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Delegated Legislation Committee Debates

Draft Caribbean Development Bank (Further Payments) Order and Draft African Development Fund (Additional Subscriptions) Order 2002

Eleventh Standing Committee
on Delegated Legislation

Wednesday 10 July 2002

[Mr. Win Griffiths in the Chair]

Draft Caribbean Development Bank
(Further Payments) Order 2002

4.30 pm

The Parliamentary Under-Secretary of State for International Development (Ms Sally Keeble): I beg to move,

    That the Committee has considered the draft Caribbean Development Bank (Further Payments) Order 2002.

The Chairman: With this it will be convenient to consider the draft African Development Fund (Additional Subscriptions) Order 2002.

Ms Keeble: I welcome you to the Chair, Mr. Griffiths. I am sure that we shall make good progress this afternoon under your chairmanship.

The Caribbean Development Bank was established in 1969 to contribute to the harmonious economic growth and development of the Commonwealth member countries of the Caribbean and to promote economic co-operation and integration among them. The United Kingdom has been a member of the bank since its inception.

As the smallest of the regional development banks, the CDB's strength lies in its close contact with its borrower member countries, which enables it to be in tune with their needs and to offer good access to policy makers in the Caribbean. The bank, which provides advice, technical assistance and development finance, has become a key source of expertise on Caribbean development issues and an important financier of small-to-medium scale projects in the region, making disbursements of about $100 million a year. None the less, the CDB is only one of a number of development institutions operating in the Caribbean.

The development agenda in the region is evolving in response to changes in the global environment and the CDB recognises that it must adapt its role to remain relevant to the needs of its borrowing member countries. To that end, the bank has undertaken a major review of its purpose. A new mission statement now gives greater emphasis to the reduction of poverty in the region through social and economic development, and the bank's strategic plan for the five-year period 2000–04 focuses on promoting economic growth, good governance, environmental issues and the closer economic integration of Caribbean countries.

The United Kingdom is working closely with the bank to advance that agenda. Last February, the Secretary of State for International Development approved publication of the Department's institutional strategy paper for the CDB. Copies have been placed in the Library and should also be available this afternoon, should Members wish to examine the document. It sets out the UK's objectives in working with the bank for the next three years.

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The CDB is structured along similar lines to the World Bank, with two main lending windows. Ordinary capital resources are lent at the market rate of interest and the special development fund lends, on highly concessional terms, to the poorest member countries in the region. Although the bank's members are eligible for SDF borrowing, a differential interest rate and brace period ensures that the poor members benefit most.

The SDF is primarily donor-funded and is usually replenished every three years. Negotiations on the fifth replenishment were concluded in December 2001. Those negotiations provide an important opportunity for donors to set both the priorities and the policy and operational agenda for fund activities for the next three years. Those are set out in the contributors' report, which contains various actions and targets against which progress on the implementation of this replenishment will be monitored.

Mr. John Baron (Billericay): I welcome the Minister's remarks about trying to ensure that money is given and reaches the poor, as is the bank's brief. However, what concrete assurances have the Government obtained from the two organisations in question that they will not fudge their responsibilities like the European Union, whose overseas aid package is somewhat fudged, in pursuing political objectives at the expense of relieving poverty across the globe? I ask because we are singularly failing to get such assurances from the EU.

Ms Keeble: These funds operate rather differently from those of the EU, and they are more limited in their scope. I have spoken only about the Caribbean order, not the African one. Concerns have been expressed about the latter, which I shall deal with later.

The hon. Gentleman will see from both contributors' reports that a lot of attention has been paid to greater scrutiny of the way in which the loans are provided, which ensures better monitoring measures, including mid-term reviews and annual board meetings. There will also be a tightening up of a range of governance issues to ensure that the projects are carefully scrutinised before the loans are provided and that the progress of the projects is monitored to ensure that the money is properly spent. Considerable steps have been taken—they have been closely debated by the donors—which are set out in the background discussion papers that led to the reports coming forward for replenishment. I hope that that answers the hon. Gentleman's question.

Mr. Baron: I thank the Minister for her generosity in giving way. If, for whatever reason, it is thought that those organisations have not achieved their objectives at any stage during the process, are mechanisms in place whereby the Government can review funding or instigate penalties of some description to ensure that the money reaches the poor and that it is not directed towards political objectives?

Ms Keeble: I share the hon. Gentleman's concern; we must be sure that loans intended to benefit the poor succeed in doing so.

