48 Financial information on the European
Development Fund
| Committee's assessment
| Politically important |
| Committee's decision | Cleared from scrutiny; drawn to the attention of the International Development Committee
|
| Document details | Commission Communication: Financial Information on the European Development Fund (EDF)
|
| Legal base | —
|
| Department | International Development
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| Document Numbers | (36933), 9946/15, COM(15) 295
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Summary and Committee's conclusions
48.1 The European Development Fund (EDF) supports actions in the
African, Caribbean and Pacific (ACP) countries and the Overseas
Countries and Territories (OCTs) social and human development
as well as regional cooperation and integration. It is concluded
for a multi-annual period (usually five years) and is implemented
within the framework of an international agreement between the
European Union and the partner countries.
48.2 The EDF amounted to 3% of the annual EU budget
in 2008-13. It is financed by direct contributions from EU Member
States according to a contribution key and is covered by its own
financial rules. The total financial resources of the 11th EDF
amount to €30.5 billion for the period 2014-20.[ 357]
48.3 Last November, the then Committee considered
a Communication that reflected concerted UK efforts to address
the issue of accurate forecasting. The then Minister (Lynne Featherstone
welcomed the Commission having now provided forecasting for Member
States' contributions for the four year period 2014-18 (see paragraph
…. below and our predecessors' Report of November 2014 for
details[ 358]).
48.4 In October 2014, the Commission provided estimates
for Member State contributions for 2016 of €3,600 million
(£2,588.4 million), of which the UK share would be €533.52
million (£383.6 million), for 2017 and 2018 at €3,650
million (£2,624 million) and €3,670 million (£2,639
million) respectively.
48.5 This further Communication outlines how the
financial implementation of the 10th EDF for 2014 has led to a
change from the October 2014 forecast for funds needed in the
second tranche of EDF funding for 2015 to deliver EDF programmes
in 2015. The Commission and EIB (European Investment Bank[ 359])
have requested total contributions from Member States for 2015
of €3,400 million (£2,445 million), of which €3,200
million (£2,301 million) will be managed by the Commission
and €200 million (£143.8 million) by the EIB; a €200
million (£143.8 million) decrease in the funds managed by
the Commission. The UK share of the 2015 spending will be €503.88
million (£362.2 million).
48.6 The Parliamentary Under-Secretary of State at
the Department for International Development (Baroness Verma)
says "as a Member State who has pushed the Commission to
ensure its forecasting improves and its request for funds better
reflect the needs of its spending profile", she welcomes
this development. But she is not complacent: she and her officials
continue to press the Commission for improved forecasting, "in
order to ensure excessive cash balances are not lying unutilised
for lengthy periods of time" (see paragraphs 47.17-47.20
below).
48.7 Though the sums are relatively small —
a €200 million (£143.8 million) reduction in
all, and a reduction of €29.64 million (£21.31 million)
in the UK contribution — we agree with our predecessors'
assessment, that accurate forecasting matters; and accordingly,
like them, welcome continued progress on this front.
48.8 We hope to see more such progress when the
October 2015 Communication, which will update last year's forecasts
for 2014-18, is presented for scrutiny. On that occasion, we would
appreciate the Minister providing an update on the Commission's
new risk methodology to which she refers, and upon which she is
seeking "further understanding", and a clearer explanation
of the role this plays in improving the accuracy of the forecasts
in question.
48.9 In the meantime, we clear this Commission
Communication.
48.10 We also draw these developments to the attention
of the International Development Committee.
Full
details of the documents:
Commission Communication — Financial
Information on the European Development Fund: (36933), 9946/15,
COM(15) 295.
Background
48.11 The European Development Fund (EDF) supports
actions in the African, Caribbean and Pacific (ACP) countries
and the Overseas Countries and Territories (OCTs) social and human
development as well as regional cooperation and integration.
48.12 The EDF consists of several instruments:
— grants
managed by the Commission;
— risk capital and loans to the private
sector, managed by the European Investment Bank under the Investment
Facility; and
— the FLEX mechanism, which seeks to remedy
the adverse effects of instability of export earnings.
48.13 Last November, the then Committee considered
a Commission Communication that updated the forecasts given in
the Commission's June 2014 Communication and provided estimates
of EDF commitments, payments and contributions for the period
2014 to 2018. The then Minister (Lynne Featherstone) welcomed
the more accurate Commission forecasting:
"The UK has made concerted efforts to address
the issue of accurate forecasting for the EDF. As a result, the
EC gave legal commitments to increase the forecasting period for
Member States' contributions from two to four years, to minimise
variations in Member States' annual contributions, and to manage
more closely balances in the EDF account to ensure that funds,
and any interest earned, will remain in Member State accounts
until needed. The UK welcomes that in this Communication, the
EC has provided forecasting for Member States' contributions for
a four year period (2014-2018)."
