[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 4.4.2007

SEC(2007) 415

COMMISSION STAFF WORKING DOCUMENT Accompanying document to the

ANNUAL REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Keeping Europe's promises on Financing for Development Financing for development - from Monterrey 2002 to Doha 2008 Progress report 2007 Is the European Union on track to meet its commitments by 2010?

{COM(2007) 164 final}

TABLE OF CONTENTS

Abbreviations…………………………………………………………………………………..5

1. Introduction 10

1.1. Background 10

1.2. Monitoring – mandate and methodology 10

2. ODA volumes 11

2.1. ODA targets 2006 12

2.2. EU ODA and debt relief 15

2.3. EU ODA to Africa

2.4. EU ODA targets 2010 16

2.5. ODA to Least Developed Countries (LDC) 20

3. Innovative sources of financing 20

3.1. Progress 20

3.2. Result of the survey 21

4. more predictable and stable aid mechanisms 23

5. Debt relief 24

5.1. The Heavily Indebted Poor Countries (HIPC) Initiative 24

5.2. The Multilateral Debt Relief Initiative (MDRI) 26

5.3. Summary of survey results 26

6. Aid effectiveness – the initial experience with EU joint programming 27

6.1. Joint programming – state of play 28

6.1.1. Introduction 28

6.1.2. Background: the Council conclusions of April 2006 29

6.1.3. Fundamental principles of joint multi-annual programming 30

6.1.4. Implementation of joint multi-annual programming 31

6.1.5. State of play 32

6.1.5.1. ACP countries involved 32

6.1.6. Results from the ongoing experience 33

6.1.7. Conclusions 38

6.2. The implementation of the Aid Effectiveness Action Plan 39

7. Commitment on untying aid 41

8. Commitment on exogenous shocks 41

8.1. Natural disaster risk reduction (DRR) 42

8.2. Price risk management 44

8.3. FLEX 44

8.4. Insurance applications 44

9. Commitment on trade and development 45

10. Reform of the international finance institutions 49

11. Global public goods 50

11.1. Introduction 50

11.2. Section I: Commission assessment of the Task Force report 50

11.2.1. Chapter 1: Missed opportunities and mounting risks 50

11.2.2. Chapter 2: Global Public Goods: What they are and why many are in short supply 51

11.2.3. Chapter 3: Priority GPG – protecting the health of people – infectious diseases 52

11.2.4. Chapter 4: Priority GPG – preserving the health of the environment: tackling climate change 52

11.2.5. Chapter 5: Priority GPG – promoting global prosperity: financial stability & international trade 53

11.2.6. Chapter 6: Priority GPG – peace and security: international terrorism, nuclear weapons and the use of force 54

11.2.7. Chapter 7: A cross-cutting issue: knowledge 55

11.2.8. Chapter 8: Catalytic leadership and action: the case for a Global 25 56

11.2.9. Chapter 9: Effective institutions: governance and accountability 57

11.2.10. Chapter 10: Adequate and appropriate financing: Why? Who? How? 58

11.3. Analysis of EU Member States' replies to the annual survey 58

11.3.1. Proposals for reforms of global governance and accountability mechanisms 59

11.3.2. Proposals for financing of global public goods 59

12. Country profiles of EU Member States 61

Abbreviations

ABST | Access Basic Science Technology |

ACP | African, Caribbean and Pacific States, party to the Cotonou Agreement |

ADB | Asian Development Bank |

AFD | Agence française de développement |

AfDB | African Development Bank |

AfDF | African Development Fund |

AFT | Aid for Trade |

AIDS | Acquired Immune Deficiency Syndrome |

AMC | Advance Market Commitment |

AT | Austria |

BE | Belgium |

BG | Bulgaria |

BWI | Bretton Woods Institutions |

CBI | Centre for the Promotion of Import (from developing countries) |

CFCSP | Common Framework for Country Strategy Papers |

CGIAR | Consultative Group of International Agricultural Research |

CIDA | Canadian International Development Agency |

CODEV | Working Party on the Development Cooperation at the Council |

CRMG | Commodity Risk Management Group |

CSP | Country Strategy Paper |

CTT | Currency Transaction Tax |

CY | Cyprus |

CZ | Czech |

DAC | Development Assistance Committee of the OECD |

DDA | International Development Association |

DE | Germany |

DFID | Department for International Development of the United Kingdom |

DK | Denmark |

DRC | Democratic Republic of Congo |

DRR | Disaster risk reduction |

DRRP | Disaster Risk Reduction Prevention |

DSF | Debt Sustainability Framework |

EC | European Community |

ECA | European Court of Auditors |

ED | Executive Directors |

EDF | European Development Fund |

EE | Estonia |

EFC | Economic and Financial Committee of the EU |

EIB | European Investment Bank |

EL | Greece |

EPA | Economic Partnership Agreement |

ES | Spain |

EU | European Union |

FAO | Food and Agriculture Organisation |

FATF | Financial Action Task Force |

FI | Finland |

FLEX | The EU instrument to compensate African, Caribbean and Pacific (ACP) countries for short term fluctuations in export earnings |

FR | France |

FSF | Financial Stability Forum |

G 8 | Group of Eight (Summit of Canada, France, Germany, Italy, Japan, Russia, United Kingdom and United States) |

G 20 | G roup of 20 |

G 25 | Group of 25 |

GAERC | The Council (General Affairs and External Relations) |

GAVI Alliance | formerly known as the Global Alliance for Vaccines and Immunisation |

GBS | General Budget Support |

GDP | Gross Domestic Product |

GIIF | Global Index Insurance Facility |

GNI | Gross National Income |

GPG | Global Public Goods |

HIPC | Heavily Indebted Poor Countries |

HIV | Human Immunodeficiency Virus |

HLP | United Nations Secretary General's High Level Panel on Threats, Challenges and Changes |

HOLIS | European Commission's Humanitarian Aid Department's internal data base containing the information about the EU Member States' contributions to humanitarian aid |

HU | Hungary |

ICTSD | International Centre for Trade and Sustainable Development |

IDA | International Development Association |

IDB | Inter-American Development Bank |

IE | Ireland |

IF | Integrated Framework |

IFAD | International Fund for Agricultural Development |

IFF | International Financial Facility |

IFFIm | International Finance Facility for Immunisation |

IFI | International financial institution |

ILO | International Labour Organisation |

IMF | International Monetary Fund |

IO | International Organisations |

IPG | International Public Goods |

IT | Italy |

ITC | International Trade Centre |

JAS | Joint Assistance Strategies |

JAST | Joint Assistance Strategy for Tanzania |

JFP | Joint Programming Paper |

LDC | Least Developed Countries |

LT | Lithuania |

LU | Luxembourg |

LV | Latvia |

MDG | Millennium Development Goals |

MDRI | Multinational Debt Relief Initiative |

MoU | Memorandum of Understanding |

MS | Member States |

MT | Malta |

NGO | Non-Governmental Organisation |

NL | The Netherlands |

NPV | Net present value |

ODA | Official development assistance |

OECD | Organisation for Economic Cooperation and Development |

ORET | Organisation Related Export Transactions |

PL | Poland |

PRCC | Program Reinforcing Trade Capacity |

PRSP | Poverty Reduction Strategy Paper |

PT | Portugal |

RO | Romania |

SAFEX | South African Futures Exchanges |

SALW | Small arms light weapons |

SBS | Sector budget support |

SCIMF | Sub-committee on IMF, the Economic and Finance Ministers' Council sub-structure |

SE | Sweden |

SI | Slovenia |

SK | Slovakia |

TB | Tuberculosis |

TF | Task Force |

TRA | Trade Related Assistance |

TRADE | Directorate General Trade of the European Commission |

UK | United Kingdom |

UN | United Nations |

UNCHR | United Nations Commission on Human Rights |

UNCTAD | United Nations Conference on Trade and Development |

UNDP | United Nations Development Programme |

UNECA | United Nations Economic Commission for Africa |

UNFPA | United Nations Funds for Population Activities |

UNHCR | United Nations High Commissioner for Refugees |

UNICEF | United Nations Children's Fund |

UNITAID | International Drug Purchase Facility |

UNSC | United Nations Security Council |

USAID | United States Agency for International Development |

WB | World Bank |

WFP | World Food Programme |

WHO | World Health Organisation |

WTO | World Trade Organisation |

Introduction

Background

This Staff Working Paper complements the Communication ‘Keeping Europe's promises on Financing for Development’ COM(2007) 164 final of April 4, 2007. Whereas the Communication provides an overall assessment of EU progress on its commitments on financing for development and aid effectiveness together with policy recommendations to further improve the EU performance, this document is more analytical and factual.

The EU commitments cover ten issues, pertaining to the volume and sources of financing for development and the quality of aid. The 2002 and 2005 commitments on these issues - ODA volumes, innovative sources of financing, more predictable and stable aid mechanisms, debt relief, aid effectiveness, the untying of aid, the mitigation of exogenous shocks, aid for trade, the reform of the international Financial institutions and global public goods – are quoted at the beginning of the chapters that follow.

This is the Commission's fifth progress report on financing for development and aid effectiveness. The report evaluates the positions stated by Member States in the annual 'Monterrey' questionnaire, drafted by the Commission, and assesses progress on delivering on the commitments. It consists of two parts: the first is divided into ten chapters (2–11) corresponding to the respective EU commitments, and the second (chapter 12) contains profiles of all EU Member States drafted using their replies and publicly available DAC data.

Monitoring – mandate and methodology

In 2002 the Council mandated the Commission to monitor EU progress on the joint commitments on financing for development and aid effectiveness. When the Council agreed to extend and further develop the initial EU commitments of 2002, in 2005, it also reaffirmed the Commission's monitoring mandate, asking for annual progress reports to be submitted. The objectives of monitoring are to assess progress achieved, provide recommendations on overcoming any shortcomings and suggest how the EU could further contribute to advancing international financing for development.

