EC DEVELOPMENT POLICYANNUAL REPORT
Letter from the Chairman to Rt Hon Hilary
Benn MP, Secretary of State for International Development, Department
for International Development
Thank you for your Explanatory Memorandum dated
11 July 2006 which Sub-Committee C considered at its meeting on
20 July and which Sub-Committee A considered at its meeting on
25 July. We have agreed to clear the document from scrutiny.
We welcome the Report which raises a number
of issues concerning the implementation of external assistance
on which we would appreciate your views.
The Report comments on the Commission's proposals
for the new financial instruments and thematic programmes. Whilst
acknowledging concerns expressed by the Council and European Parliament,
the Report does not address developments late in 2005 such as
proposals for splitting the DCECI, for creation of a new Democracy
and Human Rights instrument, or for incorporating the thematic
programmes within the other instruments. Whilst this is a Report
on 2005 activities only, having been published in June it would
have been preferable to see a more up-to-date analysis.
6.2 billion was spent on aid by the EC
in 2005up from 5.7 billion the previous year. The
full Report states that this demonstrates that the Commission
"can deliver effectively and rapidly on its commitments so
that the money reaches those who need it." This improvement
is welcome given a recent report published by Save the Children
which argued that the Commission had the worst global disbursement
record with only 40% of its committed budget support disbursed
between 2002 and 2004.
In 2000 4.94 years were needed on average to
implement commitments entered into. In 2005 this had decreased
to 3.33 years. The reforms launched in 2000 (the subject of a
former European Union Committee Report EU Development Aid in
Transition12th Report of Session 2003-2004 HL Paper
75) thus appear to be working, though it is difficult to say whether
the improvements are adequate.
The 2005 European Consensus on Development confirmed
the Commission's new approach to increased use of budget support.
In 2005 the total amount of budget support commitments, around
1.55 billion, represented nearly 20% of total commitments.
The Report states that this "demonstrates a slow but positive
trend in the use of the new aid modalities... Nevertheless, overall
targets fixed for budget support commitments were not reached
in 2005, largely due to political and specific in-country issues."
The process of simplifying EC procedures was
one of the Commission's priorities for 2005. A number of reviews
have taken place, with most proposed changes still under consideration
and likely to come into effect in 2007. Changes include, for example,
an improved presentation of procedures, a simplification of the
language used, and harmonisation of the terminology to ensure
coherent application of the rules. The 2006 Annual Report should
contain a full analysis of the agreed changes.
On aid management and, in particular, on assuring
good financial management of external assistance projects, Sub-Committee
A noted the references made in sections 5.1.1, 5.1.2 and 5.1.3
of the Commission's report and paragraph 6 of your Explanatory
Memorandum. However, given the current concern within the Commission
and the Member States to improve the quality of financial management
we would appreciate a fuller analysis of the actions taken. We
would also like your view of whether these are sufficient to ensure
that appropriate analysis is made of the risks of financial mismanagement
or fraud occurring in these schemes; and of whether this analysis
is properly incorporated into the design of the programmes.
We look forward to receiving your comments on
all these matters.
25 July 2006
Letter from Rt Hon Hilary Benn MP to the
Thank you for your letter of 25 July responding
to my Explanatory Memorandum dated 11 July and informing me that
the committee met on 20 July and cleared the document from scrutiny.
You asked for my views on four issues: the need for the Report
to present more up-to-date analysis of new financial instruments
and thematic programmes; progress with reforms aimed at increasing
the speed and effectiveness of Commission assistance; progress
made with simplifying EC procedures; and the adequacy (or otherwise)
of improvements to the quality of financial management for the
purposes of managing risk and reducing fraud.
I shall deal with the first and third of your
requests together. The UK has consistently asked for Annual Reports
to be forward looking. In Working Group meetings, we have urged
the Commission to draw lessons from past experience, and comment
on changes which will be made as a result. While the Reports have
on the whole improved over the years, the Commission still limits
its reporting to completed actions, and does not comment on events
(or plans for activities) which occur after the end of the calendar
year. Thus, the Report makes no comment on developments with regard
to new financial instruments or on the simplification of Commission
procedures, as neither of these issues was resolved in 2005. The
UK will urge the Commission to provide an analysis of the new
instruments and the new simplified procedures in the 2006 Annual
I agree that despite progress in recent years,
Commission aid must become faster and more effective. While the
Save the Children report argues that the Commission had the worst
disbursement record on budget support compared to four well-performing
bilateral development agencies, it also notes that "the EC
is more likely to disburse on time than other multilaterals"
including the World Bank and International Monetary Fund.
You asked for a fuller analysis of the steps
taken to improve financial management and whether they lead to
a proper assessment by the Commission during the project design
phase of the risk of financial mismanagement or fraud. Two of
the most important measures are the development by EuropeAid of
mechanisms and indicators to promote sound financial management;
and the deconcentration (decentralisation) of project management
to Commission delegations.
All projects and programmes are now assessed
by a team of Commission officials against a dozen indicators during
the preparation and implementation phases. These indicators include
institutional capacity issues, monitoring and evaluation systems
and risk management. Changes can be made to projects and programmes
accordingly. As regards deconcentration, the 2005 Court of Auditors'
Report on deconcentration concluded that robust financial management
procedures are generally ensured under devolved management. The
Commission's Annual Report describes further measures taken in
2005 to help Delegations carry out quality checks at the design
phase of projects and programmes.
Much development assistance, regardless of the
donor, is delivered in inherently difficult and risky environments.
But the right balance needs to be struck between ensuring both
timely provision of aid and proper use of funds. Overall, I believe
that the EC has struck a reasonable balance and has the structures
and procedures in place to analyse the risks of financial mismanagement
and alter the design of their programmes accordingly.
1 September 2006