Communication from the Commission to the Council - Financial information on the European Development Funds

CONTENTS

Preliminary remarks

Summary

1. Status of European Development Funds at 31.12.2000

1.1. General table

1.2. Implementation of the Funds at 31 December 2000

2. Financial implementation forecasts for 2001 (figures revised May 2001)

2.1. Decisions

2.2. Payments

3. Implementation forecasts for 2002

Preliminary remarks

This document is submitted as an annex to the draft budget for 2002, 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. However, as in previous years, it shows:

- EDF implementation at 31.12.2000;

- financial implementation forecasts for the current year;

- expenditure forecasts for 2002.

Further details on EDF implementation at 31.12.2000 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 2000.

Summary

1. With payments standing at EUR1 548.17 million, implementation of the EDF in 2000 will be below the forecast of EUR1 985 million presented to the Member States in November 1999, i.e. a rate of 85% excluding Stabex (78% including Stabex). The wide gap between actual and forecast implementation had been highlighted in the paper on Financial Information on the EDF presented to the Council in July 2000, which had increased the forecast to EUR2 635 million, mainly to take account of a substantial rise in the allocations for the HIPC initiative (up EUR350 million) and the Structural Adjustment Facility (up EUR150 million) and the sums entered under "miscellaneous" to cover large-scale activities which the Commission wanted to implement in 2000 for healthcare and risk capital. Because these two initiatives were not translated into action, the paper on the Estimate of Contributions Needed presented to the Council in December 2000 revised the forecast for 2000 downwards substantially, to a total of EUR2 025 million. Overall, payment implementation stands at 76% of the last forecast (81% without Stabex).

2000 was a good year for decisions, however, compared with the recent average. Current expenditure totalled EUR3 396.36 million, while Stabex reached EUR361.06 million, making a combined total of EUR3 757.42 or 125 % of the November 1999 forecast of EUR3 000 million for all instruments.

However, the gap is largely accounted for by the fact that the November 1999 forecast did not take into account the HIPC initiative's EUR1 000 million.

Discounting the EUR1 000 million, performance in terms of EDF decisions in 2000 should only be considered a good average, given the entry into force of the 8th EDF. To put the size of the gap between decisions and payments in perspective, account should first be taken of the late entry into force of the 8th EDF in July 1998 and the reasonable time-lag between the decision on a project and its actual implementation. Following this reasoning, we are expecting performance in terms of payments to improve in 2001 compared with previous years.

In a political and economic climate that continues to fluctuate sharply and is sensitive to changes in the world economy, official development aid granted by the European Union to the ACP States and OCTs constantly reflects these external factors.

In 2000, as in 1999, the domestic situation in a number of recipient countries continued to fluctuate throughout the year and this affected the pace and estimated amount of disbursements.

2. Implementation forecasts for 2001 (for decisions and payments alike) have been revised downwards to take account of the reality on the ground. Considerations such as the time still needed for the 9th EDF to be ratified, the limited resources left over from previous EDFs and embarking on a new programming cycle have led the Commission to set the updated forecasts at EUR2 000 million for decisions and EUR2 000 million for payments. Though substantially down on the previous forecasts, these figures still represent the best expected performance (especially for payments) when measured against the implementation average of recent years.

To cover this expenditure and current payments for 2001, a EUR1 415 million call for contributions was approved and made to the Member States in December 2000. In addition to this call for contributions, a total of EUR885 million will be transferred gradually during the course of the year from the Stabex account to the EDF current expenditure account, in line with the decision of the Committee of Ambassadors taken at the end of September 2000 concerning the establishment of a reserve intended to finance decisions under STABEX and SYSMIN in the period 2 August to 31 December 2000. This brings the amount deemed necessary to cope with expenditure for 2001 to EUR2 300 million. In accordance with the procedure established in the EDF Financial Regulation, the size of the call for contributions can of course be adjusted up or down , depending on the need for funds, whose level is monitored continuously. In this context, the call for the second quarter of 2001 was reduced by EUR129 million (from EUR329 to EUR200 million) and it is also proposed to reduce the last two calls for 2001, to take into account the downward revision of payment forecasts for 2001.

In line with the arrangements established in the 8th EDF Financial Regulation, Stabex calls for contributions closed in July 2000. As a result, there is no call for contributions for Stabex in 2001.

3. Forecasts for 2002 are EUR3 000 million for decisions and EUR2 100 million for payments.

1. Status of European Development Funds at 31.12.2000

1.1. General table

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EIB own resources totalling ECU 1 120 million under the 6th EDF, ECU 1 225 million under the 7th EDF and ECU 1 693 million under the 8th EDF should be added to the above allocations.

1.2. Implementation of the Funds at 31 December 2000

1.2.1. EDF expenditure in 2000: EUR1 548.17 million.

TRENDS IN PAYMENTS (EUR million)

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DECISIONS/PAYMENTS COMPARISON (6th, 7th & 8th EDFs - EUR million)

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For the third year running, the level of decisions, excluding the HIPC initiative, was maintained with the start-up of implementation of the 8th EDF, and although this has not yet been reflected in the level of payments, it is inevitable in due course. The sizeable difference in the level of decisions between 1999 and 2000 is entirely due to the HIPC debt relief initiative introduced in 2000. Sysmin payments remained low in 2000.