Since 2002, the Commission has collected information on the performance and views of the EU Member States on the different commitment themes through a detailed annual survey . The Commission is pleased to note the Member States' ever increasing ownership of and confidence in the monitoring process , in terms of:

- responsiveness : as from the first questionnaire sent out in 2002, all Member States in the enlarging EU have responded;

- the timeliness of replies: overall, Member States have endeavoured to provide their contribution more promptly, with the help of close contacts and encouragement (‘help-desk’ type support) by the relevant Commission department and, as and when necessary, by the extension of initial deadlines;

- the comprehensiveness and quality of responses: Member States vary in their technical capacity to deal with the financing for development issues covered by the EU commitments, some of which are complex and technical. Capacity depends on the overall size of Member States' development administration, the expertise available in the administration and their cumulative experience of development cooperation. While some Member States have a long tradition of development cooperation, others are emerging donors. Despite these disparities, all provide increasingly comprehensive replies, albeit necessarily diverging in quality. The Commission especially appreciates the efforts of those Member States that have joined the EU more recently with nascent development cooperation capacity. In some cases, a single task manager endeavours to provide a full picture of certain topics. The contributions of Member States with greater development experience reveal the involvement of a number of experts/services/ministries/agencies.

Over the years, the Commission has adapted the methodology applied in the design of the annual questionnaire and has also acknowledged that analysing the replies has turned into a substantially more time-consuming exercise for what are now 27 EU Member States. As a result, there has been a move away from too many ‘open’ questions, as it is more difficult to assess and compare 'open' replies, to more ‘semi-open’ questions – where a range of pre-defined answers is offered (multiple choice questions, including options to rank answers) – or ‘closed’ questions (requiring yes/no answers). The introduction of ‘compulsory’ answers in online questionnaires has triggered more complete responses. There are questions on all thematic commitments, organised in chapters that each include a free space for comments so that Member States can contribute as they wish.

The latest survey was sent to the Member States at the beginning of November 2006; the last reply was received by the end of January 2007. For the first time, Member States were asked to assess the format of the questionnaire. Most of them agreed that the focus was right, i.e. ODA volumes, joint programming, aid for trade and global public goods (GPG). However, nine Member States felt that questions were unclear or more background information was needed. Only four Member States believed there were too many questions, and a single Member State complained that the questions were too difficult.

ODA VOLUMES

The survey endeavoured to track:

- current ODA volumes, including 2006 , although the initial deadline for receiving replies was prior to the end of 2006 – for that reason, the Commission asked Member States to update their ODA indications provided for 2006, in line with their preliminary ODA reporting to the OECD/DAC (deadline March 2007);

- generic ODA forecasts on overall aid levels (either in absolute terms or as a percentage of GNI) up to 2011, with a view to allowing the Commission to do a plausibility check on whether Member States can be considered ‘on track’ to achieve their 2010 individual ODA targets;

- ODA forecasts for specific purposes (2006–2008), i.e. for aid for trade and mitigation of exogenous shocks.

Member States' statements give a mixed picture of their ability or willingness to provide forecasts:

- The Union’s best performers, e.g. those that have already achieved/exceeded the 0.7% ODA/GNI target, generally confirmed their willingness to maintain or even increase their high ODA levels.

- Some Member States provided clear year-on-year data on future ODA developments for a five to six-year period.

- Other Member States indicated short-term planned ODA volumes, but could not specify medium-term developments.

- Yet other Member States could give at least a ‘range’ (minimum/ maximum ODA/GNI for a given year) for the period 2007–2011.

- But there are some Member States that – since the beginning of the survey exercise in 2002 – have never been able to provide any forecast figure, although they may regularly confirm their commitment to achieving the individual minimum baseline by the respective target years, i.e. 2006 and 2010.

Against this background it seems that a number of Member States – despite their repeated expressed commitment to move to the EU baseline targets or their higher national ODA targets – may not have a ‘medium-term expenditure framework’ for development assistance.

The experience of the past several years' surveys also reveals that Member States have difficulty providing conclusive information on the aid to be devoted to specific issues, such as aid for trade and the mitigation of exogenous shocks. It has become evident that more work needs to be done to clarify concepts and to provide good definitions – e.g. what is meant by ‘trade-related assistance’ or ‘trade-related infrastructure’, what is covered by support for ‘ex ante disaster risk reduction’ compared to overall humanitarian assistance following natural disasters, etc. This is a precondition for more exact and comparable forecast figures in the future. But also multi-annual strategic planning, recourse to more predictable aid arrangements, such as budget support, and operational division of labour between donors will facilitate more precise medium-term ODA planning in EU Member States.

ODA targets 2006

EU commitment – ODA targets 2006:

“In pursuance of the undertaking to examine the means and timeframe that will allow each of the Member States to reach the UN goal of 0.7% ODA/GNI, those Member States that have not yet reached the 0.7% target commit themselves – as a first significant step – individually to increase their ODA volume in the next four years within their respective budget allocation processes, whilst the other Member States renew their efforts to remain at or above the target of 0.7% ODA, so that collectively an EU average of 0.39% is reached by 2006. In view of this goal, all the EU Member States will in any case strive to reach, within their respective budget allocation processes, at least 0.33% ODA/GNI by 2006.”

(Council conclusions of 14.03.2002 on the UN Conference on Financing for Development (Monterrey)

The EU exceeded, before time, the collective ODA commitment set for 2006. However, four Member States were not able to live up to their individual commitments, but promised to reach/ exceed 0.33% ODA/GNI in 2007 (EL, PT, ES) or 2008 (IT). Their delay also adversely affects their ability to achieve the intermediate EU individual ODA goals set for 2010. Moreover, this situation undermines the burden-sharing principle among Member States, which was a core element of the EU individual and collective ODA commitments made in 2002 and 2005.

EU ODA levels 2004 – 2006

[pic]

ODA in € million at current prices

Source: Coloured cells contain information supplied by Member States, other cells are Commission data or calculations.

EU12 total and EU27 total GNI and ODA figures in 2004 and 2005 do not include the GNI of BG and RO

Methodology applied for the ODA tables

Figures on Official Development Assistance (ODA) are in current prices and were taken from the OECD Development Assistance Committee (DAC) for the years 2005 and 2006 for those Member States that are OECD members.[1] For non-OECD members and for all Member States in subsequent years ODA figures were taken, as far as available, from Member States’ replies as indicated by yellow-coloured fields. All non-coloured fields are Commission data or calculations. For Members States which gave ODA figures in national currencies (BG, CY, CZ, DK, EE, HU, LV, PL, RO, SI, SE, UK) the Commission’s annual average exchange rates of the respective years were applied to convert them into euro. Nominal exchange rate stability is assumed beyond 2008 which means that each country's 2008 nominal exchange rate against the euro is applied afterwards. Where a Member State presented only the ODA/GNI ratio, ODA was calculated by multiplying it with the Commission’s GNI figure. Where a Member State gave both the ODA figure and the ODA/GNI ratio, preference was given to using the ODA figure as this gives a better indication of where the achievement of ODA/GNI targets is sensitive to differing assumptions on GNI. Missing information on both ODA and ODA/GNI ratio was calculated by assuming that the ODA/GNI targets for 2006 (0.33% for EU-15), 2010 (0.51% for EU-15 and 0.17% for Member States that joined the EU after 2002) and 2015 (0.7% for EU 15 and 0.33% for Member States that joined the EU after 2002) would be achieved and by multiplying them with the Commission’s GNI figures to derive the ODA figures. The missing ODA figures for the remaining years were calculated by distributing the absolute difference between the ODA volume of the latest year for which information was provided (or, if the latest available year is before 2006, the 0.33% target for EU-15 countries) and the ODA volume required to meet the 2010 and 2015 targets equally over these years.

Figures for Gross National Income (GNI) in current prices are outcome for 2005, estimates for 2006 and from the Commission’s autumn 2006 forecast and February 2007 interim forecast for the years 2007 and 2008. GNI figures for the years 2009 to 2011 are calculated by applying the Commission’s country-specific projections of nominal GDP growth rates. The Commission’s projections are based on potential output growth estimates until 2013 which were also used for the purpose of budgetary calculations in the context of the EU financial framework 2007-2013.[2] The GNI growth rates applied for the years 2014 and 2015 are assumed to equal the 2013 growth rate respectively.

Percentage share of MS' ODA in EU total ODA (2005)

[pic]

Source: OECD/ DAC statistics and replies from MS to Monterrey questionnaire

EU ODA and debt relief

The exceptional debt relief efforts undertaken by the donor community, i.e. the Multilateral Debt Relief Initiative of 2005 (MDRI), which complements the earlier debt reduction initiative for Heavily Indebted Poor Countries (HIPC), and the special debt reduction operations in favour of Iraq and Nigeria, contributed substantially to the EU's overall impressive ODA performance to 2006. The reporting of debt relief is in line with the OECD/DAC definition of ‘ODA’; but the strong focus on debt relief as part of scaling-up is not exactly what one might have expected, because the mobilisation of more programmable aid that is also required is lagging behind. Some Member States may also be on the verge of breaching the promise they made at the Monterrey International Conference on Financing for Development in 2002, reiterated by the Council in April 2006, i.e. " to ensure that resources provided for debt relief do not detract from ODA resources intended to be available for developing countries ". In 2005, net ODA volumes – excluding debt relief grants – of the three Member States which together represent 55% of the EU’s total aid either decreased (DE –5.5%, FR –0.7%) or only marginally increased (UK +0.9%). Such situations are also critical because they risk triggering liquidity problems for the implementation of bilateral aid programmes, as Member States cannot cut mandatory contributions to the EC and multilateral agencies.

Share of debt relief in EU scaling up 2002–2006

[pic] Source: OECD/ DAC statistics and replies from MS to Monterrey questionnaire

For 2006, the share of HIPC debt relief in total debt relief is not yet available

The country profiles (see chapter 12) include graphs illustrating the share of debt relief in the ODA volumes of the 15 EU Member States that are also DAC members.

EU ODA to Africa

To monitor the EU commitment of 2005 to provide collectively half of the aid increases that are supposed to come on top of the ODA result achieved by 2006, the Commission will establish a baseline chart against which the future EU allocations for Africa can be assessed.

EU ODA targets 2010

ODA targets 2010/2015:

“…the EU agrees to a new collective EU target of 0.56% ODA/GNI by 2010, that would result in additional annual € 20bn ODA by that time.

