COMMUNICATION FROM THE COMMISSION TO THE COUNCIL - Financial Information on the European Development Funds

CONTENTS

Preliminary remarks

Summary

1. Implementation of the European Development Funds at 31.12.2001

1.1. General table

1.2. Implementation of EDFs in 2001

2. Financial implementation forecasts for 2002 (Figures revised in may 2002)

2.1. Decisions

2.2. Payments

2.3. Calls for contributions scheduled for 2002

3. Implementation forecasts for 2003

Annexes

Preliminary remarks

This document is to be annexed to the draft budget for 2003, in accordance with the 1979 agreements on budgetary procedure.

To make the budgetary authority's task as easy as possible, the information given in this document is restricted to the key data. As in previous years, it shows:

- EDF implementation at 31.12.2001;

- financial implementation forecasts for the current year;

- expenditure forecasts for 2003.

Further details on EDF implementation at 31.12.2001 are given in the Commission communication to the Court of Auditors, Parliament and the Council containing the balance sheets and accounts of the 6th, 7th and 8th EDFs for 2001 (COM(2002) 211 final of 29.04.2002).

Summary

1. With payments standing at EUR2 067.86 million in 2001, EDF implementation has reached a record high, confirming the upswing in payments that started in 1998 with the entry into force of the 8th EDF. However, actual expenditure is considerably below the projections presented to the Member States in November 2000 [1] (EUR2 538 million, giving an implementation rate of 81.5%). This is largely because the amount that could be disbursed in programmable aid and, to a lesser extent, through Stabex, was overestimated. On the other hand, actual payments are slightly higher than the revised figure of EUR2 000 million from June 2001, presented to the Council in the last Communication, "Financial Information on the European Development Funds". [2]

[1] COM(2000) 805 final of 12/12/2000

[2] COM (2001) 402 final of 16/7/2001

New commitments registered in 2001 amount to EUR1 920 million. After taking into account cancelled commitments amounting to EUR366 million, the net total is EUR1 554 million. This is well down on the record EUR3 757 million in 2000. There are a number of reasons why the level reached in 2000 was not maintained. Firstly, the EDFs operate on cycles of around five years and the cycle was at its peak in 2000 as far as decisions are concerned. The trend was further accentuated by the commitment of some EUR1 billion for two debt-relief programmes in 2000. Lastly, the downward trend that began in 2001 was made more pronounced by the lack of resources for countries that had performed well, pending ratification of the Cotonou Agreement.

2. Implementation forecasts for 2002 have been revised downwards, principally for payments. As things stand the level forecast in November 2001 is unlikely to be reached. On the basis of the current situation, the Commission expects a figure of EUR2 000 million for payments and decisions alike, against the forecasts at the end of 2001 of EUR2 345 million for payments and EUR2 100 million for decisions. The shortfall is in programmable aid and is also linked to a lack of financial resources, due to delays in ratifying the Cotonou Agreement. As a transitional measure, EUR1 200 million taken from the balance remaining from the 8th EDF have been made available from 2002 onwards (Decision No 1/2000 of the ACP-EC Council of Ministers of 27 July 2000). However, this has only partially offset the consequences of the delay.

As a result, though the Commission had anticipated in its communication from December 2001 [3] that it would have to call for contributions totalling EUR2 000 million, it now finds that EUR1 800 million should be sufficient to meet the requirements. After the first two calls for contributions, totalling EUR800 million, the Commission now intends to propose a third for EUR481 million. This is the amount remaining of the 7th EDF so this will bring calls for contributions on that EDF to a close. The fourth call would then be for EUR519 million, bringing the total to EUR1 800 million. The requirements for the fourth call will be reviewed in October 2002 in the light of progress made.

[3] COM(2001) 780 final of 17/12/2001

3. For 2003, the Commission is expecting decisions and payments to stand at EUR2 500 million. These figures are based on the implementation patterns of previous EDFs (the distribution of commitments and payments over the whole implementation period). Some allowance has been made for the effects of the process of deconcentration from services ad headquarters to the delegations. Given the uncertainty surrounding the dates for implementation of the 9th EDF (dependent on ratification of the Cotonou Agreement) these figures should be regarded as very provisionnal.