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The banks and funds involved are not providing grants but making loans to fund specific projects. It seems to me that the two issues need to be considered. We must ensure that the right schemes are funded and that the loans are provided for the right ends. A number of criteria have been drawn up on what should be funded. That question will be addressed also through the board meetings, and we have the opportunity to intervene at that point. The monitoring arrangements have been tightened up.

Some years ago, specific concerns were expressed about the African Development Fund; that, too, involves board members, so those loans are monitored. There has also been quite a lot of discussion about the arrears; when we discuss the African order, hon. Members may wish to return to that subject, although those issues have been considered. However, the fund is not a grant-giving organisation; it loans money for particular projects.

Norman Lamb (North Norfolk): I am grateful to the Minister for giving way. It is good to see you in the Chair, Mr. Griffiths; I am normally accosted by you in the Lobby to sign the latest early-day motion on Sierra Leone, and it is good to see you in another context.

Will the Minister confirm what the repayment record has been for the past 12 months for those two banks? How are they performing in getting repayment of those loans?

Ms Keeble: We have not yet come to the concerns expressed about the African fund, but there are substantial arrears, particularly in relation to the Democratic Republic of Congo. Arrangements have been made, particularly with the Americans, to pay off some of those arrears. It is probably only the Congo that has such extensive arrears, but hon. Members will recognise that country's particular difficulties. I shall return to that question later. I can dig out the figures and give the hon. Gentleman a list of the arrears, although in the case of the Congo they are very high indeed.

Copies of the contributors' reports are being placed in the Library, and hon. Members will see that many of the issues on priorities for the loans and monitoring arrangements are included in the documents.

The main United Kingdom objectives for the SDF-V negotiations—the replenishment negotiations—were achieved. They included: a greater focus of resources on the reduction of poverty, vulnerability and inequality in the Caribbean; the introduction of a performance-based system for the allocation of SDF resources; a commitment to closer donor co-operation through the development of strategic partnerships between the Caribbean Development Bank and other development institutions in the region; a clear linkage between the bank's country strategy papers and the poverty reduction strategies of its borrowing member countries; a commitment to strengthen the bank's monitoring and evaluation capacity; and the development of a more poverty-focused impact assessment system to measure progress towards achievement of the international development targets in the region.

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Donors, borrowers and non-borrowers have made pledges to SDF-V that will total $125 million, of which the UK and Canada have each pledged $25.2 million, or £17.4 million. That was a good outcome for the fund, in view of the loss of several European contributors, especially France, Germany and the Netherlands. There was also a reduced Italian contribution.

Despite domestic difficulties, borrowers increased their pledges to the fund by 30 per cent. The fund is still $32 million short of the target, mainly because expected contributions from other donors have yet to materialise. Subject to parliamentary approval, the UK contribution of $25.2 million will be payable over six years, beginning in 2002–03.

The African Development Fund is the concessional lending arm of the African Development Bank. It was created in 1973 with the objective of reducing poverty in regional member countries. The ADF provides about $1 billion a year of development assistance to 39 of the poorest African countries that are not creditworthy for ADB loans. The fund is largely financed by donor contributions. As fund loans are interest-free and have long maturity periods, income is low. Consequently, if the fund is to continue to lend, it needs to be replenished regularly, usually every three years.

Negotiations on the ninth replenishment of the fund started in June 2001, but their conclusion has been delayed because of the impasse on grants and the parallel IDA 13 negotiations, which has implications for ADF-IX. As commitment capacity for the new fund lending has been almost exhausted, an interim facility has been established to tide the fund over until the normal three-year replenishment can be concluded. We expect the negotiations to be concluded in the autumn, and we will then have to return the matter to the House.

Donors have pledged £368.5 million to the interim facility. The UK has pledged £40 million, or about 11 per cent. of the total. All pledges to the interim facility will count as contributions to the ninth replenishment when it is concluded. The interim facility will last for six months or until the ninth replenishment becomes effective, whichever is earlier.

The replenishment negotiations provide an important opportunity for donors to set the priorities and the policy and operational agenda for fund activities for the next three years. Those are set out in a donors' report that contains various actions and targets against which progress on the implementation of the replenishment will be monitored. As negotiations on the ninth replenishment are not yet completed, the donors' report is still to be finalised, so it is not available to hon. Members at the moment. Consequently, lending under the interim facility will be based on the existing policy framework.

I can tell the Committee, however, that donors have agreed that ADF-IX should have more selectivity and focus, with an increased allocation of resources to agriculture and rural development, health, education, governance, private sector development and regional integration.

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