COMMISSION STAFF WORKING DOCUMENT EU Accountability Report 2011 on Financing for Development   Review of progress of the EU and its Member States   Accompanying document to the  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS
Date: 2011-04-19
Institutions: European Commission
Subjects: climate change, developing countries, development aid, development plan, development policy, distribution of EU funding, international cooperation

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EUROPEAN COMMISSION 

Brussels, 19.4.2011 
SEC(2011) 500 final 

COMMISSION STAFF WORKING DOCUMENT 

EU Accountability Report 2011 on Financing for Development 

Review of progress of the EU and its Member States 

Accompanying document to the 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Enhancing EU Accountability on Financing for Development 
towards the EU Official Development Assistance Peer Review 

VOL I 

{COM(2011) 218 final} 
{SEC(2011) 501 final} 
{SEC(2011) 502 final} 
{SEC(2011) 503 final} 
{SEC(2011) 504 final} 
{SEC(2011) 505 final} 

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CONTENTS 

1. 

2. 

Introduction .................................................................................................................. 9 

Increasing Financial Resources for Development and Global Challenges ................ 11 

2.1. 

Improving Domestic Resource Mobilisation ............................................................. 11 

2.1.1.  Providing enhanced support for domestic resource mobilisation .............................. 11 

2.1.2.  EU assistance to developing countries in tax and customs reform and related capacity 
building ...................................................................................................................... 13 

2.1.2.1.  Mobilising domestic financial resources for development ........................................ 14 

2.1.2.2.  Promoting good governance in the tax area............................................................... 14 

2.1.2.3.  Adoption and implementation of the OECD Guidelines on Transfer Pricing ........... 15 

2.1.2.4.  Assessment of the three principles of good governance in the tax area..................... 16 

2.1.2.5.  Transparency .............................................................................................................. 16 

2.1.2.6.  Exchange of Information............................................................................................ 16 

2.1.2.7.  Fair tax competition ................................................................................................... 16 

2.1.2.8.  Tax Information Exchange Agreements .................................................................... 16 

2.1.2.9.  Donor coordination in the tax area............................................................................. 17 

2.1.2.10. Transparency in the extractive industries sector ........................................................ 17 

2.1.2.11. Emerging themes........................................................................................................ 18 

2.2. 

Scaling up Official Development Assistance (ODA) ................................................ 19 

2.2.1.  EU ODA Commitments in the Global Context.......................................................... 20 

2.2.2.  EU ODA Performance 2005-2010 compared to other donors ................................... 21 

2.2.3.  Role of Debt Relief in EU ODA ................................................................................ 23 

2.2.4.  Performance on ODA targets (2005-2010) ................................................................ 25 

2.2.5.  Achievement of the 0.7% ODA/GNI Target by 2015................................................ 28 

2.2.6.  Lessons Learnt and the Way Forward........................................................................ 33 

2.2.7.  EU not acting in line with its promise on ODA to Africa.......................................... 36 

2.2.8.  EU ODA to Least Developed Countries stable.......................................................... 37 

2.3. 

Scaling up funding for tackling Climate Change and Biodiversity Challenges......... 39 

2.3.1.  Climate change fast-start finance ............................................................................... 39 

2.3.1.1.  Background ................................................................................................................ 39 

2.3.1.2.  Volume and focus of EU support............................................................................... 41 

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2.3.1.3.  The global context...................................................................................................... 42 

2.3.1.4.  Measuring additionality ............................................................................................. 43 

2.3.2.  Biodiversity ................................................................................................................ 46 

2.3.2.1.  Background ................................................................................................................ 46 

2.3.2.2.  Volume and focus of EU support............................................................................... 47 

2.3.2.3.  The global context...................................................................................................... 49 

2.4. 

Increasing international support to Developing Countries through Innovative 
Financing Sources and Mechanisms .......................................................................... 51 

2.5. 

Leveraging Private Flows .......................................................................................... 55 

2.5.1.  Private Capital Flows ................................................................................................. 56 

2.5.2.  Remittances ................................................................................................................ 60 

2.5.2.1.  Donor Initiatives......................................................................................................... 62 

2.5.2.2.  Improving data on remittances................................................................................... 63 

2.5.2.3.  Favouring cheaper, faster and more secure flows of remittances .............................. 64 

2.5.2.4.  Policy environment .................................................................................................... 64 

2.5.2.5.  Support for the Financial Sector in Developing Countries ........................................ 66 

2.5.3.  Leveraging private flows............................................................................................ 66 

2.6. 

Supporting Trade Capacity through Aid .................................................................... 67 

2.6.1.  Background ................................................................................................................ 67 

2.6.2.  Trade Related Assistance ........................................................................................... 68 

2.6.3.  Total 'wider' Aid for Trade......................................................................................... 69 

2.6.3.1.  Aid for Trade by EU provider.................................................................................... 70 

2.6.3.2.  Aid for Trade by category .......................................................................................... 71 

2.6.3.3.  Wider Aid for Trade geographical distribution.......................................................... 72 

2.6.4. 

Increasing Trade Related Assistance and Aid for Trade to ACP countries ............... 74 

2.6.5.  Effective delivery of Aid for Trade............................................................................ 74 

2.6.5.1.  Ownership .................................................................................................................. 75 

2.6.5.2.  Joint Aid for Trade operations and harmonisation: moderate progress ..................... 75 

2.6.5.3.  Regional dimension of Aid for Trade ........................................................................ 76 

2.6.5.4.  LDCs and EU AfT ..................................................................................................... 76 

2.6.5.5.  Aid for Trade monitoring and evaluation................................................................... 77 

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2.6.6.  Conclusions ................................................................................................................ 77 

2.7. 

Reducing the Debt Burden of Developing Countries ................................................ 78 

2.7.1.  Challenge of recent economic trends: Preserving debt sustainability........................ 78 

2.7.2.  Analysis of debt relief initiatives ............................................................................... 80 

2.7.3.  Vulture funds or the threats associated with commercial creditor litigation ............. 83 

2.7.4.  Alternative debt management initiatives.................................................................... 84 

2.7.5.  Discussion on enhanced forms of sovereign debt restructuring mechanisms............ 85 

3. 

Improving the Effectiveness of Support to Developing Countries ............................ 87 

3.1. 

Making EU aid more effective................................................................................... 87 

3.1.1.  EU and Member States action on ownership ............................................................. 88 

3.1.2.  EU and Member States action on alignment.............................................................. 88 

3.1.3.  EU and Member States action on harmonisation....................................................... 91 

3.1.4.  EU and Member States action on mutual accountability ........................................... 93 

3.1.5.  EU action on managing for development results ....................................................... 94 

3.2. 

Supporting better Global Governance........................................................................ 95 

3.2.1. 

Introduction ................................................................................................................ 95 

3.2.2.  Reforming multilateral institutions ............................................................................ 96 

3.2.2.1.  IMF............................................................................................................................. 96 

3.2.2.2.  World Bank (WB) Group........................................................................................... 97 

3.2.2.3.  Regional Development Banks.................................................................................... 98 

3.2.2.4.  UN System ................................................................................................................. 98 

3.2.3.  Feedback from the EU and Member States................................................................ 99 

3.2.4.  Concluding Observations ......................................................................................... 100 

Annexes: 

Vol. II: 

Vol. III: 

Vol. IV:  
Vol. V: 
Vol. VI: 

Annex 1:  
Annex 2:  
Annex 3: 
Annex 4: 
Annex 5: 

Annex 6: 
Annex 7: 
Annex 8: 

Bibliography 
ODA methodology 
Statistical Annex on ODA results and trends 
Results of the EU fast start Climate Finance monitoring  
Third Monitoring Report and Progress Review of the EU  
Fast Track Initiative on Division of Labour 
Aid for Trade Report 
Donor Profiles 
Survey Results

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LIST OF ACRONYMS 
A2II 
ACP 
ADA 
ADB 
ADF 
AfDB 
AFI 
AfT 
AMC 
ASEAN 
AT 
ATAF 
B4D 
BE 
BIO 

BMI/SBI 
BMZ 

BPC 
CBD 
CDE 
CDM 
CER 
CGAP 
CIAT 
COP 
CPA 
CPSS 
CRS 
CRW 
CSO 
CSR 
CZ 
DAC 
DDA 
DE 
DEVCO 

DFI 
DFID 
DK 
DMF 

DMFAS 
DTC 
DTC 
DTIS 
EAC 
EBRD 

ECB  

for  Economic 

Access to Insurance Initiative 
Africa, Caribbean and Pacific 
Austrian Development Agency 
Asian Development Bank 
Asian Development Fund 
African Development Bank 
Alliance for Financial Inclusion 
Aid for Trade 
Advance Market Commitment 
Association of Southeast Asian Nations 
Austria 
Africa Tax Administration Forum 
Business for Development 
Belgium 
Belgian  Investment  Company  for  Developing 
Countries 
Belgian Corporation for International Investment 
Germany’s  Federal  Ministry 
Cooperation and Development 
Building Productive Capacity 
Convention on Biological Diversity 
Centre for the Development of Enterprise 
Clean Development Mechanism 
Certified Emission Reduction 
Consultative Group to Assist the Poor 
Inter-American Centre of Tax Administrations 
Conference of the Parties to the CBD 
Country Programmable Aid 
Committee on Payment and Settlement Systems 
Creditor Reporting System 
IDA Crisis Window 
Civil Society Organisation 
Corporate Social Responsibility 
Czech Republic 
Development Assistance Committee 
Doha Development Agenda 
Germany 
Directorate  General 
operation 
Development Financial Institutions 
Department for International Development 
Denmark 
World  Bank  Debt  Management  Facilitation  for 
Low Income Countries 
Debt Management and Financial Analysis System 
Double Taxation Convention 
Developing and Transition Countries 
Diagnostic Trade Integration Study 
East African Community 
European  Bank 
Development 
European Central Bank 

for  Development  Co-

for  Reconstruction 

and 

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EDF 
EDFI 
EEE 
EGI 
EIB 
EIF 
EITI 
EPA 
ES 
ETS 
EU 
EUR 
FAC 
FAO 
FAT 
FDI 
FI 
FIRST 

FLEGT 
FR 
FTA 
FTT 
G20 

G8 

GAVI 
GDP 
GEEREF 

GEF 
GIZ 
GNI 
HDI 
HIPC 
HLF 
HU 
IBRD 

IDB 
IE 
IF 
IFAD 
IFCA 
IFFIm 
IFI 
ILO 
IMF 
IPD 

European Development Fund 
European Development Finance Institution 
Espace Economique Européen 
Ethical Globalisation Initiative 
European Investment Bank 
Enhanced Integrated Framework 
Extractive Industries Transparency Initiative 
Economic Partnership Agreement 
Spain 
EU Emission Trading System 
European Union 
Euro 
Foreign Affairs Council 
Food and Agriculture Organisation 
Financial Activities Tax 
Foreign Direct Investment 
Finland 
Financial  Sector  Reform  and  Strengthening 
Initiative 
Forest Law Enforcement, Governance and Trade 
France 
Free Trade Agreement 
Financial Transaction Tax 
Group  of  Twenty  (G8  countries  plus  Argentina, 
Australia,  Brazil,  China,  EU,  India,  Indonesia, 
Mexico,  Saudi  Arabia,  South  Africa,  South 
Korea,  and Turkey), European Commission 
Group  of  Eight  (i.e.,  Canada,  France,  Germany, 
Italy,  Japan,  Russia,  United  Kingdom  and  USA, 
plus EU) 
Global Alliance for Vaccines and Immunisation 
Gross Domestic Product 
Global Energy Efficiency and Renewable Energy 
Fund 
Global Environment Facility 
Gesellschaft für Internationale Zusammenarbeit 
Gross National Income 
Human Development Index 
Highly Indebted Poor Countries 
High Level Forum  
Hungary 
International  Bank 
Development 
Inter-American Development Bank 
Ireland 
EIB Investment Facility 
International Fund for Agricultural Development 
Investment Facility for Central Asia 
International Financial Facility for Immunisation 
International Financial Institutions  
International Labour Organisation 
International Monetary Fund 
Innovative Partnerships for Development 

for  Reconstruction  and 

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IPSAS 
IT 
ITC 
ITF 
ITRS 
KfW 
LAIF 
LDC 
LI 
LIC 
LMIC 
LU 
LV 
MDG 
MDRI 
MIGA 
MoU 
MS 
MSME 
MT 
MTO 
NGO 
NIF 
NL 
NORAD 
ODA 
OECD 

OECS 
OJ 
OLIC 
PCD 
PEFA 
PEM 
PFM 
PPP 
PSD 
PT 
REDD and REDD+ 

REGMIFA 

REPARIS 

ROAP 
ROSC 

SE 

International Public Sector Accounting Standards 
Italy 
International Tax Compact 
EU–Africa Infrastructure Trust Fund 
International Transactions Reporting System, 
Kreditanstalt für Wiederaufbau 
Latin America Investment Facility 
Least Developed Countries 
Lithuania 
Low Income Countries (LDC+OLIC) 
Lower Middle Income Countries 
Luxembourg 
Latvia 
Millennium Development Goals 
Multilateral Debt Relief Initiative 
Multilateral Investment Guarantee Agency 
Memorandum of Understanding 
Member States 
Micro, Small and Medium Enterprises 
Malta 
Money Transfer Organisation 
Non Governmental Organisation 
Neighbourhood Investment Facility 
Netherlands 
Norwegian Agency for Development Cooperation 
Official Development Assistance 
Organisation  for  Economic  Co-operation  and 
Development 
Organisation of Eastern Caribbean States 
Official Journal 
Other Low Income Countries 
Policy Coherence for Development 
Public Expenditure and Financial Accountability 
Public Expenditure Management 
Public Financial Management 
Private Public Partnerships 
Payment Services Directive 
Portugal 
Reducing  Emissions  from  Deforestation  and 
Forest  Degradation.  REDD+  goes  beyond 
deforestation and forest degradation, and includes 
the role of conservation, sustainable management 
of  forests  and  enhancement  of  forest  carbon 
stocks. 
Regional  Micro  Small  and  Medium-Sized 
Enterprises  Investment  Fund  for  Sub-Saharan 
Africa 
The  Road  to  Europe:  Programme  of  Accounting 
Reform and Institutional Strengthening 
Regional Office for Asia and the Pacific 
Report  on  the  Observance  of  Standards  and 
Codes 
Sweden 

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SME 
SWC 
TA 
TCX 
TD 
TEEB 

TIEA 
TNA 
TPR 
TRA 
TRAdj 
TRI 
UK 
UMIC 
UN 
UNCCD 

UNEP 
UNFCCC 
UNITAID 
US or USA 
USD 
WB 
WBIF 
WFP 
WTO 

Small and medium-sized enterprises 
System-Wide Coherence Reform 
Technical Assistance 
The Currency Exchange 
Trade Development 
The  Economics  of  Ecosystems  and  Biodiversity 
Study 
Tax Information Exchange Agreements 
Trade Needs Assessment 
Trade Policy Regulations 
Trade Related Assistance 
Trade Related Adjustment 
Trade Related Infrastructure 
United Kingdom 
Upper Middle Income Countries 
United Nations 
United  Nations  Convention 
Desertification 
United Nations Environment Programme 
United Nations Convention on Climate Change 
International Drug Purchasing Facility 
United States of America 
United States Dollar 
World Bank 
Western Balkans Investment Framework 
World Food Programme 
World Trade Organisation 

to  Combat 

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1. 

INTRODUCTION  

This  Staff  Working  Document  is  the  ninth  EU  Accountability  Report  on  Financing  for 
Development  in  a  series  of  annual  progress  reports  drafted  since  2003  (previously  labelled 
‘Monterrey  report’).  It  assesses  where  the  EU  and  its  Member  States  stand  in  relation  to  their 
common commitments. The Report fulfils the Council’s mandate1 to the European Commission to 
monitor  progress  and  report  annually  on  common  EU  commitments,  which  were  initially  with  a 
view to the International Conference on Financing for Development in 2002 and have been further 
developed  and  extended.  The  Council  expanded  the  monitoring  mandate  to  the  Commission 
accordingly  to  cover  aid  effectiveness2,  aid  for  trade3,  good  governance  in  tax  matters  and 
development4 and fast-start climate finance.5  

The report is also an input to EU preparations for several international meetings in 2011, namely the 
UN Conference on the Least Developed Countries (LDCs) in Istanbul (May 2011) the Busan High 
Level Forum IV on aid effectiveness (HLF4) in late November 2011, the follow-up meetings to the 
Cancun  UNFCCC  climate  conference  of  December  2010,  and  the  bi-annual  WTO/  OECD 
monitoring meeting on aid for trade by all donors. 

The report builds on the input provided by the EU Member States and Commission staff in (i) the 
annual  questionnaire  on  Financing  for  Development  2010/11  (formerly  known  as  the  ’Monterrey 
questionnaire’),  which  covers  all  EU  commitments  related  to  the  international  financing  for 
development agenda,  (ii)  the  bi-annual trade and  development  WTO/  OECD  survey  of  2010,  (iii) 
the  complementary  in-country  monitoring  of  aid  for  trade  provided  by  EU  donors,  through  EU 
Delegations and (iv) the third questionnaire on the implementation of the EU Fast Track Initiative 
on  Division  of  Labour  and  Complementarity.  Germany,  in  close  cooperation  with  the  European 
Commission, led the monitoring of the Fast Track Initiative. 

The  Council  also  called  on  the  Commission  to  make  the  annual  progress  report  a  model  of 
transparency  and  accountability6.  For  this  reason,  in  contrast  to  previous  years,  this  year  the 
Commission  is  presenting  a  single,  comprehensive  report  covering  all  topical  issues  of  the 
international financing for development agenda. For the first time, 22 of the 27 Member States have 
agreed to the publication of their replies to the annual questionnaire on financing for development. 
The replies can be consulted online7. Extra information will be included in the EU Donor Atlases 
20118. Annex 1 lists the bibliography for all chapters, Annex 2 presents the methodology applied 
for analysing ODA indications/ forecasts provided by EU Member States. Annex 3 is the Statistical 
Annex  on  ODA  trends  (including  individual  graphs  for  all  EU  Member  States  showing  the  gaps 
from  2010  to  reaching  2015  targets  for  ODA  to  Africa  and  ODA  to  LDCs).  Annex  4  reports  the 
results  of  the  EU  Fast  Start  Climate  Finance  (FSF)  monitoring  exercises.  Annex  5  is  the  Third 
Monitoring  Report  and  Progress  Review  of  the  EU  Fast  Track  Initiative  on  Division  of  Labour. 

1 Council Conclusions of 21 May 2003 and 24 May 2005. 
2 Different Council Conclusions on the EU Operational Framework on Aid Effectiveness, last of 10 December 2010 (on 
transparency and mutual accountability). 
3 Council Conclusions of 15 May 2007 on the European Conduct of Division of Labour in development policy, Council 
Conclusions of 29 October 2007 on the EU Aid for Trade Strategy. 
4Council Conclusions of 14 June 2010 
5 Council conclusions of 7 December 2010. 
6Council Conclusions of 15 June (on the MDGs) and 10 December (on transparency and mutual accountability). 
7 http://ec.europa.eu/europeaid/how/accountability/eu-annual-accountability-reports/index_en.htm  
8 The donor atlases will be available on http://development.donoratlas.eu. 

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Annex 6 enclosed the Aid for Trade Report for 2011. Annex 7 reflects Member States’ replies to 
the most pertinent questions on the questionnaire, while Annex 8 gives an overview of the overall 
outcome of the survey. 

Financing for development aims to create a favourable environment for development by addressing 
the responsibilities of both developing countries and the global community. The UN Doha Follow-
up  Conference  on  Financing  for  Development  in  2008  reiterated  that  sustainable  development 
depends  on  mobilising  financial  resources  for  development  and  using  them  effectively.  It  also 
recognised that each country bears primary responsibility for its own development and that national 
policies, domestic resources and national development strategies are essential. 

The  EU  and  other  donors  need  to  live  up  to  their  commitments  and  to  keep  their  part  of  the 
agreement on what is needed to achieve the Millennium Development Goals (MDGs).  

This report shows that over the period 2004-2010, the EU and its Member States accounted for 57% 
of net ODA to developing countries from all DAC and EU donors, and for 65% of the global EUR 
25.7 billion increase in ODA during this period; in 2010, the EU and its Member States missed their 
collective 2010 target of 0.56% by a wide margin (by almost EUR 15 billion), but the positive trend 
continued and the EU and its Member States together reached the highest ODA/GNI ratio of the last 
20 years, i.e. 0.43%. The EU scaling-up process has been uneven, with asymmetric efforts. Member 
States not contributing their fair share to the burden-sharing effort endanger the performance of the 
EU as whole and substantially increase the risk of failure on future ODA targets.  

The third Monitoring Report and Progress Review of the EU Fast Track Initiative on Division of 
Labour  (see  Annex5)  was  drafted  by  Germany,  in  close  coordination  with  the  European 
Commission.  Together  with  trends  since  2008,  that  report  shows  that  in  the  17  partner  countries 
involved  in  the  initiative  since  the  beginning,  there  has  been  encouraging  progress.  There  is 
widespread  use  and  institutionalisation  of  donor  mappings  as  an  aid  management  instrument,  an 
upward  trend  in  country-level  agreement  on  sector  definitions  as  an  important  precondition  for 
Division of Labour and solid use of ‘lead donor’ arrangements that can generate more momentum 
for Division of Labour in the future. 

The  Monterrey  Consensus  and  the  Doha  Declaration  recognise  the  importance  of  other  financial 
flows  for  development  besides  ODA.  To  achieve  sustainable  progress  towards  the  MDGs  the 
financing  discussion  should  look  holistically  at  increasing  developing  countries’  overall  revenue 
base for development. The EU can effectively support its partners’ with increasing their domestic 
resources  for  development  in  line  with  the  principles  of  good  governance  in  tax  matters 
(transparency,  exchange  of  information  and  fair  tax  competition).  Enhanced  international 
cooperation  in  tax  matters  in  particular  will  not  only  increase  domestic  revenues  in  developing 
countries by reducing tax evasion, it will also help to address money laundering, corruption and the 
financing of terrorism. 

The EU has consistently supported developing countries in using trade as a tool for development. 
As part of its joint Aid for Trade strategy the EU as a whole agreed to actions to increase Aid for 
Trade and enhance its impact. The EU’s combined annual Aid for Trade was EUR 10.5 billion in 
2009, matching the all-time high recorded the year before. As regards the EU and Member States’ 
Trade Related Assistance – a subcomponent of Aid for Trade, a substantial increase was reported in 
2009,  bringing  the  collective  amount  to  EUR  3  billion),  well  above  the  target  (as  from  2010)  of 
EUR 2 billion per year. 

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2. 

INCREASING FINANCIAL RESOURCES FOR DEVELOPMENT AND GLOBAL CHALLENGES 

2.1. 

Improving Domestic Resource Mobilisation  

The objective of this chapter is to present progress in implementing the Monterrey consensus and 
subsequent Doha declaration in the area of tax and development. This area was not covered in depth 
in  previous  accountability  reports  –  the  EU  Council  asked  in  2010  that  it  be  from  2011  onwards.  
The  analysis  is  based  on  the  current  international  debate  on  issues  identified  in  recent  European 
Commission  documents  on  the  subject.  Taxation  should  also  be  seen  in  the  context  of  the 
diminishing  importance  of  debt  relief.  Domestic  resource  mobilisation  is  crucial  create  more  and 
sustainable  fiscal  space  to  implement  and  sustain  development  programmes.  The  review  is  also 
informed  by  feedback  provided  by  the  EU  and  Member  States.  The  focus  is  on  two  topics:  (a) 
strengthening  good  governance  in  tax  matters  in  developing  countries;  and  (b)  harnessing  EU 
instruments to provide enhanced support.  

2.1.1.  Providing enhanced support for domestic resource mobilisation  

EU Commitments 

Current  EU  thinking  on  tax  and  development  set  out  in  the  Communication  from  the 
Commission  to  the  European  Parliament,  the  Council  and  the  European  Economic  and 
Social Committee of 21 April 2010,Tax and Development - Cooperating with Developing 
Countries  on  Promoting  Good  Governance  in  Tax  Matters9  and  the  accompanying  Staff 
Working Document10.  Its recommendations were backed up by the Council Conclusions of 
14 June 2010 11. 

Taxes are essential for sustainable development, the legitimacy of the State, economic stability, and 
the financing of public services and infrastructure. The Communication on Tax and Development12 
argued  that  development  aid  policies  should  contribute  to  building  effective,  efficient,  fair,  and 
sustainable  tax  systems  in  line  with  the  principles  of  good  governance  in  tax  matters 
(transparency, exchange of information and fair tax competition) and generate sustainable revenues 
in EU partner countries.  

When attempting to increase domestic tax revenues, developing countries are often confronted with 
the  incidence  of  corruption,  lack  of  capacity  of  tax  administrations  and  the  structure  and 
competitiveness of their economy (large informal sectors. Some developing countries rely to a large 
extent  on  revenues  stemming  from  extractive  industries  which  tend  to  be  less  predictable.  The 
effectiveness of national tax systems  could also be  affected by the use of tax incentives to attract 
foreign investment. In addition, implementing domestic tax rules is becoming ever more difficult in 
a world with an increasing geographical mobility of taxpayers and the existence of non-cooperative 
jurisdictions  and  harmful  tax  practices.  In  view  of  these  challenges,  the  EU,  in  its  Council 
Conclusions  on  Tax  and  Development  of  14  June  2010,  stated  that  it  would  ‘support  developing 
countries in tax policy, tax administration and tax reforms, including the fight against tax evasion 
and other harmful practices’. This covered 10 points: 

9COM(2010)163 of 21.04.2010 . 
10http://ec.europa.eu/taxation_customs/resources/documents/common/publications/com_reports/taxation/sec(2010)426_
en.pdf 
113023rd FOREIGN AFFAIRS Council meeting Luxembourg, 14 June 2010 
12 COM(2010)163 of 21.04.2010 

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1.  Mobilising domestic resources for development through efficient and fair tax systems; 

2.  Discouraging  capital flight, including tax evasion and avoidance, and illicit financial 

flows; 

3.  Supporting proposals outlined in earlier Commission communications; 

4.  Recognising  that  developing  countries  bear  primary  responsibility  for  building  and 
improving  efficient  and  fair  tax  systems  and  committing  the  necessary  resources 
thereto, with EU and Member States supporting these efforts; 

5.  Using budget support programmes to accelerate tax reform; 

6.  Emphasising programme-based and comprehensive approaches; 

7.  Enhancing support for the EITI; 

8.  Promoting  the  principles  of  good  governance  in  tax  matters  and  working  towards  a 

transparent and cooperative international tax environment; 

9.  Encouraging the participation of developing countries in structures and procedures for 

international tax cooperation; and  

10.  Facilitating  this  process  by  covering  these  aspects  in  the  annual  Financing  For 

Development Report. 

It is for each partner country to define its policies and reforms. This is particularly true of taxation 
policy.  Development  aid  should  be  adapted  to  each  country  according  to  its  economic  situation, 
international position and policies.   

In  the  case  of  low  income  countries  the  main  challenges  could  be  to  increase  generally  low  tax 
revenues by expanding the tax base. A recent study13 states that, as a rule of thumb, according to the 
UN,  these countries would need to increase revenues by about 4 percent of GDP, although a low 
tax-to-GDP ratio does not necessarily reflect a poor tax performance. Therefore, it is important not 
only  to  increase  domestic  revenues,  but  possibly  to  consider  the  tax  system  as  a  whole:    its 
composition, its impact on economic activity and private investment, its redistributive  effects and 
its impact on state-building.  