The previous Committee's assessment
48.14 With the EDF amounting to 3% of the annual
EU budget in 2008-13; to €30.5 billion for the period 2014-2020;
and with the UK contribution in 2014 amounting to €479.40
million, accurate forecasting matters. It was accordingly gratifying
that Commission performance, which had improved significantly
over the years, under pressure from both Member States and the
European Court of Auditors, continued to do so, with further improvements
having been made with regard to EDF 11. The previous Committee
looked forward to hearing more of the same the following summer.[ 360]
The Commission Communication
48.15 This Communication outlines how the financial
implementation of the 10th EDF for 2014 has led to a change from
the October 2014 forecast for funds needed in the second tranche
of EDF funding for 2015, in order to deliver EDF programmes in
2015.
48.16 In her Explanatory Memorandum of 29 June 2015,
the Minister (Baroness Verma) recalls the Commission's October
2014 Communication, which provided estimates for Member State
contributions for 2016 of €3,600 million (£2,588.4 million),
of which the UK share would be €533.52 million (£383.6
million); and for 2017 and 2018 at €3,650 million (£2,624
million) and €3,670 million (£2,639 million) respectively.
She explains that:
— the
updated Commission forecast revises overall Member State contributions
for 2015, from €3,600 million (£2,588 million), as proposed
last November, to €3,400 million (£2,445 million);
— this is due to a €200 million (£143.8
million) reduction requested by the Commission for 2015;
— the UK contribution for 2015 will therefore
be €503.88 million (£362.2 million); a reduction of
€29.64 million (£21.31 million), which will be reflected
in the UK's second instalment for 2015.
The Government's view
48.17 The Minister describes "concerted efforts"
to address the issue of accurate forecasting for the EDF; officials
have "consistently lobbied hard via the Council Working Group
to improve financial oversight and accountability of EDF forecasting",
which has included ensuring that the Commission "assesses
the need for funds and aligns this with Member States contribution
payment profiles, in line with DFID policy on guarding against
payment of funds in advance of need". She outlines a new
methodology adopted by the Commission that "responds to Member
State calls (including UK) during the EDF11 regulation negotiations
for more rigorous management of resources"; is therefore
confident that the Commission has reduced its call for Member
States contributions based on their best estimate of their cash
requirements for 2015, and supports the revised forecast.
48.18 Though content with the proposed Communication,
the Minister says that she and her officials continue to:
— press
the Commission for improved forecasting, "in order to ensure
excessive cash balances are not lying unutilised for lengthy periods
of time"; and
— "seek further understanding"
of the Commission's new risk methodology.
48.19 The Minister then notes that, in response to
the most recent European Court of Auditor's report on activities
of the 8th, 9th and 10th EDFs, she is reassured that the Commission
"has an action plan in place to strengthen financial management
and control systems, and they have committed to presenting regular
progress updates to Member States".
48.20 All in all, the Minister says:
"We have been strong in our support of the importance
of good financial discipline. In Council Working Group the UK
supported the EC's[ 361]
revised forecast and pushed against any amended proposal that
would allow payment to the EC in advance of need and hold balances
in excess of forecasted spending. We expect to see continual improvements
in future forecasts, which we believe will, over time, reduce
the variability of in-year and in future years."
48.21 With respect to her own Department, the Minister
says:
"DFID can accommodate the change to the UK contribution
for 2015 and will have enough time to adjust financial planning
accordingly. The DFID financial management framework is robust,
and incorporates monthly analysis and formal quarterly reviews
of actual, planned and forecast expenditure".
48.22 With regard to the Timetable, the Minister
says that, Member States having discussed and supported this Communication
in Council Working Group on 26 June 2015, she expects it to be
adopted by written procedure by 6 July 2015:
"Should the House of Commons Scrutiny Committee
not be able to comment on this Council Decision ahead of it coming
to Council, the UK will support the Council Decision. As a Member
State who has pushed the Commission to ensure its forecasting
improves and its request for funds better reflect the needs of
its spending profile it is important the UK backs the Council
decision that reflects Commission action on both counts. The decision
will also lead to a reduced call on UK funds in 2015."
Previous Committee Reports
None, but see (36425), 14433/14, COM(14) 648: Twentieth
Report HC 219-xix (2014-15), chapter 13 (19 November 2014).
357 See Where does the money come from? Back
358 See (36425), 14433/14: Twentieth Report HC 219-xix (2014-15),
chapter 13 (19 November 2014). Back
359 See EIB at a glance. Back
360 (36425), 14433/14: Twentieth Report HC 219-xix (2014-15), chapter
13 (19 November 2014). Back
361 European Commission. Back
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