- I. Member States, which have not yet reached a level of 0.51% ODA/GNI, undertake to reach, within their respective budget allocation processes, that level by 2010, while those that are already above that level undertake to sustain their efforts;

- II. Member States, which have joined the EU after 2002, and that have not reached a level of 0 .17% ODA/GNI, will strive to increase their ODA to reach, within their respective budget allocation processes, that level by 2010, while those that are already above that level undertake to sustain their efforts;

- III. Member States undertake to achieve the 0.7% ODA/GNI target by 2015 whilst those which have achieved that target commit themselves to remain above that target; Member States which joined the EU after 2002 will strive to increase by 2015 their ODA/GNI to 0.33%.”

ODA for Africa:

“EU will increase its financial assistance for Sub-Saharan Africa and will provide collectively at least 50% of the agreed increase of ODA resources to the continent , while fully respecting individual Member States priorities’ in development assistance.”

(European Consensus on Development with reference to Council conclusions of 24.05.2005)

The EU frontrunners in the scaling up process are the nine Member States – so far – that have either achieved the 0.7% target or decided to reach it prior to 2015. They are also instrumental to ensuring that the EU achieves the collective objective of 0.56% ODA/ GNI, by 2010.

ODA commitments of EU Member States to achieve or maintain an ODA/GNI ratio of at least 0.7% prior to 2015

Member State | ODA/ GNI target | Target year |

Belgium | 0.7% | 2010 |

Denmark | 0.8% | Already achieved/ will maintain |

Finland | 0.7% | 2010 |

France | 0.7% | 2012 ("between 0.5 and 0.7%" during 2008–2011) |

Ireland | 0.7% | 2012 |

Luxemburg | 0.88% achieved 1.0% | 2012 |

The Netherlands | 0.8% | Already achieved / will maintain |

Sweden | 1.0% | Achieved in 2006 / will maintain |

United Kingdom | 0.7% | 2013 |

[Spain has committed itself to reaching 0.5% ODA/GNI by 2008 [Master Plan for Cooperation for 2005–2008]

Source: Member States' replies to the Annual Monterrey Survey; Millennium Project Report by J. Sachs: Investing in Development, 2005

The graph below, providing a ‘high case’ and ‘low case’ scenario for scaling-up for 2010, illustrates that the EU is collectively on track to move to the next intermediate targets; but also shows that the efforts of the EU-25 need to be enhanced and sustained to effectively maintain the EU’s credibility in the process.

EU ODA scenarios 2010

Amount in € billion | ODA as % of GNI |

Collective commitments for 2010 (€20 billion/year more than in 2006) | EU-25 [EU-27] EU-10 [EU-12] | 67 1 | 0.56 0.17 |

‘High case’ scenario[3] | EU-27 EU-15 EU-12 | 78.9 77.3 1.6 | 0.57 0.60 0.17 |

’Low case’ scenario[4] | EU-27 EU-15 EU-12 | 73.8 72.3 1.5 | 0.54 0.57 0.16 |

Commission simulation – based on replies of Member States to the Monterrey questionnaire

The following table shows that some Member States are not yet set to meet their individual baseline targets by 2010. These are Cyprus (CY), Estonia (EE), Hungary (HU), Latvia (LV), Lithuania (LT), who have yet to demonstrate how they will ‘strive to achieve’ the 2010 ODA goals, and Portugal (PT).

Greater predictability of aid flows is widely accepted as a prerequisite for achieving the MDGs. While some Member States are acting upon national plans to ensure a gradual scaling up of their aid, ODA flows of other Member States are more volatile, in terms of variations in quantity or in composition. In order to improve predictability of aid on the recipient side, additional indications regarding which regions and countries are to benefit from increased aid levels would be desirable.

While overall simulations of EU ODA developments up to 2015 are not yet reliable and need to be underpinned by more concrete forecast figures in future surveys and confirmed by GNI growth in the EU, the table below provides a very preliminary sketch of the EU volumes that could be mobilised by 2015.

Scaling up of EU ODA 2006 – 2010 - 2015

[pic]

ODA in € million at current prices

Source: Coloured cells contain information supplied by Member States, other cells are Commission data or calculations

EU12 total and EU27 total GNI and ODA figures in 2004 and 2005 do not include the GNI of BG and RO

The EU scaling up 2006 – 2015 compared to the USA and Japan

[pic]

Source: OECD DAC statistics and replies from MS to Monterrey questionnaire

ODA to Least Developed Countries (LDC)

Following up the Monterrey Consensus and the UN World Summit of 2005, the EU-15 either already allocate a minimum of 0.15% ODA/GNI to LDC (BE, DK, FI, IE, LU, NL, PT, SE and UK) or plan to attain that level by 2010 (AT, DE, EL, FR, IT, ES). Moreover, six of the Member States that joined the EU since 2004 have stated that they would agree to allocate a minimum percentage of ODA to LDCs by 2010, i.e. HU, LT, MT, PL, RO and SI. In the light of these statements, the EU is coming close to delivering on a UN goal which has not been underpinned by a specific individual or collective EU target.

INNOVATIVE SOURCES OF FINANCING

EU commitment:

“The Council will continue to consider the most promising options for innovative sources of financing for development, in order to increase the resources available in a sustainable and predictable way.”

(Council conclusions of 24.05.2005)

Progress

Following intensive discussion in the EU in 2005 on the various options for innovative sources of financing for development, some Member States made progress in implementing an airline ticket tax , the International Finance Facility for Immunisation (IFFIm) and Advance Market Commitments (AMC) .

France and the United Kingdom have an air ticket tax with revenues devoted to development. France introduced a solidarity contribution on air tickets on 1 July 2006. In France , the tax is payable by air transport companies for each commercial flight taking off. It is progressive (according to destination and travelling class) and passengers on connecting flights are exempted. Most of the revenues collected (about 90%) will be used to finance the purchase of drugs for the poorest countries for malaria, tuberculosis and AIDS via the International Drug Purchase Facility (UNITAID) and the rest will be used to finance the IFFIm. France gave no new estimate, in response to the questionnaire, of the revenues actually collected in 2006, but previously forecast that about €200 million would be collected annually. For several years, the UK has had an air ticket tax – the Air Passenger Duty – which is levied on all passengers departing from the UK (domestic or international). The tax applies different rates for European and non-European destinations, and for economy and business classes. The UK has made a financial commitment to use part of the revenues collected to support UNITAID. An annual contribution of €20 million has been committed for 2007, which may gradually increase to €60 million by 2010 in total or per year, subject to a joint assessment of UNITAID's performance.

The German Parliament voted against motions from opposition parties on the introduction of an air ticket tax, but has not excluded the introduction of an innovative source of financing at a later stage to help achieve the ODA targets.

The basic concept of the IFFIm is to frontload funding for immunisation programmes in developing countries through capital markets. Six European countries (UK, France, Italy, Norway, Spain and Sweden) made legally-binding long-term budgetary commitments which allow the IFFIm to raise a total US$4 billion over the next ten years to support the programmes of the GAVI Alliance[5] . A first five-year bond raising US$1 billion was placed on the markets in November 2006. The IFFIm is meant to be a pilot project for a larger International Finance Facility (IFF) that would frontload larger amounts of ODA funding.

Following earlier discussions in the G8, the UK and Italy, together with Canada and with the assistance of the World Bank and experts such as GAVI, further pursued the implementation of a pilot AMC . The idea of an AMC is to provide additional financial incentives for the market introduction of a new vaccine in developing countries in order to help intensify research and development efforts. After many technical discussions, a vaccine for pneumococcal disease was found to be a suitable candidate for a pilot AMC, while malaria was also considered a good candidate for a second AMC at a later stage. In February 2007, the UK and IT plus Canada, Norway, Russia and the Bill & Melinda Gates Foundation committed themselves to contributing together the required estimated total of US$1.5 billion to launch the first AMC to speed up the development and market introduction of a new vaccine for pneumococcal disease in developing countries.

Result of the survey

In the questionnaire , Member States were asked whether they had implemented or were planning to implement a selection of innovative sources of financing. The Commission had selected those which were being implemented or prepared in 2006 (airline ticket tax, IFFIm, AMC) or were still being discussed (airline ticket contribution, IFF, global lottery).

With regard to global public goods (GPG), Member States were also asked whether they would agree to adopting specific innovative financing mechanisms for GPG and, if so, which ones. Carbon taxes, a Tobin tax, and global bonds were also mentioned. Belgium remains the only Member State that has established the legal framework for the introduction of a currency transaction tax (Tobin tax).

Austria 's new Government programme contains a reference to exploring the possible introduction – at EU level – of a currency transaction tax that should serve supranational tasks, e.g. the financing of the EU itself and development cooperation.

The replies confirm that the great majority of Member States neither apply nor plan to implement any of these innovative sources of financing for development. Although many report general interest and ongoing consideration, in practice these ideas are still limited to the same small group of Member States. France and the United Kingdom show ongoing interest in the IFF and are the main supporters, together with Italy , of the IFFIm and the AMC. France would only consider taking part in an AMC on malaria, i.e. not the current pilot AMC for a pneumococcal vaccine.

Sweden and Spain also contribute to the IFFIm and are considering a contribution to the pilot AMC. However, both countries also referred to the high transaction costs of these instruments in terms of administrative work, technical complexity and legal procedures for making long-term budgetary commitments. Luxembourg is considering the introduction of a voluntary airline ticket contribution. Member States showed little interest overall in a global lottery or the other ideas referred to for funding Global Public Goods.

With regard to the Council conclusions of April 2006 and in the light of progress achieved the following observations can be made:

- A small group of EU Member States has taken the lead on all existing instruments of innovative sources of financing and made considerable efforts to implement them. Some non-EU countries have also joined the initiatives, but have not driven the process. However, the majority of EU Member States are not considering taking part in the foreseeable future, whether for development purposes or for Global Public Goods.

- The cases of the air ticket tax, IFFIm and AMC demonstrate that although these can indeed provide stable and predictable sources of development finance, their main advantage, i.e. locking in long-term budgetary commitments, is at the same time a potential source of high transaction costs which might divert administrative and political resources from other important priorities of financing for development.