There is limited systematic and comparable information on the tax systems of developing countries. 
The annual PWC / World Bank ’Doing Business’ report provides an estimate of the impact of tax 
policy  and  governance  in  most  developing  countries.  While  limited  in  scope,  the  information  is 
available  and  updated  annually  and  could  provide  a  useful  indicator  of  relative  and  absolute 
progress  on  the  tax  reforms  pursued  by  developing  countries  to  improve  the  business  climate. 
However, extreme care is needed in interpreting the results as some of the underlying assumptions 
can  lead  to  misleading  results  in  some  countries.  Similarly,  the  PEFA  measurement  framework14 
includes four indicators on revenues, transparency and effectiveness. For some specific indicators, 
measurement of progress (and accountability) is straight forward such as the conclusion of bilateral 
tax  treaties  or  tax  information  exchange  agreements.  Measuring  progress  in  partner  countries  is 
complicated due to incomplete information on donor support. Donor support in the area of tax and 
development  is  embedded  in  either  policy  reform  programmes  or  technical  assistance/capacity 

13 http://ec.europa.eu/development/services/events/tax_development/docs/td_tax_challenges_bird.pdf 
14 See for instance recent ITC study of 26 countries: 
http://taxcompact.net/pdf/ITC%20PEFA%20paper%20first%20draft%2012102010.pdf 

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building projects. Sometimes policy reforms are also embedded in government commitments in the 
context  of  budget  support  operations.  They  may  be  complemented  by  assistance  to  institutions, 
typically  over  the  medium-term,  e.g.  with  technical  advice,  drafting  laws  and  regulations, 
consensus-building, and setting up and/or building institutions. Frequently, tax-related activities are 
a component of a larger programme and/or project assisting a country. As seen in the responses to 
the questionnaire discussed below, technical assistance and capacity-development activities tend to 
be quite varied.   

During  the  2000s,  developing  countries  received  support  from  multilateral  and  bilateral  donors, 
notably the EU and its Member States to build tax systems. Available information indicates that in 
the  last  decade  some  65  developing  countries  undertook  tax  reforms  with  donor  support  –  but 
efforts were sustained in fewer than 10 countries. Furthermore, following Monterrey, there has been 
no visibly increased emphasis on tax reform in developing countries; in contrast to the significant 
scale-up of reforms in public expenditure management (PEM, i.e., public financial management and 
procurement).   

There are several possible explanations for the limited importance of support for tax reforms in the 
2000s. One is that budget support operations and the related policy dialogue tend to focus more on 
public expenditure management and social sectors than on revenue mobilisation. Another is that the 
agenda in the 1990s was driven by the tariff reform that took place in most countries, together with 
strong  demand  for  support  on  taxation  in  former  communist  countries.  While  this  agenda  has  to 
some extent been exhausted, developing countries still require country-specific support in the area 
of tax policy and administration. 

Tax  reform  and  related  institutional  support  is  complex  and  needs  to  be  sustained  over  time,  to 
implement  a  full  agenda  and  also  to  benefit  from  experience  of  what  does  and  does  not  work  in 
order to fine-tune the arrangements as needed. Given the importance of tax reforms and their central 
role  in  the  Monterrey  agenda,  EU  donors  may  consider accelerating progress in this area through 
promoting more domestic resource mobilisation in line with the principles of good governance in 
tax matters, inter alia in the context of budget support operations.  

2.1.2.  EU  assistance  to  developing  countries  in  tax  and  customs  reform  and  related  capacity 

building  

This  section  is  based  on  EU  Member  States’  replies  to  the  25  questions  in  the  annual  survey  of 
progress on the implementation of the Monterrey commitments. The questions and statistics on the 
replies are given in Annex 8. These are analysed in the light of the 10 points listed in the previous 
section.  Before  discussing  the  replies,  a  few  issues  warrant  mention.  The  space  to  reply  to  some 
questions  was  left  blank  and  the  feedback  received  may  be  incomplete.  The  analysis  assumes  in 
such cases that the donor does not provide significant support in the area.   

Furthermore, part of the information provided concerns ongoing support, some of which may have 
begun a few years back while in other cases, it may refer to possible future involvement. Moreover, 
some  of  the  answers  given  had  to  be  discounted  because  they  were  not  relevant  to  the  question 
asked  or  a  positive  answer  was  given  even  though  the  explanatory  text  suggested  the  opposite. 
Finally,  the  level  of  details  provided  differed  from  one  Member  State  to  another  –  with  some 
countries providing extensive answers and specific examples. 

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2.1.2.1.  Mobilising domestic financial resources for development 

The  questionnaire  did  not  ask  about  the  volume  of  support  provided  to  tax  and  customs  systems. 
However, the OECD/DAC collects information on assistance to public financial management and 
trade facilitation (mainly customs) in the Creditor Reporting System. These data show that the 15 
EU  DAC  members  committed  some  EUR  125  million  of  such  assistance  in  2008  and  2009. 
Germany, the Netherlands and Sweden reported the most assistance to these sectors.  

A quarter of EU countries do not provide any support to tax systems and revenue mobilisation, five 
of them having joined the EU only recently. While aid levels are not quantified, in terms of donor 
focus ACP countries tend to receive support from most other EU Member States, reflecting the fact 
that  the  poorest  countries  are  given  priority.  On  average,  each  donor  covers  two  or  more 
regions/country  groupings,  typically  ACP,  EU  candidates,  EU  neighbourhood  policy,  or  Asia  – 
support  for  Latin  America  is  less  frequent.  The  two  EU-related  groups  seem  to  be  considered 
important  for  economic  and,  no  doubt,  political  reasons.  In  addition  to  the  EU,  France,  Hungary, 
Spain  and  the  UK  were  the  only  Member  States  to  be  active  in  all  five  regions  listed  in  the 
questionnaire, some of them indirectly. The remaining member countries were typically involved in 
only one or two regions. These figures may reflect selectivity and division of labour, but also seems 
to indicate that broad based support for tax systems and resource mobilisation is not yet a priority 
for many Member States. 

The  most  common  type  of  support  provided  is  to  tax  administrations,  followed  by  tax  policy.  A 
handful  of  Member  States  provide  other  types  of  support  such  as  training  and  capacity 
development, notably in customs administration and the judiciary. These contribute significantly to 
improved revenue mobilisation and to the effectiveness, efficiency and fairness of tax systems. It is 
less apparent whether Member States pursue coordinated and complementary approaches to avoid 
aid fragmentation and unmet demand in some countries – especially those with less donor presence.  

Ministries  of  Finance  are  the  primary  beneficiaries  of  this  aid.  Over  half  the  EU  donors  also 
help customs and/ or semi-autonomous revenue authorities. A handful of respondents reported that 
they provided support to other institutions, for example a Prevention of Money Laundering Office. 
The  choice  of  counterparts  seems  justified  by  the  fact  that  Ministries  of  Finance  bear  primary 
responsibility  for  tax  reform  and  revenue  collection,  whereas  many  developing  countries  have 
chosen not to set up semi-autonomous revenue authorities yet. National governments are the most 
frequent  beneficiaries  of  capacity-building  for  financial  management.  Over  two-thirds  of  EU  and 
Member States support national supreme audit institutions, with civil society organisations (CSOs) 
and parliaments being helped less frequently. The relatively low level of engagement with CSOs 
and national parliaments may lead to low level of stakeholder ownership of tax reform. Where 
CSOs  are  weak,  key  stakeholders  in  reforms  may  lack  a  voice.  Similarly,  parliaments  lacking  an 
adequate  understanding  of  public  financial  management  issues  may  not  fully  appreciate  the 
importance  of  the  laws  presented  to  them  in  this  area,  and  may  not  sufficiently  scrutinise  public 
expenditure and hold governments to account.  

2.1.2.2.  Promoting good governance in the tax area  

The EU and most Member States provide support for addressing tax evasion and harmful tax 
competition,  and  promote  the  principles  of  good  governance  in  tax  matters  in  their 
cooperation  policy.  According  to  comments  made  in  reply  to  the  questionnaire,  the  approaches 
vary from one donor to another. Most commonly, donors use budget support as an entry point, 
together with technical assistance, dialogue and monitoring agreements.   

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Under the 10th European Development Fund’s (EDF) ‘governance incentive’ tranche, the EU may 
offer additional funding in return for detailed commitments on the principles of good governance in 
taxation. A number of encouraging and concrete commitments have been made by ACP countries. 
In March 2010, in the second revision of Cotonou Agreement, the EU and ACP countries agreed, 
subject to further ratification at national level, to include a provision allowing EU support for the 
implementation of international best practices in tax matters, including transparency and exchange 
of information. The main challenge would appear to be to ensure that commitments are translated 
into concrete measurable and effective actions and that sufficient technical cooperation is provided 
to achieve this. 

The  German  Federal  Ministry  for  Economic  Cooperation  and  Development  (BMZ)  has  launched 
the  International  Tax  Compact15  (ITC)  –  an  informal  international  action  and  dialogue  platform 
grouping  bilateral  and  multilateral  donors  to  strengthen  international  cooperation  with  developing 
and  transition  countries  to  fight  tax  evasion  and  avoidance.  Other  EU  Member  States  supporting 
this  initiative  include  France,  the  Netherlands  and  Spain.  The  work  of  the  ITC  focuses  on  the 
following areas: (1) at country/regional level encouraging increased development cooperation in tax 
matters;  and  promoting  the  dissemination  of  successful  practices  and  the  exchange  of  reform 
experiences  in  policy  formulation,  legislation,  and  implementation,  in  addition  to  capacity 
development  and  institution  building;  (2)  at  international  level  facilitating  access  to  and  the 
exchange  of  information  between  policy  makers,  tax  administrators,  donors,  civil  society  and  the 
private sector; (3) analytical work and studies; and (4) networking and dialogue. 

The European Commission has since late 2008 taken part in the International Tax Dialogue (ITD). 
The ITD is a collaborative arrangement involving the IMF, OECD and World Bank Group, among 
others,  to  encourage  and  facilitate  discussion  of  tax  matters  among  national  tax  officials, 
international organisations, and a range of other key stakeholders. The ITD Secretariat is currently 
hosted by the OECD. 

2.1.2.3.  Adoption and implementation of the OECD Guidelines on Transfer Pricing 

About  half  of  the  Member  States  provide  assistance  with  implementing  OECD  guidelines  on 
transfer pricing.  The  reasons given for not providing support included strategic choices, a lack of 
resources, reliance on indirect support, an intention to support this area in the future and no request 
from beneficiaries. The support that was confirmed tended to go through two main channels: OECD 
and Africa Tax Administration Forum (ATAF). 

While transfer pricing rules could help developing countries to mobilise revenues, donor support for 
this remains rather limited. The EU encourages research on innovative approaches to implementing 
the OECD transfer pricing guidelines in developing countries, such as assistance by other countries 
in applying the rules, or joint tax audits by developing countries’ administrations. It also considers 
that developing countries need to strengthen their tax administrations’ assessment capacity to apply 
the  arm’s  length’  principle.  Most  of  the  activities  of  Member  States  tend  to  be  part  of  broader 
programmes. A few EU donors provide support through the OECD (e.g. the EU, France, Germany, 
Ireland,  Slovakia  and  the  UK)  or  through  twinning  projects,  discussion  of  fraud  avoidance 
mechanisms and negotiations on double taxation (Austria, Latvia and Romania).  

15 http://taxcompact.net/index.html 

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2.1.2.4.  Assessment of the three principles of good governance in the tax area 

Most  Member  States  say  they  assess  beneficiaries’  commitment  to  the  principles  of  good 
governance in tax matters and say they use indirect means to deal with this issue, for example when 
devising a new cooperation framework.  

2.1.2.5.  Transparency 

The Commission and the majority of Member States said that they analysed the country’s situation 
in the light of international standards for the transparency of tax systems. In doing so, a number use 
comparisons  with  international  transparency  standards  and  many  draw  upon  the  conclusions  of 
Public  Expenditure  and  Financial  Accountability  (PEFA)  assessment  reports  and,  in  one  case,  a 
Report on the Observance of Standards and Codes (ROSCs). Others conduct periodic studies, use 
public information, or take advantage of opportunities, e.g. when signing tax treaties, to review this 
area. France mentioned the use of peer reviews undertaken by the Global Forum on Transparency 
and  Exchange  of  Information  for  Tax  Purposes  and  of  the  list  of  non-cooperative  jurisdictions 
published by OECD. Overall, it appears that there is sufficient public information available for 
the EU and Member States to conduct analyses of the transparency of tax systems, even if in 
some cases the basic documentation may not be recent. 

2.1.2.6.  Exchange of Information 

Half the Member States indicated that they analysed the situation in the beneficiary country in the 
light of international standards of exchange of information.  They pursued various approaches, such 
as use of PEFA – which may not be the most relevant tool - and public information sources, specific 
analysis and studies, tailor-made approaches for least developing countries and use of discussions 
on double taxation as the entry point.  The indicators used for standards of exchange of information 
may also be based on the assessment of the OECD Global Forum on taxation. One Member State 
noted that exchange of information is an important objective, but that, when the focus is on least 
developed countries the extent to which implementation of international standards emerges as 
a  dominant  theme  in  an  individual  programme  will  depend  on  the  circumstances  of  that 
country and particularly the capacity and sophistication of its tax authority. The reason why certain 
EU Member States did not address this area included lack of capacity and reliance on alternative 
ad-hoc approaches.   

2.1.2.7.  Fair tax competition 

While some Member States indicated that they analysed fair tax competition issues most others 
mention  selectivity/  division  of  labour,  limited  relevance  and  reliance  on  indirect  means  as 
arguments  for  not  being  active  on  this  issue.  Where  analysis  was  done,  it  was  done  as  part  of 
general comparative studies of tax systems, in preparation for a cooperation project, or it was driven 
by country circumstances. Another common practice cited was the use of available reports, notably 
PEFA  and  'Doing  Business  Reports'.  This  is  thus  an  area  that,  based  on  Member  States’ 
answers, does not seem to be perceived as a priority as part of meeting the EU’s commitments.  

2.1.2.8.  Tax Information Exchange Agreements 

During  2010,  the  vast  majority  of  EU  Member  States  concluded  Tax  Information  Exchange 
Agreements  (TIEAs)  and  Double  Taxation  Conventions  (DTC)  and  were  drafting  additional 
ones. This is an area where significant progress is being achieved. However, only two EU donors 
provide  technical  assistance  to  countries  with  which  TIEAs  or  double  taxation  conventions 
are planned or signed, while half provide broader assistance on good governance in tax matters. 
Further  technical  cooperation  with  developing  countries  that  are  committed  to  the  principles  of 
good governance in the tax area is essential to enable them to negotiate and implement TIEA and, 
where  appropriate,  DTC.  If  non-EU  countries  are  willing  to  sign  and  implement  TIEAs  with 

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Member  States,  technical  assistance  may  be  offered  by  the  EU  provided  that  funding  is  available 
and  based  on  prior  commitments  to  implement  the  three  principles  of  good  governance  in  tax 
matters (transparency, exchange of information and fair tax competition).  A noteworthy approach 
to transparency pursued by the Belgian Ministry of Finance is to publish all such agreements on its 
website16. 

2.1.2.9.  Donor coordination in the tax area 

The  EU  is  also  committed  to  harmonisation  with  other  donors.  The  EU  and  most  Member  States 
indicated that they coordinated with  bilateral and  multilateral  donors when supporting developing 
countries’  tax  reform  agendas.    The  usual  way  of  doing  this  was  at  country  level  (9)  or  through 
international initiatives (ATAF, Afritacs, OECD, ITC and International Tax Dialogue17 (ITD), EU, 
World  Bank  and  IMF).  Other  stand-alone  or  complementary  approaches  included  coordination 
through twining projects and budget support policy dialogue. However, a review of budget support 
programmes implemented during the last decade indicates that tax reform is not a major feature 
of  multilateral  donors’  reform  agenda  and  coordination  has  not  yet  yielded  significant 
broadening or deepening of tax reforms in budget support operations.  

A majority of Member States supported international or regional initiatives or organisations that are 
active in the area of tax reform. The IMF (both Regional Technical Centres and the Trust Fund on 
Tax  Policy  and  Administration)  was  the  most  common  partner  and  received  by  far  the  most 
financial support. In addition to the ATAF, CIAT, International Tax Dialogue and International Tax 
Compact,  other  institutions  receiving  some  type  of  EU  donor  support  included  the  Investment 
Climate Facility for Africa and OECD. While there are a number of institutions receiving support, 
there  is  insufficient  information  to  assess  whether  this  leads  to  inefficiency  and  unnecessary 
segmentation in delivery of tax reforms. 

2.1.2.10. Transparency in the extractive industry sector 

Extractive  Industries  Transparency  Initiative  (EITI).  The  EITI  aims  at  strengthening 
governance by improving transparency and accountability in the extractive industries sector. With 
35  implementing  countries  now,  the  initiative  is  becoming  a  global  standard  for  corporate 
governance  and  transparency.  The  EITI  asks  companies  to  publish  payments  to  governments.  It 
asks  governments  to  disclose  revenues  received  from  companies.  This  enhances  domestic 
accountability  and  strengthens  the  demand  for  good  governance  so  that  corruption  related  to 
extractive activities should decrease. Some 3.5 billion people live in countries rich in oil, gas and 
minerals. Through good governance the exploitation of these resources can generate large domestic 
revenues to foster inclusive growth, discourage conflict and reduce poverty. 

The  EU  is  an  increasingly  active  participant  in  and  supporter  of  this  initiative.  Its  position  is 
reflected  in  the  recent  European  strategy  on  the  sustainable  supply  of  raw  materials18,  and  in  the 
follow-up  to  the  commitments  on  enhanced  support  made  in  the  2010  Tax  and  Development 
Communication19.  The  EU  hosted  and  co-financed  EITI  expert  meetings  in  2010  and  2011  and 

16 http://www.minfin.fgov.be/portail2/fr/index.htm 
17 The International Tax Dialogue (ITD) is a collaborative arrangement involving the EC, IDB, IMF, OECD, UK 
(DFID) and World Bank Group to encourage and facilitate discussion of tax matters among national tax officials, 
international organisations, and a range of other key stakeholders. The ITD Secretariat is currently hosted by the OECD. 
http://www.itdweb.org/Pages/Home.aspx 
18COM(2011) 25,  Tackling the Challenges in Commodity Markets and on Raw Materials, 
http://ec.europa.eu/enterprise/policies/raw-materials/files/docs/communication_en.pdf  
19 http://register.consilium.europa.eu/pdf/en/10/st11/st11082.en10.pdf, §7. 

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joined  the  supporting  countries’  constituency  in  the  EITI  Board  in  order  to  actively  contribute  to 
developing this initiative further. 

A  Multi-donor  Trust  Fund,  administered  by  the  World  Bank,  and  bilateral  donors  including  EU 
Member States provides assistance to EITI in-country implementation. The Trust Fund was set up 
in  2003  and  European  aid  agencies  such  as  the  UK  Department  for  International  Development 
(DFID),  Gesellschaft  für  Internationale  Zusammenarbeit  (GIZ),  the  Norwegian  Agency  for 
Development Cooperation (NORAD) as well as the European Commission play an important role 
in its implementation. 

EITI  implementation  is  advancing;  11  countries20  have  now  achieved  EITI-compliant  status  and 
several  countries  have  become  new  candidates21.  This  is  remarkable  progress  compared  to  late 
2009, when only Azerbaijan was compliant among a total of 26 implementing countries. 

In order to enhance revenue transparency and corporate governance, the European Commission is 
currently  assessing  the  feasibility  of  asking  EU  listed  companies  to  disclose  financial  data  on  a 
country-by-country basis. Such a reporting standard would be a powerful tool for parliaments and 
civil society to hold multinational enterprises and governments to account for the revenues paid and 
received respectively and could yield important benefits in terms of domestic revenue mobilisation 
by reducing corruption and harmful tax practices. 

Kimberley process. The European Commission is committed to supporting the Kimberley process 
(KPCS),  is  an  active  participant  in  the  KPCS  and  has  chaired  it  in  2007.  The  Commission 
furthermore  chairs  the  Kimberley  Process  Monitoring  Working  Group  that  supervises  KPCS 
implementation  globally  and  has  also  funded  projects,  e.g.  through  statistical  analysis,  satellite 
monitoring  and  technical  expertise,  in  order  to  enhance  the  capacity  of  the  Kimberley  Process  to 
respond to crises, e.g. in Côte d’Ivoire or Zimbabwe. Within the EU, the KPCS is implemented by a 
Council  Regulation,  adopted  in  December  2002.  The  Regulation  lays  down  the  procedures  and 
criteria  to  be  followed  in  the  import  and  export  of  rough  diamonds  into  and  from  the  EU,  and 
creates a uniform EU Kimberley Process certificate which is used for all shipments. In Belgium, the 
Kimberley Process Certification Scheme is being followed up by the Belgian Ministry of Foreign 
Affairs, the Ministry of the Economy and the Ministry of Finance in cooperation with the diamond 
industry  in  Antwerp.  The  UK  has  enacted  the  necessary  national  legislation  allowing  it  to 
implement  the  Kimberly  Process  Certification  Scheme  in  the  UK.  The  UK  implements  the  EU 
Regulation  as  a  designated  Community  Authority  which  allows  it  to  verify  incoming  diamond 
shipments for conformity with the Kimberly Process and to issue Kimberly Process Certificates for 
export shipments.  

2.1.2.11. Emerging themes 

The responses to the questionnaire indicate that the area of tax policy and administration receives 
attention and support from most EU Member States. In the case of good governance in tax matters, 
this  support  is  more  uneven.  Recent  Member  States’  support  tends  to  be  quite  limited  due  to 
selectivity,  lack  of  know-how,  reliance  on  indirect  approaches,  insufficient  resources  or  a  lack  of 

20 Azerbaijan, Liberia, Timor Leste, Ghana, Mongolia, Central African Republic, the Kyrgyz Republic, Niger, Nigeria, 
Norway and Yemen. 
21Afghanistan, Albania, Burkina Faso, Cameroon, Chad, Côte d’Ivoire, Democratic Republic of Congo, Gabon, Guinea, 
Indonesia, Iraq, Kazakhstan, Madagascar, Mali, Mauritania, Mozambique, Peru, Republic of the Congo, Sierra Leone, 
Tanzania, Togo, Zambia, Guatemala and Trinidad & Tobago. 

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demand from counterparts. This approach has the benefit of avoiding spreading donor support too 
thinly, especially in the case of smaller programmes, and may result in better division of labour.   

The responses suggest that many countries follow similar/coordinated approaches, even if perhaps 
more  could  be  done.  Budget  support  operations,  programming  of  aid  to  a  country,  and  the  PEFA 
exercise appears to provide important entry points to the dialogue on various issues.  Some Member 
States,  notably  the  UK,  appear  to  use  a  tailor-made  approach  to  each  country,  with  inherent 
differences  between  low  and  middle  income  countries.  There  are  also  specific  examples  of 
interesting pilots involving e-government and other approaches that if successful may be replicable. 
There is also reliance on partnership with others, notably the OECD, IMF, World Bank and various 
institutions focusing on taxes. Finally, progress is monitored through different means, which range 
from donor-led studies to reliance on public information, including PEFA and investment climate 
reports. This reflects the link and complementarity between tax reform and institution building, and 
public expenditure management and investment climate reform. 

Member  States  do  not  seem  to  advocate  or  pursue  tax  policy  reforms  under  budget  support 
operations. This seems consistent with the earlier observation that this area does not receive priority 
in  the  macro  policy  dialogue  with  developing  countries.  This  issue  has  been  set  out  in  the  recent 
Commission  Green  Paper  'The  future  of  EU  budget  support  to  third  countries'  to  launch  a  public 
consultation22.  Following  on  from  this  consultation,  the  Commission  will  issue  a  Communication 
on budget support later in 2011.  

2.2. 

Scaling up Official Development Assistance (ODA)23 

EU Commitments 

In  2002,  the  EU  Member  States  adopted  joint  commitments  on  ODA  increases.  These 
commitments  were  further  developed  and  broadened,  and  endorsed  by  the  European 
Council in 2005 ahead of the UN World Summit that undertook the first review of progress 
on the Millennium Declaration and the MDGs. The EU and its Member States agreed to 
achieve a collective ODA level of 0.7% of GNI by 2015 and an interim target of 0.56% by 
2010, both accompanied by individual national targets. The EU Member States agreed to 
increase their ODA to 0.51% of their national income by 2010 while those countries which 
had already achieved higher levels (0.7% or above) promised to maintain these levels. The 
Member States that acceded to the EU in or after 2004 (EU-12) promised to strive to spend 
0.17% of their GNI on ODA by 2010 and 0.33% by 2015.24 

22 COM(2010) 586 of 19.10.2010 
23Depending  on  data  availability,  the  text  sometimes  refers  to  EU15  and  EU20,  which  can  nevertheless  be  taken  as 
approximations of the EU’s collective performance. For explanations, see Annex 2: Methodology. 
24The exact wording is as follows: ‘In the context of the commitment to attain the internationally agreed ODA target of 
an  ODA/GNI  ratio  of  0.7%,  the  European  Council  notes  with  satisfaction  that  its  Member  States  are  on  track  to 
achievethe 0.39% target of GNI in 2006 for ODA volumes contained in the Barcelona commitments. While reaffirming 
its  determination  to  fulfil  these  commitments,  the  Council  decided  on  a  new  collective  European  Union  target  of  an 
ODA/GNI ratio of 0.56% by 2010. That would result in an additional EUR20 billion a year in ODA. In this context, the 
European Council can reiterate, in accordance with the outcome of the Council on 24 May 2005, that Member States, 
which have not yet achieved an ODA/GNI ratio of 0.51% undertake to attain that level, within their respective budget 
allocation processes, by 2010, while those that are already above that level undertake to continue their efforts. Member 
States  which  joined  the  EU  after  2002,  and  have  not  yet  achieved  an  ODA/GNI  ratio  of  0.17%,  will  endeavour  to 
increase their ODA to attain that level, within their respective budget allocation processes, by 2010, while those that are 
already  above  that  level  undertake  to  continue  their  efforts;  Member  States  undertake  to  achieve  the  target  of  an 

EN 

19 

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In addition the EU committed in 2005 to: (a) increase ODA to Sub-Saharan Africa and (b) 
provide  50%  of  the  ODA  increase  to  Africa  as  a  whole  (North  Africa  and  Sub-Saharan 
Africa).   

In 2008 the EU as a whole also committed to provide between 0.15 and 0.20% ODA/ GNI 
to the Least Developed Countries by 2010.25  

2.2.1.  EU ODA Commitments in the Global Context 
The origins of the 0.7% target  can be traced back to the late 1950s26. This was formally recognised 
in  October  1970  when  the  UN  General  Assembly  adopted  a  Resolution  including  the  goal  that 
“each  economically  advanced  country  will  progressively  increase  its  official  development 
assistance to the developing countries and will exert its best efforts to reach a minimum net amount 
of 0.7% of its gross national product at market prices by the middle of the Decade.” Although the 
goal of allocating annually 0.7% of GNI to ODA is accepted by all donors except the United States 
of America, only EU donors and Norway have set a date to achieve it.  Norway attained the goal in 
1976 and, since 2000 has been providing ODA to developing countries in the order of 0.8-1% of its 
GNI27. The United States of America does not issue or approve forecasts of projected ODA; in 2010 
it provided USD30 billion (EUR 20.4 billion), 0.21% of its GNI. At the G8 Summit in Gleneagles 
in  2005,  the  US,  Japan  and  Canada  alongside  the  EU  G8  members,  accepted  to  contribute  to  the 
collective  G8  promise  to  increase  aid  to  Africa.  President  Obama  promised  to  double  US  official 
development  assistance  by  201528  –  a  pledge  that,  if  fulfilled,  will  begin  to  appear  in  ODA 
disbursements  after  2010.  Japan29  promised  to  increase  its  ODA  volume  by  USD10  billion  in 
aggregate over 2005-2009, but fell short by USD3.6 billion; it increased its aid by USD1.6 billion in 
2010,  raising  its  ODA/GNI  ratio  to  0.20%,  like  the  US  well  below  the  DAC  average  of  0.32%. 
Canada  met  its  aim  to  double  its  2001  International  Assistance  Envelope  (IAE)  level  by  2010  to 
reach an ODA/GNI ratio of 0.33%30. Australia and Switzerland have announced their intent to reach 
an ODA/GNI target of 0.5% by 2015-2016  and  2015,  respectively; their current  levels are  0.32% 
and 0.41%. New Zealand has committed to 0.35% ODA/GNI in 2010-11, but fell short with only 
0.26%  in  calendar  year  201031.  Korea,  the  most  recent  DAC  member,  has  committed  to  0.25% 
ODA/GNI by 2015 with an interim target of 0.118% in 2010, which it met32”. 

