Memorandum submitted by the Department for International Development
Written answers responding to questions from the International Development Committee
Poverty-focus and low-income countries
- The Committee raised the issue of the poverty-focus of European aid in its report on DFID’s 2004 annual report. We were told at the time that the principle of making poverty reduction and the MDGs the main focus of all EC development programmes was enshrined in the draft Constitutional Treaty and that the arrival of the Union Foreign Minister after ratification of the Treaty could pave the way for further institutional reform leading to a better means of managing EC aid.[1] What impact have the problems subsequently encountered in ratification of the Treaty had on progress in this area?
Under the UK Presidency, 25 Member States, the European Commission and the European Parliament agreed a new Development Policy statement entitled “The European Consensus on Development” setting out the EU’s common vision on development and how this would be implemented at the Community level. Poverty reduction and achievement of the Millennium Development Goals (MDGs) are its main aims. The UK Government continues to argue that poverty reduction and achievement of the MDGs should be the overarching purpose of the Development Cooperation and Economic Cooperation Instrument (DCECI) (one of the new external instruments proposed as part of the next Financial Perspective), currently under negotiation. In its capacity as EU Presidency, the UK Government introduced a redraft of the Luxembourg text on the DCECI, which calls for poverty reduction and the achievement of the MDGs to be the main objectives for all Community spend in countries covered by the instrument.
Institutional and management reforms are important elements of improving the effectiveness of Community aid. The appointment of a European Foreign Minister, as envisaged in the Constitutional Treaty, was to have triggered a series of institutional reforms with a direct bearing on the management of Community aid. In the absence of a European Foreign Minister, there are no alternative plans for such reforms. But the UK is arguing that the Commission’s programme of management reforms launched in 2000 (now completed) should be taken further. At the November 2005 General Affairs and External Relations Council meeting, a debate took place among Development Ministers on how to improve the overall effectiveness of European aid and the conclusions are attached[2].
2. The Department makes reference in the annual report to the EC’s Financial Perspective negotiations, suggesting that they offer the opportunity for reform of EC aid allocation (p88). The talks are set to be ongoing throughout 2005. Can you provide us with an update, with particular reference to the likely success of the UK Government in achieving its aim of producing a simplified budget structure and a transparent resource allocation system, and of the prospects of DFID securing future financing for the Peace Facility for Africa?
The UK Government is committed to working towards an agreement on the Financial Perspectives by December. On this timetable, finalising the details within each budget heading (including the Global Partner or external actions) will fall to the Austrian Presidency in January 2006. Discussion of the individual instrument regulations proposed under the Financial Perspectives has continued, albeit at an uneven pace. The European Commission has proposed a simplified and rationalised instrument structure, which we fully support. This requires the joint agreement of the European Parliament and the Council.
The introduction of transparent and objective resource allocation criteria for each of the three geographical instruments (Development, Neighbourhood, Pre-Accession) remains a core aim. The principle has largely been accepted, but the Commission has not yet presented its proposals to Member States for discussion. We will urge the Commission to open a dialogue with Member States on its proposed criteria and approach to allocating resources.
We expect all Member States to agree that the Peace Facility for Africa should be supported beyond its current financing period of end-2006. As Presidency, we have opened discussions on a range of possible financing options.
3. In response to a recommendation from the Committee last year,[3] the Department has produced a table in this year’s report detailing the poverty focus of multilateral agencies (Box 5b, p87). Other than the European Community, does the Department have any plans to try to increase or maintain the poverty focus of any of the agencies listed?
The United Nations system: through our representation on the governing boards of UN agencies, we are pressing for enhanced focus in their programmes, including a greater share of resources for poorer developing countries. However, the UN has a global mandate and an important part of this is the support provided by the UN to governments of middle income countries to address the needs of the marginalised poor.
