37 The Financial Management of the 6th
9th European Development Funds in 2005
+ ADD 1
|Commission Communication: European Court of Auditors' annual report on the financial management of the 6th-9th European Development Funds in 2005
|19 July 2006
|Deposited in Parliament
|22 August 2006
|Basis of consideration
|EM of 5 September 2006
|Previous Committee Report
|To be discussed in Council
|16-17 October General Affairs and External Relations Council
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The Lomé Convention was superseded by the Cotonou Agreement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
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
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:
quality of programmes;
the speed and efficiency of implementation;
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
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
some 60% of which consist of slower-than-expected payments
from Stabex 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."
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
SEC (06) 977 page 13. Back