ODA/GNI ratio of 0.7% by 2015, while those which have achieved that target commit themselves to remaining above 
that target; Member States which joined the EU after 2002 will endeavour to increase their ODA/GNI ratio to 0.33% by 
2015. European Council, 18 June 2005, Doc. 10255/05 Conc. 2. 
25European Council, 11 November 2008, Doc. 15075/1/08, Rev. 1 
26T.J.  Moss  (2005).  Ghost  of  0.7%:  Origins  and  Relevance  of  the  International  Aid  Target.  Center  for  Global 
Development. 
27 OECD-DAC Secretariat Simulation of DAC Members’ Net ODA Volumes in 2006 and 2010.  
http://dx.doi.org/10.1787/131026367850  
28 Obama administration committed in 2009 to double foreign aid: 
http://www.usaid.gov/press/frontlines/fl_aug09/p5_nsc080909.html 
29DAC  2011  press  release  on  preliminary  ODA  2010:  Japan’s  Gleneagles  promise  was  to  give  USD  10  billion  more 
over  the  period  2005  to  2009  than  if  its  ODA  had  stayed  at  its  2004  level  over  this  period.  It  fell  short  by  USD  3.6 
billion due mainly to severe economic and budgetary constraints, as well as significant early repayments on ODA loans 
by some borrowing countries. http://www.oecd.org/document/11/0,3746,en_2649_34447_44981579_1_1_1_1,00.html 
30 DAC 2011 press release: http://www.oecd.org/document/35/0,3746,en_2649_34447_47515235_1_1_1_1,00.html  
31OECD Development Co-operation Report 2008  
32DAC  Special  Review  of  Korea’s  Development  Co-operation:  http://dx.doi.org/10.1787/522324562341.  The 
government  is  determined  to  increase  Korea’s  development  assistance,  and  outlines  this  objective  as  one  of  50  core 
tasks in its long-term planning manifesto, Vision 2030. The government set explicit targets, and committed to reaching 
billion+): 
by 
0.118%  ODA/GNI 
http://www.oecd.org/dataoecd/53/50/42347329.pdf  

estimated  USD 

0.25% 

2010 

2015 

and 

(an 

by 

3 

EN 

20 

   EN 

 
                                                                                                                                                                  
The  EU  and  its  Member  States  are  therefore  –  apart  from  Norway  -  the  only  group  of  donors  to 
transform  the  long-standing  UN  0.7%  goal,  considered  by  many  as  an  ’aspirational  goal’,  into  a 
realistic, time-bound target. The EU decided to move forward and achieve this goal in steps within 
15 years  (2000 – 2015), in  line  with  the deadlines of the Millennium Declaration  and  based on a 
mix  of  individual  and  collective  intermediate  targets.  The  first  intermediate  EU  ODA  objectives 
were  defined  in  2002  during  the  preparation  for  the  Monterrey  International  Conference  on 
Financing for Development, based on the EU’s ODA levels in 2000.  

The agreement was that the EU’s combined efforts would achieve the 0.7% ODA/GNI ratio by 
2015 in three steps: 

•  A first set of intermediate targets for 2006. As a first significant step, those Member States that 
had  not  yet  reached  the  0.7%  target  committed  themselves  –individually  and  within  their 
respective budget allocation to increasing their ODA volume between 2002 and 2006 to 0.33% 
of GNI. The other Member States agreed to renew their efforts to remain at or above the target of 
0.7%  ODA,  so  that  collectively  an  EU  average  of  0.39%  would  be  reached  by  2006.  These 
targets were set by the then EU 15 Member States. 

•  A second set of intermediate targets for 2010 was agreed in 2005, after the enlargement of the 
EU to 25 Member States. These targets have been endorsed33and reconfirmed by the European 
Heads of State and Government on various occasions34. Bulgaria and Romania, in the context of 
their  accession  to  the  EU  in  2007,  also  subscribed  to  the  commitments.  The  new  ODA  targets 
were differentiated to take into account the different national income levels and the transition of 
the newer EU Member States from ODA recipients to ODA donors. The definition of the 2010 
intermediate targets took into account the EU’s collective ODA levels in 2004 (0.42% of GNI) 
and  put  2010  at  mid-way,  i.e.  0.56%  to  achieving  0.7%  by  2015.  This  collective  target  was 
translated  into  different  individual  targets  for  Member  States  (0.51%  for  EU15  and  0.17%  for 
EU12).  The  collective  target  assumed  that  the  most  generous  EU  donors  would  (a)  deliver  on 
more  ambitious  national  timetables  (e.g.  Belgium,  Finland,  France  and  the  United  Kingdom 
based  on  a  steady  scaling  up)  and  (b)  those  already  above  0.7%  promised  to  sustain  and  not 
decrease their high levels. These countries were counted upon to achieve a higher collective level 
than the individual targets mentioned above.  

•  A third set of targets for 2015: 0.7% is the collective target and minimum individual threshold 
for the EU15. The EU12 target was set at 0.33% corresponding to the EU15 collective outcome 
for 2000, thereby accepting that the newest 12 Member States needed a long transition phase to 
adapt to the EU acquis.   

In  2005,  as  part  of  the  first  review  of  progress  on  the  MDGs  and  the  G8  Summit  at  Gleneagles, 
these EU commitments were the main basis for calculating that the donor community would raise 
an additional USD50 billion (at 2004 prices) in official development assistance by 201035. 

2.2.2.  EU ODA Performance 2005-2010 compared to other donors 

The EU has not only pledged to deliver more aid than non EU donors, but its combined efforts are 
already delivering substantially greater amounts of ODA, and individual EU countries (with a few 

33European Council, 18 June 2005, Doc. 10255/05 
34Most recently by the European Council on 17 June 2010 
35The dollar value of the 2010 pledge was calculated by OECD DAC and backed by UN and World Bank estimates of 
incremental MDG costs, net of domestic resource contributions. 

EN 

21 

   EN 

 
 
 
                                                 
exceptions) are also making more substantial efforts in relative terms. Over the period 2004-2010, 
the  EU  and  its  Member  States  accounted  for  57%  of  net  ODA  to  developing  countries  from  all 
DAC  and  EU  donors,  and  for  65%  of  the  global  EUR  25.7  billion  ODA  increase  in  real  terms 
during this period.   

EN 

22 

   EN 

 
Figure 1 – Net ODA by Donor (EUR million, 2008 prices)  

Net ODA Volumes by Donor 
(Disbursements, EUR million at 2008 prices)

s
e
c
i
r
p

8
0
0
2

t
a

n
o

i
l
l
i

m
R
U
E

60000

50000

40000

30000

20000

10000

0

EU

Canada

Japan

USA

2004

36775

2477

6225

15315

2005

47083

3228

9443

21010

2006

48367

2889

8547

17140

2007

45617

2937

6018

15428

2008

50032

3324

6656

18610

2009

50152

3000

5925

19737

2010

53458

3382

6624

20436

Source: OECD DAC/European Commission 

The  above  statistics  do  not  include  aid  from  large  emerging  donors  like  Brazil,  China,  India,  or 
Russia, as none of them report to DAC.  Overall, aid from emerging donors is estimated to amount 
to about 10-12% of total ODA from all donors (EUR10-12 billion per year). 

As shown in Table 1, both the EU’s per capita ODA and its ODA/GNI ratios are greater than those 
of non-EU DAC Members. Indeed, its ODA/GNI ratio is  double that of Japan and the USA. The 
EU12 still have ODA/GNI ratios that are below the average for non-EU DAC donors, but they have 
been  growing  from  a  low  base.  Collectively,  the  EU  outperforms  most  other  donors  by  a  wide 
margin. 

Table 1 – ODA/GNI and ODA per capita of EU Member States and Non-EU DAC Members  
(at 2008 prices) 

Country 

EU 25/27 
EU 15 
EU 10/12 
USA 
Japan 
Canada 
DAC Non EU Members 
DAC Members 

ODA volumes 
(EUR billion) 
2010 
2004 
53.5
36.8
52.6
36.4
0.8
0.3
20.4
15.3
6.6
6.2
3.4
2.5
38.6
29.6
91.2
66.0

ODA per 
capita (EUR)
2010 
2004 
107
75
134
95
3
8
66
52
52
49
99
77
69
58
96
71

ODA/GNI 
(%) 
2004  2010 
0.43 
0.46 
0.09 
0.21 
0.20 
0.33 
0.23 
0.32 

0.34 
0.35 
0.07 
0.17 
0.19 
0.27 
0.19 
0.25 

Source: OECD DAC/European Commission  

2.2.3.  Role of Debt Relief in EU ODA 

The  growth  of  EU  ODA  in  2010  is  significant  if  one  considers  the  declining  importance  of  debt 
relief in the overall ODA effort of EU Member States. In the period 2005-2006 several EU Member 
States  (namely  Austria,  Belgium,  Finland,  France,  Germany,  Italy,  Spain  and  the  UK)  saw  an 

EN 

23 

   EN 

 
 
 
 
 
 
 
 
 
 
increase of ODA due in large part to exceptional debt relief. Almost two thirds of the EU15 debt 
relief  over  the  period  2004-2009  was  directed  to  two  resource  rich  countries:  Iraq  (33%)  and 
Nigeria (30%).  Some smaller but still significant debt relief programmes were also implemented in 
2007 and 2008 but became minimal in 2009, except for France. 

One positive effect of the EU ODA commitments is that they stimulated growth in EU ODA other 
than for debt relief over the period 2005-2010, and this more than compensated for the fall in debt 
relief. Over the period 1995-2010, EU ODA net of debt relief grew by 0.06% of GNI from 0.34% in 
1995 to 0.41% in 2010 for EU27. The gap between the EU and non-EU DAC Members’ ODA net 
of debt relief had narrowed to only 0.10% of GNI by 2005, but the recent growth means that the gap 
has widened again reaching 0.23% of GNI by 2010  

Debt relief certainly helped increase EU ODA over the period, and especially helped meet the targets in 
2006. But it was a ’one-off’ effect exercise and not sustainable. The real challenge now for the Member 
States is to increase their national ODA budgets in a period of budget austerity.  

Figure 2 – EU ODA and Debt Relief as a % of GNI 

ODA without debt relief

Debt Relief 

0.04 

0.04 

0.03 

0.03 

0.02 

0.02 

0.03 

0.06 

0.06 

0.04 

0.02 

0.02 

0.12 

0.10 

0.05 

0.04 

0.34 

0.33 

0.29 

0.29 

0.28 

0.29 

0.30 

0.29 

0.28 

0.30 

0.30 

0.31 

0.39 

0.41 

0.36 

0.33 

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: OECD DAC (covering 20 EU Member States reporting to the DAC) 

As  shown  in  Figure  3  below,  debt  relief  played  an  important  role  in  ODA  for  several  Member 
States: Austria, France, Germany and Italy had a high share of debt relief in their ODA over the last 
five years. It is interesting to note that some of the Member States that are already behind schedule 
on their individual aid commitments have made the greatest use of debt relief (e.g. Germany, Italy 
and Portugal). Sudden increases in ODA shown in the country charts in Annex 3 were mainly due 
to debt relief. Portugal carried out substantial  debt relief or rescheduling  operations in 1995-2000 
and  again  in  2004.  Spain  did  likewise  in  2001  and  2005-2006,  Italy  in  2002-2006,  Germany  in 
2002-2008,  France  for  the  entire  period  1995-2010  (fluctuating  between  11%  and  45%  of  total 
ODA), and Austria in 1999-2002 and 2005-2008. 

EN 

24 

   EN 

 
 
 
 
  
 
Figure 3 – Share of Debt Relief in Net ODA (cumulative, 2004-2010, %) 

39%

22%22%

20%

18%

17%

13%

11%

10%

5% 5% 5% 4% 4% 3% 2% 2%

1% 0% 0% 0% 0% 0%

Source: OECD DAC  

2.2.4.  Performance on ODA targets (2005-2010) 

ODA figures on 2010 net disbursements are preliminary, based on information of the EU Member 
States and the European Commission. For those EU Member States that report to the OECD/ DAC 
final and more comprehensive ODA figures will become available towards the end of 2011 

As anticipated in the 2010 Financing for Development annual progress report, after achieving 
its 2006 intermediate target of 0.39% of GNI, the EU and its Member States did not achieve 
their  collective  2010  target  of  0.56%.  However,  the  positive  trend  continued  reaching  the 
highest  ODA/GNI  ratio  for  twenty  years,  notwithstanding  the  decline  in  debt  relief  and  the 
EU-wide budget. 

Since  2008  the  financial  crisis  has  hit  EU  Member  States  hard,  triggering  the  deepest  global 
economic  recession  for  decades.  State-financed  rescue  packages  for  the  affected  banking  sector, 
higher  social  protection  costs  and  lower  budget  revenues  have  dramatically  changed  the  fiscal 
situation  in  many  Member  States.  Nine  Member  States  (namely  Belgium,  Cyprus,  Denmark, 
Finland,  Ireland,  Luxembourg,  Netherlands,  Sweden,  and  the  United  Kingdom)  achieved  or 
exceeded the 2010 EU individual minimum targets. Most of them also reached their more ambitious 
national  ODA  targets.  However,  other  eighteen  EU  Member  States  missed  the  individual  2010 
minimum  thresholds  and,  as  a  consequence,  also  the  collective  target  of  0.56%  has  not  been 
achieved (see Figure 4 below).  

In 2009, EU-27 ODA decreased in volume terms to EUR 49 billion, but increased as a share of GNI 
from 0.40% in 2008 to 0.42% due to falling GNI levels during the crisis. ODA growth resumed in 
2010  and  ODA  increased  by  more  than  EUR  4.5  billion  to  almost  EUR  54  billion,  equivalent  to 
0.43% of GNI. Despite the increase, this means the EU has missed the collective target of 0.56% 
ODA/GNI target in 2010 by a wide margin of about 0.13% of GNI (EUR 15 billion).  

EN 

25 

   EN 

 
 
 
 
 
 
 
Low  or  negative  economic  growth  rates  in  the  EU  as  a  consequence  of  the  crisis,  and  the 
consequential austerity measures that Member States introduced, led to different pressures on ODA. 
On the one hand lower GNI growth combined with higher public expenditure elsewhere may lead to 
a  cut-back  in  spending  on  development  co-operation,  which  in  turn  would  result  in  a  lower 
trajectory of scaling up to meet 2015 targets. On the other hand, where aid volumes are not cut, aid 
level  can  appear  higher  when  expressed  as  a  percentage  of  GNI  but  provide  no  additional  ODA 
funding for developing countries.  

Figure 4 – Gap between 2010 and 2015 targets and 2010 results 

Gap between 2010 ODA levels and agreed individual targets of the 27 EU Member States 
and direction of change from 2009 to 2010

1.20

1.09

I

N
G

f
o
%
s
a
A
D
O

1.00

0.80

0.60

0.40

0.20

0.00

0.97

0.90

0.81

0.64

0.56 0.55

0.53

0.7

0.51

Direction of change of ODA as % of GNI
          increase
          no change
          decrease

0.50

0.43

0.38

0.32

0.29

0.17 0.15

d
n
a
e
r
I

l

e
c
n
a
r
F

i

n
a
p
S

y
n
a
m
r
e
G

a

i
r
t
s
u
A

l

a
g
u
t
r
o
P

e
c
e
e
r
G

y
l
a
t
I

0.20

s
u
r
p
y
C

0.33

0.17

0.06

a

i
v
t
a
L

0.13 0.12 0.11 0.10 0.10 0.09 0.09 0.09 0.08 0.07

i

a
n
e
v
o
S

l

a
t
l
a
M

i

a
n
a
u
h
t
i
L

i

a
n
o
t
s
E

y
r
a
g
n
u
H

a

i
r
a
g
u
B

l

c
i
l

b
u
p
e
R
h
c
e
z
C

d
n
a
o
P

l

i

a
n
a
m
o
R

c
i
l

b
u
p
e
R
k
a
v
o
S

l

i

K
m U
u
g
e
B

l

n
e
d
e
w
S

k
r
a
m
n
e
D

g
r
u
o
b
m
e
x
u
L

s
d
n
a

l
r
e
h
t
e
N
e
h
T

d
n
a
n
F

i

l

2010 level (preliminary)

2010 individual commitment

2015 individual commitment

Source: OECD DAC/European Commission (EU annual questionnaire on financing for development) 

and EU annual questionnaire on financing for development) 

EN 

26 

   EN 

 
 
 
 
 
 
 
 
 
 
 
Table 2: EU ODA volumes and as % of GNI 2004 – 2010 and gaps for reaching the 2010 intermediate ODA targets 

2004

2005

2006

2007

2008

2009

2010 (preliminary)

O DA EUR 
Million

O DA in % 
of GNI

O DA EUR 
Million

O DA in % 
of GNI

O DA EUR 
Million

O DA in % 
of GNI

O DA EUR 
Million

O DA in % 
of GNI

O DA EUR 
Million

O DA in % 
of GNI

O DA EUR 
Million

O DA in % 
of GNI

O DA EUR 
Million

O DA in % 
of GNI

2010 (commitments)
O DA EUR 
Million

O DA in % 
of GNI

2010: financial gap to 
INDIVIDUAL targets

Gap EUR 
million

Gap in % of 
GNI

EU-15: 0.51

EU-12: 0.17
(or national 
target)

EU-15: 0.51

EU-12: 0.17

545

1178

4

87

1640

4

547

6820

6064

258

56

489

1981

7

8

190

8

3384

95

830

23

25

1962

2191

6362

34441

317

34758

0.23

0.41

0.03

0.11

0.85

0.04

0.37

0.41

0.28

0.16

0.07

0.39

0.15

0.06

0.04

0.79

0.18

0.73

0.05

0.63

0.07

0.10

0.24

0.78

0.36

0.35

0.07

0.34

1266

1580

4

109

1697

5

726

8067

8112

309

81

578

4096

8

12

206

7

4115

165

303

45

28

2429

2705

8667

44856

464

45320

0.52

0.53

0.03

0.11

0.81

0.05

0.46

0.47

0.36

0.17

0.11

0.42

0.29

0.07

0.06

0.79

0.17

0.82

0.07

0.21

0.12

0.11

0.27

0.94

0.47

0.44

0.09

0.42

1194

1575

1

21

128

1782

11

665

8445

8313

338

119

814

2901

9

20

232

7

4343

236

316

3

44

35

3038

3151

9926

47033

635

47668

0.47

0.50

0.00

0.15

0.12

0.80

0.09

0.40

0.47

0.36

0.17

0.13

0.54

0.20

0.06

0.08

0.89

0.15

0.81

0.09

0.21

0.00

0.10

0.12

0.32

1.02

0.51

0.43

0.09

0.41

1321

1425

17

18

131

1872

12

717

7220

8978

366

76

871

2901

12

35

274

8

4547

265

344

84

49

40

3755

3170

7194

44954

745

45699

0.50

0.43

0.06

0.12

0.11

0.81

0.08

0.39

0.38

0.37

0.16

0.08

0.55

0.19

0.06

0.11

0.92

0.15

0.81

0.10

0.22

0.07

0.09

0.12

0.37

0.93

0.36

0.39

0.09

0.37

0.43

0.48

0.04

0.17

0.12

0.82

0.10

0.44

0.39

0.38

0.21

0.08

0.59

0.22

0.07

0.11

0.97

0.20

0.80

0.08

0.27

0.07

0.10

0.13

0.45

0.98

0.43

0.43

0.09

0.40

820

1874

12

33

154

2018

13

926

9048

8674

436

84

722

2368

15

30

298

10

4615

269

368

99

54

57

4728

3266

8251

48413

830

49243

0.30

0.55

0.04

0.20

0.12

0.88

0.10

0.54

0.47

0.35

0.19

0.10

0.54

0.16

0.07

0.11

1.04

0.18

0.82

0.09

0.23

0.09

0.09

0.15

0.46

1.12

0.52

0.45

0.10

0.42

905

2265

31

34

169

2164

14

1008

9751

9606

378

85

676

2349

12

28

301

7

4795

285

489

86

56

48

4467

3418

10391

52963

854

53817

0.32

0.64

0.09

0.20

0.12

0.90

0.10

0.55

0.50

0.38

0.17

0.09

0.53

0.15

0.06

0.10

1.09

0.11

0.81

0.08

0.29

0.07

0.09

0.13

0.43

0.97

0.56

0.46 

0.09 

0.43 

1419

2486

58

29

234

1901

24

910

10026

12888

1139

158

647

7780

31

46

286

10

4654

581

843

205

112

60

5259

3500

8795

62532

1548

64365

0.51

0.70

0.17

0.17

0.17

0.80

0.17

0.51

0.51

0.51

0.51

0.17

0.51

0.51

0.17

0.17

1.00

0.17

0.80

0.17

0.51

0.17

0.17

0.17

0.56

1.00

0.56

0.56

0.17

0.53

513

221

27

0

65

0

10

0

274

3282

762

73

0

5432

19

18

0

3

0

295

354

119

56

13

792

82

0

11712

699

12411

0.19

0.06

0.08

-

0.05

-

0.07

-

0.01

0.13

0.34

0.08

-

0.36

0.11

0.07

-

0.06

-

0.09

0.22

0.10

0.08

0.04

0.13

0.03

-

0.10

0.08

0.10

Gap to collective 2010 target 0.56%

Target in EUR million: 
Gap in EUR million
Gap in % of GNI

68,376 
14,559 
0.13 

1188

1654

13

26

173

1944

16

808

7562

9693

488

74

921

3370

15

35

288

11

4848

258

430

94

64

47

4761

3281

7973

49207

825

50032

27 

EN 

O fficial Targe ts

Austria

Be lgium

Bulgaria

Cyprus

Cze ch Re public

De nmark

Estonia

Finland

France

Germany

Greece

Hungary

Ireland

Italy

Latvia

Lithuania

Luxembourg

Malta

The Netherlands

Poland

Portugal

Romania

Slovak Republic

Slovenia

Spain

Swe den

UK

EU 15 TO TAL

EU 12 TO TAL

EU 27 TO TAL

EN 

 
  
        
        
        
      
      
         
 
The  trends  among  Member  States  varied,  as  the  figures  and  tables  in  Annex  2  show.  The 
largest increase during 2010 was made by the United Kingdom (EUR 2.1 billion), followed 
by  Germany  (EUR  0.9  billion),  France  (EUR  0.7  billion),  and  Belgium  (EUR  0.4  billion). 
These four countries accounted for over 90% of the increase between 2009 and 2010. Cyprus 
(0.20%) exceeded its individual, intermediate target threshold of 0.17% ODA/GNI, which it 
had already achieved in 2009, one year ahead of schedule. Sweden,  despite increased ODA 
volumes corresponding to 0.97% of its GNI again demonstrated how difficult it is to remain, 
year-on-year,  in  keeping  with  its  national  1%  target  level.  Belgium,  although  reaching  a 
record  level  of  0.64%  ODA/GNI,  had  planned  to  spend  0.7%  of  its  GNI  for  development 
assistance in 2010 and beyond, in line with its national legislation and projects reaching that 
level in 2011. Ireland, severely hit by the financial crisis, had decided, in 2010, to slow down 
the  scaling-up  of  ODA  process  and  to  align  with  the  common  EU  timetable,  by  postponing 
the target date for reaching 0.7% ODA/ GNI from 2012 to 2015. Consequently Ireland's ODA 
spending in 2010 was cut, but less than initially feared.  

From  2009  to  2010,  ODA  fell  in  nine  Member  States  (Greece,  Ireland,  Italy,  Latvia, 
Lithuania, Malta, Romania, Slovenia and Spain), although for most of them the decline was 
minor. The worst aid cuts were made in Spain (down EUR 261 million, to 0.43% ODA/GNI).  

The performance of Italy and Germany will be particularly important in helping achieve the 
2015 target as they account for almost half the shortfall. Italy has shown little commitment to 
the ODA targets and has continuously cut its aid budgets over the last five years. This has led 
to a decline in ODA/GNI ratios from 0.20% in 2002 to 0.15% in 2010, with a few occasional 
increases over the period due mostly to one-off debt relief operations that are not enough for 
sustaining ODA levels. Germany, whose ODA/GNI ratio grew from 0.27% in 2002 to 0.38% 
in  2010,  also  relied  substantially  on  the  one-off  effects  of  debt  relief.  Contrary  to  its 
declaration annexed to the May 2005 Council Conclusions, Germany has not introduced the 
innovative  sources  of  financing  with  sufficient  revenue  generation  potential  it  had  declared 
were necessary to reach the ODA targets. Increased allocations to the Development Ministry’s 
budget came too late and at much too low a level to create the necessary upward trend. 

2.2.5.  Achievement of the 0.7% ODA/GNI Target by 2015 

The  EU  scaling-up  process  has  been  uneven,  with  asymmetric  efforts.  Member  States  not 
contributing their fair share to the burden-sharing effort endanger the performance of the EU 
as a whole and substantially increase the risk of collective failure on ODA targets.   

Figure 5 below  shows the long-term trends  in ODA volumes for the EU27.  At the current 
pace and with existing budgets, there is a delay equivalent to about 25 years on the path to 
0.7%, as ODA is projected to increase at an annual rate of 0.01% of GNI. These Commission 
simulations  build  on  the  trends  of  2005  –  2010  and  spending  forecasts,  as  available,  that 
Member States reported in their replies to the annual questionnaire. To reach 0.7% ODA/ GNI 
by  2015  as  planned,  efforts  would  have  to  be  stepped  up  dramatically  but  this  may  not  be 
realistic  under  current  economic  conditions.  Furthermore,  as  shown  in  Figure  4  above,  the 
main effort would have to come from under-performing Member States, which would have to 
drastically increase their ODA in a short time span under tight budget conditions. To reach the 
2015 target Latvia would need to sextuple its current ODA volumes over the next five years, 
Bulgaria,  Greece,  Italy,  Poland,  Romania,  and  the  Slovak  Republic  quintuple;  Estonia, 
Hungary, and Malta quadruple; and Austria, the Czech Republic, Portugal and Slovenia triple 
their  aid  allocations..  This  effort  is  all  the  more  significant  since  the  exceptional  debt  relief 
operations that explain, for example, the sudden increase in 2005-2006 (see Figure 5) will not 
be feasible again. 