The World Bank and Regional Development Banks: DFID core contributions to the World Bank and the African, Asian, Inter-American and Caribbean Development Banks are targeted exclusively at their concessional arms (International Development Association, Asian Development Fund, African Development Fund, and the CDB's Special Development Fund). These focus on the poorer countries in each region. In 2004 and 2005, DFID committed £141m to AsDB's ADF-IX, £1.43 billion to IDA-14, £206m to AfDB's ADF-X and up to $44m to CDB's SDF-6. In 2005, we also committed £200m to the World Bank's new Africa Catalytic Fund, which will concentrate on funding programmes addressing the hard-to-reach Millennium Development Goals, such as reducing maternal and infant mortality, improving access to water and sanitation, and increasing girls' education. DFID also committed £12m to the IADB's Multilateral Investment Fund, the great majority of which goes to the poorest Latin American countries, and the poorer regions within the middle income countries.
The humanitarian system: by definition the people these agencies aim to assist in the aftermath of conflicts and natural disasters are, at least temporarily, desperately poor.
4. The report provides details of DFID expenditure on consultancy contracts (p167). Does the Department have similar figures showing the proportion of spending by the various multilateral agencies accounted for by consultants? Do such figures form an input of the Multilateral Effectiveness Framework (Box 5e, p91)?
DFID does not hold data on the proportion of spending by the various multilateral agencies accounted for by consultants, and their spend on consultants did not form an input into the Multilateral Effectiveness Framework. The framework focuses on the way that the multilaterals are organising themselves to improve their internal performance, their focus on country level results and their relations with governments and other international organisations, and does not consider the breakdown of agency spending or financing.
5. With respect to the fourteenth replenishment of the International Development Association (IDA14), the Department mentions in the report that the UK’s basic pledge was £1.43 billion, with some of these resources being specifically linked to progress by the World Bank in working more effectively with other donors and in reforming the way it attaches conditions to its aid (p92). Can you put a figure on the proportion of the pledge which was so linked? What progress has the World Bank made in these areas so far?
£100 million of the basic pledge was linked to the World Bank working more effectively with donors and reforming the way it attaches conditions to its aid. Specific indicators of performance are set out in the Bank’s report “Additions to IDA Resources: Fourteenth Replenishment – Working Together to Achieve the Millennium Development Goals”.
The World Bank has completed its conditionality review. Its report and the supporting papers have been published, and are available on the World Bank website. The findings and recommendations of the review were discussed at the Bank Board in September 2005, and the proposed five best practice principles proposed by the review were endorsed by Governors at the Annual Meetings of the World Bank. We will continue working closely with the Bank to ensure that the recommendations from the review are implemented effectively. At the Annual Meetings, it was also agreed that a progress report will be produced next year.
Since the conclusion of the IDA 14 replenishment, the Bank has adopted the indicators from the Paris declaration on harmonisation. The Bank has agreed to monitor their performance against these indicators, to ensure that it is becoming more effective on the ground in working with other donors.
Payment of the £100 million will be made in two equal instalments of £50 million. Subject to satisfactory progress, the first instalment will be paid after Parliament has approved the draft Statutory Order for the IDA 14 replenishment and the Instrument of Commitment has been deposited with the Bank. Payment of the second instalment will be considered after the IDA 14 Mid-Term Review at the end of 2006.
6. The Department claims that it is active in examining how the IMF’s role in low-income countries should evolve, and points to a meeting of the IMF and donors in London in September 2004 which resulted in a follow-up paper by DFID and HMT (p93). What was the reaction of the IMF and donors to this event and the follow-up paper?
The IMF produced a paper on its signalling role, proposing a new non-financial facility and procedures to fill information gaps with Assessment Letters[4]. The paper detailed how the proposed non-financial facility - the Policy Support Instrument (PSI) - could operate. The PSI could prove a valuable addition to the facilities through which the IMF assists low income members that do not have a need or desire for IMF financial support, but seek IMF endorsement of their policies. The IMF Board discussed the paper in July 2005 and welcomed the proposals, which received further support at the Annual Meetings in September. The proposals were formally approved by the IMF Board in October. Nigeria was the first country to adopt the new PSI in October, providing the basis for debt relief from the Paris Club group of creditors.
