ASSISTANCE FOR KOSOVO (9626/06)
Letter from the Chairman to Ed Balls MP,
Economic Secretary, HM Treasury
Thank you very much for your Explanatory Memorandum
9626/06. This was considered by Sub-Committee A at their meeting
on 24 October. As you will be aware, the EU Select Committee has
made clear on a number of occasions that it exercises the highest
level of scrutiny on Proposals involving Article 308 as their
legal basis, and the Sub-Committee have decided to hold the document
under scrutiny.
We were particularly interested that you will
continue to seek assurance from the Commission that resources
from other instruments are exhausted before recourse to the MFA
is used. Could you confirm that this is the case for this Proposal,
and that no other existing funding programmes or provisions under
the Treaty would be suitable for providing this support to Kosovo?
We would also be grateful for your assessment
of how urgent the provision of this money to Kosovo is.
24 October 2006
Letter from Ed Balls MP to the Chairman
Thank you for your letter of 24 October 2006
concerning your Committee's consideration of the Explanatory Memorandum
referenced above.
Your letter advised that you were unable to
clear this EM from scrutiny and asked for clarification on certain
issues.
Firstly you asked whether the Commission had
given assurances that resources from other instruments are exhausted
before the MFA is used. I can confirm that no other existing funding
programmes or provisions under the Treaty would be suitable for
providing this support to Kosovo.
The European Commission's Economic and Financial
Affairs Directorate-General has provided assurance that there
is no other instrument that can provide budget support at the
current time. The MFA instrument was designed for use in financial
bridging, which in most cases would be balance of payment support
but in this case is budget support. Kosovo's reserves are the
only source for financing the budget deficit. The IMF expects
these to be depleted by the end of 2007. Kosovo cannot borrow
from either the private sector (as it is not a legal entity) or
from the IMF (as it is not classified a sovereign state and therefore
cannot become a member).
Your letter also asked for an assessment of
how urgent the provision of this money to Kosovo is. Our judgement
is that the provision of funding is very urgent for the following
reasons:
Kosovo only has access to internal resources
and these are not sufficient. Also, it is expected that Kosovo
will inherit a large chunk of Serbia's debt upon gaining independence.
The UN proposal regarding the status of Kosovo will be presented
to the parties after the Serbian parliamentary elections at the
end of January 2007.
Moreover, the World Bank has made a gloomy forecast
for the energy sector, predicting that Kosovo will need to import
electricity this winter, thereby further damaging their budget.
The estimated budget deficit for 2006 is around
nine million euros, or 0.4% of GDP. This level has been reduced
substantially from a deficit of 6% of GDP in 2004, through the
tightening of fiscal policy in view of the promised financial
support from the EU. However, this level does not include interest
payments or payments of the principal and interest on the share
of Serbia's debt to be inherited once a decision on Kosovo's status
has been finalised. With all such expenditure taken into account,
the level of the deficit for 2007 is expected to be between 60-90
million euros.
Given the urgency there is pressure for Council
to adopt a Decision in the next two weeks and we are therefore
keen that your concerns are addressed as soon as possible.
I would like to stress that the UK will continue
to monitor closely the disbursements of grants under exceptional
Community financial assistance.
15 November 2006
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