EN 

28 

   EN 

 
 
Figure 5 - EU 27 ODA/GNI Ratios (1995-2015)  

EU27  - ODA as a % of GNI 
Historical data and projections for reaching 2015 targets

EU15

EU25

EU27

EU15 ODA to Africa

EU15 ODA to LDCs

Required linear increase

EU27  Commission  projections or MS forecasts

0.80

0.70

0.60

0.50

2015 Target: 0.70

2010 Target: 0.56

0.70

0.65

0.61

0.55

0.50

0.40

0.37

0.37

0.33

0.33

0.31

0.32

0.33

0.35

0.35

0.35

0.42

0.40

0.37

0.41

0.41

0.43

0.43

0.43

0.44

0.45

0.45

0.30

0.20

0.10

0.00

LDC Target: 0.15

I

N
G

f
o
%
a
s
a
A
D
O

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: OECD DAC/European Commission (EU annual questionnaire on financing for development) 

EN 

29 

EN 

 
  
 
 
 
 
 
 
Table 3: Estimates and gaps to be bridged for reaching the 2015 ODA targets, based on Member States' forecast information and Commission simulation 

2010 (pre liminary)

2011

2012

2013

2014

O DA EUR 
Million

O DA in % 
of GNI

O DA EUR 
Million

O DA in % 
of GNI

O DA EUR 
Million

O DA in % 
of GNI

O DA EUR 
Million

O DA in % 
of GNI

O DA EUR 
Million

O DA in % 
of GNI

2015 
(forecast/simulation) 
O DA EUR 
O DA in % 
of GNI
Million

2015 (commitme nts)
O DA EUR 
Million

O DA in % 
of GNI

2015: financial gap to 
me et individual targe ts 
Gap EUR 
Gap in % of 
GNI
million

EU-15: 0.7

EU-12: 0.33

EU-15: 0.7

EU-12: 0.33

905

2265

31

34

169

2164

14

1008

9751

9606

378

85

676

2349

12

28

301

7

4795

285

489

86

56

48

4467

3418

10391

52963

854

53817

0.32

0.64

0.09

0.20

0.12

0.90

0.10

0.55

0.50

0.38

0.17

0.09

0.53

0.15

0.06

0.10

1.09

0.11

0.81

0.08

0.29

0.07

0.09

0.13

0.43

0.97

0.56

0.46

0.09 

0.43 

929

2,576

31

34

180

2,043

17

1,074

9,555

10,479

418

94

669

2,495

12

33

292

13

4,646

321

335

99

66

60

4,234

4,025

10948

54716

960

55677

0.32

0.70

0.08

0.19

0.12

0.82

0.12

0.56

0.47

0.40

0.19

0.09

0.52

0.16

0.06

0.11

1.00

0.22

0.76

0.09

0.20

0.08

0.10

0.17

0.40

1.00

0.56

0.46 

0.10 

0.43 

1,053

2,676

36

34

193

2,043

21

1,119

10,044

10,933

423

96

708

3,281

12

39

309

15

4,480

357

364

119

63

66

3,934

4,184

11411

56962

1052

58014

0.35

0.70

0.09

0.19

0.13

0.79

0.14

0.56

0.48

0.40

0.19

0.09

0.55

0.20

0.06

0.13

1.00

0.24

0.71

0.09

0.21

0.09

0.09

0.17

0.36

1.00

0.56

0.46 

0.10 

0.43 

1,046

2,771

42

35

197

2,043

23

1,175

9,128

11,416

441

95

766

2,003

12

46

327

18

4,661

391

403

136

63

69

4,450

4,367

14878

59873

1128

61001

0.34

0.70

0.10

0.18

0.12

0.77

0.14

0.56

0.42

0.41

0.19

0.09

0.57

0.12

0.06

0.14

1.00

0.27

0.70

0.09

0.23

0.10

0.08

0.17

0.39

1.00

0.70

0.47 

0.10 

0.44 

1,099

2,869

49

36

211

2,144

27

1,229

9,513

11,911

459

94

834

1,792

13

53

346

20

4,810

428

448

157

63

71

5,045

4,551

15561

62613

1221

63834

0.34

0.70

0.11

0.18

0.13

0.79

0.16

0.55

0.43

0.41

0.19

0.08

0.60

0.11

0.06

0.16

1.00

0.30

0.70

0.10

0.24

0.11

0.07

0.17

0.43

1.00

0.70

0.48 

0.11 

0.45 

1,034

2,972

56

36

225

2,257

31

1,334

9,940

12,426

480

93

914

1,606

13

63

366

23

5,059

467

499

180

63

73

5,729

4,739

16308

65663

1324

66986

0.31

0.70

0.12

0.17

0.13

0.81

0.17

0.57

0.43

0.42

0.19

0.08

0.63

0.09

0.06

0.18

1.00

0.33

0.70

0.10

0.26

0.12

0.07

0.17

0.47

1.00

0.70

0.48 

0.11 

0.45 

2329

2972

151

69

579

2240

61

1624

16091

20851

1779

379

1021

11948

74

117

366

23

5059

1541

1340

510

297

143

8510

4739

16308

96238

3946

100181

0.70

0.70

0.33

0.33

0.33

0.80

0.33

0.70

0.70

0.70

0.70

0.33

0.70

0.70

0.33

0.33

1.00

0.33

0.70

0.33

0.70

0.33

0.33

0.33

0.70

1.00

0.70

0.71

0.33

0.68

1424

707

121

35

411

76

47

616

6340

11245

1401

294

345

9600

62

89

65

16

264

1256

851

424

242

96

4043

1321

5917

44215

3092

47307

0.42

0.13

0.26

0.16

0.22

-

0.25

0.25

0.26

0.34

0.52

0.26

0.20

0.57

0.27

0.22

-

0.16

-

0.26

0.50

0.26

0.27

0.20

0.30

-

0.23

0.30

0.25

0.29

O fficial Targe ts

Austria

Be lgium

Bulgaria

Cyprus

Cz e ch Republic

De nmark

Estonia

Finland

France

Ge rmany

Gre e ce

Hungary

Ire land

Italy

Latvia

Lithuania

Luxe mbourg

Malta

The  Ne therlands

Poland

Portugal

Romania

Slovak Republic

Slovenia

Spain

Swe den

UK

EU 15 TO TAL

EU 12 TO TAL

EU 27 TO TAL

MS Projection/Budget Forecast

Gap to collective 2015 target 0.7%

Target in EUR million: 
Gap in EUR million
Gap in % of GNI
2010 ODA on 2015 GNI
Total

103,736 
49,919 
0.34 
0.36 
0.70 

EN 

30 

EN 

 
  
              
         
         
         
         
           
         
         
         
         
                
              
              
              
              
                
              
              
              
              
              
            
            
            
            
           
         
         
         
         
                
              
              
              
              
           
         
         
         
         
           
       
         
         
         
         
       
       
       
       
              
            
            
            
            
                
              
              
              
              
              
            
            
            
            
           
         
         
         
         
                
              
              
              
              
                
              
              
              
              
              
            
            
            
            
                
              
              
              
              
           
         
         
         
         
              
            
            
            
            
              
            
            
            
            
                
            
            
            
            
                
              
              
              
              
                
              
              
              
              
           
         
         
         
         
           
         
         
         
         
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
 
   
      
      
      
 
Initial  projections  for  2011,  based  on  Member  Sates’  replies  or  budget  data  monitored  by 
Concord/AidWatch36,  point  to  an  increase  in  ODA  budgets  below  the  expected  GNI  growth  rate 
that would lead to a stable ODA/GNI ratio for 2011 of 0.43%. 

The prospects for 2011 according to Member States' reports are as follows: 

•  The  ODA  budgets  for  Austria,  Belgium,  the  Czech  Republic,  Estonia,  Finland, 
Germany37,  Greece,  Hungary,  Italy,  Lithuania,  Malta,  Poland38,  the  Slovak  Republic, 
Slovenia, Sweden and the United Kingdom are expected to grow in 2011.   

•  Bulgaria,  Cyprus,  Ireland39,  Latvia,  and  the  Slovak  Republic  will  maintain  their  ODA 

budget essentially at the same level in nominal terms. 

•  Denmark, France, Luxembourg, the Netherlands, Portugal40, and Spain will reduce their 

ODA budget in 2011. 

•  Romania  did  not  provide  estimates  for  its  2011  ODA  budgets  and  no  third  party 

monitoring was available. 

The ODA graphs in Annex 2 show each EU Member State's readiness to meet the individual ODA 
target levels of 0.7% and 0.33% of GNI for EU15 and EU12 respectively in 2015. Annex 1 outlines 
the methodology used to analyse ODA indicators and forecasts provided by Member States. 

A  recent  survey  by  OECD  DAC41  reached  similar  conclusions;  i.e.  that  donors’  forward  budget 
plans will probably remain substantially steady in 2011. According to this survey, global Country 
Programmable  Aid  (CPA)  is  ‘programmed  to  grow  at  a  real  rate  of  2.5%  per  year  from  2009  to 
2012.  This  is  good  news  in  the  light  of  the  current  climate  of  budgetary  austerity  in  OECD 
countries.  The  bad  news  is  that  growth  in  planned  CPA  is  decelerating  significantly,  from  an 
average annual growth rate of 7% over the past three years. Almost all the planned growth was in 
2010, with a zero-forecast growth rate in 2012.’  

Enabling  factors  for  increases  in  Member  States’  ODA.  There  has  been  some  progress  in 
establishing what can be considered ‘multi-annual timetables’ for ODA, as repeatedly called for by 
Council  Conclusions.  Timetables  have  proven  a  useful  tool  for  embedding  the  scaling-up  of  aid 
volumes in national budgets in line with stated commitments. Member States have taken different 
paths in developing timetables (see Box 1).  

However, even where these tools exist, they cannot stop possible reductions in ODA budgets when 
there is a strong political intent to do so, as shown by the recent events in the Netherlands or Spain. 
Nor can the tools replace the political will to increase aid where no such will exists. 

36AidWatch Briefing (February 2011), Between austerity and political will: EU MS ODA budgets in 2011. Risks 
that in 2011 genuine EU aid will fall for the first time since 1997. 
37According to Aid Watch (2011), Germany’s budget for 2011 will increase to 0.40% of GNI. 
38Based on Aid Watch (2011), as no reply was provided by the Member State. 
39According to Aid Watch (2011), Ireland’s ODA budget will decline in 2011. We inserted the reply 
provided by Ireland to the Monterrey questionnaire. 
40According to Aid Watch (2011), Portugal’s ODA budget will decline in 2011.  
41See the 2010 OECD Report on Aid Predictability Survey on Donors’ Forward Spending Plans 2010 – 2012. 

EN 

31 

   EN 

 
 
 
 
 
 
 
                                                 
Box 1. Approaches to maintaining or increasing ODA budgets 

Enacting legislation to make 0.7% ODA/GNI a binding obligation. Belgium has set, by law, a minimum aid 
level  commitment,  called  the  ‘growth-path’  towards  the  0.7%  target.  The  ‘growth  path’  is  set  out  in  the 
solidarity  notes  and  can  also  be  amended  by  the  solidarity  notes.  These  are  drafted  and  approved  by  the 
government but the government cannot amend the legally binding target of 0.7% to be reached in 2010. Despite 
this, the Belgian ODA level was 0.64% of GNI in 2010, missing its legally binding commitment to the 0.7% 
target.  For  many  years  the  Netherlands  has  had  a  legal  obligation  to  spend  a  fixed proportion  of  its  GNI  as 
ODA. In a letter of 26 November 2010 to the House of Representatives on its development cooperation policy 
the new ruling coalition stated that ’[the budget] will be reduced in two equal steps in the next two years, from 
0.8%  to  0.7%  of  GNP  as  of  2012’.  In  the  UK,  the  government  will  enshrine  in  law  before  April  2012  its 
commitment  to  spend  0.7%  of  GNI  as  ODA  from  2013.  There  seems  to  be  cross-party  consensus  on  the 
importance of ODA and readiness to assume responsibility in the world, as the commitment for 2015 was kept 
notwithstanding  the  recent  change  in  government.    Cross-party  consensus  is  important  in  maintaining  high 
ambitions even under difficult budget situations. 

Transparent  multi-year  budget  spending  plans.  The  UK  Government  has  set  out  its  commitment  to 
increase Official Development Assistance (ODA) to 0.56% of GNI in 2011 and 2012 and 0.7% from 2013 in 
line with the UK’s international commitments to help the very poorest in the World. The Spending Review 
2010, published on 20 October 2010, sets out the figures for each year up to 2014 in clear spending plans 
(http://www.hm-treasury.gov.uk/spend_sr2010_documents.htm). The UK’s ODA budget will increase every 
year between now and then, amidst budget cuts in many other areas, an indication that ODA increases are 
possible despite budget austerity, if the political will is there. 
Government-endorsed  development  policy  documents.  The  Finnish  Development  Policy  Programme42, 
i.e. Government Decision-in-Principle, has stated the commitment to ensuring the development cooperation 
appropriations  which  ’will  take  Finland  towards  0.7%  GNI  set  by  the  UN,    and  Finland  is  committed  to 
achieve  the  target  of  0.51%  in  2010  as  established  in  the  European  Council’s  decision’.  Denmark’s 
commitments and strategic priorities are set down in its new development strategy ‘Freedom from Poverty - 
Freedom  to  change’  and  the  accompanying  multi-annual  budget  forecast43.  The  Spanish  ‘Master  Plan  for 
Development Cooperation 2009-2012’44 forms the basis of Spanish development cooperation at government 
level and was endorsed by the Spanish Government and Parliament. The Master Plan states that Spain aspires 
to reach an ODA/GNI ratio of 0.7% by 2012. Spain has shown a significant commitment to increase its aid 
over  the  last  few  years,  but  ODA  is  always  lagging  behind  its  own  national  plans  and  has  been  declining 
since  2008.    Given  current  aid  levels,  it  seems  unrealistic  to  assume  that  Spain  could  achieve  its  national 
target, especially in light of the further aid cuts announced for 2011. 

Indicative  multi-annual  timetables.  Four  Member  States  (Belgium,  Malta,  Sweden,  and  the  United 
Kingdom)45  have  indicative  multi-annual  timetables  in  place  that  show  the  path  towards  the  achievement  of 
their  individual  target  for  2015.  As  part  of  next  year’s  budget  process  for  the  financial  year  2012  and  the 
medium-term  financial  plan  until  2015,  the  German  government  will  define  its  intended  budgets  for 
development cooperation. Nevertheless government and parliament will discuss the actual annual budgets for 
2013-2015 and how to reach this goal in the annual budget processes. 

42http://formin.finland.fi/public/default.aspx?contentid=107497 
http://formin.finland.fi/public/default.aspx?contentid=107497  
43http://amg.um.dk/NR/rdonlyres/1C903D5E-3A75-453F-BACB 
8EBF8B55F7F2/0/Priorities_danish_development_assistance20112015.pdf 
http://amg.um.dk/NR/rdonlyres/1C903D5E-3A75-453F-BACB 
8EBF8B55F7F2/0/Priorities_danish_development_assistance20112015.pdf  
44http://www.maec.es/en/MenuPpal/Actualidad/NotasdePrensa/Paginas/49NP20090514EN.aspx 
http://www.maec.es/en/MenuPpal/Actualidad/NotasdePrensa/Paginas/49NP20090514EN.aspx  
45The total number of Member States with multi-annual timetables is ten. However, six are on a path away from rather 
than towards keeping their individual commitments for 2015. Denmark and Luxembourg have plans showing they will 
keep their volumes steady in nominal terms. They will, thus not meet their commitment to sustain their efforts, as levels 
and volumes in real terms are both  projected to decline. The Czech Republic and Finland have timetables till 2013 or 
2014,  showing  paths  with  significant  implicit  back-loading  of  their  commitments.    Cyprus  and  Estonia  have  multi-
annual timetables that show they will not meet their 2015 target of 0.33%. 

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2.2.6.  Lessons Learnt and the Way Forward 

The  European  Union  and  its  Member  States  have  repeatedly  reiterated  their  commitments  to 
achieve the 0.7% ODA to GNI ratio by 2015, as a concrete, time-bound goal. The rationale for a 
time-bound target was to provide adequate funding to achieve the Millennium Development Goals. 
This was not as an act of solidarity or charity but a strategy to tackle the root causes of poverty and 
fragility before they spiral out of control, generating refugee flows and security threats. It was also 
designed to face challenges that know no boundaries and that affect the entire globe, such as climate 
change, loss of biodiversity, desertification or the spread of infectious diseases. 

There are thus no grounds for seeing the 2015 goal as a mere aspiration or a declaration of intent, as 
some Member States do. ODA is not an act of charity that makes sense only in ‘good times’ but it is 
in the Union’s own interests. There is a clear need to better communicate these goals and to educate 
EU public opinion about their importance. Significantly, the latest Eurobarometer on Development 
Cooperation  shows  that  Europeans  believe  it  is  important  to  help  people  in  developing  countries 
because they are facing challenges such as overwhelming poverty. Two out of three Europeans cite 
self-interested motivation for giving aid, namely trade, terrorism, migration and political relations 
with third countries.46 

There are several lessons to be drawn from the EU’s experience.  

First, the reduced ambition of some national plans has had a real impact on collective progress on 
ODA. Some of the more ambitious Member States have reduced their targets compared to the ones 
that formed the basis for the 2005 Council Conclusions. Had these commitments been met, the EU 
27 ODA/GNI47 ratio would have been closer to the 2010 target (0.50% rather than 0.43% based on 
simulations prepared for this report).  

Second, the current fiscal crunch has led some countries to revise their commitments and targets. 
Spain, after increasing ODA substantially under the current government, has announced a reduction 
of EUR 800 million in the next two years and has acknowledged that the 0.7% of GNI target will 
have to wait until 2015 at least, and even then will only be attained if economic conditions improve. 
The coalition treaty of the new government of the Netherlands states that ODA spending will be 
reduced from 0.8% to 0.7% for the legislative period of the new government, which goes against 
the spirit of its individual commitment as an EU country to sustain its efforts. Although the agreed 
individual EU target was to reach 0.33% by 2006 and 0.51% by 2010 Portugal translated this into 
national targets of 0.33% by 2006, 0.30% by 2009, and 0.34% by 2010. It has missed all three. At 
the UN Millennium Summit of September 2000, Ireland committed to reaching the UN target of 
0.7% GNI by 2007. Its government gradually increased ODA from 0.39% of GNI in 2003 to 0.58% 
by 2008. However, in 2005 the target date for meeting 0.7% was revised to 2012. In 2009 it was 
further postponed to 2015. Italy has  consistently  missed targets and its aid has declined. Without 
debt  relief,  which  is  expected  to  be  about  EUR  0.6  billion  in  2011  and  EUR  1.3  billion  in  2012, 
respectively, Italy’s ODA is projected to remain essentially unchanged in nominal terms (at about 
EUR  2  billion  per  year)  between  2010  and  2013  at  already  minimal  levels.  According  to  Social 
Watch (2010), Germany publicly announced in late 2009 that it considered the EU’s step-by-step 
ODA scaling up plan as a declaration of intent, not an obligation under international law, and could 

46Special Eurobarometer 318 / Development Aid in times of economic turmoil Wave 71.2 – TNS Opinion & 
Social (Fieldwork: May 2009 – June 2009 Publication: October 2009) 
47Commission simulation based on public announcement and intermediate targets indicated in the OECD DAC’s 
annual Development Co-operation Report. 

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not achieve an ODA ratio of 0.51% in just one year. Finally, Greece is drawing conclusions from 
the fact that it will not be able to move away from low aid levels and indicated that 0.51% will not 
be achieved prior to 2012, and this revised target is likely still too ambitious given current economic 
circumstances. The majority of 12 newest Member States do not see the 0.17% or 0.33% targets as 
firm commitments, and have adopted lower national targets (e.g. Estonia forecast to reach 0.17% by 
2015, Cyprus 0.18% by the same year) or seem to have no plan for ODA increases.  

Third, back-loading the increase in ODA expenditure has been the main factor in missing target 
levels. Sustaining the scaling-up process through debt relief grants is impossible: debt relief grants 
are ‘one-off’ exercises by nature and insufficient if not replaced after the debt relief spike by ‘fresh 
money’ in ODA budgets. Experience shows that missing intermediate targets in a significant way 
leads  to  missing  subsequent  targets  too.  A  good  example  is  the  Member  States  that  significantly 
missed the 2006 target of 0.33% GNI:  Greece, Italy and Portugal.  Once the target was missed, 
statements were made that the 2006 target would be achieved by 2007 or 2008.  In reality, the 2006 
target  has  not  been  met  by  any  of  them  even  by  2010  and  these  three  Member  States  ended  up 
missing both the 2006 and the 2010 targets. 

Table 4 - Gap between 2010 ODA levels and 0.7% and 0.33% ODA/ GNI individual targets,  
by Member State 

Member State 

Funding 
(EUR million) 

Gap 

0.7% target

Member State 

Germany 
Italy 
France 
UK 
Spain 
Austria 
Greece 
Sweden 
Portugal 
Belgium 
Finland 
Ireland 
Netherlands 
Denmark 
Luxembourg 

11245 Poland 
9600 Romania 
6340 Czech Republic 
5917 Hungary 
4043 Slovak Republic 
1424 Bulgaria 
1401 Slovenia 
1321   Lithuania 
851 Latvia 
706 Estonia 
616 Cyprus 
345 Malta 
264    
76    
65   Total 

Funding 
(EUR million) 

Gap 

0.33% target 
1256 
424 
411 
294 
242 
121 
96 
89 
62 
47 
35 
16 

47307 

Source: OECD DAC/European Commission (EU annual questionnaire on financing for development) 

Fourth, Europe relies not only on the medium-sized donors, but also on EU countries with large 
economies such as France, Germany, Italy and the UK to boost average aid levels so  as to reach 
targets. These countries account for 70% of the gap to be filled between 2010 and 2015. If Europe is 
to meet the collective target of 0.7% ODA/GNI by 2015, it is imperative that all the big players step 
up their efforts.  

Table 4 above shows the funding gap between the 0.7% target and the current level of ODA from 
EU  Member  States.  When  analysing  the  ODA  gap  to  2015,  we  can  distinguish  four  groups  of 
Member States: 

1. 

Denmark,  Luxembourg,  the  Netherlands,  and  Sweden  have  already  achieved  the  0.7% 
target  and  rather  than  providing  additional  resources,  may  actually  reduce  their 

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34 

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contribution.  These  countries  account  for  3%  of  the  gap  and  the  risk  of  backtracking  on 
their ODA commitments is small but not zero. Available multi-annual budgets show that 
Denmark,  the  Netherlands  and  Luxembourg  are  planning  to  keep  their  aid  steady  in 
nominal terms till 2014 or 2015, with declining ODA/GNI ratios. Only Sweden is expected 
to grow its aid both in volume and as a share of GNI. 

Belgium, Cyprus, Finland, France, Ireland and the United Kingdom have reached the 2010 
targets or missed it by a small margin, and could achieve their individual targets (0.7 % and 
0.33 %) on time or ahead of time. These countries account for 30% of the funding gap and 
their  downside  risk  is  limited.  Their  share  of  the  gap  is  likely  to  be  filled,  although  the 
current degree of back-loading is probably too high. 

Austria,  the  Czech  Republic,  Estonia,  Germany,  Lithuania,  Malta,  Poland,  Slovenia  and 
Spain have missed the 2010 targets but could step up their efforts. They account for 40% 
of the funding gap and the risk of not meeting their targets on time is relatively high. The 
most likely outcome is that only a fraction of their share of the gap will be filled on time.  

Bulgaria, Greece, Hungary, Italy, Latvia, Portugal, Romania, and the Slovak Republic are 
far  behind  and  are  unlikely  to  meet  their  individual  targets  by  2015.  These  countries 
account for 27% of the gap and the likelihood of major improvements is low. The current 
economic situation in Greece and Portugal in particular may place a serious constraint on 
increasing ODA budgets. 

2. 

3. 

4. 

Unless decisive action is taken, the risk is high that the 2015 target will be missed by a large margin 
as shown by the above analysis. The Commission has pointed this out in the last four annual reports 
and has, over the years, proposed several ways of stepping up efforts. The options remain the same 
as identified in last year’s report: 

1. 

All  Member  States  draw  up  realistic  and  verifiable  national  ODA  action  plans  outlining 
how they aim to scale up and strive to achieve the 2015 ODA targets. Each annual action 
plan  should  be  published  by  the  end  of  the  year  preceding  the  spring  Foreign  Affairs 
Council (Development) (FAC). Core elements of the action plan are:  

•  Increasing ODA each year (by volumes and as  a percentage of GNI) compared to the 
previous year in order to reach and sustain EU targets. ODA increases are an issue of 
political choice, even in difficult budgetary situations.  

•  Indicating ODA estimates for the remaining period until 2015. Overall ODA increases 
in  the  period  2010–2015  should  be  commensurate  with  the  individual  target  to  be 
reached or sustained by and beyond 2015 (0.7% of GNI for the EU-15 and 0.33% for 
the  EU-12.  Higher  aid  levels  already  achieved  by  the  strong  performers  should  be 
maintained.  

•  Describing  concrete  actions  to  build  public  support  for  development  in  the  Member 
State concerned, including better coverage of development-related issues in the national 
media  and  finding  new  and  better  means  of  communication  on  development.  The  EU 
and  its  Member  States  need  to  do  more  to  communicate  development  success  stories, 
and  should  do  this  more  systematically  and  jointly.  A  better  informed  and  educated 
public  that  is  supportive  of  development  cooperation  can  be  a  powerful  ally  in 
government commitments to increase ODA spending. Only an educated public will be 
able to hold governments accountable for delivering on their commitments.  

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35 

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2. 

3. 

The European Council, in June 2010, took up partially the idea of an EU-internal annual 
ODA  peer  review,  by  requesting  an  annual  report  of  the  Council  on  the  ODA  situation. 
However, it remains to be seen whether the European Council will assess the progress of 
each  Member  State  and  what  guidance  it  will  give  for  further  joint  EU  progress  for 
attaining the agreed ODA targets..  

Describing mechanisms for ensuring scaling-up. National legislation ring-fencing ODA or 
making  ODA  targets  legally  binding  is  helping  some  Member  States  to  reach  the  0.7% 
target  early  (Belgium)  or  to  maintain  aid  levels  at  or  above  that  level  (Sweden).  Against 
this background, the Commission  had also proposed that  Member States should consider 
enacting national legislation on ODA levels with a view to reaching the agreed EU ODA 
targets or maintaining higher national aid levels. This could be done either through specific 
legislation,  such  as  that  currently  being  examined  in  the  UK,  or  through  specific 
annotations in the national budget laws. 

Increasing ODA levels is not a technical exercise and Member States need to decide on the way 
forward.  

2.2.7.  EU not acting in line with its promise on ODA to Africa 

What share of EU ODA increases have been directed to the African continent? 

Since making the commitment to direct 50% of EU aid increases to Africa in 2005 (based on 2004 
aid levels), the combined EU aid to Africa has risen by about EUR 3.3 billion at constant prices so 
that 26% of ODA growth between 2004 and 2009 went to Africa, as shown in Figure 6. 

Figure 6 - ODA to Africa from EU15 in EUR million and as a % of GNI (including imputed multilateral flows)  

ODA to Africa from EU Member States reporting to DAC in EUR million and as a % of GNI
including imputed multilateral flows

30,000

25,000

Please note:  preliminary 2010 
data do not allow to identify 
debt relief to Africa.  Imputed 
multilateral flows for 2010 are 
estimates.

0.19

20,000

0.16

15,000

3,373

)
s
e
c
i
r
p
8
0
0
2
(
n
o

i
l
l
i

m
R
U
E

6,640

0.21

8,412

0.16

2,026

0.16

1,198

0.18

2,483

13,977

14,457

16,360

17,271

18,431

18,200

10,000

5,000

-

0.19

-

21,928

0.25

0.20

0.15

0.10

0.05

-

I

N
G

f
o
%

2004

2005

2006

2007

2008

2009

2010

EU Net ODA to Africa and imp multi excluding debt

EU Net Debt Relief to Africa

Per cent of donor GNI

Source: OECD DAC data for 2004 – 2009 and Commission simulation on DAC data for 2010 

Most EU Member States stated that they have already met the commitment on ODA to Africa and 
some (e.g. Netherlands) have set up systems to monitor their performance in this respect. For some, 

EN 

36 

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aid  to  Africa  already  accounts  for  most  of  their  bilateral  ODA  (e.g.  80%  for  Ireland,  64%  for 
Portugal). Few Member States will not contribute to that target through their bilateral ODA as they 
believe their comparative advantage is in other regions of the world. An important dimension is the 
imputed multilateral share of EU aid to Africa, which amounted to some EUR 8.7 billion in 2010 
and contributed 50% of the collective EU increase from 2004 to 2010.   

How did EU ODA to Sub-Saharan Africa increase since 2005? 

EU  ODA  to  Sub-Saharan  Africa  grew  by  around  EUR  2.6  billion  in  real  terms  over  the  period 
2004-2009,  thus  meeting  the  less  demanding  target  of  increasing  EU  aid  to  Sub-Saharan  Africa. 
Preliminary  estimates  for  2010  indicate  there  was  no  further  growth.  Only  the  Netherlands  and 
Portugal decreased their ODA to Sub-Saharan Africa over this period. The growth was due to aid 
through multilateral channels (EUR 1.8 billion), and ODA excluding debt relief (EUR 1.5 billion) 
partly compensated by a decline in debt relief of EUR0.7 billion. The relative importance of Sub-
Saharan Africa declined over the period from 47% of total EU ODA to 42%.      