- Most revenues from innovative sources are to be delivered through existing channels and together with organisations which are well established and experienced in working in the health sector of developing countries (the GAVI Alliance, World Bank, WHO, and others). This avoids setting up new parallel structures and is in line with the main principles of the Paris Declaration on Aid Effectiveness. Furthermore, the health sector is an area where managing for results is less difficult than elsewhere. However, implementing the resources from these new initiatives in a way that is well aligned with partner countries' health strategies will remain a challenge.

more predictable and STABLE AID MECHANISMS

EU commitment:

“Partner countries need stable aid for effective planning. The EU is therefore committed to more predictable and less volatile aid mechanisms.”

(European Consensus on Development)

In order to better respond to the need for stable resources and in view of the expected increases in ODA flows, the EU will develop new, more predictable and less volatile aid mechanisms. Such mechanisms could consist in the provision of a minimum level of budgetary aid secured in a medium term perspective and linked to policy performance in the partner countries, in particular in relation to the commitment towards achieving the MDGs in national poverty reduction strategies.”

(Council conclusions of 24.05.2005)

Rolling multi-year frameworks and less frequent verification of conditionality with lagged and graduated responses to performance slippages are key to achieving more predictable budget support disbursements, and more effective use of aid.

Despite substantial support for multi-year commitments only two Member States report the use of rolling agreements. Most Member States concerned indicate that they do not intend to move away from annual assessments to less frequent reviews of conditionality.

The survey suggests no change in the number of Member States willing to embrace budget support. Thirteen (AT, BE, FI, DE, DK, EL, FR, IE, NL, PT, SE, SP, UK, NL) stated that programme aid in the form of budget support was one of their two most favoured forms of aid[6]. Within this group, the willingness to provide general budget support (GBS), rather than sector budget support (SBS), appears to have increased. Ten Member States either favoured GBS or expressed no preference. Only two seem to clearly prefer SBS, whereas last year only six were ready to provide GBS and ten indicated a preference for SBS[7].

There also seems to be substantial support for making multi-year commitments : 12 of the 13 Member States that are in favour of budget support either already make multi-year commitments, or intend to move in this direction[8]. However these arrangements were primarily of a fixed duration; only IE and the UK reported the use of rolling agreements.

The survey also revealed that there is little enthusiasm overall for moving from annual assessments to less frequent reviews of conditions: 10 Member States wrote that they do not intend to move in this direction. Nevertheless, the UK emphasised that failure to meet progress benchmarks should not lead automatically to interruption of aid flows, and SP and SE claimed to practise less than annual checks of conditions already, while EL also expressed the intention to move into this direction[9].

The European Commission continues to favour budget support and expects to increase the share of budget support. Following the Council request of 2005 to draft proposals for a new long-term budget support mechanism, the Commission convened a technical workshop with Member States on a possible "MDG contract" in February 2006. However, divergent views on design features and the way forward remained. These responses represent some, albeit limited, progress since 2006, when only 2 Member States (PT and UK) were inclined to move towards multi-annual budget support with reviews of conditionality at intervals of less than one year. However, neither UK nor PT confirmed this intention in reply to the latest questionnaire. This could mean that they interpret the issue differently now or that the concepts are still not mature. This also implies that replies to the survey on this particular subject need to be treated with some caution.

Debt RELIEF

EU commitments:

"The EU remains committed to finding solutions, in cooperation with International Financial Institutions (IFIs), to unsustainable debt burdens, and is committed to full implementation of the enhanced HIPC initiative. It will be vital to agree on the scope and modalities for further multilateral debt relief in order to secure the long term debt sustainability on a case by case approach.”

(Council conclusions of 24.05.2005)

“Debt reduction … provides predictable financing. The EU is committed to find solutions to unsustainable debt burdens, in particular the remaining multilateral debts of HIPCs (Heavily Indebted Poor Countries), and where necessary and appropriate, for countries affected by exogenous shocks and for post-conflict countries.”

(European Consensus on Development)

The Heavily Indebted Poor Countries (HIPC) Initiative

The context of the HIPC Initiative : 2006 marked the tenth anniversary of the HIPC Initiative which, following a G7 invitation, had been proposed by the WB and the IMF in 1996 as a coordinated approach to reducing poor countries' external debt to sustainable levels. The initiative involves bilateral and multilateral official creditors, together with commercial creditors.At the 1999 Cologne Summit, G7 leaders agreed to a revised framework, an enhanced HIPC Initiative, providing faster, deeper and broader debt relief. The HIPC initiative has multiple dimensions, emphasising debt relief but linking it to poverty reduction, structural adjustment and social policy reform, in particular the health and education sectors, enshrined in an agreed Poverty Reduction Strategy Paper (PRSP).

Initially intended to be a two-year action, the Initiative has since been extended four times (in 1998, in 2000, 2002 and in 2004) The final so-called 'Sunset Clause' took effect on December 31, 2006, but countries that are assessed (or that will be assessed) to have met the income and indebtedness criteria based on end-2004 data will be "grandfathered" and could still become eligible late for HIPC assistance.

Implementation of the HIPC initiative . Forty countries have either already qualified or are currently considered eligible or potentially eligible for debt relief under the HIPC Initiative.Of these, thirty countries have reached ‘Decision Point’. Twenty-one of these 30 countries have reached Completion Point, making them eligible for irrevocable relief, while nine countries are between decision and completion point (interim HIPCs) – being thus eligible for the receipt of interim relief.

Four of the nine interim HIPCs advancing with the implementation of their IMF-supported programs (Chad, the Gambia, Guinea and Sao Tome & Principe) have already completed a full PRSP. Moreover, Sao Tome & Principe is satisfactorily implementing its macroeconomic policy programs, has finalised its PRSP and made substantial progress in fulfilling the completion point triggers. Five further countries are expected to follow by the beginning of 2007.

Ten pre-decision-point HIPCs that have been assessed to meet the Initiative’s income and indebtedness criteria at end-2004 and might wish to be considered for debt relief; Kyrgyz Republic and Central African Republic are making progress towards reaching their decision point.

The latest WB Staff cost estimate of debt relief assistance under the HIPC initiative was $41.3 billion in net present value terms (NPV) at end-2005 and included the 29 countries that had reached Decision Point prior to September 2006 (thus excluding Haiti). This represented a 10% increase over the previous estimate ($38.2 billion in 2004 NPV terms). Total costs for the 40 potentially HIPC-eligible countries have been estimated to be $63.2 billion in end-2005 NPV terms. These costs are almost equally divided between bilateral and multilateral creditors.

The HIPC initiative has shown some encouraging concrete results , even if it has become clear by now that it is only a first, though important, step towards long term debt sustainability. So far, the debt stocks of the 29 post-decision-point HIPCs are projected to decline by almost 58% under traditional debt relief and HIPC Initiative assistance. Also, in average terms, their debt service as a percentage of exports has declined from nearly 14% in 2000 to around 4% in 2005. Savings deriving from debt relief seem to have been channelled towards more poverty-reducing expenditures, which have increased from 6.7% of GDP in 1999 to 9.3% of GDP in 2005, while debt service paid, on average, has declined by about 2% of GDP between 1999 and 2005. Prior to HIPC, eligible countries spent, on average, slightly more on debt service than on health and education combined. Now, on average, such spending is more than five times the amount of debt-service payments.

The HIPC Trust Fund was created to help multilateral organisations finance their participation in the HIPC initiative. According to the latest WB/IMF reports, the additional costs of HIPC will be fully financed in the short-term but the Trust Fund has recently presented a new estimation of funding requirements, showing a total financing gap of US$463, which includes the funding needs of the International Fund for Agricultural Development, the last institution to have gained access to the Fund. Filling this gap will be a new challenge for the donor community in 2007 .

The Multilateral Debt Relief Initiative (MDRI)

Aimed at further reducing the debt of HIPC and at providing additional resources to help them reach the Millennium Development Goals (MDG), the MDRI provides 100% multilateral debt cancellation of IDA (WB), African Development Fund (African Development Bank) and IMF debt stocks for HIPCs that have reached, or will reach, Completion Point. To date, all 21 post-completion-point HIPCs have qualified for MDRI debt relief from IDA, the IMF, and the AfDB. They have already benefited or will benefit from MDRI debt relief from IDA and the IMF and are expected to receive MDRI assistance from the AfDB shortly. The other 19 HIPCs would qualify for debt relief under the MDRI once they reach their completion points under the HIPC Initiative. Participating creditors are the IDA, AfDF and IMF only. The remaining outstanding loans from EDF resources have not been included in the initiative.

In January 2007, the Committee of the Board of Governors of the Inter-American Development Bank discussed terms for granting full debt relief to the Latin American HIPC countries: Bolivia, Guyana, Haiti, Honduras and Nicaragua. The Committee's recommendations must be ratified by a vote by the IDB's 47 member countries.

Summary of survey results

The questions regarding the EU debt relief commitment concerned the full implementation of the enhanced HIPC initiative and the MDRI proposed in June 2005 by the G8, as elaborated and implemented by the IMF, the WB and the African Development Bank.

The responses confirm EU Member States' commitment to fully finance the HIPC initiative and the more recent MDRI (with the exception of some EU Member States that are not members of IDA and the African Development Bank).

Some Member States seem to consider there is scope for new international coordinated action for future cases of unsustainable debt in low-income countries, although they did not specify the kind of undertaking that could be warranted. However there was a mention of the use of debt swaps as a successful means to finance education projects in non-HIPC countries.

As regards the possibility that debt relief would cross-subsidise non-concessional lenders (the "free rider issue") most answers refer to ongoing discussions in different international fora, such as the OECD, and to the coordinated use by all creditors of the Debt Sustainability Framework of the IMF/WB. Reference was also made to the need to strengthen debt management capacity in countries benefiting from the HIPC initiative and MDRI to improve borrowing behaviour. Some Member States proposed to involve new creditor countries such as India and China in these discussions.