1.2.2. Financing of EDF operations was problem-free in 2000

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The amount of cash available for all accounts at the end of 2000 was EUR1 431.74 million, EUR783.51 million for current expenditure and EUR648.23 million for Stabex. In addition to the EUR648.23 million, at the 2000 year end the Commission also had a Stabex credit of EUR618.50 with some Member States, bringing the Stabex total to EUR1 266.73 million. The Committee of Ambassadors took a decision in August 2000 to set up a EUR240 million reserve for Stabex, with the balance due to be transferred gradually from the Stabex account to the EDF current expenditure account.

The unusually high balance (783,51) of the current expenditure account at 31-12-2000 is due to:

- current expenditure for 2000 being lower than anticipated;

- the EUR130 million structural adjustment facility payment due to be made just before the close of the 2000 financial year could not in fact be paid until the beginning of January 2001, and thus appeared in the 2001 accounts;

- a EUR350 million transfer made during the year from the Stabex account to the EDF current expenditure account in order to fund the HIPC initiative; this transfer was made in August 2000, a time when the EDF current expenditure account was registering a particularly low balance, in order to prevent funding of the HIPC initiative from having an effect on the calls for contributions, and with the intention of regularising the transaction at a later date; that regularisation is in progress now, and the transfers of EUR221 million from the Stabex account to the EDF account planned for the first two quarters of 2001 were suspended. The EUR350 million transferred in 2000 was added to the EUR220 million transfer from the Stabex account to the current expenditure account when the last call for funds was made in that year. This explains the EUR570 million total in the table above.

As there is a special bank account for Stabex operations, the possibilities of reducing Stabex funds depend entirely on the level of transfers decided on.

2. Financial implementation forecasts for 2001 (figures revised May 2001)

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2.1. Decisions

Forecasts for decisions were revised downwards from the November 2000 forecasts. The latter had been based on statements made when the Cotonou Agreement was negotiated. The Commission decided to revise the figures downwards in order to reflect reality on the ground:

- the time needed for ratification of the 9th EDF had been underestimated;

- the sum left over from the 6th, 7th and 8th EDFs which could be committed in 2001 and 2002 was EUR4 230 million;

- 2001 sees us entering a new programming cycle, and past experience has shown that the time and energy involved cause a large drop in the number of decisions;

- neither the additional heading for "other initiatives" introduced into the November 2000 forecasts to take account of the Commission's intention to present operations for a number of ACP countries that were still at the study stage (health initiative), nor an increase in venture-capital resources, in fact materialised.

We should stress that if we exclude 2000, when the sum for decisions swelled by EUR1 000 million to accommodate the HIPC initiative, forecast performance for 2001 remains considerably above the average for 1995-99 (EUR1 600 million).

2.2. Payments

EDF expenditure at 31/05/2001 compared with the May 2001 forecasts

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Like the decision forecasts, payment forecasts were revised downwards, and the current estimate is EUR2 000 million. The overall implementation rate at 31 May 2001 was 41.52%, largely thanks to substantial Stabex disbursements, and there should be a further improvement, because substantial payments under other instruments (including structural adjustment) are expected by the end of the year. However, this good performance should not hide the low disbursement rate for programmable aid. It should be noted that EUR130 million was paid out under the structural adjustment facility in the last few days of December 2000 but not entered in the accounts until the beginning of 2001. This is why payments exceed the forecast.

3. Implementation forecasts for 2002

2002 estimates for decisions were revised downwards from the forecasts made in November 2000 (EUR3 500 million) for the same reason as the downward revision of the 2001 forecasts.

Decisions in the pipeline amount to EUR3 000 million. In its dealings with third countries, however, the Commission is also dependent on a number of external factors which cannot, by their nature, be foreseen (political instability, armed conflict, natural disasters). These factors can upset a forecast at any time.

The estimated level of payments (EUR2 100 million, compared to EUR2 050 million in November 2000) has, by contrast, been revised upwards somewhat. For the second year in a row, it should exceed EUR2 billion. A more precise estimated breakdown of payments by instrument is currently being produced with the help of the delegations in the ACP countries; initial results are expected by the end of the first half of 2001, and should provide more reliable data.

In order to cope with these payments, the financial needs for 2002 (due to be examined in November 2001) are expected to be around EUR2 million.

The above forecast of financial requirements is based on the following:

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The transfer from the Stabex account to the EDF current expenditure account shown in this table takes account of the EUR350 million transfer made in 2000 to cover HIPC initiative payments (total 2001 transfer = EUR885 million - EUR350 million = EUR535 million / see point 1.2.2. above). It also takes account of the EUR130 million in SAF payments made at the end of 2000 but not entered in the accounts until the beginning of 2001 (not included in the 2001 forecasts / see point 2.2 above).

To bring the level of funds down to a reasonable sum by the end of December 2001, the plan is to reduce the last two calls for contributions of the year by EUR200 million.

ANNEXES

Annex 1: Contributions to the EDF for 2001

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Annex 2: Summary statements of management accounts at 31.12.2000.

CONSOLIDATED EDF ACCOUNTS AT 31.12.2000

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CONSOLIDATED EDF ACCOUNTS AT 31.12.2000 Type of aid (EUR'000)

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