13 EU Budget Support to Third Countries
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15561/11
COM(11) 638
| Commission Communication: The future approach to EU Budget Support to Third Countries
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| Legal base | —
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| Department | International Development
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| Basis of consideration | Minister's letter of 15 June 2012
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| Previous Committee Report | HC 428-xl (2010-12), chapter 3 (2 November 2011); also see (32105)15240/10: HC 428-viii (2010-11), chapter 11 (17 November 2010)
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| Discussion in Council | May 2012 Development Foreign Affairs Council
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
13.1 In the eyes of the Commission, budget support involves
policy dialogue, financial transfers to the national treasury
account of the partner country, performance assessment and capacity-building,
based on partnership and mutual accountability.[119]
The earlier Commission Green Paper
13.2 With five years to go before the 2015 deadline for the
UN Millennium Development Goals (MDGs), the Commission said that
budget support had become an increasingly prominent element of
the aid effectiveness agenda. It noted that, over the period 2003-2009,
the Commission made budget support commitments totalling over
€ 13 billion, amounting to about 25% of all commitments;
with about 56% made in Africa, Caribbean and Pacific (ACP) countries,
24% in neighbourhood countries, 8% in Asia, 6% in Latin America
and 5% in South Africa.
13.3 However, the Commission went on to say,
questions about the quality, value for money and impact of budget
support were increasingly being raised by a range of stakeholders,
including the European Court of Auditors, European and national
Parliaments and civil society; these needed to be answered as
the Commission worked to improve its approach to budget support.
The key ones were:
— political
governance and the role of political dialogue;
— the role of policy dialogue, role of
conditionality, and links to performance and results;
— domestic and mutual accountability;
— programming of budget support and its
coherence with other instruments;
— strengthening risk assessment and dealing
with fraud and corruption;
— budget support in situations of fragility;
and
— growth, fiscal policy and mobilisation
of domestic revenues.
13.4 Improved coordination across the EU was
also essential, as the Lisbon Treaty and the establishment of
the European External Action Service were changing the EU institutional
context in which budget support is provided. The purpose of
the Green Paper was to gather views from stakeholders regarding
the objectives and use of EU budget support, building on the joint
experience of the last ten years, while recognising differences
in the context and nature of EU cooperation with different regions
and countries; the specific objectives, to identify opportunities
and challenges, to raise specific questions on how these opportunities
can be exploited and challenges addressed, and to collect views
and evidence that will improve our approach to budget support.
The consultation would run from mid-October to end-December. Thereafter,
based on the outcome, the Commission would prepare an Issues Paper,
followed by a Communication, setting out the main parameters for
its future budget support. [120]
13.5 The subsequent Commission Communication
described the EC's revised policy as "a modern approach to
budget support". It hoped that Member States might also adapt
their bilateral budget support accordingly, in order to achieve
a coordinated approach by the EU as a whole. Future programmes
involving budget support to the partner country government were
presented as a set of contracts for delivering better aid and
achieving sustainable development objectives. The new approach
would be designed to strengthen the "contractual partnership
between EU and partner countries". The Commission was proposing
to re-brand their main instruments. So general budget support
to good performing or reforming countries would be called "Good
Governance and Development Contracts". Sector budget support
e.g. to support reforms in the health or education sectors would
be branded: "Sector Reform Contracts". Finally budget
support to fragile states, e.g. Haiti or Sierra Leone, to assist
with critical state-building needs, was to be branded "State
Building Contracts".
13.6 These different contracts, though having
some common characteristics, would have different objectives.
They would all be results-oriented instruments based on both process
and outcome indicators and with incentives for improved performance.
There would be stronger pre-conditions and eligibility criteria,
including a country's performance on human rights, democracy and
rule of law, but with a "dynamic approach" to interpretation
of eligibility criteria, rather than specifying minimum standards.
Use of budget support would be decided as part of a portfolio
approach that included other support such as technical assistance
and projects as appropriate. Mechanisms and principles for improving
EU and Member State coordination were outlined — one key
principle being that individual Member States should retain ministerial
authority over budget support operations and the EU would need
to comply with its legally binding agreements and financial regulations.
Stronger risk management frameworks were emphasised, in line with
the Court of Auditors' recommendations, and would include closely
monitoring progress in the fight against corruption and fraud
(see the relevant Committee Report for further details).[121]
Our assessment
13.7 When commenting on the earlier Green Paper,
the Parliamentary Under-Secretary of State at the Department for
International Development (Mr Stephen O'Brien) said that he expected
this Communication in the spring of 2011, with Council Conclusions
to be adopted in the first half of 2011. So, it seemed, the going
had been harder than expected. He noted "many sensible proposals
to strengthen the management and effectiveness of this important
aid modality", which he said reflected significant UK input.
But he appeared to have a particular difficulty over the notion
of a "single EU Good Governance and Development Contract".
Though he did not clearly say why, the suggestion was that the
inclusion in the Communication of the principle that individual
Member States needed to retain ministerial authority over budget
support operations, and the EU needed to comply with its legally
binding agreements and financial regulations, provided insufficient
reassurance that the appropriate balance could be preserved in
practice between common objectives and coordinated dialogue with
partner governments around underlying reforms and differentiated
responses. In the first instance, it seemed that the Minister's
department would now engage in an extensive consultation process
prior to making recommendations on the Government's response to
the Communication.
13.8 So we asked that, when Ministers had approved
it, the Committee be provided with a copy.
13.9 In the meantime we continued to retain the
Communication under scrutiny.
