Appendix 1
Memorandum from the Department for International
Development
Draft International Development Association (Multilateral
Debt Relief Initiative) Order 2006
1. This explanatory memorandum
has been prepared by the Department for International Development
and is laid before the House of Commons by Command of Her Majesty.
This memorandum contains information
for the Select Committee on Statutory Instruments.
2. Description
2.1 The proposed Order permits
the Secretary of State to make further contributions not exceeding
£79.19 million to the African Development Fund of the African
Development Bank between 2006 and 2015 pursuant to arrangements
that have been made between the African Development Fund and Her
Majesty's Government of the United Kingdom in accordance with
Resolution No. F/BG/2006/12 of the Board of Governors of the African
Development Fund.
2.2 Additionally, the Order
permits the Secretary of State to make payment of sums required
to redeem any non-interest bearing and non-negotiable notes or
other obligations that may be issued or created by him as a result
of the arrangements that are to be made by the Government of the
United Kingdom and the African Development Fund regarding the
payments.
3. Matters of special interest
to the Select Committee on Statutory Instruments
3.1 The draft Order is to be
made pursuant to section 11 of the International Development Act
2002. Section 11 applies when the Government becomes bound to
make a relevant payment to a multilateral development bank. The
section goes on to provide that the Secretary of State can only
make the relevant payment to the bank once the payment has been
approved by an order made by him with Treasury approval. But,
the Secretary of State cannot make such an order until a draft
of it has been laid before and approved by the House of Commons.
3.2 The purpose of an Order
made under section 11 is to allow the Secretary of State to make
a relevant payment when the Government is bound to do so. The
deposit of an Instrument of Commitment with the African Development
Fund binds the Government to make the relevant payment. As section
11 only applies when the Government is bound to make the relevant
payment and, at present, it is not so bound, this raises the technical
issue of whether the Secretary of State may properly present the
draft Order to the House when the Government is not yet bound
to make the payments the Order deals with and thus, as yet, has
no power to make the Order.
3.3 The seeking of Parliamentary
approval for the draft Order before the Government is bound is
the usual practice in these cases. The Committee has considered
this issue previously (for example in respect of the draft International
Fund for Agricultural Development (Sixth Replenishment) Order
2003 in its Fourth report (HC 126-iv 2002-03)) and has concluded
that there is no technical reason for the House not to approve
the draft Order but that it should merely be aware that it is
acting, as on occasions in the past, on a Ministerial undertaking
that the Order will not be made until the Government is bound.
Accordingly the Secretary of State gives his undertaking that
no Order will be made in terms of the draft until, on deposit
of the Instrument of Commitment, the Government is bound to make
the payment. The purpose of the Secretary of State laying the
draft Order before the House is to secure the approval of the
House before the deposit of the Instrument of Commitment.
3.4 The Department respectfully
submits that the contents of the draft Order do not require any
departure from the Committee's established approach to the exercise
of the powers under section 11.
4. Legislative Background
4.1 The proposed Order is being
made to enable the Secretary of State to contribute further (the
United Kingdom has contributed funds on eleven previous occasions)
to the African Development Fund. The purpose of this further contribution,
together with contributions pledged by other donors, is to provide
the African Development Fund with additional resources to preserve,
after further debt stock cancellation for Heavily Indebted Poor
Countries, its commitment capacity for lending on highly concessional
terms to the poorest countries in Africa over the period 2006-2015.
As stated above, section 11 of the International Development Act
2002 permits the Secretary of State to make relevant payments
to multilateral development banks where the Government of the
United Kingdom is bound to make such a payment, but that in order
to make a payment he must make an order, which has Treasury approval
and a draft of which has been approved by the House of Commons.
5. Extent
5.1 This instrument applies
to all of the United Kingdom.
6. European Convention on
Human Rights
6.1 Hilary Benn, the Secretary
of State for International Development, has made the following
statement regarding Human Rights:
In my view the provisions of the
African Development Fund (Multilateral Debt Relief Initiative)
Order 2006 are compatible with the Convention rights.
7. Policy Background
7.1 The Department for International
Development is responsible for leading the United Kingdom's contribution
to promoting development and the reduction of poverty. The Department's
overall objective is the elimination of world poverty. This objective
was set out in the 1997 White Paper "Eliminating World Poverty:
A Challenge for the 21st Century", and reaffirmed
in the 2000 White Paper "Eliminating World Poverty: Making
Globalisation Work for the Poor". The Department delivers
its international development funds through a combination of bilateral
programmes, and contributions to various international financial
institutions, such as the African Development Fund of the African
Development Bank.
7.2 The African Development
Bank is a regional development bank established in 1964. Its
purpose is to foster economic growth and co-operation in Africa
and to contribute to the acceleration of the process of economic
development of its regional members, both collectively and individually.
