Supplementary written evidence submitted
by the Department for International Development
RESPONSE FROM DFID TO WRITTEN QUESTIONS FROM
THE COMMITTEE ON THE SPRING SUPPLEMENTARY ESTIMATE
The Estimates Memorandum notes that the non-voted
"EU attribution" cost is increased by £72 million,
including £66 million funded from Departmental Unallocated
Provision which "mostly reflects movements in exchange rates".
Another £10 million cost arises from exchange rate movements
for cost of capital charges on international investments. What
is the Department's assessment of the total costs of exchange
rate movements for 2008-09, on EU programmes and others? What
is the exchange rate movement cost likely to be on DFID's 2009-10 budget?
What discussions has the Department had with the Treasury about
the scope for additional budget provision in the event that the
pound remains low against other currencies?
Most of DFID's payment commitments are denominated
in sterling, and are therefore not impacted by exchange rate movements.
However, such movements will impact on contributions to European
Union (EU) aid programmes, which are denominated in Euros; some
local administration expenditure in overseas offices denominated
in local currencies or US dollars; and the value of our investments
in international financial institutions, thereby impacting on
our cost of capital charge on these investments. The total costs
of exchange rate movements during 2008-09 are expected to
be £122 million, being £110 million for EU
programmes including EU attribution and payments to the European
Development Fund; £10 million for cost of capital charges;
and £2 million for administration costs.
At current exchange rates there will be a similar
impact on DFID's budget in 2009-10, in comparison with the budget
agreed for 2009-10 in the Comprehensive Spending Review 2007.
HM Treasury expect Departments to manage the
impact of exchange rate movements (up or down) within agreed settlements.
DFID will therefore re-prioritise resources as necessary to respond
to exchange rate movements.
The Estimate Memorandum notes Resource transfers
between sections within RfR1 relating to reallocations of
funds to align the Estimate with internal budgets. Why were such
reallocations needed, so late in the year, for the £29.5 million
reduction in Section D, the £15.5 million increase in
Section C, and the £11.6 million increase in Section
F (HC265, p12)?
The reallocation of funds reflects changes made
to budgets between March 2008, when numbers were supplied for
the Main Estimate 2008-09 based on indicative internal budgets
for 2008-09, and January 2009, when numbers were supplied for
the Spring Supplementary Estimate 2008-09 based on actual
agreed budgets at that time. These changes therefore reflect differences
between indicative budgets and final agreed budgets at the start
of 2008-09, and various adjustments to budgets to respond to events
during 2008-09.
Further explanation is requested for the reason
the Department was required to omit the £61.0 million
in reduced provision for an expected new bond issue for the IFFIm
from the Estimate, as originally published on 12 February?
To what extent has IFFIm changed the timing of its planned bond
issues, and to what extent has it changed their proposed size.
Do such changes arise from the current crisis in global financial
markets, and if so how?
The reduction in provision for the International
Finance Facility for Immunisation (IFFIm) that was originally
proposed in the Estimate published on 12 February was in
response to forecasts provided by IFFIm in December 2008. It was
discovered shortly after finalising the Estimate that significantly
more bonds were to be issued in February and March 2009 than
previously forecast, meaning that the reduction in provision was
no longer required.
DFID is now actively working with IFFIm to improve
the forecasts provided for future bond issues to ensure that Estimates
reflect an accurate assessment of the provision required. Commercial
confidentiality means that DFID cannot be given advance notice
of specific bond issues before they are publicly announced. The
size and timing of bond issues depend on three main factors: the
financing needs of GAVI; servicing of debts from previous bond
issues; and the conditions in bond markets. Of these three, the
first two should be predictable within a financial year, but the
third factor is not predictable, and can change on a daily basis.
Conditions in bond markets have been affected recently by the
global financial problems. The nature of the design of IFFIm means
that final decisions on bond launches are therefore often made
at short notice, and there is not a fixed long term plan on the
size and timing of future issues.
DFID FCPD
March 2009
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