Aid EFFECTIVENESS – THE INITIAL EXPERIENCE WITH EU JOINT PROGRAMMING

EU general commitment:

“In preparation for the Paris High Level Forum, the Council has adopted, on 22 November 2004, a comprehensive EU response with the report on ‘Advancing coordination, harmonisation and alignment’. The EU will ensure implementation of the concrete recommendations contained therein, including a more effective framework for development assistance at the EU level and division of labour and complementarity at country level in the context of joint, multi-annual programming based on the partner country’s poverty reduction strategies.

The EU is fully committed to a timely implementation and monitoring of the Pari Declaration on Aid Effectiveness including setting monitorable targets for 2010 and of the EU specific commitments adopted at the Paris Forum.”

(Council conclusions of 24.05.2005)

“The EU is committed to promote better donor coordination and complementarity by working towards joint multi-annual programming, based on partner countries’ poverty reduction or equivalent strategies and country’s own budget processes, common implementation mechanisms including shared analysis, joint donor wide missions, and the use of co-financing arrangements.”

(European Consensus on Development)

Joint Programming:

The Council of April 2006, recognising “ the need for the Commission and Member States to increase their participation in joint multi-annual programming […] as a key element to promote more effective aid”, agreed “to develop a two step approach towards joint multi-annual programming, consisting in a joint analysis of the country situation and, gradually, a joint response strategy, duly taking into account the competences of the Community and of Member States.”

On this basis, the Council defined the following mandate for follow-up on joint programming:

To initiate immediately “joint analysis […] in the ACP countries for the programming of the 10th EDF between the Commission and interested Member State and other interested donors”. “To initiate a joint response strategy to the joint analysis, in countries selected on the basis of the following criteria, e.g. the existence of a) a Poverty Reduction Strategy or equivalent, b) a sufficient number of active EU donors, revising their programming, c) local coordination processes, as well as d) specific considerations for fragile states, and e) a positive field assessment.”

With reference to the these issues, the Council stated that:

“Joint multi-annual programming must be guided by the principles of effective programming and the essential components of Country Strategies, as reflected in the annexed Common Framework for Country Strategy Papers (CFCSPs).”

“Whenever the development of common strategies is already under way, such as Joint Assistance Strategies or similar processes, joint programming should complement, strengthen, and whenever possible be part of these existing processes, in order to avoid unnecessary parallel processes.”

(Council conclusions of 11.04.2006)

This chapter mainly assesses experience to date with Joint Programming, following the adoption of the EU Common Framework for Country Strategy Papers in 2006 (chapter 6.1). Joint programming was also the focus of the last ‘Monterrey’ questionnaire, to collect the views and experience of the Member States. This chapter also reviews the implementation of the aid effectiveness Action Plan that the Commission presented to the Council and the European Parliament in 2006[10].

Joint programming – state of play

Introduction

Joint multi-annual programming is a fundamental tool of the EU's contribution to meeting the commitments on aid effectiveness made at the Monterrey Conference on Financing for Development (March 2002) and the two subsequent High Level Forums on Harmonisation held in Rome (February 2003) and Paris (March 2005). Its major objectives include: strengthened national ownership and leadership of the development processes, improved donor coordination, harmonisation of their processes and procedures, increased complementarity in the division of labour and alignment with the partner countries' agendas and programming cycles (systems and processes). These aims are crucial to providing more effective and efficient assistance to partner countries in pursuing the objectives set in their national development strategies.

The EU started joint multi-annual programming recently. Since 2004, several EU decisions have prompted the launch of joint multi-annual programming[11]. On 11 April 2006, the GAERC[12] adopted general principles and a common format for joint programming documents (Common Framework for Country Strategy Papers – CFCSP), and invited the Commission, EU Member States and other interested donors to initiate the joint programming exercise in ACP countries, where the ongoing 10th EDF programming process provides a unique opportunity to test the process.

As the 10th EDF programming process is now coming to an end, initial conclusions can be drawn. The "Monterrey survey" provided interesting feedback from Member States that, together with the Commission's overall assessment of the experience so far, highlights the difficulties in implementing such a process. This has been demonstrated by the limited number of ACP countries and EU Member States involved, and by the mixed results so far achieved. Many problems still need to be solved, such as insufficient communication and exchange of information among donors and practical issues (e.g. the format, programming calendar, nexus joint programming – Joint Assistance Strategies (JAS), and the division of labour).

The conclusions are provisional, however. The joint programming exercise started only recently, and is an innovative and, by definition, progressive and dynamic process that will not end when the 10th EDF programming is over. On the contrary, the experience in the ACP countries represents a first step in a process that is meant to be gradual and should be constantly improved and adjusted to pursue more ambitious and higher levels of development cooperation. To deliver the objectives of this demanding and complex exercise, joint programming requires time, effort and willingness by donors to adjust their internal procedures to help converge planning approaches and divide labour optimally based on comparative advantage.

Moreover, despite the difficulties encountered, most Member States have shown great interest in continuing with or moving to joint programming and remain firmly committed to going ahead and enlarging the range of countries involved.

Background: the Council conclusions of April 2006

In recent years, the EU has adopted several decisions promoting joint multi-annual programming as a fundamental instrument for achieving improved aid effectiveness, an essential objective of the EU agenda to face the new challenges ahead in development cooperation:

- The report " Advancing Coordination, Harmonisation and Alignment: The Contribution of the EU" from the Ad-Hoc Working Party on Harmonisation (adopted by the GAERC in November 2004) calls for concrete action on meeting those commitments and requests the Commission to develop an EU Action Plan.

- The " European Consensus on Development" (November 2005) , the EU’s common vision guiding the development cooperation actions of the EU both for Member States’ and for the Community as a whole, reaffirms the intention to adopt joint multi-annual programming.

- The Aid Effectiveness Package (March 2006) proposed concrete measures to improve the effectiveness of EU external assistance. In this context the Commission presented an action plan including a joint EU framework for programming development aid, as outlined in its Communication " Increasing the impact of EU aid: A common framework for drafting country strategy papers and joint multi-annual programming" (COM(2006)88) of 02.03.2006.

This framework set the basis for discussion at the Council that led to the adoption on 11 April 2006 of the " Conclusions on Financing for Development and Aid Effectiveness: Delivering more, better and faster" . The Council Conclusions represent a fundamental document for joint multi-annual programming as the Commission and the EU Member States agreed the basic principles for implementing the exercise. This implementation involves a very complex exercise aimed at harmonising the donors' programming processes with a view to adopting a single document agreed by all.

Bearing in mind these challenges, the Commission developed a proposal for an EU multi-annual joint programming framework. This proposal, later discussed at the Council, led to the adoption of Council Conclusions that:

- identify the basic principles of joint multi-annual programming;

- propose a way of implementing the exercise: the Common Framework for Country Strategy Papers (CFCSP) . The idea was to put in one document the sections that are common to the programming documents of individual donors, i.e. a first section on the joint analysis and a second section on the joint response strategy[13]. Each donor is supposed to then complement these two sections with its specific country work plan.

Fundamental principles of joint multi-annual programming

Generally speaking, joint programming can be defined as a collective effort through which the EU and national partners work together to prepare and implement activities aimed at supporting the achievement of national priorities, including Poverty Reduction Strategy Papers (PRSPs) and equivalent national strategies within the framework of the MDGs. It is meant to simplify and harmonise programming at country level, maximise synergies among the partners and the EU in terms of the regulatory framework and technical expertise and thus guarantee better coordination and division of labour and ultimately bring down transaction costs for aid delivery. Joint programming is therefore a unique opportunity to make EU external assistance to partner countries more coherent, efficient and effective. To do so, the joint multi-annual programming exercise should respect certain fundamental principles set out below[14]:

- Flexibility: the process can be implemented differently depending on the specific situation and needs of the partner country involved, local coordination capacities and the donors involved (political will and procedural readiness for harmonisation).

- Gradualism: in line with the above-mentioned principle, joint programming can make provision for gradual "integration" stages by taking into account the progress and pace of the country.

- Openness: rather than being limited to the Community and EU Member States, joint multi-annual programming should be open to all interested donors and encourage broad participation.

- Being locally driven rather than directed from remote Headquarters: in addition, the process must uphold the country ownership principle, i.e. the right and responsibility of the partner country to establish its own development agenda and set out its own strategies for poverty reduction and growth. First of all, the partner country should take the lead in preparing, coordinating and monitoring the joint multi-annual programming process. If the country does not have the capacity to do so, it must be given support to acquire it. Secondly, the joint programming process should be based on, and aligned with, the partner country’s policy framework and its planning cycle. Thirdly, in delivering assistance, donors should progressively make more use of partner countries’ own systems rather than establishing parallel systems of their own.

- Complementing and strengthening any ongoing harmonisation process in order to avoid unnecessary parallel processes: if a harmonisation and coordination process is already under way, the common programming framework should be integrated into that process. Where Joint Assistance Strategy (JAS) initiatives are under way, they should serve as the basis for EU joint programming, which has the potential to feed into the JAS process and to give it new impetus through coordination and a common European vision.

Implementation of joint multi-annual programming

The Council has envisaged a two-step approach, based on the gradual character of the process.

1. Planning should start with a joint assessment and analysis of the country’s situation . This will include sections that are common to the country programming documents of EU Member States. In particular it will include an outline of the political, economic, social and environmental situation of the country plus a description and analysis of poverty, the partner country’s policy agenda, lessons from past cooperation, complementarity between different donors’ activities and the harmonisation agenda. This part serves to identify the main weaknesses and challenges for the partner country.

2. The next step is drawing up a joint response strategy . The response strategy should set out the strategic choices for cooperation in the partner country, i.e. a selection of focal areas on the basis of the needs and priorities of the partner country, as identified in the analysis of the country and its policy agenda. It will also detail the roles and responsibilities of partners in coordinating and managing the joint activities. This second step should start in countries presenting certain preconditions considered necessary to ensure a successful exercise, among them a positive field assessment, taking into account the capacity of the government (in terms of political environment, institutional capacities and the quality of national development policies) and the donors’ capacities and attitudes, i.e. whether there are good local coordination mechanisms, political will and procedural readiness for harmonisation.