13.10 We drew this latest development in this
key policy area to the attention of the International Development
Committee.[122]
The Minister's letter of 16 April 2012
13.11 The Minister wrote to say that DFID had
consulted:
— its
country offices and relevant Whitehall departments in early March,
which involved reviewing the Commission's proposals in the light
of DFID's own strengthened approach to budget support, introduced
in August 2011, as well as DFID's on-going work on aid conditionality;
— EuropeAid in Brussels; and
— other Member States to seek clarification
of key issues.
13.12 The Minister said that the outcome "confirms
and reinforces our existing position on the key elements of the
Commission's proposals," as set out in his 28 October 2011
Explanatory Memorandum, and is "consistent with the position
of several other key Member States, including the Danish Presidency."
Discussions among Member States were "now focused on
agreeing Council Conclusions"; he would ensure that these
"clearly reflect the UK position, protecting UK sovereign
decision making and ensuring no extension of EU competence."
He expected the Conclusions to be formally agreed at the May "Development"
Foreign Affairs Council meeting.
13.13 In its reply of 16 May 2012, the Committee
said that it felt that this response continued to leave it in
an unsatisfactory position, viz., it was now minded to clear the
Communication but, insofar as the Minister had not explained his
concern clearly in his original Explanatory Memorandum, simply
stating that the outcome of the clarification of key issues "confirms
and reinforces our existing position on the key elements of the
Commission's proposals" did not properly explain how his
initial concern had been addressed. The Committee therefore asked
the Minister, once they had been adopted, to send it a copy of
the Conclusions, illustrating how they did indeed reflect the
UK position, protect UK sovereign decision making and ensure no
extension of EU competence.
The Minister's letter of 15 June 2012
13.14 His response, the Minister says, seeks
to highlight those sections of the Council Conclusions that substantively
address his earlier concerns about some specific aspects of the
EU's proposal, particularly those concerning an EU coordinated
approach. [123]
13.15 He begins by saying that he continues to
welcome the Commission's new approach to budget support, as it
reflects and builds upon many elements of DFID's own strengthened
approach, and that these are highlighted in the Council Conclusions
thus:
- "Greater transparency
about budget support allocation decisions (see paragraph 13 of
Council Conclusions)
- A stronger focus on results and value for money
through a strengthened assessment of progress and monitoring of
outcomes (see paragraph 12)
- "Strengthening of domestic accountability
and introduction of a new eligibility criteria on budget transparency
(see paragraph 14)
- "A clear focus in budget support dialogue
on meeting commitments to human rights, democracy and the rule
of law (see paragraphs 7-9)."
13.16 However, the Minister says, he also highlighted
a number of potential concerns regarding the Commission's proposals
for a "coordinated EU approach" to budget support and
its implications for existing and future joint budget support
programmes where DFID bilateral funds are involved; that it soon
became clear that his concerns were shared by other Member States;
and, as a result of strong UK lobbying on these points, the Council
Conclusions now contain appropriate language addressing these
issues, which he says clearly state (see paragraphs 18-20) that:
- "Discussions on an EU
coordinated approach will primarily take place at the country
level on a case-by-case basis and will take into account the views
of non-EU budget support providers
- "[...] they shall be based on principles
of sovereign decision-making by Member States while seeking to
achieve the maximum level of coordination, joint assessment and
joint dialogue
- "[...] the country-level coordination will
be based on existing arrangements and procedures and will hence
not involve the transfer of additional responsibilities to the
European Union on budget support decision-making.
13.17 The Minister says:
"It is thus absolutely clear that UK Ministers
will retain the right to take independent decisions about where,
when and in what circumstances the UK will provide budget support,
while also working closely with our EU partners to establish common
objectives, assessment and dialogue procedures to ensure that
these respond to the specific circumstances of the country concerned.
We have consulted with DFID Country Offices on these issues and
they do not foresee any specific concerns regarding existing in-country
coordination processes."
13.18 The Minister concludes by saying that:
—
he will be monitoring closely the way in which the EU now implements
its budget support policy to ensure that any new Good Governance
and Development Contracts, Sector Reform Contracts or State-Building
Contracts are appropriately targeted and designed to address the
specific needs of beneficiary countries and deliver expected results;
— the Coalition Government will continue
to work uncompromisingly and tirelessly to ensure that the UK
retains its sovereign decision-making and continues to hold EU
Development Institutions accountable for the delivery of EU development
aid.
Conclusion
13.19 At chapter 12 of this Report, we consider
a related Commission Communication 15560/11, Increasing the
impact of EU development policy: An Agenda for Change, which
seeks to improve the effectiveness of existing EU aid and improve
the impact of EU development cooperation in support of human rights,
democracy and other key elements of good governance, and inclusive
and sustainable growth for human development.[124]
13.20 As in that case, the picture having
now been completed here, we are content for interested Members
to pursue the important issues covered in the Commission Communication,
and in the Council Conclusions, in the many ways open to them.
13.21 With that in mind, we are forwarding
a copy of this chapter of our Report to the International Development
Committee.
13.22 We also now clear the Commission Communication.
119 COM(11) 638, page 3. Back
120
For details, see (32105)15240/10: HC 428-viii (2010-11), chapter
11 (17 November 2010). Back
121
See HC 428-xl (2010-12), chapter 3 (2 November 2011). Back
122
See headnote: HC 428-xl (2010-12), chapter 3 (2 November 2011). Back
123
The Council Conclusions are available at http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/EN/foraff/130241.pdf. Back
124
See (33244) 15560/11 at chapter 12 of this Report.
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