In view of the projected start-of-year and end-of-year balances we estimate that the Member States' contributions for 2003 will be some EUR2 300 million.

1. Implementation of the European Development Funds at 31.12.2001

1.1. General table

>TABLE POSITION>

1.2. Implementation of EDFs in 2001

Payment trends (6th, 7th and 8th EDF)

EUR million

>TABLE POSITION>

COMPARISON OF DECISIONS AND PAYMENTS BY INSTRUMENT BETWEEN 2000 AND 2001

(6th, 7th and 8th EDF)

EUR million

>TABLE POSITION>

Compared with the last three years, particularly 2000, the amount for decisions was quite low in 2001. There are a number of reasons for this. First, EDF implementation goes in cycles lasting a number of years. In 1998-2000, the 8th EDF was being implemented and there were a lot of commitments in these years. So it is to be expected that the number of decisions should start to ease off in 2001. Furthermore, 2000 was the year of the decision concerning debt-relief for the most heavily indebted countries, worth around EUR1 030 million. Lastly, in 2001 the best performing countries, on the whole, faced a lack of resources pending the signing of new national indicative programmes under the 9th EDF, while relatively large sums were frozen for some of the countries that did not perform so well or were affected by crises.

By contrast, payments in 2001 reached their highest level since the EDF began. The payment cycle follows the decision cycle, with a small time lag. By comparison with 2000, the level of payments was high for Stabex and the Structural Adjustment Facility.

The table below gives the start-of-year and end-of-year balances, the Member States' contributions to the EDF and expenditure. It shows that large sums were transferred from Stabex to current operations, both in 2000 and 2001 (EUR1 062 million for the two years together). This reduced the financial resources required of the Member States considerably. The transfers were performed by the Commission in accordance with the decision taken by the Committee of Ambassadors in August 2000. Under the decision, the Commission is required to transfer the balance remaining in the Stabex account, less suspended payments, to the current-expenditure account.

EUR million

>TABLE POSITION>

The amount of cash available for all accounts at the end of 2001 was EUR611.4 million, including EUR391.2 million under current expenditure and EUR220.2 million for Stabex. These amounts may be considered normal.

The EUR391.2 million includes the EUR83.5 million paid in advance by the United Kingdom and Ireland for the first call for 2002. Without these payments, the balance would have been EUR307 7 million. For Stabex, just over EUR200 million had to be kept available for any suspended payments, primarily to Sudan and Togo.

In addition to the EUR220.2 million, the Commission was owed, at the end of 2001, EUR218.7 million for Stabex from the Member States. This has now been paid and, together with interest, was transferred to the current-expenditure account in 2002.

As already stated, the balance at the end of 2000 was abnormally high for a number of reasons (delayed expenditure under the Structural Adjustment Facility, transfer from the Stabex account to the current-expenditure account etc.) The situation has now been corrected.

2. Financial implementation forecasts for 2002 (Figures revised in may 2002)

Requirements for 2002 have been reviewed on the basis of an analysis of current files, dealt with by the Commission. The results are given in the table below.

EUR million

>TABLE POSITION>

2.1. Decisions

Forecasts for decisions were revised downwards slightly from the November 2001 level of EUR2 100 million to EUR2 000 million. This is mainly due to the fact that, pending ratification of the Cotonou Agreement, some of the more successful regions faced a lack of resources and are awaiting implementation of the Agreement.

2.2. Payments

The amount of payments was also revised downwards and is currently estimated at EUR2 000 million, against EUR2 345 million in November 2001. Implementation of programmable aid has been delayed for the same reasons as given above in relation to decision. The figures given for the other instruments still hold on the whole. The total amount for 2002 (EUR2 000 million) is still well above the average for 1992-2001 (EUR1 550 million).

The table below compares the forecasts for 2002 (see above) with payments actually made at the end of May 2002.