The analytical part, together with the response strategy, will form part of a joint programming document, a single unified country strategy , agreed by all participating donors, that will represent the comprehensive framework for managing development cooperation between the donors and the partner country. This document will considerably improve complementarity and coordination as it will replace the separate programming documents that each individual donor currently concludes with the partner country.

All donors will complement this document with their own country work plan in order to meet specific individual requirements and obligations. That part will outline the individual donor’s sectors of intervention under the joint response strategy and the general objectives, the specific activities to be implemented in pursuit of these objectives, the type of assistance, the financial envelope, the risk analysis and the monitoring system.

Besides presenting the components of the joint document, the GAERC proposed one possible format for implementing the exercise, i.e. the Common Framework for Country Strategy Papers. The specific structure of the format is annexed to the GAERC conclusions.

State of play

ACP countries involved

A joint programming exercise is being implemented in a number of ACP countries, namely: Dominican Republic, DRC, Ethiopia, Ghana, Haiti, Kenya, Mali, Sierra Leone, Somalia, South Africa, Tanzania, Uganda, and Zambia .

While joint country analyses are intended to be widely initiated, it was decided to start with a limited number of countries to increase the chances of success and to encourage future exercises by:

- focusing joint support by the Commission and EU Member States, i.e.:

- following the process more closely, verifying the risks and problems, and exploring possible solutions;

- learning initial lessons and identifying best practice which can then be built into future exercises;

- conducting the exercise in a pragmatic and progressive way, i.e.:

- launching it firstly in those countries where the programming cycles of EC and other donors are ongoing – in line with this principle, the Council conclusions of 2006 asked the Commission and EU Member States to initiate the process in the ACP countries where the 10th EDF provided a unique opportunity to test it;

- selecting those ACP countries where the prospects for developing the process were good – the presence of certain favourable preconditions, as defined by the Council’s Conclusions of April 2006, were then investigated: i.e. the existence of (a) a PRSP or equivalent; (b) a sufficient number of active EU donors revising their programming; (c) local coordination processes; (d) specific considerations for fragile states; (e) a positive field assessment.

In most of the joint programming countries, i.e. Ethiopia, Mali, Sierra Leone, South Africa and the first four countries to use a JAS (Ghana, Tanzania, Uganda, and Zambia), the harmonisation process was already advanced. This situation was crucial to facilitating dialogue among donors and between donors and the partner country leading to an agreement on needs, priorities and policies for the country and to a search for synergies between the Commission and EU bilateral cooperation. The process was also helped along if a good number of donors were revising their programming; if their programming timetables were compatible; if the capitals sent comprehensive instructions to the embassies/field offices; if field representatives were given room to manoeuvre and a mandate to engage in the process; and if the partner country actively encouraged the process. In some cases, special attention was given to fragile states (Haiti, Somalia and DRC), i.e. countries in crisis or a post-crisis situation with no or weak poverty reduction strategies, where donors considered it necessary to work together to have a real impact.

Results from the ongoing experience

The experience of joint programming in the different countries varies greatly in terms of the progress, participation by donors and results achieved.

In most countries, joint programming led to the drafting of a shared analysis and response strategy , with the exception of Burkina Faso and Mali, where only a joint analysis has been produced. Donor participation varies: in some countries it was limited, in others a number of important donors were involved[15].In general, it is too early for an overall evaluation . Not only did the joint programming exercise start only recently, but it is a very complex and, by definition, progressive and dynamic process that will not come to an end when 10th EDF programming is finished. However, it is useful to draw some preliminary lessons from the difficulties encountered so that possible solutions can be investigated and best practice built into future exercises.

Interesting feedback on this point was provided by EU Member States in their answers to the ‘Monterrey’ survey. Replies show that Member States define the concept of joint programming so broadly, that some of their answers are confused. For instance, the idea that efficient coordination processes provide the starting point for joint programming results in some Member States stating that they are taking part in joint programming exercise in countries where no joint analysis or common response strategy has been discussed.

Although not all EU Member States took part in the process (11 out of 27 countries[16]), most of those Member States who did gave positive eva luations of the joint programming exercise in general . In particular, referring to the objectives of joint programming, Member States recognised that the exercise has contributed to improving the local coordination process, division of labour and alignment with the partner country strategy and budget cycle. Opinions varied with regard to cutting transaction costs: the process is initially costly in time and human resources; these costs tend to be borne in the first phase, working towards improved donor complementarity. Some Member States criticised the Commission’s approach to joint programming. These points must be carefully taken into account as they reveal sensitive problems that can emerge during the implementation of the exercise.

The most important issues are:

3. A gap between the positions of the headquarter/ capitals and those expressed in the field . This is mainly due to insufficient communication, in terms of concrete instructions, guidance and encouragement from the capitals to embassies/field offices. To overcome this problem, the Commission deemed it necessary to guarantee a stronger support from the HQs and therefore promoted:

4. The setting up in Brussels of an technical experts’ group , made up of representatives from the Commission and the Member States, to act as a link between the field-led exercise and headquarters/capitals.

5. Technical assistance to the Delegations to provide human resources and guidelines where necessary to help develop the exercise.

6. The organisation of joint missions by headquarters/capitals, where relevant. Recognising the fact that joint programming should be led mainly on the ground by local representatives and the partner government, the Commission and the Member States have agreed that joint missions will be limited to cases where they can provide real added value. One of these is fragile states, where strong support from capitals was deemed necessary to launch the joint programming exercise. To this end, missions to Somalia (8-10 November 2006) and Haiti (20-21 November 2006) were organised.

Recommendation: Good communication among donors is essential to ensure progress and transparency. It is therefore advisable to strengthen the role of the technical experts’ group and the exchange of information between headquarters/capitals and field representatives. A shared Commission/Member State system of monitoring joint programming could also be implemented with a view to:

- determining how joint programming is being used to contribute more efficiently and effectively to achieving national development results and national capacity building;

- learning from the experience and implementation of joint programming to inform the preparation of future exercises; and

- recording notable results or development impacts of joint programming.

Joint monitoring missions could also be organised for that purpose.

7. Differences in the programming processes in terms of scope, content, frequency and timing. Gradual adjustment of domestic requirements is therefore required to allow flexible processes, compatible with a joint programming approach. While the overall principles of a harmonised approach were clearly set out in the Council Conclusions of April 2006, a number of problems have been encountered in practice. The issues most relevant in this respect are:

8. The format of the programming document. As stated in the Council Conclusions, the agreed EU CFCSP is one tool for joint programming. Most Member States taking part in the joint programming exercise (DK, FI, FR, NL, SE and UK) indicated in their response to the ‘Monterrey’ questionnaire” that they will not adopt this format ; CY and LU indicated that they will not participate in joint programming in the future and therefore will not use the CFCSP . Some Member States also clarified their position by stating the reasons for their decision, e.g. Cyprus stated that its bilateral cooperation is delegated and that it will refer to the programming procedure of the lead donor. FR and LU will continue to refer to their own documents, le cadre de partenariat for FR and the multi-annual partnership agreements for LU, as they have proven to be efficient tools. According to other donors (FI, DK and UK), the CFCSP will provide an important framework and will be adopted if the circumstances are appropriate in the country. However, a flexible model that can be accommodated in the process of a country is preferred to the adoption of a specific format. The UK also stressed the importance of concentrating on the process rather than on whether the final document adheres to one format or another.

9. In practice, the CFCSP was used as the format for joint programming in Burkina Faso, Mali, Haiti, Ethiopia, and South Africa . In the other cases, the Commission accepted a different format, which was adapted to incorporate all the topics covered by the framework adopted by the Council (this was necessary to comply with the internal procedures of the EDF Committee)[17].

10. Donors’ programming timetables. The duration of EU donors’ ODA financial commitments varies greatly. Only 8 Member States, (AT, DE, DK, FI, IE, NL, SE, UK) and the Commission have multi-annual commitments, which differ in the number of years (from 2 to 5[18]). The other Member States work within an annual budget framework.

11. As suggested in the Council Conclusions of 2006, the problem of reconciling diverging timescales should be resolved though progressive alignment with the partner countries’ multi-annual planning cycles (PRSPs and budget processes). The idea behind this proposal is that timing must not be dictated by the time schedule of one particular donor to satisfy its internal requirements, but should be sufficiently flexible to allow better alignment with local processes and also to promote the ownership principle that is now one of the key principles of development cooperation. However, complete synchronisation is only feasible in the long term; in the meantime, other arrangements need to be agreed among donors where their programming timetables are incompatible.

12. In their replies to the survey, a few Member States criticised the lack of flexibility of the Commission: in some cases, they felt there was a pressure to finalise the process in accordance with the timeline of the 10th EDF programming given by Brussels[19]. While in some cases problems are acknowledged to have arisen due to a late start and a subsequent attempt to accelerate the process to meet tight programming timetables, it is also true that in other circumstances the Commission has agreed to extend deadlines for 10th EDF programming to advance the joint programming exercise[20]. Moreover, joint programming is not a static, one-off exercise but should be conceived as a dynamic, interactive process which will be periodically updated in the light of annual and mid-term reviews and will thus give other donors an opportunity to join in according to their programming cycle.

13. The relationship between joint programming and JAS. Some Member States have expressed doubts about the added value of EU-based joint programming compared to other harmonisation processes (in particular, JAS initiatives) and, above all, concerns about apparent inconsistencies between the two processes. In case EU joint programming exercises should duplicate or overlap with ongoing JAS processes, certain Member States asked the Commission to become actively involved in harmonisation processes currently under way and to accept the JAS document as a substitute for an EU strategy.

14. The Commission reiterates that joint programming does not compete with or undermine existing or planned ongoing harmonisation processes: the intention is rather to strengthen and complement those processes. With regard to JAS, the Commission has always played a major role in advancing the process by fully participating in it, giving valuable contributions and trying, where feasible, to push it to a more advanced stage (for instance by encouraging political dialogue on governance).

15. A good example of this is Tanzania, where the time frame of the JAST[21] programming coincided with that of EDF programming and the Commission accepted the joint analytical work and joint programming part as the EU joint document despite the fact that it does not strictly follow the format set out in Council's Conclusions (see box 1).