2.2.8.  EU ODA to Least Developed Countries stable  

In  November  2008,  Member  States  promised,  as  part  of  the  EU’s  overall  ODA  commitments,  to 
provide collectively 0.15% to 0.20% of their GNI to Least Developed Countries (LDCs) by 2010 
while fully meeting the differentiated commitments set out in the ’Brussels Programme of action for 
the LDCs for the decade 2001-2010’. 

According to available OECD DAC data, LDCs' share of EU ODA has increased both in absolute 
and  relative  terms  since  2004  and  stood  at  EUR  15.1  billion  at  2008  prices,  31%  of  EU  ODA  or 
0.13% of GNI in 2010. 

Ten  Member  States  plan  to  achieve  the  LDC  target  of  0.15%  to  -0.20%  by  2015  while  ten  think 
they will not do so, due in some cases to budgetary constraints. For the remaining seven Member 
States no information is available. 

According to DAC data summarised in Table 5, Belgium, Denmark, Finland, Ireland, Luxembourg, 
the Netherlands, Sweden and the United Kingdom had already met the ODA to LDC target by 2009 
and stayed above it also in 2010. All of these countries had an average ODA/GNI ratio well above 
the 0.15% mark for the entire period since taking the EU commitments. Ireland is the only Member 
State that has kept a share of ODA to LDC greater than 50% for the entire period. Portugal met the 
target on average in 2004-2009 and, along with Hungary and Italy, maintained a share of LDCs in 
total ODA greater than the EU average of 30% for most of that period. Member States that have not 
reached the target need to make a deliberate effort to increase their overall ODA and, within this, to 
increase the proportion of aid that goes to LDCs.  

Figure  7  summarises  the  evolution  of  the  ODA  to  LDCs  over  GNI  ratios  for  EU  Member  States 
reporting to DAC over the period 2004-2010. The peak in 2005 and 2006 is due to large debt relief 
operations in those years. 

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37 

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Table 5 - ODA/GNI to LDCs and LICs 48 (2009 and average 2004-2009, %) 

Country  

 Austria  

 Belgium  

 Denmark  

 Finland  

 France  

 Germany  

 Greece  

 Ireland  

 Italy  

 Luxembourg  

 Netherlands  

 Portugal  

 Spain  

 Sweden  

 United Kingdom  

 Czech Republic  

 Hungary  

 Poland  

 Slovak Republic  

 Slovenia  

 Total  EU 
States)49  

(20  Member 

ODA/GNI 2009 

Average ODA/GNI 2004-
2009 

LDC OLIC LIC LDC OLIC  LIC 

0.09

0.20

0.34

0.19

0.12

0.10

0.04

0.28

0.05

0.39

0.21

0.10

0.12

0.34

0.18

0.04

0.03

0.02

0.02

0.03

0.03 0.12 0.08

0.05 0.25 0.18

0.12 0.46 0.33

0.05 0.24 0.15

0.08 0.20 0.12

0.03 0.13 0.09

0.01 0.04 0.04

0.04 0.32 0.27

0.01 0.07 0.06

0.09 0.48 0.34

0.06 0.26 0.24

0.01 0.10 0.16

0.03 0.15 0.08

0.09 0.43 0.30

0.06 0.24 0.15

0.01 0.05 0.03

0.01 0.04 0.03

0.00 0.03 0.02

0.00 0.03 0.04

0.01 0.04 0.06

0.04

0.05

0.12

0.04

0.06

0.04

0.01

0.04

0.02

0.08

0.08

0.01

0.02

0.07

0.08

0.01

0.00

0.00

0.01

0.01

0.13

0.05 0.17 0.12

0.05

Source: OECD DAC  

0.11

0.23

0.45

0.19

0.18

0.13

0.05

0.31

0.08

0.43

0.31

0.16

0.11

0.38

0.23

0.04

0.03

0.03

0.05

0.07

0.17

48 LDCs : Low Developed Countries. LICs: low Income Countries. OLIC: Other Low Income Countries 
49For other EU Member States that are not DAC members this information is not available. 

EN 

38 

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Figure 7 - EU ODA to LDCs as a % of GNI including imputed multilateral flows 

ODA to LDCs from EU in EUR million  and  as a % of GNI
(including imputed multilateral flows - data at 2008 prices)

25,000 

20,000 

15,000 

0.10

0.09

0.13

0.13

0.11

0.11

0.12

0.11

4,047 

2,652 

676 

395 

619 

0.13

0.13

0.13

Please note:  preliminary 2010 
data do not allow to identify 
debt relief to LDCs.  Imputed 
multilateral flows for 2010 are 
estimates .

465 

238 

-

10,000 

597 

1,951 

575 

5,000 

8,713 

9,534 

9,604 

9,948 

11,102 

11,659 

12,731 

13,701 

15,009 

14,844 

15,136 

)
s
e
c
i
r
p
8
0
0
2
(

n
o

i
l
l
i

m
€

-

Source:  OECD DAC

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010 (E)

EU Net ODA to LDCs and imp multi  excluding debt

EU Net Debt Relief to LDCs

Per cent of donor GNI

Source: OECD DAC  

0.15

0.13

0.11

0.09

0.07

0.05

0.03

0.01

-0.01

I

N
G

f
o
%

2.3. 

Scaling up funding for tackling Climate Change and Biodiversity Challenges 

2.3.1.  Climate change fast-start finance 

EU Commitments 

European Council Conclusions on 10/11 December 2009: The EU and its Member States 
are  ready  to  contribute  with  fast-start  funding  of  EUR  2.4  billion  annually  for  the  years 
2010 to 2012. 

2.3.1.1.  Background 

Climate change is a global threat. The EU as a whole is committed to playing a leading role in the 
fight against global warming in order to keep global average temperature increase below 2 degrees 
Celsius  compared  to  pre-industrial  levels.50  Consequently,  the  EU  is  an  active  participant  in  the 
negotiations  on  climate  change  under  the  United  Nations  Framework  Convention  on  Climate 
Change (UNFCCC). A key topic of these negotiations is the financing of mitigation and adaptation 
activities.  Developed  countries  expect  developing  countries,  especially  the  economically  more 
advanced  ones,  to  contribute  to  the  overall  effort  to  combat  climate  change.  At  the  same  time, 

50See http://ec.europa.eu/dgs/clima/mission/index_en.htm for an overview of EU actions on climate change 

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39 

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developing countries want to see a clear position from developed countries on finance for climate 
change related action51. 

During  the  Climate  Change  Conference  in  Copenhagen  in  December  2009,  developed  countries 
made pledges for short-term as well as long-term climate financing. These commitments were later 
anchored in the agreements concluded at the Climate Change Conference in Cancún (the ‘Cancún 
Agreements’) in December 2010. The collective commitment by developed countries is to provide 
new and additional resources approaching USD 30 billion for the period 2010-2012, with balanced 
allocation between adaptation and mitigation.  

 Funding for adaptation will be prioritised for the most vulnerable developing countries, such as the 
Least Developed Countries, Small Island Developing States and Africa. The European Commission 
and  its  Member  States  have  pledged  to  contribute  fast-start  funding  totalling  EUR  2.4  billion 
annually for the years 2010 to 201252. 

Developed countries also committed to a long-term goal of jointly providing USD 100 billion per 
year by 2020 to address the needs of developing countries. This funding will come from a variety of 
sources, public and private, bilateral and multilateral, including alternative sources of finance. This 
longer term pledge has been made in the context of meaningful mitigation action by the developing 
countries. The UN Secretary General’s Advisory Group on Climate Finance has concluded that it is 
feasible to reach the USD 100 billion target, but that it will be a challenging task53. 

To  maintain  trust  in  the  international  negotiating  process,  it  is  vitally  important  to  ensure 
transparent measurement, reporting and verification (MRV) of these climate finance commitments. 
This  was  recognised  at  the  Cancún  conference.  Developed  countries  were  asked  to  provide 
information on the resources they would make available to provide their fast-start commitment and 
on the ways in which developing countries can access these resources. This information was to be 
sent to the UNFCCC secretariat for compilation into an information document in May 2011, 2012 
and  2013.  It  was  agreed  that  a  Standing  Committee  should  be  set  up  to  help  ensure  that  climate 
change financing is delivered in a more consistent and coordinated manner and to help rationalise 
the financial mechanism, mobilise financial resources and improve the measurement, reporting and 
verification of support provided to developing countries.  

The  EU  is  a  strong  advocate  of  transparent  reporting.  It  drew  a  comprehensive  report  on  the 
implementation  of  its  fast-start  commitments  ahead  of  the  Cancún  Climate  Change  Conference, 
based on a survey of Member States54.  The EU also intends to produce further fast-start progress 
updates for the subsequent UNFCCC Conferences (2011, 2012)55. The EU welcomes initiatives to 
make  climate  financing  even  more  transparent56.  Monitoring  ODA  which  is  related  to  climate 
change (and other environmental issues)  is a difficult task due to the complexity of the issues and 
their  multidimensional  character.  To  help  carry  out  this  task,  a  system  of  markers  (agreed  with 
Secretariats  of  each  of  the  Rio  Conventions—see  Box  2)  has  been  set  up  within  the  DAC/CRS 

51European Commission, Stepping up international climate finance: A European blueprint for the Copenhagen 
Deal, COM(2009) 475 final 
52European Council Conclusions on 10/11 December 2009  
53http://www.un.org/wcm/content/site/climatechange/pages/financeadvisorygroup   
54 European Council, EU Fast start finance Report for Cancún, 6 December 2010 
55 In its meeting of 7 December 2010, the ECOFIN Council ’invites the Commission to integrate fast start 
finance reporting into its annual EU accountability and development finance report, with a further end-of-year 
update for UNFCCC meetings as needed.’ (§4) 
56 European Council, EU Fast start finance Report for Cancún, 6 December 2010 

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system. In parallel, other monitoring work is also being carried out, such as the Fast Start Finance 
initiative  (www.faststartfinance.org)  sponsored  by  Denmark,  Germany,  the  Netherlands,  the  UK 
and some other countries.  

Box 2. The ‘Rio markers’ – monitoring development assistance to address climate change, biodiversity 
and desertification 57 

In 1998 the OECD/DAC added the so called ‘Rio markers’ to the CRS system to enable the identification of 
aid activities related to the three Rio Conventions signed in 1992: the United Nations Framework Convention 
on  Climate  Change  (UNFCCC),  the  Convention  on  Biological  Diversity  (CBD)  and  the  United  Nations 
Convention  to  Combat  Desertification  (UNCCD).  The  use  of  the  markers  was  made  compulsory  for  DAC 
reporters for aid from 2007 onward. All bilateral aid activities should be screened and marked as having the 
objectives of each Convention as a ’principal objective’, ’significant objective’ or ’not targeted’. Activities 
can be  marked  for  more  than  one  convention,  so  there  are  overlaps between ODA volumes  targeted  at  the 
individual conventions. 

The original Rio marker on climate change only covers mitigation related activities. For aid data from 2010 
onwards, a new marker will be introduced in use that also tracks aid in support of climate change adaptation, 
in order to give a more complete picture of climate-change-related ODA.  

Using  the  Rio  markers  is  fraught  with  methodological  difficulties.  The  OECD/DAC  points  out  that  the 
marker data do not produce exact ODA volumes. Rather, they give an indication of the amounts allocated or 
spent and the extent to which donors address the objectives of the Rio Conventions in their aid programmes. 

2.3.1.2.  Volume and focus of EU support 

EU and its Member States are jointly committed to provide fast-start finance amounting to EUR 7.2 
billion in 2010-12. EUR 2.34 billion of this was provided in 2010 (data as of end February 2011). 
The  current  austerity  requirements  on  national  budgets  make  it  more  difficult  to  mobilise  funds. 
Nevertheless,  the  EU  seems  well  on  track  to  meet  its  overall  target.  Annex 4  provides  a  detailed 
breakdown of the commitments. 

Fast-start  finance  is  part  of  the  wider  action  on  climate  financing  being  taken  by  the  EU  and  the 
Member  States.  Data  provided  by  10  Member  States  shows  that  their  non-fast-start  climate 
financing  in  2010  was  almost  three  times  as  large  as  their  fast  start-financing  commitments  that 
year.  

The  EU  uses  both  multilateral  and  bilateral  channels  for  deploying  its  fast-start  finance;  56%  of 
commitments  are  multilateral  and  43%  bilateral.  Multilateral  channels  include  the  Climate 
Investment  Funds,  the  Global  Environment  Facility,  the  Adaptation  Fund,  the  Least  Developed 
Countries Fund, the Forest Carbon Partnership Facility, the Regional Development Banks and UN 
agencies.  By  channelling  funds  through  existing  platforms,  initiatives  and  bilateral  structures  the 
EU aims to reach the beneficiaries efficiently and minimise additional administrative complications 
and the proliferation of new initiatives. Some 82 % of the funds have climate change as a principal 
objective and 18% as a significant objective. Loans play a large role in EU’s fast-start finance: 55% 
of the commitments are reported as loans and 45% as grants. 

Around 35% of the commitments are earmarked for adaptation, 45% for mitigation and 15% for the 
'Reducing Emissions from Deforestation and Forest Degradation+'-Initiative (REDD+). Support for 
adaptation aims to help poor and vulnerable countries adapt to and build resilience to the adverse 

57Source: www.oecd.org/dac/stats/rioconventions.  

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effects  of  climate  change.  Funding  will  help  developing  countries  protect  their  infrastructure, 
industry and agriculture from changing weather patterns and rising sea  levels. It will also support 
investment in water management, drought-resistant crops and disaster risk reduction, and will help 
provide better scientific analysis as the basis for decision making and national planning. 

Support for mitigation aims to speed the transition to a low-carbon global economy and to reduce 
greenhouse gas emissions by promoting the deployment of clean energy technologies. Funding will, 
for example, promote and support low-carbon energy, energy efficiency, low-carbon transport and 
the development of Nationally Appropriate Mitigation Actions.  

Support  for  REDD+  aims  to  cut  greenhouse  gas  emissions  by  reducing  deforestation  and  forest 
degradation  in  developing  countries  and  by  enhancing  the  sustainable  management  and 
conservation of forests and carbon stocks. In this context, the EU is seeking to promote synergies 
between  REDD+  governance  objectives  and  the  EU  Action  Plan  for  Forest  Law  Enforcement, 
Governance and Trade (EU FLEGT initiative). 

Climate  issues  have  become  increasingly  integrated  in  broader  development  strategies  (making 
ODA  ‘climate  resilient’)  so  that  actions  to  mitigate  and  adapt  to  the  negative  effects  of  climate 
change often support efforts to reach other MDGs and vice versa, e.g. by fostering climate-resilient 
development and access to clean energy. The EU will continue working to integrate climate change, 
biodiversity and other global commitments more fully into its development strategies. 

2.3.1.3.  The global context 

The  EU  has  been  the  largest  contributor  to  mitigation-related  ODA  since  well  before  the 
Copenhagen conference. The European Commission and DAC-reporting Member States committed 
EUR 7.7 billion to aid activities aimed at climate change mitigation between 2007 and 2009. This 
represented  50%  of  global  reported  aid  to  combat  climate  change.  These  activities  targeted  areas 
which are closely linked to the objectives of fast-start finance.  

After Japan, the EU as a whole has pledged the largest amount to fast-start finance (see Table 6). 
Note, however, that it is impossible to make like-for-like comparisons of fast-start contributions and 
pledges by different donors, as the metrics used vary as do the definitions of what qualifies as fast-
start finance. Japan, for instance, counts other official flows (covering a range of non-ODA funding 
forms, such as export credits, as part of its fast-start finance.  

Table 6 - Pledges to fast-start finance (2010-12) and reported ODA to mitigation 2007-2009 

Total  pledged  fast-
start  finance  2010-
12 (EUR million ) 

ODA 

Total 
to 
mitigation  2007-2009 
(2008, EUR million) 

413
292
11.278
752
101
1 278* 
7.200

337
108
6.070
643
70
n/a
7.580

Australia 
Canada 
Japan 
Norway 
Switzerland 
US 
EU 

* = US data is for fiscal year 2010 only 
Source: www.faststartfinance.org for fast-start finance pledges and OECD/DAC for ODA to mitigation58 . 

58 Activities marked with a ‘principal’ or a ‘significant’ objective are included). The ODA data is for the 

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2.3.1.4.  Measuring additionality 

The European Council has endorsed the principle that climate financing should not undermine the 
fight against poverty and continued progress towards the MDGs59. The Council has also agreed that, 
while support for mitigation and adaptation in developing countries will require additional resource 
mobilisation from a wide range of financial sources, ODA will continue to play a role, particularly 
in  supporting  adaptation  (including  disaster  risk  reduction),  in  the  most  vulnerable  and  least-
developed countries60. 

Paragraph  95  of  the  Cancún  Agreements  states  that  developed  countries  will  provide  ’new  and 
additional resources’ as fast-start finance. It is important for the credibility of the commitments that 
fast-start climate finance is not replacing other development finance. However no agreed definition 
exists of what constitutes ‘new and additional’.  

The general understanding of additionality is that certain financing sources or types of expenditure 
should not be lower than a pre-defined benchmark or reference level. In the case of climate finance, 
this concerns in particular the relation of climate finance to official development assistance (ODA), 
as referred to by the Council.  

Climate-related  financing  will  normally  be  reported  as  ODA  as  long  as  the  support  fulfils  the 
OECD/DAC criteria of ODA. As climate and development finance are mutually reinforcing and the 
objectives intertwined, trying to  separate the two would appear artificial and unproductive. While 
adaptation projects will, as a rule, show multiple benefits, most mitigation projects will also have 
developmental benefits (e.g. reducing deforestation or renewable energy projects). Climate-related 
financing will also come in non-ODA form, e.g. through non-concessional loans or official export 
credits which do not qualify as ODA and possibly in countries not included in the DAC list of ODA 
recipients. 

EU Member States use different definitions of additionality as shown in Figure 8. Some Member 
States aim for additionality related to climate related funding, while others include climate spending 
in their efforts to increase ODA. Three Member States define additionality as ODA over and above 
the UN ODA target of 0.7% of GNI. One Member State states explicitly that fast-start financing is 
strictly  additional  to  the  aid  budget  and  will  not  be  reported  as  ODA.  The  most  commonly  used 
reference year is 2009, with some Member States using 2010. Some Member States finance climate 
efforts  from  outside  the  ODA  budgets  or  through  innovative  sources.  Some  Member  States  use  a 
combination  of  the  definitions  in  the  graph  and  some  have  not  yet  decided  on  a  definition  of 
additionality.  One  Member  State  notes  that  development  cooperation  and  climate  change  are  so 
closely linked that it is difficult to distinguish between the two objectives in terms of funding.  

European Commission and the 15 Member States which report to the OECD/DAC. No mitigation data was 
available for Luxembourg or the US which do not report on the Rio markers. No mitigation data was available 
for the Netherlands for 2009 
59European Council Conclusions of 30 October 2009, §23 
60Conclusions on Climate Change and Development of the General Affairs and External Relations. Council of 17 
November 2009, §15 

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Figure 8 - Definitions of additionality used by EU Member States in reporting fast-start financing in 
the context of this report 

8

4

Additional to climate
related funding in a
specific reference year

Additional to the level of
ODA spending in nominal
terms

Additional to a ODA
spending target in % of
GNI

Other definition of
additionality

9

7

Source: Questionnaire on financing for development61. 

At  an  aggregate  EU  level,  given  that  the  EU  pledge  was  made  collectively,  the  additionality 
requirement of the Copenhagen Accord should also be applied collectively. Since the EU’s view is 
that  ’traditional’  aid  to  reduce  poverty  should  not  be  diverted  in  order  to  fund  climate  change 
activities, total ODA less climate related ODA would be an appropriate benchmark for gauging to 
new  and  additional  climate  finance,  within  the  context  of  the  specific  definitions  used  by  various 
Member States, as outlined above. This would make it possible to check whether increases in ODA-
related climate finance are really additional or whether they encroach on other areas of ODA.   

To even out annual variations, the ODA part of the benchmark could be defined as the average level 
of  EU  ODA  budgetary  commitments  in  the  period  2007  to  2009,  expressed  in  absolute  and  real 
terms. A benchmark level for climate-related ODA is harder to obtain because, as was highlighted 
above, the current climate change marker only covers mitigation. Data on adaptation will only be 
available  from  2010  onwards.  For  the  years  2010  to  2012  a  distinction  would  ideally  need  to  be 
made between fast-start finance and other climate-related finance, but there is no way to track fast-
start finance within the DAC system.  

The average EU total ODA for the period 2007 to 2009 in constant 2008 prices is EUR 48.6 billion 
and the corresponding  amount  for mitigation-related ODA is EUR  2.5  billion. For the  purpose of 
this illustrative exercise it is assumed that the average total adaptation-related ODA for the period 
corresponded to the same share – 35% - of total climate-related as the share of adaptation reported 
for  fast-start  finance.  This  would  give  an  estimate  of  adaptation-related  ODA  of  around  EUR  1.4 
billion  and  total  climate-related  ODA  of  some  EUR  3.9  billion.  The  benchmark  level  would  be 
EUR  44.7  billion.  By  this  reasoning,  if  climate  finance  is  to  be  additional,  the  EU’s  total  ODA 
excluding  climate-related  ODA  should  be  higher  than  this  benchmark  level  in  the  years  2010-12. 
Figure  9  illustrates  this,  using  this  report’s  estimate  for  the  EU’s  total  ODA  in  2010  –  namely  –
EUR 53.5 billion in constant 2008 prices. This is EUR 8.7 billion above the benchmark level, which 

61  Based  on  26  responses,  of  which  2  did  not  reply  to  the  question.  The  European  Commission  is  included  as  a 
‘Member State’ in the text. Two countries reported using two definitions. The ’Other’ category includes Member States 
that have not yet decided on a definition of additionality and two Member States that have not reported any definition 

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corresponds to the maximum potential volume of climate finance that would be additional without 
cutting into support to other sectors. This is enough to cover the EUR 2.3 billion in constant 2008 
prices dedicated to fast-start finance and a constant level of EUR 3.9 billion of non-fast-start finance 
for  2010  compared  to  2007-2009,  which  would imply  a  fairly  strict  definition  of  additionality  of 
fast-start finance being in addition to climate finance in previous years. However, the latter can only 
be verified once the 2010 data on Rio-marked ODA become available.  

Figure 9: Calculating the additionality of climate finance – an illustrative example, EUR million in 2008 prices  

Volume above 
benchmark
in 2010:
EUR 8.7 billion

Total ODA 2010: 
EUR 53.5 billion

Benchmark 
EUR 44.7 billion

 55 000

 50 000

 45 000

 40 000

 35 000

 30 000

Fast-start

Non fast-start (est)

Other ODA

Average 2007-2009

-

3 887

44 713

2010

2 291

3 887

47 280

Source: OECD DAC for ODA and mitigation data 2007-2009 for DAC reporting Member States. Financing for 
development questionnaire for non-reporting Member States and 2010 data. Mitigation data was not available 
for Luxembourg or for the Netherlands in 2009. 

Consequently,  if  the  EU  continues  to  scale  up  ODA  in  2011  and  2012  towards  meeting  its  aid 
targets in 2015, the additionality requirement could be met, since the increase in total ODA is likely 
to  exceed  any  increase  in  climate-related  ODA  (both  fast-start  and  non-fast-start  finance).  This 
would  be  in  line  with  the  EU  commitment  that  ’climate  financing  should  not  undermine  or 
jeopardise the fight against poverty and continued progress towards the Millennium  Development 
Goals’. 

It  should  be  clear  from  the  above  that  it  is  hard  to  quantify  the  benchmark  because  of  the 
unreliability of the data on EU climate finance. Once higher-quality data become available, it will 
be  possible  to  monitor  precisely  the  additionality  of  EU  fast-start.  In  particular,  the  additionality 
exercise requires more complete data, including data on adaptation financing, and further progress 
in the methodology and application of the OECD DAC Rio Markers.  

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2.3.2.  Biodiversity 

EU Commitments  

European  Council  conclusions  on  the  Convention  on  Biological  Diversity  (CBD): 
outcome of and follow-up to the Nagoya biodiversity conference, 20 December 2010: The 
EU  and  its  Member  States  have  committed  themselves  to  implementing  the  strategy  for 
resource  mobilisation  and  to  substantially  increasing  resources  (financial,  human  and 
technical) from all possible sources balanced with the effective implementation of the CBD 
and its strategic plan. The EU will actively involved in developing baselines for monitoring 
the  implementation  of  the  strategy,  and  into  implementing  the  COP  10  decision  to  adopt 
targets at CBD COP 11, provided that robust baselines have been identified and endorsed 
and that an effective reporting framework has been adopted. 

2.3.2.1.  Background  

In recent decades unprecedented economic growth and human development have benefited people 
across the globe. However, these benefits have come at the cost of degraded ecosystems and loss of 
biodiversity  caused  by  changes  in  land  use,  over-exploitation,  the  spread  of  invasive  species, 
pollution  and  climate  change.  These  negative  effects  are  not  only  of  concern  because  of  the 
important  intrinsic  value  of  Nature,  but  also  because  they  result  in  a  decline  of  the  ‘ecosystem 
services’  which  natural  systems  provide.  These  services  include  producing  food,  fuel,  fibre  and 
medicines, regulating water, air and climate, maintaining soil fertility, storing carbon and recycling 
nutrients. Any loss of such services could have serious economic and social consequences, as has 
recently been shown 62. 

A  global  strategy  to  combat  biodiversity  loss  for  the  coming  decade  was  adopted  at  the  tenth 
meeting  of  the  Conference  of  the  Parties  (COP  10)  of  the  Convention  on  Biological  Diversity 
(CBD)  in  Nagoya  (Japan)  in  October  201063.  The  plan  is  backed  up  by  a  strategy  for  mobilising 
resource  to  help  achieve  the  CBD’s  three  objectives.  This  strategy  aims  to  substantially  increase 
international financial flows and domestic funding for biological diversity in order to significantly 
reduce the current funding gaps and thus help ensure that the Convention is indeed implemented. 
The EU is working on a biodiversity strategy that will be adopted in 2011 and that follows on from 
the  EU’s  previous  Biodiversity  Action  Plan.  The  new  strategy  will  integrate  the  EU’s  CBD 
commitments and the EU headline target – which is to  the loss of biodiversity and the degradation 
of  ecosystem  services  in  the  EU  by  2020,  and  indeed  to  restore  them  as  far  as  possible,  while 
stepping up the EU’s contribution to averting global biodiversity loss64. 

The  EU  recognises  that  the  link  between  ecosystems  and  employment,  income  and  livelihoods  in 
developing  countries  is  even  stronger  than  in  developed  countries.65  Consequently,  the 

62Economics of Ecosystems and Biodiversity (TEEB) study, http://www.teebweb.org/  
63The Convention on Biological Diversity entered into force in 1993 and has three main objectives:  i) the conservation 
of biological diversity; ii) the sustainable use of the components of biological diversity; and iii) the fair and equitable 
sharing of the benefits arising out of the utilisation of genetic resources. The Convention obliges developed countries to 
provide new and additional financial resources related to the implementation of the Convention (Article 20).  
64EU Council Conclusions on Biodiversity: Post-2010 EU and global vision and targets and international ABS regime, 
15 March 2010 
65EU Council conclusions on Biodiversity: Post-2010 EU and global vision and targets and international ABS regime, 
15 March 2010 

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Commission’s  Communication  on  Policy  Coherence  for  Development  states  that  the  EU  should 
‘enhance funding earmarked for biodiversity and strengthen measures to mainstream biodiversity in 
development  assistance’66.  This  ambition  is  carried  forward  in  the  EU  Development  Policy  (the 
European Consensus on Development Cooperation)67 and Neighbourhood Policy68. 

Indeed,  one  of  the  aims  of  the  EU’s  Biodiversity  Action  Plan  was  to  increase  the  development 
cooperation  funds  earmarked  for  biodiversity  while  mainstreaming  biodiversity  more  effectively 
into EU and Member States’ development aid budgets. Biodiversity is thus an integral part of EU’s 
development cooperation policy and activities. Until now, these activities have been monitored by 
reporting  on  the  Biodiversity  Action  Plan.  Ahead  of  the  Nagoya  meeting  the  Council  asked  the 
European  Commission  to  continue  reporting  on  the  amount  of  funds  related  to  biodiversity 
conservation and sustainable use69.  

