as the 8th EDF. The Lomé Convention was superseded by the Cotonou Agreement (signed in 2000 and entered into force in 2003) which provides the framework for the current, 9th, EDF (EDF9).

37.2 EDF9 became operational on 1 April 2003 and runs until the end of 2007. It provides the €13.8 billion (£9.4 billion) specified in the Cotonou Agreement for the Community's financial assistance for the five-year period, plus all uncommitted funds from previous EDFs. The UK share of EDF9 is 12.69%.

The Commission Communication

37.3 The Communication and related Staff Working Paper SEC (06) 977 provide the routine annual report from the Commission to the Council, European Parliament and European Court of Auditors on management and financial performance for EDFs 6, 7, 8 and 9 required under the provisions of the Financial Regulation governing the EDF.

37.4 The report explains how much was committed and paid during 2005 — commitments totalled €3.511 billion (£2.403 billion) and payments €2.489 billion (£1.7 billion).

37.5 Section two of the report measures progress against the three objectives that the Commission set itself for the EDF in 2005, namely improving:

—  the quality of programmes;

—  the speed and efficiency of implementation; and

—  the functioning of control systems.

37.6 The report sets out the major areas where new commitments were made; the biggest shares went to basic social services, such as education, health, water and sanitation (36%), followed by budget and balance of payments support (24%) and transport, communications and energy (24%).

37.7 Sections three and four summarise the financial situation and internal factors that affected management of the EDF in 2005. The latter includes progress on management information systems, internal controls and staffing levels. The Staff Working Paper contains a more detailed breakdown of commitments and more information about management issues. It also sets out challenges for 2006-07.

The Government View

37.8 In his 5 September 2006 Explanatory Memorandum, the Parliamentary Under-Secretary of State at the Department for International Development (Mr Gareth Thomas) notes that there are no major policy implications stemming from the report, which he says is a clear and brief summary of another largely positive year, comprising a useful indication of general trends in EDF spending and management, a reasonably frank assessment of the challenges ahead to maintain or improve the EDF's performance, and proposals for how to meet these challenges.

37.9 He notes that, with regard to the first of its 2005 objectives — to improve the quality of its programmes — the report cites three main ways in which it did this:

"i) a ten-fold increase in the number of projects that were quality controlled; ii) missions to 60 of the 78 ACP countries to measure the quality of programmes using the ROM (Results Oriented Monitoring system); iii) a 57% increase in the share of funds provided through budget support. We welcome all three."

He goes on to say that:

"The report could have included comparative ROM data for previous years to help assess any changes in the quality of programmes. Information from other Commission documents suggests that the ROM scores for EDF programmes remain below the average for all EC programmes, notably in terms of 'efficiency' and 'impact'. This is not surprising given the often more challenging political and socio-economic contexts in which ACP projects are implemented, although there is clearly room for improvement. On a more positive note, a comparison with the EC's Annual Report 2005 shows that the overall ROM score for EDF programmes rose from 2.48 in 2004, to 2.6 in 2005, with notable increases in relevance and sustainability, smaller increases in effectiveness and efficiency, and a slight decrease in impact."

37.10 With regard to the second objective — to improve the speed and efficiency of EDF programme implementation — the Minister says:

"We welcome the 33% increase in global commitments compared to 2004 and the highest ever level of payments, even though this was slightly below the Commission's target. With the completion of the devolution process in 2005 and the related 103% increase in staff in EC Delegations in ACP countries since 2000 we would expect these positive trends to be at least consolidated in future years. Some staffing gaps remain, notably in 'hardship' posts, but this a difficulty faced by most donors. The Working Paper notes a slight increase in the size of unspent commitments. This is not a cause for concern given the convincing explanation and the corrective measures taken. We welcome the decommitment of €476 million from projects that are no longer viable and expect these funds to be recommitted to ACP countries as part of the EDF 9 End of Term Review this Autumn."

37.11 With regard to the final objective — to improve the functioning of control systems, notably accounting and information management systems — the Minister says:

"The report gives brief details of actions taken and identifies areas where progress has been slower, notably checks carried out after financial transactions are made (ex-post controls) and the updating of internal and external websites. The Commission attributes this to a fall in the average number of staff in EuropeAid as measured against the size of the funds managed. We will continue to monitor this situation and encourage the Commission to provide an adequate level of staffing, this includes for the management of OCT programmes where delays were experienced in 2005. We will also continue to second DFID staff when appropriate."

37.12 The Working Paper also details progress against the recommendations made by Court of Auditors' reports in recent years. The Commission draw particular attention to unspent commitments, known internally as RAL (the acronym of the French term restes à liquider) — some 60% of which consist of slower-than-expected payments from Stabex[89] funds and risk capital managed by the European Investment Bank — where it observes that the Commission "must disburse the funds as planned or decommit them if they are no longer needed or justified so that they can be used for other purposes". The Commission accordingly sets out nine "key challenges" for 2006-07 related to the speed and quality of EDF programmes, which it describes as an ambitious work programme. The Minister says "we expect significant progress to be made and will ask the Commission to report against these challenges in next year's annual EDF report".

37.13 Looking ahead, the Minister says that his officials will take up some minor presentational aspects in ACP Working Group in September and also seek more detailed Commission views on ROM patterns and EuropeAid staffing levels. Beyond then, he says the report is expected to be agreed without discussion at the 16-17 October General Affairs and External Relations Council.


37.14 It is gratifying to note further steady progress in the implementation of the reform process begun in 2000. However, not surprisingly, there continues to be room for greater effectiveness. As the Commission Staff Working Document notes, "the next two years represent a critical period for the Commission [in which] it must work fast to follow through on its political commitment to deliver more and better aid in ACP states, and in Africa in particular. Key to this is continuing to improve its management of the EDF."[90] We therefore hope that, when the Minister reports next year on the "key challenges" for 2006-07, he will indeed be able to report significant progress in addressing them, particularly since the next EDF — EDF10 — covering the 2007-13 Financial Perspective will involve a further €22 billion of European taxpayers' money.

37.15 In the meantime, we now clear the document, which we are reporting to the House because of the widespread interest in the subject matter.

89   Stabex (Système de Stabilisation des Recettes d'Exportation) is the Commission compensatory finance scheme to stabilise exports of ACP countries, which was introduced in 1975 under the Lomé Convention and abolished in the Cotonou Agreement in 2000. Back

90   SEC (06) 977 page 13. Back

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