Box 1: Format of the CSP for Tanzania

The assistance to the GoT is set out in four sections as specified below:

Part I summarises the Joint Assistance Strategy for Tanzania (JAST). The JAST outlines the principles and procedures behind aid effectiveness with a focus on harmonisation, alignment, increased use of government systems, increased aid predictability, open dialogue between government and domestic stakeholders, improved division of labour, and a move towards the government’s preferred aid modalities.

Parts II and III contain the Joint Programming document drafted by development partners to complement the JAST and make it operational. The document consists firstly of an analysis of the situation and the developmental challenges facing Tanzania and secondly of a systemic and comprehensive overview of donors’ existing and planned division of labour and engagement in Tanzania. The document was finalised on 15 November 2006.

Part IV: all donors have supplemented the above documents with their own work plan.

16. Issues of complementarity: The question of how to achieve a division of labour based on the added value of each donor is a core element of joint programming. This implies fewer donors per sector, better coordinated donors and improved coordination between donors and the beneficiary country’s government. Following the country experiences, key division of labour issues need to be tackled in an open and transparent manner through intensive dialogue between donors and with the partner country. All these questions need to be answered by setting concrete reference criteria such as a EU code of conduct[22].

Overview: Current joint programming countries and participating donors

COUNTRY | PARTICIPATING DONORS |

Burkina Faso * | EC, Belgium, Denmark, France, Germany, the Netherlands, Austria, Sweden, Italy, Luxemburg, Canada, Switzerland. |

DRC | Country Assistance Framework: EC, France,, Belgium, the Netherlands, Germany, Sweden, UK, Canada, IMF, United Nations, USAID, Japan, the World Bank. |

Dominican Republic | EC, France, Germany, Spain. |

Ethiopia | EC, Austria, Belguim, Bulgaria, Czech Republic, Denmark, Finland, Germany, France, Greece, Hungary, Ireland, Italy, the Netherlands, Poland, Portugal, Romania, Slovakia, Spain, Sweden and UK. |

Ghana | GJAS: EC, Denmark, France, Germany, Italy, the Netherlands, UK, Spain, AfDB, Canada, IFAD, Japan, Switzerland, USA, the World Bank Group and the UN. |

Haiti | EC, France, Spain, Germany, Sweden (the latter reported in the Monterrey survey that it took part in the JPE, but actually only participated in the joint mission to Port-au-Prince in November). |

Kenya | KJAS: EC, Denmark, , Finland, France, Germany, Italy, Japan, the Netherlands, Norway, Sweden, the UK, the USA, the UN and the WB. |

Mali | EC, Belgium, Denmark, France, Germany, the Netherlands, Sweden, Canada, Switzerland, the World Bank Group. |

Sierra Leone | EC and UK |

Somalia | EC, Denmark, Finland, Italy, Sweden and UK and Norway |

South Africa | EC, Austria, Belgium, Denmark, Finland, France, Germany, Ireland, the Netherlands, Sweden and the UK. Italy -not one of the ten participating Member States - has since endorsed the Joint CSP. |

Tanzania | JAST: EC, Belgium, Denmark, , Finland, France, Germany, Ireland, the Netherlands, Sweden, Spain, UK, AfDB, Canada, Norway, Switzerland, Japan, USA, the World Bank. |

Uganda | UJAS: Austria, Denmark, Germany, Ireland, the Netherlands, Sweden, UK, AfDB, Norway, the World Bank and Belgium (signed the UJAS in January 2007). |

Zambia | JASZ: Denmark, EC, Finland, Germany, Netherlands, Ireland, Sweden, UK, (France and Italy signed the MoU), Canada, FAO, ILO, Japan, Norway, USAID, UNDP, UNFPA, UNCHR, UNICEF, UNECA, the World Bank. |

* Only joint analysis

Conclusions

There are interesting achievements, but the first lessons learnt in implementing joint programming highlight the difficulties of the process. The limited number of ACP country cases and EU Member States involved so far, together with the mixed results, demonstrate that many challenges still need to be solved. Practical issues, namely communication between donors and the how to conduct joint programming (i.e. format, programming timetable, relationship between joint programming and JAS, division of labour) need to be solved to translate the commitments into field realities.

Joint programming is an innovative, progressive and dynamic exercise that needs to be improved during the coming years. The experience in ACP countries so far is a first step in a longer-term process based on the gradual approach promoted by the Council. Converging planning approaches and establishing an optimal division of labour based on the notion of comparative advantage is a demanding and complex process that requires the time, effort and availability of every donor involved.

These challenges have not led Member States to withdraw from the process, presumably in view of the important gains expected in terms of aid effectiveness.

On the basis of these expectations, in the future joint programming will be extended to cover other ACP countries and countries from other regions in which Member States have expressed an explicit interest in the Monterrey survey. First steps have been taken to develop the process for other EU partner countries, too.

The implementation of the Aid Effectiveness Action Plan

Progress in implementing the Aid Effectiveness Action Plan of 2006[23] since its adoption in 2006 is summarised in the table below.

DELIVERABLES | SUBJECT | COMPONENTS | STATUS |

1 | Donor Atlas | 1) National level 2) Regional level 3) National level | - done (February 2006) - draft for West Africa (March 2007) - done in MOZ (May 2006) |

2 | Monitoring the EU and the DAC processes | 1) Monitor and push for fast and steady implementation of the Paris Declaration through the mechanisms currently being set up by the OECD/DAC Joint Venture on Monitoring. 2) Monitor concrete EU operational deliverables through the Annual Report on the Follow-up of Monterrey – both in terms of volume and effectiveness of aid. | - EC actively involved in the OECD/DAC survey and the preparation of HLF III in Ghana. - Being done |

3 | Roadmaps | 1) Analysis of the status of the roadmap initiative 2) a system for steady in-country support and monitoring | - done, report delivered (April 2006) - Commission established specific support mechanism (training, seminars, etc.) for 46 countries that receive 80% of EC aid |

4 | Joint Programming Framework | 1) develop a Joint Programming Framework 2) start implementing in a pragmatic manner | - done (April 2006) - being implemented in a selected number of countries (see above) |

5 | Operational complementarity | 1) develop an operational EU strategy, including a: Code of Conduct on operational principles | - COM adopted (February 2007) - Code for adoption by Council (May 2007) |

6 | A structured co-financing mechanism for EC funds | 1) completion of the ongoing revision of all existing EC rules hampering co-financing 2) analysis of EC and Member State co-financing 3) develop a strategy/mechanism | - completed (January 2007) - launched (Feb 2007) - to be done |

7 | Strengthening the EU vision | a network of development research centres European Development Days multiplication of joint training | - Set up (June 2006) - First held (November 2006) - Under way |

8 | Joint Local Arrangements | 1) Proposed for all the 14 countries that have signed the Rome Declaration on Harmonisation | - to be done |

9 | Compendiums of EU development rules | 1) EU rules for programming; 2) Compendium of EU rules for procurement; 3) Compendium of EU rules and principles for NGOs; 4) Compendium of EU rules for subsidies | - done (December 2005) - done (March 2006) - done (December 2006) - to be done |

Commitment on UNTYING AID

COMMITMENT:

[The Council will address] the challenge of untying of aid by adopting as soon as possible, on the basis of the Commission’s proposal, a regulation on the access to EC external assistance; the EU will support ongoing debates at the international level on further untying of aid beyond existing OECD/DAC recommendations.

(Council conclusions of 24.05.2005)

The last "Monterrey survey" included a single question regarding the new steps taken by Member States to further untie their ODA. The replies of the Member States are summarised in the country profiles in chapter 12.

COMMITMENT ON EXOGENOUS SHOCKS

EU commitment:

“In order to mitigate the impact of exogenous shocks, including price vulnerability, on developing countries economies, the EU will support the operationalisation of market based insurance schemes and explore possibilities for temporary suspension of debt servicing on a case by case basis. Further, the EU will strengthen and improve access to existing financing mechanisms such as those provided for in the Cotonou Agreement (FLEX) to give short term cover against the impact of such shocks on countries’ revenue.”

(Council conclusions of 24.05.2005)

"Some developing countries are particularly vulnerable to natural disasters, climatic change, environmental degradation and external economic shocks. The Member States and the Community will support disaster prevention and preparedness in these countries, with a view to increasing their resilience in the face of these challenges.”

(European Consensus on Development)

The EU has made two types of commitments related to exogenous shocks. On the one hand there is a general commitment to support disaster prevention and preparedness in order to increase the resilience of developing countries. On the other hand, there is a commitment to addressing price vulnerability, through the operationalisation of market-based mechanisms and through the improvement of access to financing mechanisms (like FLEX) that give short-term cover against the impact of external shocks on countries' revenue. The 2006 questionnaire focused on the former aspect. It addressed the relative balance between ex-ante (prevention, preparedness) and ex-post assistance (emergency response, reconstruction). Member States were asked to indicate how they balance their financial support, which aspects of disaster preparedness they have supported and whether there is a specific geographical focus to assistance.

The findings from the questionnaire are presented below. In addition, the progress on other ways of dealing with external shocks is outlined: price risk management, insurance applications and FLEX.

Natural disaster risk reduction (DRR)

Member States have significantly different approaches to (natural) disaster management. Some emphasise the continuum between prevention, crisis management, humanitarian aid, reconstruction and development (BE, DE, FI, FR, PT), while others emphasise (NL) or are solely engaged in post-crisis assistance (BG, IT, LV, MT), or have not taken policy positions on the balance between ex-post and ex-ante assistance (AT). Some have decided to allocate a specific percentage of the humanitarian aid budget to prevention and preparedness (LU 5%, from 2006 onwards; UK commitment of 10% of the value of disaster response), others will for the first time programme specific funds for ex-ante assistance (EL, SK), while in still other cases (BE) there is a general willingness to increase ex-ante assistance. DK is reviewing its disaster risk reduction strategy, while the EC is preparing a strategy paper in 2007.

