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Draft International Development Association (Fifteenth Replenishment) Order 2008

The Committee consisted of the following Members:

Chairman: Mr. Mike Hancock
Barrett, John (Edinburgh, West) (LD)
Burns, Mr. Simon (West Chelmsford) (Con)
Cawsey, Mr. Ian (Brigg and Goole) (Lab)
Clarke, Mr. Tom (Coatbridge, Chryston and Bellshill) (Lab)
Johnson, Ms Diana R. (Kingston upon Hull, North) (Lab)
Lancaster, Mr. Mark (North-East Milton Keynes) (Con)
McCarthy, Kerry (Bristol, East) (Lab)
Mactaggart, Fiona (Slough) (Lab)
Malik, Mr. Shahid (Parliamentary Under-Secretary of State for International Development)
Moore, Mr. Michael (Berwickshire, Roxburgh and Selkirk) (LD)
Shepherd, Mr. Richard (Aldridge-Brownhills) (Con)
Sheridan, Jim (Paisley and Renfrewshire, North) (Lab)
Simon, Mr. Siôn (Birmingham, Erdington) (Lab)
Soames, Mr. Nicholas (Mid-Sussex) (Con)
Stanley, Sir John (Tonbridge and Malling) (Con)
Winnick, Mr. David (Walsall, North) (Lab)
Glen McKee, Committee Clerk
† attended the Committee

Ninth Delegated Legislation Committee

Wednesday 9 July 2008

[Mr. Mike Hancock in the Chair]