2.3.2.2.  Volume and focus of EU support 

From 2007 to 2009, the EU committed, on average, EUR 1.3 billion per year to biodiversity-related 
aid.70 The volume increased by more than 50% during this period in real terms; from EUR 1 billion 
in 2007 to EUR 1.5 billion in 2009 (see Figure  10). In contrast the share of activities which had 
biodiversity as their principal objective decreased from 36% in 2007 to just 15% in 2009. 

Figure 10: EU's biodiversity-related ODA by objective. 2007-2009, commitments, EUR million at 
constant 2008 prices 

1800

1600

1400

1200

1000

800

600

400

200

0

Principal objective

Significant objective

2007

2008

2009

Source: OECD DAC/CRS71. 

Among EU Member States, Germany, France and Spain were the largest donors, but several other 
countries also donated substantial amounts during this period (see Table 7). Member States that are 
not DAC members are also contributing to the effort, as evidenced by the appearance of the Czech 
Republic, Slovenia and Romania in the table.  

66COM (2005) 134 final 
67COM (2005) 311 final 
68COM (2003) 104 final, COM (2004) 373 final 
69EU Council Conclusions on Preparation of the tenth meeting of the Conference of the Parties (COP 10) to the 
Convention on Biological Diversity (CBD), 14 October 2010 
70See the Box on the Rio markers above for an explanation of how this amount is calculated. 
71 Luxembourg does not report on the Rio markers. No data for the Netherlands for 2009 

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The EU’s biodiversity-related aid as a share of total EU ODA increased from 2.1% in 2006 to 3.2% 
in 2009. One major challenge in increasing the share is the low priority often given to biodiversity 
by  partner  countries  faced  with  other  needs.  Moreover,  very  few  Member  States  have  dedicated 
funds for biodiversity. Exceptions include the UK’s Darwin Initiative and the Swedish International 
Biodiversity Programme SwedBio72.  

Table 7: EU’s biodiversity-related bilateral aid, 2007-2009, commitments, EUR million at constant 
2008 prices 

Austria 
Belgium 
Czech Republic 
Denmark 
Finland 
France 
Germany 
Greece 
Ireland 
Italy 
Netherlands 
Portugal 
Romania 
Slovenia 
Spain 
Sweden 
United Kingdom 
European Commission73 
Total 

2007 

2008 

2009 

 10 
 47 
 2 
 71 
 35 
 115 
 169 
 3 
 20 
 80 
 156 
 1 
 0.05 
 1 
 67 
 0 
 7 
 207 
 991 

 22 
 83 
 3 
 113 
 90 
 154 
 197 
 3 
 14 
 54 
 170 
 1 
 0.06 
 1 
 240 
 10 
 12 
 239 
 1 406 

 21 
 92 
 2 
 84 
 82 
 168 
 217 
 6 
 75 
 45 
 n/a 
 3 
 0.06 
 1 
 207 
 5 
 11 
 517 
 1 533 

Average  
2007-2009 
 18  
 74  
 2  
 89  
 69  
 145  
 194  
 4  
 36  
 60  
 163  
 2  
 0  
 1  
 171  
 5  
 10  
 321  
 1 310 

Source: OECD DAC/CRS74. 

Nearly  a  third  of  the  EU’s  biodiversity-related  aid  goes  to  Africa  and  around  one  fifth  each  to 
America and Asia (see Figure 11). The support is divided between over 140 regions and territories. 
One fifth of the support has no specific geographical focus. 

72Commission  Staff  Working  Document,  Consolidated  Profile  Accompanying  Document  to  the  Report  from  the 
Commission to the Council and the European Parliament - the 2010 Assessment of Implementing the EU Biodiversity 
Action Plan, SEC(2010) 1163 final, p. 131, 90 and 94. 
73 The European Commission did not consistently use the Rio Marker on biodiversity until 2009. As a consequence, the 
European  Commission  data  reported  to  the  DAC  and  presented  in  the  table  are  currently  under  review.  Preliminary 
revised volumes are 2007: EUR 75 million, 2008: EUR 151 million, and 2009: EUR 412 million. 
74 Luxembourg does not report on the Rio markers and there is no data for the Netherlands for 2009. Activities marked 
with  a  ‘principal’  or  a  ‘significant’  objective  are  included.  Monterrey  survey  for  the  Czech  Republic,  Romania  and 
Slovenia. 

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Figure 11 - EU’s biodiversity-related bilateral aid by geographic area, 2007-2009, percentage share, 
commitments 

18%

1%

5%

8%

30%

Africa

America

Asia

North Africa and Middle East

Europé

Pacific

Bilateral, unspecified

18%

20%

Source: OECD DAC/CRS75 

In terms of sectors, the EU’s biodiversity-related aid falls primarily within environmental 
protection, followed by water and sanitation, agriculture and forestry (see Figure 12). 

Figure 12: EU’s biodiversity-related bilateral aid by sector, 2007-2009, percentage share, commitments 

Other
22%

Forestry
7%

Agriculture
14%

Environmental 
protection
37%

Water and 
sanitation
20%

Source: DAC/CRS76 

2.3.2.3.  The global context 

Global ODA for biodiversity rose in 2009 after a small decline in 2008 (see Table 8). In terms of 
activities  reported  to  the  OECD/DAC  the  increase  was  24%  in  real  terms  to  a  total  of  EUR  3.0 

75 
76  

see footnotes 73 and 74 
see footnotes 73 and 74 

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billion in 2009 in constant 2008 prices. The US does not report on the Rio markers and data for the 
Netherlands  are  missing  for  2009.  The  annual  contribution  of  each  country  can  be  estimated  at 
around EU200 million. The EU contribution corresponds to around half of all biodiversity-related 
ODA over the period 2007 to 2009. 

Table 8: Total biodiversity-related bilateral aid 2007-2009, commitments, EUR million at constant 
2008 prices 

2007 

2008 

2009 

Australia 
Canada 
Norway 
Japan 
Korea 
Switzerland 
US 
EU 
Other 
Total 

 43 
 43 
 53 
 1 233 
 9 
 33 
 187 
 991 
 2 
 2 594 

 67 
 36 
 72 
 608 
 17 
 19 
 199 
 1 406 
 6 
 2 430 

 110 
 125 
 202 
 787 
 29 
 26 
 205 
 1 533 
 2 
 3 019 

Average 
2007-2009 
 73 
 68 
 109 
 876 
 18 
 26 
 197 
 1 310 
 4 
 2 681 

Source:  OECD DAC/CRS77 

The  EU  and  its  Member  States  provide  contributions  to  a  number  of  biodiversity-related 
conventions:  the  Convention  on  Biological  Diversity,  the  Ramsar  Convention  on  Wetlands,  the 
Convention  on  the  Conservation  of  Migratory  Species  of  Wild  Animals,  the  Convention  on 
International  Trade  in  Endangered  Species,  the  African-Eurasian  Migratory  Waterbird  Agreement 
and the World Heritage Convention78.  

In addition, the EU Member States are important contributors to the Global Environment Fund (GEF) 
and the UNEP Environment Fund. The GEF serves as the financial mechanism for the Convention on 
Biological Diversity. It has been replenished five times. EU Member States provided EUR 1.096 billion 
to explain GEF-4, which represented 52% of total contributions79.  

Preliminary  data  on  the  recently-concluded  explain  GEF-5  shows  that,  compared  to  the  previous 
replenishment, EU Member States increased their contributions considerably - by 24% - to EUR 1.357 
billion, or 54% of total contributions80. The UNEP Environment Fund will spend around a fifth of its 
budget on biodiversity-related activities in 2012-2013. EU Member States contributed EUR 43.9 million 
to the UNEP Fund in 2009 and EUR 39.2 million in 2010, which in both years corresponded to around 
three quarters of total contributions/pledges81.  

77  Luxembourg does  not  report on the  Rio markers and there  are no  data  for  the Netherlands for 2009.  Activities 
marked  with  a  ‘principal’  or  a  ‘significant’  objective  are  included.  Monterrey  survey  for  the  Czech  Republic, 
Romania and Slovenia. USAID, Biodiversity Conservation and Forestry Programs Annual Report, October 2010. The 
United States does not report on the Rio markers. The US data in the table are labelled ‘funding’ in the USAID report  
78See SEC(2010) 1163 final for details 
79SEC(2010) 1163 final 
80GEF Secretariat & World Bank, Summary of Negotiations Fifth Replenishment of the GEF Trust Fund, May 17, 2010, 
http://www.thegef.org/gef/sites/thegef.org/files/documents/GEF-A.4 
7%20Summary%20of%20Negotiations%20of%20the%20Fifth%20Replenishment%20of%20the%20GEF_0.pdf  
81http://www.unep.org/rms/en/Financing_of_UNEP/Environment_Fund/index.asp  

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2.4. 

Increasing  international  support  to  Developing  Countries  through  Innovative 
Financing Sources and Mechanisms  

EU Commitments 

Conclusions  11  November  2008  (Common  EU  position  for  the  Doha  Financing  for 
Development Conference: 

The EU welcomes the success of the pilot phase of implementation of innovative sources of 
financing and calls for a change of scale in this area. It encourages all donors which have 
shown  their  ability  to  provide  stable  and  predictable  resources  in  a  coordinated  manner 
and  to  participate  in  existing  initiatives  in  the  field  of  health  (air  ticket  levy/UNITAID, 
IFFIm/GAVI, AMC). It encourages broad collaboration, which includes the private sector, 
civil society and the international financial institutions, to experiment with and implement 
new  mechanisms  and  partnerships  allowing  an  increase  in  financing  for  development, 
including via the carbon market. The EU will study the creation of tools to assist private 
financing  for  development,  in  particular  to  mobilise  savings  used  for  the  benefit  of 
developing countries.  

European Council (October 29 and 30, 2009) 

–  agreed on the need to prepare a coordinated strategy for exiting from the broad- based 

stimulus policies when recovery is secured, 

–  invited the Commission to examine innovative financing at the global level, with a view 

to facilitating fiscal exit strategies and fiscal consolidation, 

–  recognised  the  need  to  significantly  increase  financing  to  help  developing  countries 
implement ambitious climate mitigation and adaptation strategies, without jeopardising 
the fight against poverty and continued progress towards the MDGs, 

–  highlighted the role of innovative financing in ensuring predictable flows of financing 
for  sustainable  development,  especially  towards  the  poorest  and  most  vulnerable 
countries. 

European Council (June 15, 2010) 

The  EU  is  seriously  considering  proposals  for  innovative  financing  mechanisms  with 
significant revenue generation potential, with a view to ensuring predictable financing for 
sustainable  development,  especially  towards  the  poorest  and  most  vulnerable  countries. 
The  EU  calls  on  all  parties  to  significantly  step  up  efforts  in  this  regard,  welcomes  the 
ongoing work by the Leading Group on Innovative Financing for Development, and takes 
note  of  the  ongoing  work  of  the  Task  Force  on  International  Financial  Transactions  for 
Development and of the Task Force on Innovative Financing for Education. 

Innovative financing mechanisms have been under discussion and trial for some years in order to 
address  financing  needs  for  development.  Innovative  sources  of  financing  could  play  a  more 
prominent  role  in  the  near  future,  not  least  because  of  the  difficulties  of  many  donor  countries  in 
meeting  their  ODA  commitments  in  the  medium  term.  Development  budgets  are  coming  under 
increasing pressure, in particular because of the difficult situation of public finances in many donor 
countries as a consequence of the crisis. The reference here is to innovative sources of development 
finance, and it is therefore not confined to ways to increase official development assistance (ODA). 

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The recent Commission Communication "Taxation of the Financial Sector"82 mentions arguments 
for  a  fair  and  substantial  contribution,  by  the  financial  sector,  to  address  many  and  varied  key 
challenges  for  the  EU,  including  "commitments  towards  developing  countries  and  to  combat 
climate  change  and  global  resource  scarcity."  The  Commission  is  currently  conducting  an  impact 
assessment on new financial sector taxes; the impact assessment is expected to be published before 
the  summer  2011.  Depending  on  the  findings  of  the  impact  assessment  and  on  concrete 
Commission proposals revenues from such taxes could possibly be used to also respond to global 
and  European  challenges,  such  as  development  and  the  achievement  of  the  MDGs  and  other 
internationally agreed development objectives, as well as efforts to tackle climate change. 

In  its  Staff  Working  Paper  "Innovative  financing  at  a  global  level"83,  the  European  Commission 
provided an assessment of the various instruments of innovative financing relating to the financial 
sector, climate change and development on the basis of a number of criteria (see Box 3 below). 

Box 3. Review of Innovative financing instruments 

Air  ticket  levy.  UNITAID  is  a  drug  purchasing  facility  aimed  at  combating  the  major  pandemic  diseases 
affecting  the  developing  world.  UNITAID  buys  the  necessary  drugs  and  diagnostics  and  negotiates 
significant reductions in the prices of pharmaceutical firms. Almost half of the available funding comes from 
a solidarity contribution levied on air tickets. This is already applied in 11 countries and it has enabled France 
for example to generate an extra EUR 160 million in conventional aid. 

International  Financing  Facility.    The  International  Finance  Facility  for  Immunisation  (IFFIm)  exists  to 
rapidly  accelerate  the  availability  and  predictability  of  funds  for  immunisation. The  funds  raised by IFFIm 
are  used  by  the  GAVI  Alliance,  a  public-private  partnership  which  aims  to  reduce  the  number  of  vaccine-
preventable deaths and illness among children under five. So far IFFIm has raised more than USD3 billion 
for the GAVI Alliance’s immunisation programmes. IFFIm's financial base consists of legally binding grants 
from  its  sovereign  sponsors.  By  signing  the  grant  agreements,  these  countries  have  agreed  to  pay  these 
obligations in a specified schedule of payments over 20 years. 

Advance Market Commitments (AMCs) for vaccines aim to encourage the development and production of 
affordable  vaccines  tailored  to  the  needs  of  developing  countries.  Through  a  forward-looking  binding 
contract  from  donors  and  international  agencies  guaranteeing  a  viable  market  for  target  vaccines,  AMCs 
encourage  vaccine  makers  to  develop  or  build  manufacturing  capacity  for  urgently  needed  vaccines.  The 
binding contract guarantees a pre-agreed price for the first doses of vaccines sold to developing countries, so 
that companies can re-coup their investment costs. In exchange, participating companies must guarantee to 
supply vaccines for the long term at a pre-agreed sustainably low price that developing countries can afford. 
In  the  AMC  pneumococcal  pilot,  the  governments  of  Italy,  the  United  Kingdom,  Canada,  Russia,  and 
Norway and the Bill & Melinda Gates Foundation have committed USD1.5 billion, with GAVI promising to 
allocate USD1.3 billion through 2015. In March 2010, GlaxoSmithKline (GSK) and Pfizer Inc. became the 
first two companies to make long-term commitments to supply new vaccines for the Pneumo AMC. The two 
participating firms committed to supply 30 million doses each per year for a 10 year period. These doses will 
be sold at USD3.50 each rather than at the current price in industrialised countries of USD70 per dose. 

EU  ETS  Auction  Revenues.    Some  Member  States  used  the  EU  Emissions  Trading  System  (EU  ETS) 
auctioning  revenues  for  development.  According  to  Commission  estimates,  ETS  auction  revenues  could 
reach  EUR  50  billion  annually  by  2020.    The  total revenues Germany  raised, for  example,  were  EUR 528 
million  in  2009  and  EUR  560  million  in  2010,  of  which  EUR  230  million  were  reported  as  ODA.  The 
Federal  Ministry  for  the  Environment,  Nature  Conservation  and  Nuclear  Safety  (BMU)  coordinates  its 
activities  with  the  Federal  Ministry  for  Economic  Cooperation  and  Development  (BMZ).  BMZ’s 
programmes are fully integrated with existing development cooperation. 

82COM52010)549 of7.10.2010  
83 SEC(2010)409 of 1.4.2010 

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National Lotteries.  The Belgian Survival Fund (BSF), financed with proceeds from the national lottery, was 
created in 1983 by the Belgian Government in response to drought and famine in sub-Saharan Africa. The 
following year, BSF and IFAD formed a partnership to pursue a common goal; helping poor people in rural 
areas  overcome  poverty  and  improve  food  security.  Joint  Programme  (JP)  interventions  target  the  most 
vulnerable populations in the most fragile parts of Africa. From January 2010 the BSF will be renamed the 
Belgian  Fund  for  Food  Security  (BFFS)  to  better  reflect  its  food  security  agenda.  The  International 
Communities programme is the UK Big Lottery Fund’s way of helping disadvantaged communities overseas. 
It will have a budget of up to £80 million between 2010 and 2015. 

Depending on the mechanism, at most six Member States raised funds via innovative mechanisms 
in 2010. The use of the IFFIm was most common (France, Netherlands, Italy, Sweden, Spain and 
United  Kingdom)  ,  followed  by  AMC  (United  Kingdom  and  Italy)  and  Debt2Health  (Germany 
only).   

Austria and Germany have introduced air ticket levies, but the funds raised are not earmarked for 
development  cooperation.  The  United  Kingdom  also  supports 
the  Private  Infrastructure 
Development Group (PIDG) governed by a donor council with members from 8 donors, and utilises 
innovative  facilities  to  address  market  failures  preventing  private  investment  in  infrastructure  in 
developing countries. Social and environmental safeguards conform to World Bank standards. 

A  new  tax  on  international  financial  transactions  (FTT  or  Tobin  tax)  is  supported  by  several 
Member States.  In a report released in April 2010, the IMF proposed instead a levy on the balance 
sheets of all financial institutions and a "financial activities tax" on pay and profits, rather than a tax 
on international transactions.  The IMF concluded that “there may indeed be a case to supplement a 
levy of the kind described above with some other form of taxation, but an FTT does not appear well 
suited to the specific purposes set out in the mandate from G-20 leaders84.” Some Member States 
such as Belgium, France and Spain support the introduction of an FTT at EU level or worldwide.  

The recent Commission Communication on "Taxation of the Financial Sector"85 established a clear 
link between a number of key challenges for the EU (including "commitments towards developing 
countries and to combat climate change and global resource scarcity") and the "fair and substantial 
contribution" of the financial sector "to address the above challenges".  

The Commission is currently conducting an impact assessment on new financial sector taxes which 
is due to be published in 2011. Revenues from such taxes could potentially, as part of the national 
or EU budgets, or through some form of earmarking to international funds, be used to respond to 
global and European challenges, such as development and the achievement of the MDGs, as well as 
efforts to tackle climate change. 

84IMF (2010) - Financial Sector Taxation. The IMF’s Report to the G-20 and Background Material. p. 17 
85See http://ec.europa.eu/taxation_customs/resources/documents/taxation/com_2010_0549_en.pdf  
http://ec.europa.eu/taxation_customs/resources/documents/taxation/com_2010_0549_en.pdf  

See 

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Table 9 - EU Innovative Sources for Development Cooperation (EUR million, 2007-2009) 

Mechanism & Instrument 

2007 

2008 

2009 

Average 

EU Member States 

Solidarity 

National Lottery 

New Taxes 

of which Adaptation Fund 

of which Airline Levy 

Catalytic 

Advanced Market Commitment (AMC) 

Leveraged 

Frontloading  of  ODA  (e.g.  IFFIm 
bonds issued) 
Total 

300 

133 

167 

2 

165 

- 

- 

- 

- 

289 

114 

175 

2 

173 

- 

- 

223 

223 

255 

90 

165 

3 

162 

76 

76 

1,102 

1,102 

281 

112 

169 

2 

167 

25 

25 

442 

442 

300 

512 

1,433 

748 

Belgium, UK  

France  

Italy, UK  

France,  Italy,  The  Netherlands, 
Spain, Sweden, UK, 

Sources: Annual Reports for Lotteries, UNTAID for Airline Levy, UNFCC for Adaptation Fund, GAVI for 
AMC and IFFIm, OECD DAC for EU philanthropy 

Only nine Member States are planning to step up support for innovative financing mechanisms with 
significant  revenue  generation  potential  aimed  at  ensuring  predictable  financing  for  sustainable 
development.  For  example,  Germany  is  setting  up  a  new  special  fund  under  public  law 
(Sondervermögen “Energie- und Klimafonds”) to finance national and international programmes in 
the  fields  of  energy  efficiency,  renewable  energies  and  climate  change.  The  fund  will  be  in 
operation from 2011 onwards, with a small amount of funding available from contractually agreed 
payments  by  energy  utilities.  From  2013  onwards  additional  revenues  from  auctioning  EU 
emissions allowances (compared to the 2008 level of EUR 915 million; excluding emissions trading 
in  the  aviation  sector)  will  be  channelled  to  the  special  fund.  It  is  expected  that  several  hundred 
million euro of climate and environment related ODA will be committed annually through this fund 
from 2013 onwards, subject to parliamentary budget approval. EUR 31.5 million will be committed 
as climate and environment related ODA from this fund in 2011. 

As shown in Table 9 above, amounts raised from innovative sources for development cooperation 
from  EU  Member  States  have  been  increasing  over  the  period  2007-2009.  National  lotteries  in 
Belgium and the United Kingdom have been used to fund development programmes, while the air 
ticket levy has contributed to the fight against HIV/AIDS through UNITAIDS and the 2% levy of 
the  "Certified  Emission  Reductions"  (CERs)  issued  in  respect  of  each  project  under  the  Clean 
Development  Mechanism  (CDM)  has  raised  about  EUR  7  million  for  climate  change  adaptation. 
Overall, these innovative sources have had a limited impact, equivalent to just 3% of EU-15 ODA 
in 2009. However, catalytic (AMC) and leveraged (IFFIm) tools are now starting to produce flows 
for the benefit of developing countries.  Flows included in the table are funds raised on international 
bond  markets.  The  interest  and  principal  on  these  bonds  will  need  to  be  paid  and  donor 
contributions counted as ODA as the bonds are redeemed.   

Although small, these innovative sources represent an important option in a period of hard-pressed 
aid budgets. However, they also raise legitimate issues in terms of additionality and earmarking of 
aid funds, coupled with ring-fencing of specific tax revenues. 
EU philanthropy and private donations to developing countries have existed for many years and 
therefore  can  hardly  be  considered  innovative.  Although  smaller  than  in  North  America,  they 
amount  to  about  EUR  2.5  billion  per  year  over  the  period  2007-2009  according  to  OECD/DAC 
statistics. These private flows are often supported by EU Member States through tax discounts that 

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are not considered as ODA, as they are not flows from the official sector, but nevertheless help to 
increase resources available to developing countries. 

2.5. 

Leveraging Private Flows  

EU Commitments 

●Conclusions  11  November  2008  (Common  EU  position  for  the  Doha  Financing  for 
Development Conference)§10: “The EU is committed to promote policies and instruments 
supporting  private  investment  and  the  expansion  of  partner  countries'  private  sector  in 
support of an inclusive and sustainable economic growth. The EU also recalls the positive 
impact and importance of migrants’ remittances.” 

§ 27: "The EU recognises the development impact of remittances in migrants’ countries of 
origin.  It  encourages  all  countries  the  need  for  an  enabling  environment,  the  EU 
encourages  the  promotion  of  financial  sector  development  in  countries  of  origin.  It 
commits to adopt “General Principles for International Remittances Services" agreed by 
the  Committee  on  Payments  and  Settlements  Systems  (CPSS)  and  operational  definitions 
and  recommendations  allowing  the  improvement  of  data  on  remittances  and  calls  for  all 
countries to do the same. The EU also encourages partner countries to reduce the cost and 
improve  the  safety  of  transfers,  and  to  support  the  migrants’  initiatives  with  a  view  to 
reinforce the impact of remittances on economic and social development. Underlining, in 
this  regard,  to  address  gender  equality  and  empowerment  of  women  to  reinforce  the 
impact of remittances on development". 

●Council Conclusions of 18 May 2009 (support to developing countries in coping with the 
crisis)  §  11:  “The  Council  expresses  concern  about  the  negative  impact  of  the  crisis  on 
remittance  flows.  Bearing  in  mind  their  importance  for  development,  the  EU  will  further 
work towards enhancing the impact of remittances on development, including through the 
reduction of transaction costs. In this regard, the Council welcomes the work in progress 
in  international  fora,  including  inter  alia  the  G8  Global  Remittances  Working  Group, 
chaired by the World Bank, and work towards the establishment of an African Remittances 
Institute.” 

Council Conclusions of 18 November 2009 on Policy Coherence for Development §10: "to 
promote  transparent,  cheaper,  faster  and  more  secure  flows  of  remittances  to  migrants' 
countries  of  origin,  and  to  ensure  that  relevant  legislation  does  not  contain  provisions 
hampering the effective use of legal remittance channels.” 

In 2009, the Council emphasised the importance of mobilising all possible sources of financing for 
development,  including  export  credits,  investment  guarantees  and  technology  transfers,  as 
instruments to leverage assistance aimed at stimulating inclusive growth, investment, trade and job 
creation. The quality of information on this type of financing is important in order to ensure global 
accountability and to better grasp the development impact of different financial sources and flows. 
This  requires  a  comprehensive  overview  of  as  many  development-relevant  financial  flows  as 
possible  and  from  as  many  donors  as  possible.  Some  of  these  non-ODA  flows  are,  in  principle, 
tracked under the established OECD/DAC reporting system, which needs to be developed further. 
Not  all  EU  Member  States  have  a  reliable  system  in  place  yet  to  monitor  such  flows.  Improving 
data on the different flows is, however, essential to enable better use of ODA to leverage more, and 
complementary, flows for development.  

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In  July    2009,  at  the  L´Aquila  summit,  the  G8  Heads  of  States  endorsed  the  '5x5'  objective  and 
pledged  “to  achieve  in  particular  the  objective  of  a  reduction  of  the  global  average  costs  of 
transferring remittances from the present 10% to 5% in five years through  enhanced information, 
transparency, competition and cooperation with partners.” 

2.5.1.  Private Capital Flows 

Foreign  Direct  Investment.  The  economies  of  many  developing  countries  suffer  from  a  general 
shortage of capital, especially foreign direct investment (FDI). To increase foreign investment and 
prevent  the  flight  of  domestic  private  capital,  many  developing  countries  are  working  to  provide 
companies  with  transparent  and  simple  regulatory  and  fiscal  frameworks,  expanded  access  to 
finance, business development services, technology and innovation – in short creating a favourable 
business climate.   

The  majority  of  Member  States  reported  that  they  support  private  flows  through  investment 
guarantees,  dedicated  funds,  preferential  loans  and  support  for  joint  ventures  in  developing 
countries  in  sectors  that  have  high  returns  in  terms  of  development,  often  through  bilateral 
agreements.  

Some Member States and the Commission also have special programmes to promote microfinance. 
Germany,  for  example,  supports  the  Regional  Micro  Small  and  Medium  Enterprises  Investment 
Fund  for  Sub-Saharan  Africa  (REGMIFA).  REGMIFA  is  promoted  by  a  donor  consortium 
composed of leading Donors/DFIs (including, inter alia, France, Germany, Netherlands, and Spain) 
and  IFIs,  and  led  by  the  German  Financial  Cooperation  (KfW).  It  aims  to  enhance  long  and 
medium-term  financial  needs  of  local  financial  intermediaries  providing  funding  to  Micro,  Small 
and Medium Enterprises (MSMEs) in Sub-Saharan Africa. 

Dedicated institutions in Member States, such as national development agencies and development 
finance  institutions,  are  in  charge  of  specific  tools  and  projects.  For  example,  the  Belgian 
Investment Company for Developing Countries (BIO), which was created in 2001 by the Belgian 
State  and  Belgian  Corporation  for  International  Investment  (BMI/SBI),  aims  to  promote  a  strong 
private  sector  in  developing  countries  and/or  emerging  economies  so  that  these  can  accomplish 
sustainable  development,  promote  social  welfare  and  decrease  poverty.  BIO  supports  the  local 
private  sector  directly  (loans,  equity  stakes,  guarantees  for  local  micro,  small  and  medium 
enterprises) and indirectly through intermediary financial institutions (banks, non-banking financial 
institutions,  investment  companies/funds  aimed  at  SMEs  and  microfinance  institutions  or  MFIs). 
BIO  also  provides  grants  for  feasibility  studies  and  technical  assistance  to  local  enterprises  and 
intermediary financial institutions.  