The African Development Bank is structured along similar lines
to the World Bank, with two main lending windows: the African
Development Bank which lends at market rates of interest; and
the African Development Fund which lends on highly concessional
terms to poorer African countries, providing them with grants
and "credits" for projects or programmes. "Credits"
are loans at zero interest with a 10-year grace period and maturities
of up to 50 years.
7.3 The African Development
Fund was established by the African Development Bank in 1972,
commencing operations in 1975. The African Development Fund receives
repayments of principal and interest due on outstanding credits
from its borrowing members. Its resources are also replenished
on a regular basis, generally every three years, by contributing
members. Negotiations on the tenth replenishment of the African
Development Fund were concluded in December 2004 As part of
this, the UK agreed to contribute £206.2 million (a core
contribution of £178.7 million, and an additional incentive
contribution of £27.5 million on the African Development
Bank making progress on harmonisation, transparency and alignment
of the Bank's Country Strategy Papers behind regional countries'
own Poverty Reduction Strategies).
7.4 Exceptional debt relief
in the form of cancellation of some outstanding debt to the African
Development Fund has been agreed under the Heavily Indebted Poor
Countries Initiative for qualifying borrowing member countries.
7.5 When they met in London
in June 2005, the G8 Finance Ministers proposed that debt stock
cancellation be extended so that 100% of the remaining debts owed
by qualifying countries to the International Monetary Fund, the
International Development Association and the African Development
Fund would be cancelled. The costs of this debt stock cancellation
at the International Development Association and the African Development
Fund in terms of foregone debt service payments would be met in
full by donors, thus maintaining the funds' ability to continue
to lend on concessional terms. The Multilateral Debt Relief Initiative
will therefore provide considerable additional resources to all
poor countries to accelerate their progress towards the Millennium
Development Goals (MDGs). In total, over $50 billion in debt
stock at the International Development Association, the International
Monetary Fund and African Development Fund will be cancelled when
the proposal is fully implemented, and about $1 billion a year
will be freed up for spending on poverty reduction in 2007, rising
to $1.7 billion by 2010. 33 regional member countries will be
eligible for debt stock cancellation at the African Development
Fund.
7.6 The Multilateral Debt Relief
Initiative has been discussed by the Boards of Directors and Governors
of each institution and received broad support, including from
developing countries. The International Development Association
and International Monetary Fund components were agreed at the
2005 Annual Meetings of the World Bank and International Monetary
Fund. International Monetary Fund debt relief for countries qualifying
immediately, was delivered in January 2006.
7.7 Under the Multilateral
Debt Relief Initiative, countries will receive this 100% irrevocable
debt cancellation when they complete the Heavily Indebted Poor
Countries Initiative. There will be no further conditions attached.
Countries that have already completed the Heavily Indebted Poor
Countries Initiative will need to demonstrate that they have maintained
their commitment to poverty reduction and good macro-economic
and public expenditure management. The allocation of additional
donor resources through the existing Performance Based Allocation
systems will maintain a strong incentive for good policy and performance.
In addition, World Bank, African Development Bank and International
Monetary Fund staff will continue to monitor and report on the
overall efficiency of public expenditure as well as on progress
in reducing corruption and enhancing transparency in recipient
countries.
7.8 To ensure that the financing
capacity of the International Development Association and African
Development Fund is not reduced, the United Kingdom and other
contributing members have committed to cover the costs of debt
cancellation for the duration of the loans, which in some cases
is up to 50 years. These funds will be additional to the resources
the UK has already agreed for these institutions as part of the
recent replenishments of the funds. G8 Finance Ministers have
agreed that in future replenishment rounds the costs of the Multilateral
Debt Relief Initiative be reported separately to ensure that they
are clearly distinguishable.
7.9 As stated above, the purpose
of the present Order is therefore to enable the Government to
make additional contributions not exceeding £79.19 million
to the African Development Fund between 2006 and 2015. This amount
was reached through negotiations with the African Development
Fund's Board of Governors.
7.10 The Board of Governors
of the African Development Fund adopted the Resolution F/BG/2006/12
concerning the Multilateral Debt Relief Initiative on 18 May 2006.
A copy of this Resolution has been laid in the House of Commons
library. In accordance with Resolution No. F/BG/2006/12, the United
Kingdom's contribution will be made in annual instalments, each
in the form of a non-negotiable, non-interest bearing promissory
note expressed in pounds sterling and encashable on demand.
8. Impact
8.1 A Regulatory Impact Assessment
has not been prepared for this instrument as it has no impact
on business, charities or voluntary bodies.
9. Contact
9.1 Further information concerning
the proposed instrument can be obtained from Nicola Jenns at the
Department for International Development via e-mail (n-jenns@dfid.gov.uk)
or by telephone (020 7023 0832).
Department for International Development
May 2006
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