From the answers provided by Member States it proved difficult to obtain an accurate picture of the amounts of financial assistance provided in 2005 and 2006 for ex-ante and ex-post assistance. There are methodological problems: (i) not all Member States could provide figures for both years; (ii) some included in their financial data their contributions to international organisations (like WFP, UNHCR and Red Cross), while others did not; (iii) some countries managed to give a correct breakdown into ex-ante and ex-post assistance, other did not; and (iv) in a few cases the data provided were obviously unreliable. As an alternative, the ECHO database on humanitarian assistance (HOLIS 14 points)[24] has been used as a source of information on ex-post assistance by the EC and the Member States[25]. The graph below provides an overview of the value of the humanitarian assistance provided in 2005 and 2006. It shows that while all Member States provided this type of assistance, the amounts involved vary greatly, with Germany, the Netherlands, Sweden and the UK topping the table. The European Commission was the largest contributor by far, providing 34% and 42% of overall EU humanitarian assistance in 2005 and 2006 respectively.

[pic]

In total, the EU allocated €1.96 billion and €1.63 billion to humanitarian aid in 2005 and 2006 respectively, according to HOLIS figures. The questionnaire yielded comparable aggregate figures (though with some significant differences for individual countries). The relatively high level of emergency responses in 2005 was linked to two major disasters: the Pakistan earthquake and the South-East Asia tsunami. Sudan (Darfur) featured prominently as a target country for humanitarian assistance in both years.

Based on extrapolation of responses to the questionnaire and statements by a number of Member States, it is estimated that between 2% and 5% of total disaster-related assistance is allocated to ex-ante risk reduction support. Of the various aspects of disaster preparedness and prevention covered, a majority of Member States said they provided institutional support (see table xx below).

Aspects of disaster preparedness that were supported by Member States in 2005 (on the basis of 27 responses)

Aspects | Number of Member States providing support | % of total respondents |

Institutional support for disaster management | 16 | 59.3% |

Preparation of disaster management plans | 10 | 37.0% |

Infrastructure works for disaster preparedness | 9 | 33.4% |

Early warning systems | 2 | 7.4% |

(Livestock) disease prevention | 1 | 3.7% |

Insurance to cover disaster risks | 1 | 3.7% |

Education/awareness raising | 1 | 3.7% |

Food and pharmaceutical stocks | 1 | 3.7% |

Most Member States did not focus their disaster-related assistance on a specific region. Only three Member States said they did have a strong geographic focus: LU on West-Africa and Asia, PT on Sub-Saharan Africa and EL on South-East Asia and the Middle East.

In general, the EC and most Member States remain primarily geared to responding ex-post with humanitarian and reconstruction assistance. Interest in broader strategic approaches to disaster prevention and preparedness is increasing at different speeds among Member States. In FI and FR a strategic approach to DRR exists, while others (CZ, DK, EL, LU, SE,UK,) reported that they have recently developed or are developing policies on DRR. From EDF resources, an ACP-EU Natural Disaster Facility of €12 million has been approved; it will finance regional capacity-building programmes for disaster risk reduction in the six ACP regions, planned to start in 2007.

Price risk management

Price vulnerability can be reduced through improved management of sales (exports) and purchase (imports) contracts. In 2006, renewed support was made available (by EC, NL) to scale up the work of the Commodity Risk Management Group (CRMG) in the World Bank, which has shown that it is feasible to use market-based instruments to reduce risks related to external price movements. One example is the linkage made between price hedging and loans by local banks to cotton farmers in Tanzania, which not only provided better price risk coverage for cotton farmers, traders and banks, but also allowed a banks to resume lending to cotton farmers.

FR has also developed a number of price risk management initiatives for cotton exports. Through AFD, it has introduced loans to cotton companies in Cameroon and Burkina Faso with debt servicing levels indexed on the price of cotton. In conjunction with the World Bank, FR has also developed an integrated risk management mechanism for cotton in which several components (a smoothening fund linked to a second-layer loan facility, market-based instruments, and a safety net) come together. This mechanism is expected to be piloted in selected countries (Burkina Faso and Senegal) in 2007 through a joint donor approach.

On the import side, a striking example, in which CRMG played a major role, concerns a maize-import deal that was concluded in Malawi in 2005-06, when the country faced serious food shortages and inadequate private sector responses. The CRMG helped the Government of Malawi to construct and place a call option on the SAFEX commodity exchange (South Africa), which capped the price of maize imports. The purchase price of the option was paid for by the UK (DFID).

FLEX

The EC is drafting proposals to amend FLEX, its system to safeguard macro-economic and sectoral reforms jeopardised by short-term fluctuations in export earnings. The FLEX mechanism has been criticised and its results have often been considered insufficient by ACP States and the Commission alike. Among the weaknesses identified are the speed of aid delivery (not being anti-cyclical), the availability of funds (particularly at the end of the 9th EDF), and the limited sensitivity of the mechanism. In response, the EC has drafted proposals that would allow FLEX assistance to be triggered earlier and more easily so as to make it more anti-cyclical. These proposals will be discussed and negotiated in the course of 2007.

Insurance applications

In 2006, the EC commissioned a feasibility and formulation study on its proposed support to the Global Index Insurance Facility (GIIF). Depending on the results of the study, the initiative should become operational in 2007 (€25 million earmarked). The idea of a facility to spread index insurance more widely in developing countries was launched in 2005 and led to a range of discussions and proposals in the course of 2006. The main aim is to expand index insurance applications in ACP countries in order to improve coverage of risks relating to external shocks – mainly natural disasters like droughts, floods, hurricanes and earthquakes. Index insurance or parametric insurance refers to an insurance type that links pay-out on an occurrence to an objective and independently verifiable index (e.g. drought index, wind-speed index, flood index). It is regarded as promising for ACP countries as it would improve the speed of pay-out, reduce administrative costs and not be easily affected by fraud or moral hazard. On the other hand, it requires reliable databases and could result in basis risk (damage occurring without pay-out). The GIIF initiative, as currently proposed, is planned to consist of two interrelated windows: (i) a commercial window, consisting of a re-insurance company specifically targeted to index insurance in developing countries, and (ii) a development facility, supporting widespread capacity building on index insurance, and providing targeted premium subsidies. The entire initiative should be operational in the course of 2007, if the feasibility report is favourable.

In conclusion, the EU has made clear progress on its commitments on exogenous shocks and is well on its way to achieving the cautious targets set. Nevertheless, no integrated mechanism currently exists that would systematically anticipate and react to external shocks. It seems advisable to reflect on how the various tools being developed can work in conjunction to cover both price and weather-related shocks. Some further work will be necessary. For instance, it seems desirable to investigate whether a FLEX-like mechanism could be designed to react quickly on export price shocks or terms of trade shocks (e.g. through use of indices on commodity prices). For natural disasters, expanding the use of insurance instruments will need further piloting and assessment, followed by potential scaling up. Current (standard) development assistance instruments are not sufficiently quick and flexible in pay-out to provide a timely reconstruction response.

Commitment on TRADE AND DEVELOPMENT

EU commitments:

"Endorses the recommendations of the WTO AfT Task Force, and affirms the Member States' commitment to support the implementation of the AfT initiative"

"Invites the Member States and the Commission to prepare in 2007 a Joint EU AfT Strategy in relevant preparatory bodies to be adopted by the Council... The Strategy…shall: i) set a road map for the EU collectively to reach the EUR 2 billion target on trade-related assistance by 2010, ii) based on AfT needs as prioritised by partner countries, identify modalities for coordination and response at various geographical levels, iii) propose ways to strengthen EU capacity to deliver and to monitor AfT, and iv) address and set best practises on relevant effectiveness and quality issues. "

"Underlines the need to ensure that a substantial share of the Community and Member States’ commitment to increase their trade-related assistance to EUR 2 billion by 2010, will be devoted to the ACP countries. This collective contribution of the Member States is additional to EDF resources.

(Council Conclusions on Aid for Trade: 16/17 October 2006)

“Call on the Commission and the Member States to implement their collective ODA volume commitments concerning “aid for trade” as part of the general scaling up of EU aid.

Request Commission and Member States to strengthen the integration of trade related assistance into donor policies and programming and poverty reduction and development strategies. In this context the Council reaffirms the importance of supporting and enhanced Integrated Framework and credible assistance to trade adjustments as important elements.

Call on the Commission and the Member States to improve EU coordination efforts at headquarters and field level, namely by ensuring regular exchange of information and best practices; at field level the enhanced IF or, where applicable, trade needs assessments should include a strong coordination mechanism;

Invite the Commission and Member States to reflect on possible tools of an EU collective contribution to the aid for trade agenda. Moreover, call on the Commission and the Member States to support effective monitoring and evaluation of aid for trade at global, regional and country levels, and provide timely and full reporting on TRA commitments to the Doha Data Base.”

(Council Conclusions on Financing for Development and Aid Effectiveness, 11 April 2006)

“ Within their commitments to future increases in development assistance, Member States will strive to increase the EU’s collective spending on trade-related assistance […] to […] €1 billion per year by 2010, inclusive of spending on the enhanced Integrated Framework. This would bring the contribution of the EU as a whole, including the Community contribution, to €2 billion per year by 2010.”

(Council Conclusions on TRA, 12 December 2005)

Trade Related Assistance has been the subject of previous annual surveys in the context of the Monterrey reporting, albeit in less detail. This year's survey suggests an increasing engagement of MS in Trade Related Assistance (TRA) issues, with more detailed and qualitative responses. All 27 MS (EU 15, EU 10, Romania and Bulgaria) replied to this year's survey, although with different levels of detail. This may reflect the important attention that the EU Council paid to Aid for Trade over the year, in particular in October 2006.

The Member States are committed to collectively increase their TRA to € 1 billion annually by 2010. This commitment represents a substantial scaling up of MS efforts, and thus early efforts to ensure that the target can be reached would appear essential. In this spirit, the survey therefore explored whether MS had increased TRA volumes already in 2006. However, the responses show that the majority of MS have not yet started to increase their TRA volumes in anticipation of reaching the 2010 target. 9 MS (Belgium, Germany, Greece, Finland, Ireland, Luxembourg, Poland, Sweden and the UK) have increased their TRA allocations in 2006. 18 MS did not increase th