EDF expenditure at 31/5/2002 compared with forecast for 2002

>TABLE POSITION>

The overall implementation rate at 31 May 2002 was 30%. This is comparable to the rates at the same point in previous years. The rate was 33% in 1999 and 21% in 2000. The high figure for 2001 (42%) was due to (exceptional) large Stabex disbursements (EUR259 million at this point in the year).

2.3. Calls for contributions scheduled for 2002

The downwards revision for payments will lead to a reduction in the contributions that Member States will be asked to make in 2002. Initially, calls were to be issued to EUR2 000 million but now EUR1 800 million should cover requirements. On the basis of the information currently available, this should leave a balance of some EUR370 million for current operations at the end of 2002. This relatively large balance should give the Commission some room for manoeuvre for disbursements over and above the EUR2 000 million currently forecast.

EUR million

>TABLE POSITION>

The following notes explain some of the figures in the table.

-EUR83.5 million was paid in advance and so is included in the balance at the start of the year, which means that the Member States have still to pay EUR1 716.5 million, to make up the total of EUR1 800 million.

-The figure for the transfer from the Stabex account is an estimate; the amount of interest on the account for 2002 is not yet known.

-The contribution for Stabex is accounted for by the payment by a Member State of the last outstanding instalment in February 2002. All Stabex credits have now been honoured.

-The end-of-year balance for Stabex was EUR203.1 million. This figure represents the suspended payments to Sudan and Togo. If these payments were to be made, the end-of- year balance would be reduced accordingly.

In practice, since the first two calls for contributions totalled EUR800 million, the Commission is proposing, with the third call for EUR481 million, to draw all that remains from the 7th EDF, which would then be closed as far as Member States' contributions are concerned. The last call would then be for EUR521 million, drawn against the 8th EDF. The financial burden will be distributed differently between the Member States. One of the reasons for this is that Austria, Finland and Sweden will be required to contribute to the 8th and subsequent EDFs. The table in Annex 1 gives the breakdown for the 7th and 8th EDFs, as well as the amounts that each Member State should be paying on the basis of the scenario described above.

3. Implementation forecasts for 2003

The figures for expenditure in 2003 are a rough estimate based on past performance for the various EDFs. They take account of the probable implications of devolution within the Commission departments. Clearly, the timing of ratification of the Cotonou Agreement will have a major effect on the actual level of decisions and payments. The figure should be read with caution.

The Commission expects totals of EUR2 500 million, for decisions and payments alike in 2003. For decisions, most of this will come from the 9th EDF, which should be fully operational. Once the Cotonou Agreement has been ratified, a total amount estimated at EUR15.4 billion should be available for new commitments. Of this amount, EUR12.8 billion concern the new envelope foreseen by the Cotonou agreement (possibly increased by EUR1 billion in 2004 after a performance review undertaken by the Council). The balances remaining from previous EDF (6th, 7th and 8th). are estimated at present at EUR2.6 billion.

The amount for decisions should rise considerably in the coming years. For the period 2003-07, the Commission expects an average of EUR2.5 to EUR2.6 billion, peaking at EUR 3 billion in 2005.

With regard to payments, an average of EUR2.7 billion to EUR2.8 billion is forecast. Payments are expected to peak in 2006 at over EUR3 billion.

The Commission aims to bring the end-of-year balance for 2003 down to around EUR200 million. Taking account of this objective and interest earned, the Commission thinks that EUR2 300 million in contributions from the Member States should be enough to provide adequate EDF funding.

The table below shows the forecast financial situation for 2002 (see table above) together with the forecast for 2003.

>TABLE POSITION>

EUR million

ANNEX 1

>TABLE POSITION>

CONTRIBUTIONS TO THE EDF FOR 2002

Annex 2: Summary statements of management accounts at 31.12.2001

CONSOLIDATED EDF ACCOUNTS AT 31.12.2001

>TABLE POSITION>

>TABLE POSITION>

>REFERENCE TO A GRAPHIC>

Consolidated EDF accounts at 31.12.2001 (Type of aid)

EUR thousand

>TABLE POSITION>