Draft International Development Association (Fifteenth Replenishment) Order 2008

2.30 pm
The Parliamentary Under-Secretary of State for International Development (Mr. Shahid Malik): I beg to move,
That the Committee has considered the draft International Development Association Fifteenth Replenishment Order 2008.
The Chairman: With this it will be convenient to consider the draft International Development Association (Multilateral Debt Relief Initiative) (Amendment) Order 2008.
Mr. Malik: It is a pleasure, Mr. Hancock, to serve under your chairmanship. The Committee is considering two draft orders. The first covers the UK’s proposed contribution to the 15th replenishment of the International Development Association of the World Bank, which assists the poorest countries. The second is an amendment to the UK’s contribution to the multilateral debt relief initiative order 2006, which enables the UK to finance irrevocable debt relief to the International Development Association. Both orders are crucial to the Department for International Development’s efforts to help developing countries lift themselves out of poverty.
The International Development Association was established in 1960 and is part of the World Bank group. IDA is the world’s largest single provider of concessional resources for poor countries. It helps to reduce poverty by providing interest-free loans and grants for programmes aimed at boosting economic growth and tackling poverty. IDA’s annual commitments have increased steadily and averaged more than £5 billion a year over the past three years. The World Bank shares DFID’s overarching ambition to eradicate poverty and provides assistance across a wide range of sectors from education to water, sanitation, health and infrastructure.
The World Bank is one of the most effective development institutions and plays an important role. As the recent International Development Committee report on the World Bank states,
“The World Bank is a vital component in the international development system. The Bank is a major provider of development funding, analysis and advice. Its lead is often followed by other donors and agencies.”
IDA is replenished every three years. The replenishment process is an opportunity to discuss ways in which the Bank can improve its effectiveness to make the best possible contribution to the millennium development goals. Negotiations on the 15th replenishment of IDA, known, curiously, as IDA 15, were concluded in December 2007. The UK took a strong lead in the negotiations and secured important policy changes, which are captured in the IDA 15 replenishment report. A copy of that report is available.
The most significant commitments are on decentralisation, policy conditionality, fragile states, climate change, gender and regional integration. Donor countries pledged a record £12.5 billion, 42 per cent. more than last time. In addition, £8 billion will come from internal World Bank group financing and the multilateral debt relief initiative financing. As a result, IDA 15 will provide £20.8 billion over the next three years to help the world’s poorest countries achieve the millennium development goals.
As my right hon. Friend the Secretary of State for International Development told Parliament last December, the UK Government pledged £2.134 billion to IDA 15. That represents a 49 per cent. increase on the UK’s commitment to IDA 14. Our contribution constitutes a 14 per cent. share of total donor funding, and takes account of the effectiveness of IDA, the role that IDA plays in the international system, the level of financing provided by other donors and the reforms that we have secured.
I turn now to the multilateral debt relief order. So far the MDRI has delivered £21 billion of debt cancellation for 23 countries, 19 of which are African. By reducing the burden of debt that poor countries have suffered in the past, debt relief enables them to fund essential services such as health and education, and to make crucial investments in infrastructure.
Those deliver real benefits to poor people. The Tanzanian Government used some of their debt relief to build around 2,500 primary schools and to recruit 28,000 more teachers. As a result, the number of children in primary school has risen by more than 50 per cent. Countries such as Ghana and Sierra Leone have used the debt relief to increase electricity supply, which is essential for business, job creation and growth, as well as for improving the quality of people’s lives generally.
The multilateral debt relief initiative irrevocably cancels the debts that heavily indebted poor countries owe to the International Development Association. A central principle of MDRI is that debt cancellation should lead to additional resources for poor countries, so donors agreed to meet the full cost, dollar for dollar, of the MDRI. During the recent replenishment negotiations donors reaffirmed the importance of delivering on that promise.
In 2006, Parliament agreed that the UK should provide its share of MDRI financing and give the World Bank a binding commitment to make each annual payment until 2016. The MDRI 2006 order needs to be amended to cover payments to 2019, which involves an additional £144 million, increasing our total commitment to £736 million. It is essential that we meet our part of the bargain and help to lift the burden of debt from the poorest countries, allowing them to get back on track to meet the millennium development goals.
Mr. Simon Burns (West Chelmsford) (Con): Will the Minister give way?
Mr. Malik: I am on my last paragraph and I am sure that the hon. Gentleman will be happy to wait 15 seconds.
I shall listen to the debate and answer questions. I hope that at the end of our discussion hon. Members will approve the orders, which are crucial to the fight against global poverty and will make a real difference to millions of people in the world’s poorest countries. I commend the orders to the Committee.
Mr. Burns rose—
The Chairman: Order. The Minister said he would give way, so before he concludes, it would be fair for him to take the intervention from the hon. Member for West Chelmsford.
Mr. Burns: Thank you, Mr. Hancock. The briefing states that MDRI costs fell—the past tense—significantly over the first decade, 2007-16, and that that will be followed by a further reduction of 314 million drawing rights over 2017 to 2019. What confidence can one have in the accuracy of that estimate, given that it is nine years ahead? How were the figures devised?
Mr. Malik: I am happy to write to the hon. Gentleman on those detailed points.
2.38 pm
Mr. Mark Lancaster (North-East Milton Keynes) (Con): It is a pleasure to serve under your chairmanship, Mr. Hancock, and to take part in the debate today. It is the second of such debates. Yesterday we debated similar orders in respect of the African Development Bank. I am sure the Minister will be delighted to hear that the Conservative party broadly welcomes the two orders, although we are slightly concerned that an appropriate cost-benefit analysis was not carried out before the amount of the increase was decided. I intend to probe the Minister on that.
The International Development Committee report, “DFID and the World Bank”, the Committee’s sixth report of the 2007-08 Session, criticises the Department for its lack of proper analysis before taking the decision to increase our payment to the International Development Association. In light of that report, will the Minister please tell the Committee which factors the Department considered, and point me in the direction of a document that outlines the cost-benefit analysis that was made before the proposed increase was decided? How exactly was the current level of contribution arrived at?