Several  Member  States  also  contribute  to  initiatives  led  by  the  international  financial  institutions 
that  provide  capital,  guarantees,  and  various  forms  of  finance  and  risk  management  tools  to  the 
private  sector.  To  invigorate  the  business  and  investment  climate  in  South  Eastern  Europe  the 
Austrian Development Agency (ADA) strongly supports the World Bank initiative “The Road to 
Europe:  Program  of  Accounting  Reform  and  Institutional  Strengthening  (REPARIS)”.  This  is  a 
regional  programme  aimed  at  creating  a  transparent  policy  environment  and  an  effective 
institutional  framework  for  corporate  reporting.  The  programme  is  designed  around  the 
introduction,  implementation  and  effective  enforcement  of  relevant  portions  of  the  EU  acquis  to 
southern-eastern  European  countries  in  order  to  contribute  to  foreign  direct  and  portfolio 
investment, foster private and financial sector developments, improve the business environment and 
investment  climate,  and  facilitate  potential  integration  into  (or  harmonisation  with)  the  European 

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Union.  Denmark,  in  cooperation  with  AfDB  and  Spain,  is  working  on  establishing  an  African 
Guarantee Fund in order to enable MSME’s to gain greater access to financial services.  

The  EU  promotes  foreign  and  domestic  investments  through  its  support  for  the  private  sector  in 
developing  countries.  The  vast  majority  of  support  is  provided  through  national  support 
programmes, the remainder being through regional programmes (including All ACP programmes). 
In the same framework, the European Investment Bank (EIB) is entrusted with the management of 
the  Investment  Facility  (IF)  provided  from  the  EU  Member  States'  budgets  via  the  European 
Development Fund (EDF). The IF, alongside the EIB own resources,  meets the financing needs of 
investment  projects  in  the  ACP  region  with  a  broad  range  of  loans  and  flexible  risk-bearing 
instruments. In line with the objectives set out by the EU Policy and by the international community 
in the United Nations (UN) Millennium Development Goals (MDGs), the EIB’s overriding aim is 
to  support  projects  that  deliver  sustainable  economic,  social  and  environmental  benefits  through: 
supporting  responsible  private  and  public  investments;  fostering  regional  cooperation  and 
integration;  mobilising  domestic  savings  and  acting  as  a  catalyst  for  foreign  direct  investment; 
encouraging the broadening, deepening and strengthening of the local financial sector; and relying 
on/promoting partnerships.  

The European Commission encourages blending mechanisms, in which grants are added to loans as 
a way of achieving a number of objectives, including the need to increase the volume of private and 
public development finance in a context of restricted resources. In order to support the EU policy, 
regional  strategy  and  partnership  in  the  targeted  region  and  countries,  the  European  Commission 
has  set  up  five  regional  blending  facilities:  the  Neighbourhood  Investment  Facility  (NIF);  the 
Western Balkans Investment Framework (WBIF); the EU–Africa Infrastructure Trust Fund (ITF); 
the Latin America Investment Facility (LAIF) and the Investment Facility for Central Asia (IFCA). 
The  potential  range  of  instruments  includes:  technical  assistance  (TA);  feasibility  studies; 
investment  co-financing;  equity  participation;  risk-capital;  interest  rate  subsidies;  on-lending; 
guarantees;  insurance  subsidies;  and  incentive  payments.  TA/feasibility  studies  and  interest  rate 
subsidies  provide  for  the  largest  number  of  projects.  The  facilities  cover  similar  broadly  defined, 
sectors, i.e. transport, energy, social, environment and finance for SMEs. Partners in the beneficiary 
country can be public, private or mixed, with public partners dominating the current projects aside 
from SME support. 

Alongside  the  regional  frameworks,  the  European  Commission  plays  an  active  role  in  the  sector 
approach, mainly in cooperation with Member States. An interesting example of this is provided by 
the  Global  Energy  Efficiency  and  Renewable  Energy  Fund  (GEEREF),  an  innovative  Fund-of-
Funds, providing global risk capital through private investment for energy efficiency and renewable 
energy projects in developing countries and economies in transition. Launched in 2004, GEEREF 
aims  to  accelerate  the  transfer,  development,  use  and  enforcement  of  environmentally  sound 
technologies for the world's poorer regions, helping to bring secure, clean and affordable energy to 
local people. GEEREF was initiated by the Directorate General for Environment and the Directorate 
General for Development Co-operation (DEVCO) of the European Commission.  It is sponsored by 
the European Union, Germany and Norway and advised by the European Investment Bank Group. 
It has secured funding for a total of EUR 108 million and is considered as an ODA by DAC. 

According  to  Eurostat86,  net  FDI  from  the  EU27  to  developing  countries  peaked  in  2007  and  has 
been declining since then, as shown in Figure 13 below. 

86 Eurostat is the statistical office of the European Union situated in Luxembourg. Its task is to provide the 
European Union with statistics at European level that enable comparisons between countries and regions 

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)
s
e
c
i
r
p

t
n
e
r
r
u
c
(

s
o
r
u
E

f
o
s
n
o

i
l
l
I

B

Figure 13 – Net FDI Flows from EU to Developing Countries (EUR billions, current prices) 

FDI from EU27 to Developing Countries

250 

200 

150 

100 

50 

-

FDI to Developing Countries

2005

48 

2006

84 

2007

204 

2008

130 

2009

100 

Source: Eurostat 

Corporate  Social  Responsibility  refers  to  the  voluntary  inclusion  of  social  and  environmental 
concerns,  beyond  the  minimum  legal  requirements,  in  companies'  business  operations  to  address 
societal  needs.    It  has  become  an  increasingly  important  concept  and  is  part  of  the  debate  about 
globalisation, climate change, competitiveness and sustainability. CSR practices are not a substitute 
for  public  policy,  but  they  can  contribute  to  a  number  of  public  policy  objectives  in  developing 
countries,  especially  in  relation  to  labour  markets,  labour  standards,  skills  development,  more 
rational use of natural resources and overall poverty reduction. 

In  Europe,  the  promotion  of  CSR  reflects  the  need  to  promote  common  values  and  increase  the 
sense of solidarity and cohesion. In order to promote awareness and the adoption of CSR principles 
by  companies  operating  in  developing  countries  the  Commission  is  supporting  several  projects 
totalling  approximately  EUR  50  million  in  the  period  2004  –  2010.  The  Commission  regularly 
consults  its  High-Level  Group  of  Member  States  representatives  and  its  European  Multi-
Stakeholder Forum on the international aspects of CSR policies.  
The vast majority of Member States undertake national action to promote CSR principles and 15 of 
them report that they advocate the adoption of internationally agreed principles and standards on 
corporate social and environmental responsibility by European companies. Most of them strongly 
support multilateral initiatives such as: 
•  The  OECD  Declaration  on  International  Investment  and  Multinational  Enterprises  which 
promotes  voluntary  standards  of  responsible  business  conduct  within  the  framework  of  the 
OECD  Guidelines  for  Multinational  Enterprises.  These  guidelines  are  currently  undergoing  a 
review which is likely to be completed in May 2011. Twenty-three EU Member States and the 
Commission have created National Contact Points on the implementation of the guidelines.  

•  The  UN  Global  Compact,  which  is  a  voluntary  corporate  citizenship  initiative  for  companies 
committed  to  supporting  and  enacting  a  set  of  10  core  values  in  the  areas  of  human  rights, 
labour, the environment and combating corruption. Global Compact Local Networks have been 
established in 20 EU Member States. 

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•  The  International  Labour  Organization  (ILO)  Conventions  and  recommendations  on  labour 

standards. 

•  the IFC’s "Performance Standards on Environment and Social Sustainability". 

•  European Development Finance Institution (EDFI) “Principles for Responsible Financing”.  

•  the Global Reporting Initiative (GRI). 

•  the Principles of Responsible Investment (PRI). 

•  the mandate of the Special Representative of the UN Secretary-General on business and human 

rights, Professor John Ruggie. 

•  the  OECD  initiative  concerning  a  “Due  Diligence Guidance  for  Responsible  Supply  Chains  of 

Minerals from Conflict-Affected and High-Risk Areas”. 

•  OECD Convention on combating bribery of foreign public officials. 

•  FAO Code of Conduct for Responsible Fisheries. 

•  Realising Rights: the Ethical Globalisation Initiative (EGI) spearheaded by Mary Robinson. CSR 
is one of the core activities of EGI with a focus on a few countries (e.g. Liberia and Ghana) in 
Sub-Saharan Africa. 

There are a variety of other activities supported by a few Member States.  

The  Austrian  Development  Agency  (ADA)  offers  Business  Partnerships  to  Austrian/European 
companies on a co-financing basis. One typical example is the hepatitis vaccination programme of 
the  OMV,  the  leading  Austrian  oil  and  gas  corporation.  The  project,  implemented  in  Pakistan, 
focuses  on  vaccination  and  medical  education  and  is  part  of  a  comprehensive  development 
programme  which  includes  water  and  infrastructure.  Another  example  is  the  business  partnership 
with  five  European  carpet  retailers  and  the  STEP  foundation.  It  focuses  on  the  elaboration  of 
common CSR-standards for the entire value chain in carpet manufacturing in Nepal and Pakistan. 

The German Government has defined its own CSR Strategy and brought forward a CSR Action 
Plan that builds on broad consultation with stakeholders. The international and development policy 
perspective  is  included  in  the  national  CSR  Strategy.  Development  Partnerships  with  business 
companies  (develoPPP.de).  Since  1999,  the  Federal  Ministry  for  Economic  Cooperation  and 
Development has supported more than 1,200 projects with an amount of approx. EUR 500 million. 
The majority of these projects contain CSR components. 
Denmark’s Innovative Partnerships for Development (IPD) Programme sets out to promote better 
working and living conditions for employees, their families, the community and society at large by 
advancing strategic CSR and socially responsible innovation.  

The UK Government is a strong supporter of responsible business behaviour.  The UK promotes 
adherence  to  the  OECD  Guidelines  on  Multinational  Enterprises,  which  set  recommendations  for 
good corporate behaviour. NGOs and trades unions can lodge, and have lodged, complaints against 
companies  for  breaching  the  Guidelines.  Under  the  OECD  mechanism  the  UK  government 
investigates the complaints and produces a conclusion, with recommendations for improvement if 
necessary.   

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Social  and  environmental  considerations  in  public  procurement  rules.  The  EU  public 
procurement  Directives87  allow  contracting  authorities  to  take  into  account  environmental  and 
social  considerations  at  all  stages  of  the  procurement  procedure.  The  prerequisite  is  that  these 
considerations are linked to the subject matter of the contract or to the execution of the contract, if 
they are addressed in the contract performance clauses, and comply with the fundamental principles 
of the Treaty on the Functioning of the EU (transparency, non-discrimination) and with relevant EU 
law.  EU Member States may introduce more specific rules in their national legislation, in order to 
further  promote  the  inclusion  of  social  and  environmental  considerations  in  public  procurement, 
provided such national rules are in line with the public procurement Directives and all relevant EU 
law.  Also,  on  28/01/2011  the  Commission  published  a  guide  to  taking  account  of  social 
considerations in public procurement88.  

A number of Member States reported substantial reforms of their rules in 2010.  

The Ministry for Foreign Affairs of Finland is defining a new case management process. This is an 
overall  process  which  has  been  ongoing  since  2009  and  is  based  on  updating  manuals  and 
templates.  A  new  initiative  during  2010  has  been  the  consistent  addition  of  social  and 
environmental  clauses  into  terms  of  reference  templates.  These  new  templates  and  interlinked 
manuals  are  being  put  into  use,  even  though  the  case  management  process  software  is  not  yet 
usable. 

In  2010  the  government  of  the  Netherlands  started  to  implement  its  new  policy  on  sustainable 
public  procurement.  From  January  2010  environmental  criteria  have  been  applied  and  from  2011 
onwards  social  criteria  will  also  be  applied.    Public  procurement  is  used  to  pursue  various  policy 
objectives, including development objectives. The government links its public procurement policy 
to  economic  diplomacy,  activities  of  multilateral  organisations  (e.g.  ILO)  and  supply  chain 
initiatives  (e.g.  the  Dutch  Sustainable  Trade  Initiative  and  ‘fair  trade  municipalities’).  The 
government has chosen to apply fundamental labour standards and human rights on a generic basis 
(i.e.  in  a  uniform  manner  in  all  public  procurement).  The  development  aim  is  to  bring  about 
improvements  in  the  entire  supply  chain  (a  process-oriented  approach).  For  a  limited  number  of 
products,  for  which  community-supported  supply  chain  initiatives  exist,  supplementary  standards 
apply.  These  standards  relate  to  living  wages/income  (or  fair  trade),  working  hours,  and 
occupational  health  and  safety.  The  system  is  designed  to  be  as  simple  as  possible  for  both 
contracting parties and suppliers, and to be consistent with actual practice. It only applies to large 
contracts (above EUR 133,000 for goods and services). Companies will be held accountable for the 
way they fulfil their supply chain responsibilities with regard to the product, work or service they 
deliver. 

2.5.2.  Remittances 

Remittances  sent  by  migrants  to  their  countries  of  origin,  private  by  nature,  are  essential  to 
improving  the  livelihoods  of  millions  of  people  and  for  some  countries  are  more  significant  in 
volume terms than ODA.  

87Directive 2004/17/EC of 31 March 2004 coordinating the procurement procedures of entities operating in the 
water, energy, transport and postal services sectors (OJ L 134, 30.4.2004) and Directive 2004/18/EC of 31 
March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts 
and public service contracts (OJ L 134, 30.4.2004). 
88See http://ec.europa.eu/social/BlobServlet?docId=6457&langId=en 

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According to a recent Eurostat publication89, the total number of non-nationals (i.e. persons who are 
not  citizens  of  their  country  of  residence)  living  on  the  territory  of  the  EU  Member  States  on  1 
January 2009 was 31.9 million, representing 6.4% of the total EU population. More than one third 
of  them  (11.9  million)  were  citizens  of  another  Member  State.  Among  the  non-EU  foreign 
population living in the EU in 2009, 48.2% are citizens of a High Human Development Index (HDI) 
country  (with  Turkey,  Albania  and  Russia  accounting  for  almost  half);  44.4%  are  citizens  of  a 
Medium HDI country (one fifth of whom are citizens of Morocco, followed by nationals of China 
and  Ukraine);  only  7.4%  of  the  non-EU  foreign  population  living  the  EU  are  from  developing 
countries with a lower HDI (30% of whom have Nigerian or Iraqi citizenship).  

With regard to migration flows in 2008, another recent Eurostat publication90 indicated that in 2008 
EU Member States received a total of 3.8 million immigrants and at least 2.3 million emigrants are 
reported  to  have  left  one  of  the  EU  Member  States.  Compared  with  2007,  immigration  to  EU 
Member States is estimated to have decreased by 6 % and emigration to have increased by 13 %. 
The scale and patterns of immigration differ from one Member State to another. It is estimated that 
more than a half (55%) of immigrants to the EU in 2008 previously resided outside the EU, while 
44%  of  immigrants  had  previously  also  lived  in  one  of  the  EU  Member  States  (other  than  the 
country of immigration).  

The impact of the economic crisis on migration employment, migrant stocks and flows is not easy 
to assess, but it is generally acknowledged that migrants are often more affected by the economic 
downturn either because they work in sectors that are more affected by the crisis, such as tourism or 
construction, or because of their particular vulnerability.  

According to World Bank data, global remittance flows to developing countries grew from 2007 (EUR 203 
billion) to 2008 (EUR 220 billion). Remittance flows started to decrease in the last quarter of 2008. For 2009 
global  remittances  to  developing  countries  remained  stable  at  EUR  220  billion.  In  2010  the  growth  in 
remittances is expected to have resumed and attained EUR 245 billion-91  

Worker remittances are defined by the World Bank as the sum of three components: (a) workers’ remittances 
recorded  under  the  heading  “current  transfers”  in  the  current  account  of  the  balance  of  payments;  (b) 
compensation of employees which includes wages, salaries, and other benefits of border, seasonal, and other 
non-resident  workers  (such  as  local  staff  of  embassies)  and  which  are  recorded  under  the  “income” 
subcategory of the current account; and (c) migrants’ transfers which are reported under “capital transfers” in 
the capital account of the IMF’s Balance of Payments Yearbook.  

Data  on  remittance  flows  are  not  always  reliable,  as  a  large  proportion  of  remittances  are  not 
recorded in official statistics. The World Bank estimated that immigrants sent about USD440 billion 
of  remittances  and  worker  compensations  to  their  countries  of  origin  in  2010.  Of  these,  USD325 
billion  were  sent  to  developing  countries,  although  only  USD22  billion  went  to  low  income 
countries,  compared  to  about  USD56  billion  of  ODA  in  2009.  The  relative  importance  of 
remittances  in  terms  of  volume  is  therefore  sometimes  exaggerated  in  the  case  of  low  income 
countries.  

89Eurostat, Statistics in Focus, 45/10. 
90Eurostat, Statistics in Focus, 1/11. 
91World  Bank  Migration  and  Remittances  (Excel  files  attached  to  Outlook  for  Remittance  Flows  2011-12:  Recovery 
after  the  crisis,  but  risks  lie  ahead)  data  as  of  November  2010  converted  into  Euro  using  Eurostat’s 
Euro/ECU exchange rates - Annual data.   

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According  to  WB  statistics,  remittances  from  EU  Member  States  to  all  countries  (developed  and 
developing)  grew  steadily  between  2004  and  2008  and  then  declined  in  200992.    Available  data 
point to a further slight decline in 2010. 

Figure 14 – Remittances from EU Member States to All Countries  

Source: World Bank - World Development Indicators 

According  to  Eurostat  most  remittances  from  EU  Member  States  registered  in  their  Balance  of 
Payments  statistics93  are  sent  to  developing  countries.  Of  the  EUR  30.3  billion  of  remittances 
reported in official statistics for 2009, EUR 8.3 billion were intra-EU and EUR 22 billion extra-EU. 
EUR 19 billion were sent to developing countries94.  

2.5.2.1.  Donor Initiatives 

In  recent  years  the  importance  of  remittances  has  been  recognised,  and  several  international 
initiatives  propose  concrete  measures  to  measure  them  more  accurately,  assess  their  impact  in 
country  specific  contexts,  lower  transfer  costs,  make  them  safer  and  faster,  formalise  them  and 
leverage their impact on development by developing incentives for investment. 

92World Bank’s World Development Indicators.  
93Data on remittance flows are often underestimated due to the use of informal remittance channels, irregular 
migration, and ambiguity in the definition of migrants (foreign born versus foreigner, seasonal versus 
permanent).  The quality of data is also affected by lack of adherence to IMF guidelines on BOP statistics by 
some countries and differences between host and recipient countries’ records.  
94http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=bop_remit&lang=en 

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Box 4. Summary of main international initiatives 
Guidelines  for  the  compilation  of  data  on  remittances  have  been  drafted  by  the  'Luxembourg  Group'95  the 
'General  Principles  for  International  Remittances  Services'  and  the  recent  G8  initiative  of  a  'Global 
Remittances Working Group' coordinated by the World Bank. The G20 Summit in Seoul of November 2010 
recognised  the  importance  of  facilitating  international  remittance  flows  and  enhancing  their  efficiency  to 
increase  their  contribution  to  growth  with  resilience  and  poverty  reduction,  and  committed  to  support  the 
above initiatives towards a reduction of the global average cost of transferring remittances.  

On a number of occasions (see above) the EU has undertaken to make remittances cheaper, faster 
and more secure and to maximise their development impact.  

Some EU Member States follow a multi-pronged approach to foster remittances. The Netherlands is 
a good example, focusing on creating favourable conditions to reinforce the positive link between 
remittances and development through its own policies on remittances. The Netherlands contributes 
to  the  development  of  the  financial  sector  in  countries  of  origin.  The  aim  is  to  achieve  a  more 
sustainable development impact of remittances. Lastly, the Netherlands aims to increase the poverty 
alleviation effect of money transfers by promoting small-scale initiatives by migrants.   

2.5.2.2.  Improving data on remittances 

Eurostat has started regular collection of data on remittances flows from each EU Member State and 
third countries. This information is regularly updated (most recently in December 2010). Generally, 
Member States still combine different data compilation methods for remittances, as these flows are 
difficult  to  capture.  In  the  past,  the  ITRS  (International  Transactions  Reporting  System,  a  data 
collection system based on data from banks and enterprises on individual transactions) was the main 
source  for  data  compilation,  but  direct  reporting  by  Money  Transfers  Operators,  surveys  and 
administrative data have also gained in significance in the meantime. The main reference for data 
compilers  is  the  IMF's  manual  "International  Transactions  in  Remittances":  Guide  for  Compilers 
and  Users",  which  was  prepared  by  members  of  the  Luxembourg  Group  and  which  are  already 
applied by a number of Member States. At present more precise data on remittances are transmitted 
to  Eurostat  only  on  a  voluntary  basis  -  only  data  for  Total  World,  Intra/Extra  EU  and  Intra/Extra 
Euro  Area  are  mandatory  for  Quarterly  Balance  of  Payments  reporting.  The  ECB  also  publishes 
data on workers' remittances for the euro area. 

In  response  to  the  increasing  demand  for  data  on  remittances,  Eurostat  launched  a  new  annual 
survey  in  2009,  in  which  it  asked  Member  States  to  provide  statistics  on  remittances  and 
compensation of employees, collected as part of balance of payments statistics. 

According to the responses to the Commission's annual questionnaire on financing for development, 
14  Member  States  have  no  robust  and  reliable  data  concerning  the  amounts  and  destination  of 
remittances from their country, such as ad-hoc surveys, while 12 Member States said their data are 
robust.    Twelve  Member  States  have  not  adopted  and  do  not  intend  to  adopt  the  operational 
definitions, recommendations and best practices on improving the quality and coverage of data on 
remittances according to the compilation guide drafted by the "Luxembourg Group".   

95The  Luxembourg  Group  was  created  as  an  informal  working  group  of  practitioners  to  consider  the  difficulties  of 
collecting and compiling remittance data. The objective of the Group is to make recommendations for improvements 
that should lead to the production of a compilation guide for remittance statistics. Jointly with Eurostat and the World 
Bank, the IMF planned the first meeting of the Luxembourg Group (and constituted its secretariat) which was held in 
June 2006 with participation from 16 countries. 

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2.5.2.3.  Favouring cheaper, faster and more secure flows of remittances  

According to the World Bank’s Remittance Prices Worldwide, the cost of sending remittances from 
the EU, measured for a USD200 transfer, has been falling steadily since 2008 in France, Italy and 
the  United  Kingdom,  while  remaining  above  the  general  averages  in  Germany.  The  United 
Kingdom and Italy have an average total cost below the overall average (8.89 percent). As shown in 
Table  10  below,  costs  declined  in  France  and  Italy  and  increased  in  Germany.  However,  the 
average cost is still higher than the 5% target by 2014 set at the L’Aquila G8 Summit. The EU has 
not developed its own monitoring system. 

Table 10 - Average Cost to transfer USD200 for EU G8 Countries (%) 

Country  

 France  
 Germany  
 Italy  
 United Kingdom  
 G8 Average  
 Global Average  

 2008  
10.92
14.07
10.03
10.26
10.26
9.81

 Q1 2009  
11.50
13.53
7.36
10.27
10.32
9.67
Source: World Bank 

 Q3 2009  
11.15
12.71
8.21
9.05
8.80
9.40

 Q1 2010  
10.01
11.85
8.11
8.29
8.37
8.72

 Q3 2010  
8.95 
12.67 
7.87 
8.07 
8.40 
8.89 

Banks remain more expensive than Money Transfer Operators (MTOs) and the differing importance 
of  each  channel  in  EU  Member  States  may  explain  price  variations  across  countries,  as  banks 
dominate the money transfer market in France or Germany, for example, while MTOs are relatively 
more important in the United Kingdom.  

Some Member States - including France, Germany, Italy, the Netherlands, and the United Kingdom 
-  have  set  up  remittance  price  comparison  websites.  The  German  government  has  set  up  a 
remittance price comparison website (www.geldtransfair.de). This was done in cooperation with the 
Frankfurt School of Finance and Management, who now own the ongoing project. The objective is 
the  reduction  of  transfer  costs  for  formal  remittances  from  migrants  living  in  Germany  to  their 
countries  of  origin.    In  2009  Italy  launched  the  “Rome  Road  Map  for  Remittances”  at  an 
International Conference.  A  dedicated website on  the costs of remittances has been elaborated by 
stakeholders  and  co-funded  by  the  Ministry  of  Foreign  Affairs  and  has  operated  since  2009 
(www.mandasoldiacasa.it); it has been the first such website certified by the World Bank as being 
compliant  with  current  applicable  standards.  The  Netherlands  supports  a  remittances  comparison 
website  (www.geldnaarhuis.nl).  This  website  provides  information  in  eight  languages  on  money 
transfer costs charged by banks and money transfer offices. 

2.5.2.4.  Policy environment  

Substantial  progress  has  been  achieved  in  the  form  of  the  adoption  of  the  Payment  Services 
Directive (PSD) in November 2007, which lays the legal foundation for an EU-wide single market 
for payments, although it applies to intra-EU money transfers only. Fourteen Member States have 
gone  beyond  the  requirements  of  the  Directive  to  cover  transfers  between  operators  when  one  of 
them is outside the EU or when the transaction is made in currencies other than those existing in the 
EU.    Fully  implemented  in  the  EU  Member  States  since  November  2009  -  with  the  exception  of 
Poland  which  is  expected  to  adopt  it  in  2011  -  it  allows  for  a  new  category  of  non  bank  service 
provider, namely the "Payment institutions", i.e. money transfer operators or telecom providers for 
their  pre-paid  activities,  which  are  now  recognised  as  a  separate  payment  service  provider  and 
subject  to  specific  authorisation.  They  have  to  comply  with  appropriate  prudential  and  regulatory 
requirements  harmonised  throughout  the  EU/EEE.  This  directive  has  resulted  in  increasing 

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competition, with 131 new licences obtained in EU Member States in October 2010, most of them 
in the United Kingdom. In addition, the E-Money Directive adopted in October 2009, which has to 
be  transposed  by  30  April  2011,  will  authorise  e-money  institutions  (such  as  issuers  of  pre-paid 
cards, on-line or telecom providers for their pre-paid activities) to carry out business activities other 
than  issuing  e-money.  Here  again,  the  EMD  still  only  applies  to  payments  made  within  the 
EU/EEE,  but  the  Member  States  have  the  right  to  extend  its  scope  should  they  so  wish.  Both 
directives will be evaluated by the end of 2012, when their economic impact will be assessed and 
recommendations will be made regarding their potential revision. 

In  the  Council  Conclusions  of  30  November  2009,  the  EU  undertook  "to  promote  transparent, 
cheaper, faster and more secure flows of remittances to migrants' countries of origin, and to ensure 
that relevant legislation does not contain provisions hampering the effective use of legal remittances 
channels", within the broader context of migration which is one of the five priorities of the work on 
Policy  Coherence  for  Development.  The  European  Commission  intends  to  keep  up  its  efforts  to 
identify any provisions hampering the effective use of legal remittances channels in the context of 
promoting mobile banking and transfers. It is sometimes argued that the legislation on anti money-
laundering  and  counter  terrorism  financing  may  be  perceived  as  a  barrier  for  migrants  to  send 
money through formal channels as well as a burden on money transfer operators. So far, no Member 
State  has  conducted  an  assessment  of  the  impact  of  the  legislation  on  anti  money-laundering  and 
counter-terrorism financing on the remittances' market.  