Debt relief
7. The Department notes in the annual report that: “There is good evidence that debt relief is helping the poor… Nonetheless, progress with HIPC is slower than had been hoped. Several countries have so far been unable to complete the key reforms necessary to ensure that money saved from debt relief is used to benefit the poor” (p98). Can you provide a list of these countries and explanations for these difficulties?
To date, 18 countries have successfully reached Completion Point (CP) of the HIPC initiative and received irrevocable debt relief. They are: Benin, Bolivia, Burkina Faso, Ethiopia, Guyana, Ghana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda, and Zambia.
Another 10 countries have successfully reached HIPC Decision Point (DP), the intermediate stage in the HIPC process at which relief is delivered on debt service payments. They are: Burundi, Cameroon, Chad, Democratic Republic of Congo (DRC), Gambia, Guinea, Guinea Bissau, Malawi, Sao Tome & Principe, and Sierra Leone.
Some of these countries have made slower than expected progress in moving from Decision Point through to Completion Point (when they receive irrevocable debt stock write-off). The reasons for slow progress include civil conflict, macroeconomic instability[5], and delays in implementing a poverty reduction strategy paper (PRSP). The table below summarises the main causes of delays for those countries that reached Decision Point more than a year ago.
COUNTRY / DATE REACHED DECISION POINT / REASONS FOR DELAY IN GRADUATING FROM HIPC /Cameroon / October 2000 / A deterioration of government financial management in 2004 undermined prospects for growth and poverty reduction. This led to suspension of Cameroon’s PRGF. A new PRGF is expected this year and Cameroon could graduate from HIPC in 2006.
Chad / May 2001 / Poor public financial management led to PRGF going off-track in 2004. A new IMF programme was agreed in February 2005 and Chad may graduate from HIPC in 2006.
Democratic Republic of Congo (DRC) / July 2003 / A full PRSP has not yet been completed. Subject to successful implementation of a PRSP next year, the DRC could reach CP in 2007.
Gambia / December 2000 / Gambia’s existing PRGF is off-track because of fiscal and monetary policy slippages, and misreporting and governance issues. A new PRGF could be agreed next year allowing The Gambia to graduate in 2007.
Guinea / December 2000 / Guinea’s original PRGF went off-track in December 2002 mainly because of budgetary overruns. A new PRGF could be agreed next year allowing Guinea to graduate in late 2006 or 2007.
Guinea Bissau / December 2000 / Guinea Bissau’s PRGF went off-track at the end of 2000 due to fiscal policy slippages associated with heavy defence spending. A coup d’etat delayed preparation of the PRSP and a final document is not expected until end-2005. Guinea Bissau could graduate from HIPC in 2007 subject to successful implementation of a new PRGF and the PRSP.
Malawi / December 2000 / Malawi’s original PRGF went off-track in 2004 because of economic instability. A new programme was agreed in August 2005. If successfully implemented, Malawi could graduate from HIPC in the middle of 2006.
Sao Tome & Principe / December 2000 / Original PRGF went off-track because of fiscal policy slippages and governance concerns in the oil sector. Political instability (including a coup d’etat in 2003) delayed efforts to introduce a new PRGF. A new programme has now been agreed and graduation is a possibility for 2006.
Sierra Leone / February 2002 / Recovery from conflict in Sierra Leone meant that development of the PRSP took longer than expected. This has now been completed and improved, with implementation is expected to start this year. Subject to successful implementation, Sierra Leone could reach CP in 2006.
A further 10 countries have qualified for the HIPC initiative but have not yet reached Decision Point. They are: Republic of Congo, Cote d'Ivoire, Central African Republic, Comoros, Lao, Liberia, Myanmar, Sudan, Togo, and Somalia. These countries’ slow progress has again been due to serious governance and human rights concerns, although some are now on course to reach Decision Point within two years subject to implementing agreed reforms. Each country’s progress is summarised in the table below.