In the DFID annual report 2008, the analysis of departmental expenditure suggests that between 2002 and 2005 the Department’s total spend was £11.44 billion. During that period the UK gave some £900 million to the IDA, or 7.87 per cent. of the Department’s total budget. From 2006 to 2008 that rose to some £15.53 billion, and the amount pledged to the IDA was £1.4 billion, or 9.2 per cent. of the total spend—another increase. The projected total departmental spend for 2008 to 2011 is £21.16 billion and, as the Minister said, we will pledge £2.134 billion to the 15th replenishment, which equates to some 10.08 per cent. of that total. We see an ever-increasing rise in total departmental spend being sent to the IDA. Will the Minister confirm that the rising percentage of DFID’s departmental spend sent to the World Bank is a trend that is likely to continue?
DIFD’s own analysis of the World Bank, the “World Bank Development Effectiveness Summary”, highlighted the fact that fewer than 50 per cent. of the bank’s operational staff are based in country offices, and fewer than 25 per cent. of tasks are managed in country offices. Does the Minister agree that DFID, as one of the main IDA contributors through the 15th replenishment order, should exert more pressure on the World Bank to speed up its decentralisation?
It is widely accepted—as it was yesterday, in the debate on the orders relating to the African Development Bank—that the best way to ensure effective performance on the ground is through that decentralisation process, yet it also seems to be widely accepted that the World Bank is still failing to implement decentralisation efficiently. What pressure is DFID applying to the World Bank to try to speed up that process?
In the Government’s response to the International Development Committee’s sixth report, they state:
“The appointment of a full-time UK Executive Director to the World Bank will also enable greater oversight of the Bank’s work”.
Considering that DFID is increasing its overall contribution to the replenishment by some £700 million, will the Minister update the Committee on progress in the appointment of a permanent UK executive director?
The payments of £2.134 billion to the 15th replenishment of the IDA programme will be made over three years, between 2009 and 2011. Will the Minister outline the percentages of that total that will be spent in each of the next three years?
The helpful explanatory memorandums that accompany the orders state that no impact assessment has been prepared for the instruments, as they have
“no impact on business, charities or voluntary bodies.”
I find that interesting. I am sure that many non-governmental organisations and voluntary bodies out there would view the major increase in the contribution as an opportunity cost to other streams on which DFID could spend its money. Will the Minister confirm that he is satisfied that there is no need for an impact assessment?
Finally, will the Minister say which of the recommendations outlined in the International Development Committee’s sixth report the Department has adopted or will adopt?
2.44 pm
Mr. Michael Moore (Berwickshire, Roxburgh and Selkirk) (LD): I echo others by saying that it is a delight to serve under your chairmanship, Mr. Hancock. I confirm that the Liberal Democrats are also happy to offer their support for the orders and what lies behind them. However, it would be helpful if the Minister would clarify some points.
None of us can doubt the importance of debt relief and the huge breakthrough that the 2005 G8 summit represented, when the multilateral debt relief initiative was given force. We must give credit where it is due to the UK Government for their contribution in that context.
I turn to the replenishment of the IDA contribution and what we have to provide for debt relief. Will the Minister clarify that the increase in the amounts under the MDRI amendment order from £592 million to £736 million is to cover the entry into a new phase? Does it change the original basis on which we were contributing to debt relief?
There is a procedural point that it would be useful for the Committee to understand better. As I understand the explanatory memorandum, article 2(b) of the MDRI order obviates the need for the Minister or Secretary of State to come to the House each time he or she wishes to make a payment to the MDRI. In effect, that creates a facility under which the Minister can pass the sums as required. That is an entirely appropriate, pragmatic and flexible arrangement, but how is the House to be informed when the Secretary of State or Minister makes such payments? Will the Minister set out the anticipated profile for payments under the MDRI for this replenishment period?
It is not often a good thing for Members to confess to ignorance, but on this point my ignorance and bafflement are combined. The explanatory memorandum, for all its technicality, is helpful. As ever, we pay tribute to those whose job it is to turn the technical jargon into some form of understandable English. I followed it pretty well up to paragraph 7.9, which talks about the increase in the Government’s MDRI contributions. As the hon. Member for West Chelmsford highlighted, the next paragraph talks about the reduction in costs. There is no segue and no help for understanding where those points come in. In this period, we will clearly contribute a lot more. Is it being suggested that we would have been contributing even more and that the profile of costs for future years has been reduced because of the reasons set out in paragraph 7.10, unless I have missed another part of the argument. If the Committee is to understand the situation fully, it would be helpful if the Minister would spend some time answering that point.
The overall objective of the MDRI is to get a cancellation of something in the order of $50 billion, freeing up between $1 billion and $1.7 billion for the poor countries affected that they can spend on worthwhile projects. The Minister gave some examples. Will he give us a little more context and say how close we are to achieving that objective? The G8 has been meeting this week and a number of concerns have been raised by non-governmental organisations about targets that have not been met and others that are well off course. It would be useful for the Committee to understand what point the global effort on achieving debt reduction has reached, and how this legislation and Britain’s contribution will play into that.
Finally, may I ask the Minister about future loans and the like? I would be interested to hear his response to the hon. Member for North-East Milton Keynes about the choice of multilateral agencies. What gives the Minister confidence that as we go through a new replenishment of the IDA and other institutions, we will not just go back into another cycle of unsustainable debt? What measures, apart from targets and so on, will be in place to give campaigning NGOs, our constituents and Members the confidence that, in tackling this, we have learned the lessons and we are not going to see the same balloon of debt recreated in the future?
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Prepared 10 July 2008