As part of the Stockholm Programme, which is the 5-year plan (2010-2014) in the area of justice 
and home affairs96, the  European  Council invited the Commission to submit  proposals on  how to 
further  ensure  efficient,  secure  and  low-cost  remittance  transfers,  and  enhance  the  development 
impact  of  remittance  transfers,  as  well  as  to  evaluate  the  feasibility  of  creating  a  common  Union 
portal on remittances to inform migrants about transfer costs and to encourage competition among 
remittance service providers.  

A number of targeted initiatives have been set up to support developing countries in establishing a 
policy framework that is more conducive to remittances, such as the Commission's support for the 
establishment, under the auspices of the African Union,  of an African Institute for Remittances and 
the contributions by a number of Member States and the Commission to the multi-donor Financial 
Facility  for  Remittances  of  the  International  Fund  for  Agricultural  Development  (IFAD)  which, 
inter  alia,  provides  grants  for  innovative  projects  that  support:  i)  the  creation  of  enabling 
environments  for  market  development,  openness  and  transparency;  ii)  the  design  of  innovative 
business models; iii) the introduction of new technologies as a means for better financial inclusion; 
iv)  financial  access  and  services  to  rural  remote  areas;  and  v)  migrant  investment  and 
entrepreneurship.  France  and  the  African  Development  Bank  also  organised  two  workshops  in 
November  2009  with  relevant  local  stakeholders  in  Bamako  and  Casablanca  in  order  for  them  to 
share  experiences  on  existing  regulatory  frameworks  and  discuss  potential  improvements  to  be 
made in terms of cost reduction, formalisation of flows, and suppression of barriers to competition 
and so on. More could be done to support developing countries in improving data collection, and to 
strengthen  their  capacity  in  policy  making,  for  example  to  counter  potential  anti-competitive 
behaviour of money transfer operators. 

In a different vein, recent measures by some Member States, such as the decree in Italy requiring 
money  transfer  operators  to  inform  local  police  within  12  hours  if  the  person  wishing  to  transfer 

96http://www.statewatch.org/news/2010/jun/eu-jha-council-jun-10-stockholm-programme-action-plan-conclusions.pdf 

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funds  is  unable  to  present  a  residence  permit,  could  be  counter-productive  from  a  development 
perspective,  because  such  restrictions  will  increase  the  use  of  informal  less  secure  channels  to 
transfer remittances. 

2.5.2.5.  Support for the Financial Sector in Developing Countries 

The Commission and EU Member States also implement programmes in partner countries with the 
aim  of  developing  the  financial  sector  (e.g.  microfinance,  technical  assistance  on  financial  sector 
regulation and supervision). Through its development cooperation, the EU supports the creation of a 
more  favourable  business  environment  in  developing  countries.  Denmark,  France,  Germany, 
Netherlands,  Sweden  and  the  United  Kingdom  contribute  to  the  Partnership  for  Making  Finance 
Work for Africa, a major initiative that has been launched as part of the G8 commitments of the G8 
Heiligendamm  summit  of  2007,  to  support  the  efforts  of  African  countries  to  boost  economic 
growth  and  fight  poverty  by  encouraging  and  facilitating  development  of  the  financial  sector. 
Germany  also  cooperates  bilaterally  with  partner  countries  in  advancing  financial  sector 
development,  including  the  banking  sector.  German  Financial  Cooperation  (KfW)  is  one  of  the 
world’s major investors in microfinance. Germany is active in several international initiatives that 
aim  to  improve  the  overall  banking  system,  e.g.  Financial  Sector  Reform  and  Strengthening 
Initiative  (FIRST),  Alliance  for  Financial  Inclusion  (AFI),  Consultative  Group  to  Assist  the  Poor 
(CGAP),  and  the  Access  to  Insurance  Initiative  (A2II).  Furthermore,  Germany  co-chairs  the  G20 
expert  working  Group  on  SME  Finance,  aiming  in  particular  at  improving  access  to  finance  for 
SME in developing countries. 
Eight EU Member States (France, Germany, Italy, Luxembourg, Netherlands, Portugal, Spain and 
the United Kingdom) declare they have implemented solutions internally and in  cooperation with 
third countries to overcome barriers to access to financial services by migrants and their families, 
with  a  view  to  reinforcing  the  impact  of  remittances  on  their  economic  and  social  development. 
Two other Member States (the Czech Republic and Greece) plan to implement such solutions in the 
near future. Eight Member States (Belgium, Germany, Estonia, Greece, Spain, France, Italy and the 
United  Kingdom)  have  implemented  the  "General  Principles  for  International  Remittances 
Services" agreed by the Committee on Payments and Settlements Systems (CPSS) and referred to in 
the Council Conclusions of November 2008.  

Some Member States (such as Finland) feel that current payment services already meet the needs of 
migrants at a reasonable cost and therefore take the view that no action is necessary. The share of 
remittance  services  providers  in  the  overall  payment  transmission  is  minor,  the  bulk  of  payments 
are transferred via banking channels. Furthermore, there are no indications that the current payment 
services  do  not  satisfy  the  needs  of  migrants.    In  other  cases  there  are  few  immigrants  from 
developing countries (Ireland, Latvia, Lithuania, and Slovenia). 

To  improve  financial  literacy  and  access  to  financial  services,  the  UK  informs  migrants  about 
financial products suited to their needs and also works through dialogue with the private sector. The 
UK  prepared  a  leaflet  explaining  what  information  has  to  be  given  to  the  sender  of  money,  what 
needs to be checked to make sure that the money reaches the recipient safely and what rights the 
sender has if things go wrong.  The Netherlands recently evaluated its cost comparison website. As 
most migrants have access to financial services similar to that of the rest of the population in the 
EU, the cost of remittances depends mainly on access to financial services in non-EU countries.  

2.5.3.  Leveraging private flows 

There have been a limited number of initiatives by Member States on leveraging private flows to 
developing countries. 

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One of the most significant is the support provided by Germany, France and the Netherlands for the 
Local  Currency  Financing  Fund  “The  Currency  Exchange”  (TCX).  TCX  provides  market  risk 
management products in developing and emerging markets. This unique fund focuses on currencies 
and maturities which are not covered by regular market providers. In this way, TCX helps provide 
local  microfinance  institutions  and  banks,  bilateral  and  multilateral  development  financers,  and 
enterprises with long term finance in local currency.  
The  Netherlands  has  also  supported  several  private  public  partnerships  (PPPs)  in  development 
cooperation.  At present there are 75 PPPs in various sectors: health, agriculture, water, trade and 
energy. They take various forms: innovative public private financing mechanisms, technical support 
to  enhance  the  business  climate,  product  development,  promotion  of  inclusive  business  models, 
pilots for sustainable trade, and capacity building for local water utilities. 

Sweden  has  launched  a  new  programme  called  “Business  for  Development”  or  B4D.  The  B4D 
programme contains tools for new forms of dialogue and collaboration with the private sector.  The 
purpose  is  to  mobilise  resources  and  encourage  companies  to  develop  their  core  activities  so  that 
they  can  contribute  even  more  to  ensuring  better  conditions  for  poor  people.  The  B4D  toolbox 
contains,  among  others,  “Innovations  Against  Poverty”,  “Challenge  Funds”  and  “Market 
Transformation”. 

2.6. 

Supporting Trade Capacity through Aid97 

EU Commitments 

On 15 October 2007, the Council of the European Union adopted the EU Aid for Trade Strategy 
with the following objectives:  

-  Quantitative Aid for Trade (AfT): ambitions within the gradual increase of overall EU aid 
(Member States’ and European Commission’s collective spending on Trade Related Assistance to 
reach EUR 2 billion annually by 2010). 

- 

Enhancing the Pro-poor Focus and Quality of EU AfT 

Increasing  EU-wide  and  Member  State  donors’  capacity  in  line  with  globally  agreed  aid 

- 
effectiveness principles 

Building upon, fostering and supporting ACP regional integration processes with an ACP-

- 
specific angle of EU AfT 

2.6.1.  Background 

Increased  participation  in  world  trade  has  the  potential  to  be  an  engine  for  growth  and  poverty 
reduction  in  developing  countries  by  generating  revenues  and  employment,  lowering  prices  on 
essential goods and promoting technology transfer and increased productivity. Market opening and 
strengthened international trade rules provide new opportunities, but are not on their own sufficient 
to  generate  trade,  especially  in  the  poorest  countries.  Many  countries  face  internal  "behind  the 
border" constraints such as a lack of productive capacity, poor infrastructure, excessive red tape and 
inability  to  meet  standards  in  high  value  export  markets  -  all  of  which  impact  negatively  on  the 
competitiveness  of  developing  country  exports  and  undermine  the  potential  benefits  of  increased 
imports.  Trade-related  development  assistance  –  known  as  Aid  for  Trade  (AfT)  –  targets  these 

97  This  chapter  summarises  the  Aid  for  Trade  monitoring  report  2011,  which  is  included  in  Annex  6.  The  report 
provides detailed analyses of the data and issues covered in this summary. 

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“supply-side” constraints. It also strengthens countries’ capacity to negotiate and implement trade 
agreements to reap the most benefit from increasing trading opportunities.  

The EU and its Member States adopted a joint Aid for Trade Strategy on 15 October 2007 that aims 
at supporting all developing countries, particularly the Least Developed Countries (LDCs), to better 
integrate  into  the  world  trading  system  and  to  use  trade  more  effectively  in  promoting  the 
overarching objective of eradicating poverty in the context of sustainable development.  

The strategy embraces the full AfT agenda, which can be divided into six categories 1) Trade policy 
and  regulations;  2)  Trade  development;  3)  Trade-related  infrastructure;  4)  Building  productive 
capacity;  5)  Trade-related  adjustment;  and  6)  Other  trade-related  needs.  Categories  1,  2  and  6 
correspond to more narrowly focused ‘Trade-Related Assistance’ (TRA). TRA plus the remaining 
categories are referred to as ‘the wider Aid for Trade agenda’, which has emerged as the concept of 
ODA to benefit trade has broadened. The OECD/DAC tracks ODA in each of the AfT categories 
through its Creditor Reporting System (CRS). 

The EU AfT strategy is a joint strategy to which EU Member States have signed up. In addition, 
several Member States have adopted specific AfT strategies in line with their national development 
policies.  Sixteen  Member  States98  and  the  EU  responded  this  year  to  the  OECD/WTO  AfT 
questionnaire  which  is  intended  to  acquire  information  on  the  progress  by  individual  donor 
countries  with  a  particular  focus  on  outcomes  of  AfT  strategies  and  programmes.  The  responses 
show  that  Member  States  and  the  EU  generally  continue  their  engagement  without 
significantly  altering  their  strategy.  Yet,  six  Member  States  adjusted  their  national  AfT  strategy 
since 2008 in areas such as regional integration, ‘economic growth’ and  enhanced engagement with 
the private sector. Six Member States foresee further changes in their strategies in the near future.  

The  Commission  prepares  every  year  a  monitoring  report  in  order  to  assess  progress  in 
implementing  the  commitments  made  by  the  EU  and  its  Member  States  in  the  EU  AfT  Strategy. 
This is done in close coordination with the AfT reporting that is carried out by the WTO and the 
OECD,  in  the  context  of  the  monitoring  of  global  AfT.  The  present  chapter  is  a  summary  of  the 
fourth EU AfT monitoring report, which is included in Annex 5, together with sub-annexes. More 
background, explanations and analysis of the issues covered in this summary can be found there. 

2.6.2.  Trade Related Assistance 

Trade-Related Assistance supports developing countries to design and implement trade policies and 
agreements,  to  stimulate  trade  by  domestic  firms  and  encourage  investment  in  trade-oriented 
industries. In 2005, the EU and its Member States committed to increase its collective TRA to EUR 
2 billion per year from 2010 - EUR 1 billion by the EU and EUR 1 billion in bilateral aid from the 
Member States. Last year's monitoring report showed that the EU and Member States already met 
their EUR 2 billion target for TRA in 2008. In 2009, the EU as a whole continued to increase its 
TRA  commitments  substantially,  reaching  almost  EUR  3  billion,  compared  to  EUR  2.4  in 
2008 (Figure 15). This results mainly from an increase in Member States TRA commitments, from 
EUR  1.4  billion  in  2008  to  EUR 2  billion  in  2009.  Four  Member  States  make  up  76%  of  total 
commitments in TRA provided by Member States in 2009: Germany (34%), the UK (17%), Spain 
(15%) and Belgium (10%).  
Member  State  financial  commitments  in  2009  increased  in  particular  for  Category  2  "Trade 
development, for which an increase of 50% was recorded. Trade development represented close to 

98 BE, CZ, DE, DK, ES, FI, FR, HU, IE, IT, LI, LU, NL, PT, SE, UK 

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80%  of  total  Member  States  TRA  commitments  in  2009.  In  contrast,  the  EU  TRA  was  almost 
evenly split over the TRA categories in 2008 and 2009. 

Figure 15 – Trade Related Assistance 
(EU and EU Member States, EUR million) 

Trade Related Assistance
(EU and EU MS, in EUR million)

3.500 

3.000 

2.500 

2.000 

1.500 

1.000 

500 

-

2.964 

2.366 

911 

1.874 

1.579 

1.007 

867 

592 

276 

954 

566 

388 

1.215 

1.110 

1.168 

733 

482 

811 

299 

695 

473 

1.032 

902 

677 

841 

2.052 

1.359 

2001

2002

2003

2004

2005

2006

2007

2008

2009

EU MS

EU

Grand Total

Source: OECD CRS Database, Doha Development Database, Monterrey Questionnaire 2011 

In  terms  of  geographical  coverage,  EU  and  Member  States  TRA  volumes  towards  Africa 
increased substantially compared to 2008; it reached EUR 1.1 billion in 2009, representing 40% 
of  all  TRA  (compared  to  25%  in  2008).  Asia  received  the  second  largest  share  of  TRA  (23%), 
followed  by  Latin  America  (16%),  Europe  (5%)  and  Oceania  (1%).  Many  programmes  have  a 
global  coverage  and  are  therefore  classified  by  the  OECD  as  geographically  "unspecified"  –  the 
total amount for this category is EUR 0.43 billion. 

2.6.3.  Total 'wider' Aid for Trade 

The AfT concept has widened over the years to include more general support for infrastructure and 
productive  sectors,  whereas  the  original  scope  of  AfT  did  not  stretch  far  beyond  TRA,  i.e. 
supporting beneficiaries to formulate and implement trade policies. Last year's report indicated an 
all-time high of total EU and Member States Aid for Trade commitments in 2008; the latest data for 
2009  show  that  this  high  level  was  not  an  isolated  event:  The  commitments  increased  slightly 
(+1.4%)  in  2009  and  reached  a  total  of  almost  EUR  10.5  billion  -  EUR  7.1  billion  from  EU 
Member States and EUR 3.3 billion from the EU (Figure 16).  

The EU and its Member States accounted for about 37% of AfT from the world’s major bilateral 
and multilateral donors in 2008-2009 and is together the world's largest provider of AfT. This is 
a substantial increase compared to 2004-2005, when their share was 30% of the total. The EU on its 
own is after Japan the world largest donor of AfT, representing 11.4% of the world's total. 

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Figure 16  Aid for Trade(EU and EU Member States, in EUR million) 

Aid for Trade
(EU and EU MS, in EUR million)

12.000 

10.000 

8.000 

6.000 

10.335  10.482 

7.538 

7.120 

3.056 

3.345 

6.501 

4.599 

5.154 

5.210 

5.272 

4.770 

2.117 

2.563 

2.436 

4.000 

1.277 

1.741 

2.036 

1.903 

1.444 

7.279 

7.137 

3.322 

3.413 

3.175 

3.369 

3.327 

4.384 

4.975 

4.685 

2.000 

-

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Source: OECD CRS Database, Doha Development Database, Questionnaire on financing for development 

EU MS

EU

Grand Total

2.6.3.1.  Aid for Trade by EU provider 

After having increased by 55% in 2008, AfT from Member States practically stabilised in 2009. EU 
AfT commitments continued to increase, albeit at a slower pace (+9.5% in 2009 compared to +25% 
in  2008).  The  slowdown  in  Member  State  commitments  is  largely  attributable  to  France  and 
Germany in 2009, as shown in Table 11. Yet they remain the largest Member State donors of AfT; 
together with the UK accounting for more than 60% of total AfT from EU Member States. 

Table 11 Amounts of Aid for Trade by Member States: 2000-2009 

(EUR million) 
Austria 
Belgium 
Bulgaria 
Cyprus 
Czech Rep. 
Denmark 
Estonia 
Finland 
France 
Germany 
Greece 
Hungary 
Ireland 
Italy 
Latvia 
Lithuania 
Luxembourg 
Malta 
Netherlands 

2000 
18 
86 

2001 
15 
114 

2002 
63 
186 

2003 
21 
135 

2004 
17 
178 

2005 
27 
155 

495 

29 
301 
613 

31 
635 
962 

18 
152 

19 
105 

81 

206 

188 

367 

410 

41 
329 
816 
6 

19 
164 

38 
466 
776 
4 

22 
187 

43 
527 
889 
12 

26 
70 

100 
755 
1 138 
14 

20 
310 

3 

2 

15 

14 

11 

221 

343 

463 

303 

461 

384 

2006 
26 
156 
0 
- 
3 
189 
0 
64 
744 
1 495 
22 
- 
29 
239 
0 
0 
12 
- 
686 

2007 
44 
209 
0 
- 
3 
255 
0 
84 
1 017 
1 213 
11 
- 
30 
111 
0 
0 
27 
- 
510 

2008 
51 
221 
0 
- 
0 
173 
0 
135 
1 738 
2 036 
10 
- 
52 
186 
0 
1 
28 
- 
466 

2009 
58 
389 
0 

0 
251 

256 
1 090 
1 889 
13 

44 
202 
0 
0 
22 

515 

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Poland 
Portugal 
Romania 
Slovakia 
Slovenia 
Spain 
Sweden 
United Kingdom 
EU MS 
EU 
Grand Total 

23 

30 

17 

8 

41 

61 

225 
143 
998 
3 322 
1 277 
4 599 

253 
192 
631 
3 413 
1 741 
5 154 

306 
135 
422 
3 175 
2 036 
5 210 

366 
170 
670 
3 369 
1 903 
5 272 

247 
150 
286 
3 327 
1 444 
4 770 

135 
200 
665 
4 384 
2 117 
6 501 

- 
7 
- 
- 
1 
561 
259 
480 
4 975 
2 563 
7 538 

- 
47 
0 
- 
1 
474 
267 
380 
4 685 
2 436 
7 120 

0 
13 
0 
- 
2 
701 
225 
1 240 
7 279 
3 056 
10 335

66 

0 
757 
247 
1 335 
7 137 
3 345 
10 482 

Source: OECD CRS Database, Doha Development Database, Questionnaire on financing for development 

2.6.3.2.  Aid for Trade by category 

Figure  17  illustrates  the  trend  for  total  EU  and  Member  States’  AfT  for  each  AfT  category. 
Commitments  for  building  productive  capacity  (BPC  in  the  Figure)  have  increased 
considerably in recent years, and reached a record high of EUR 5.6 billion in 2009, representing 
56% of total AfT. This covers support to agriculture, fisheries, banking, business industry etc. The 
second  biggest  category—trade-related  infrastructure  (TRI),  which  covers  transport,  storage, 
communication and energy—has followed a much more fluctuating path; commitments decreased 
from EUR 4.9 billion in 2008 to EUR 3.8 billion in 2009, after having increased by 76% in 2008. 
This  can  be  explained  by  the  fact  this  category  covers  large  infrastructure  projects  for  which 
substantial commitments are made on an irregular basis. 

Due  to  the  nature  of  the  support  –  institution  building,  technical  assistance,  training  etc, 
commitments for trade policy and regulations (TPR) are on a much smaller scale (6% of total AfT 
in  2009).  They  increased  by  about  33%  in  each  of  2008  and  2009,  a  clear  indication  of  the 
continued  attention to EU And Member  States'  support to the capacity of developing  countries to 
formulate and implement trade policy. Activities in the trade-related adjustment (TRAdj) category 
have  only  been  reported  for  ACP  countries,  and  in  limited  amounts  (in  2009  the  total  for  this 
category  was  EUR  11.3  million),  because  the  relevant  sector  code  was  added  to  the  CRS  only  in 
2008. As a consequence, TRAdj commitments are not shown in the graph. Most programmes under 
category  6  'other  trade-related  assistance'  are  in  EU  Neighbourhood  countries  and  Europe  as  in 
these  regions  programmes  more  often  cover  areas  that  go  beyond  the  sectors  covered  by  Aid  for 
Trade. They can be part of broader government advice or public reform projects in several sectors 
and as such reported as “Multi-sector Aid”. A total of 67 projects were included in this category in 
2009 representing a total amount of EUR 333 million.  

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Figure 17 Aid for Trade by Category (EU + EU Member States, in EUR million)  

Aid for Trade by Category
(EU + EU MS, in EUR million)

6.000 

5.000 

4.000 

3.000 

2.000 

1.000 

-

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

1. TPR

3. TRI

4. BPC

6. Other

Source: OECD CRS, EU 

Source: OECD CRS, 
EU  

2.6.3.3.  Wider Aid for Trade geographical distribution 

Efforts under the EU AfT strategy cover all developing country regions, as reflected in Figure 18. 
Compared  to  the  2000-2004  average,  2009  EU  AfT  commitments  increased  for  all  regions. 
Comparing with the 2005-2009 average, 2009 commitments only decreased for Europe and North 
of  Sahara  (between  2008  and  2009 from  EUR  1.3  billion  to  EUR  0.7  billion  in  Europe  and  from 
EUR 1.5 billion to EUR 0.8 billion in North of Sahara.  

Africa  accounted  for  the  largest  share  of  AfT  from  the  EU  and  its  Member  States; 
commitments amounted to EUR 4.1 billion corresponding to 41% of total AfT in 2009. Last year's 
report indicated that the relative share of Sub-Saharan Africa was decreasing to the benefit of North 
Africa.  However,  the  2009  data  demonstrates  a  reverse  trend  with  almost  stable  commitments  in 
North  of  Sahara  and  substantial  increases  in  Sub-Saharan  Africa.  The  South  of  Sahara  region 
received by far the largest amounts of AfT of all regions. 

Asia  received  the  second  largest  share  of  AfT  (22%  of  total  in  2009),  followed  by  America 
(11%),  Europe  (7%)  and  Oceania  (1%).  As  for  TRA,  the  AfT  classified  as  'unspecified'  (which 
includes  programmes  with  global  coverage)  increased  substantially  in  recent  years  and  reached 
almost EUR 1.9 billion in 2009 representing 19% of total TRA. This is mainly due to three large 
global commitments to the EU Food Facility which were reported as geographically “unspecified” 
(global coverage). 

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Figure 18 - Aid for Trade by OECD Region (bilateral & regional programmes, EU + EU Member 
States, in EUR million) 

Aid for Trade by OECD Region
(bilateral & regional programmes, EU + EU MS, in EUR million)

3.500 

3.000 

2.500 

2.000 

1.500 

1.000 

500 

-

South of
Sahara

Asia

America

North of
Sahara

Europe

Africa

Oceania Unspecified

Annual Average 2000-2004

Annual Average 2005-2009

2009

Source: OECD CRS 

The  share  of  AfT  to  LDCs  as  percentage  of  total  AfT  from  EU  and  EU  Member  States 
remained  relatively  stable  at  22%  in  2009,  down  from  24%  in  2008,  as  shown  in  Figure  19. 
LDCs  accounted  for  EUR  2.3  billion  in  2009,  compared  to  EUR  7.8  billion  to  non-LDCs. 
Interestingly, the figure also demonstrates that the LDC share of EU AfT (30% in 2009) has been 
continuously higher than the LDC share of Member States AfT (19% in 2009), despite a decreasing 
LDC share of EU AfT as compared to 2008. 

Figure 19 

Aid for Trade to LDCs
(EU and EU MS, in EUR million)

46%

43%

41%

42%

35%
32%

26%
23%

22%
22%

21%

19%

26%

34%

16%

30%

19%

24%

21%

17%

 34%

 22%

 24%

 27%

 29%

 32%

22%

 22%

 24%

 22%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

50%

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%

12.000 

10.000 

8.000 

6.000 

4.000 

2.000 

-

EU+EU MS AfT to LDC

EU+EU MS AfT to non LDC

EU: % LDCs in AfT

EU MS: % LDCs in AfT

Source: OECD CRS 

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2.6.4. 

Increasing Trade Related Assistance and Aid for Trade to ACP countries 

ACP  countries  receive  specific  attention  in  the  EU  AfT  strategy,  including  in  relation  to  their 
ongoing regional integration efforts. The assessment of progress in implementing the AfT agenda 
for  this  group  is  therefore  a  key  issue  in  each  EU  AfT  report.  2009  showed  a  very  important 
increase  in  both  AfT  and  TRA  to  ACP  countries.  Total  EU  TRA  commitments  reached  EUR 
1.16 billion, almost triple the 2008 level. The ACP share of total recipient countries increased 17 
percentage  points  to  40%  of  the  total.  There  was  a  particularly  strong  increase  in  regional 
programmes from both the EU as well as Member States which were up six fold compared to 2008, 
almost entirely allocated to Africa. 

As regards wider AfT, commitments to ACP countries increased 18% in 2009, reaching a new all-
time high of EUR 3.6 billion (Figure 20). The ACP share of total AfT delivered by the EU and its 
Member  States  increased  four  percentage  points  to  36%  in  2009.  Again,  the  overall  increase  can 
mainly be attributed to increasing commitments in regional programmes (more than doubling from 
EUR 0.4 billion in 2008 to EUR 0.9 billion in 2009), while commitments to bilateral programmes 
remained stable (EUR 2.7 billion).  

Figure 20 – Aid for Trade ACP Countries (EU+Member States, EUR million) 

2.6.5.  Effective delivery of Aid for Trade 

The second pillar of the EU AfT Strategy is focussed on enhancing the impact of the support. The 
following sections report on the results of a Field questionnaire99 on AfT to EU and EU MS Field 
offices; and responses to an OECD/WTO questionnaire100 sent out to collect information as part of 
the WTOs work programme on Aid for Trade. This year, the EU's Field questionnaire aimed inter 
alia at deepening the understanding of a series of key issues that emerged from last year's analysis, 
in  particular  the  potential  for  more  joint  EU  and  EU  Member  States  work  on  AfT  in  the  partner 
countries; perceived absence of comprehensive trade needs assessments; a relatively smaller share 

82EU delegations and EU Member States embassies in 89 partner countries across the developing world  
completed a questionnaire on how the Aid for Trade agenda is progressing at country and regional level. 
10016 Member States and the European Commission responded to the OECD/WTO Aid for Trade questionnaire 
which is intended to acquire information on the progress by individual donors with a particular focus on 
outcomes of Aid for Trade strategies and programmes. 

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of EU and Member States ODA allocated to AfT in LDCs than for developing countries as a whole; 
and the room for strengthening support to regional integration.  

2.6.5.1.  Ownership 

In  half  of  partner  countries,  EU  delegations  and  Member  States  representatives  report  that 
trade is a regular topic in their policy dialogue with the partner country. This is a considerable 
improvement  compared  to  the  33%  of  positive  responses  to  last  year’s  questionnaire.  But  in  37 
partner  countries  (42%)  trade  is  a  topic  of  policy  dialogue  only  to  a  limited  extent,  and  in  eight 
countries  not  at  all.  The  Member  States  responses  to  the  OECD/WTO  questionnaire  indicate  that 
trade  is  a  more  regular  topic  in  policy  dialogues  between  donors  and  regional  communities 
(reported  by  eight  Member  States)  compared  to  the  policy  dialogues  between  donor  and  partner 
countries (reported by five Member States).  

EU and Member States donors indicated that civil society was always included in the dialogue in 
9% of partner countries. Civil society was sometimes included in the policy dialogue in 40% of the 
cases.  Similarly,  nine  Member  States  out  of  16,  and  the  EU,  report  in  the  OECD/WTO 
questionnaire  that  the  private  sector  is  sometimes  involved  in  the  policy  dialogue.  Two  Member 
States report that the private sector is always involved in their dialogue with partners. There is, in 
other words, continued room for a broadened dialogue.  

Compared  to  2008,  an  increasing  demand  for  AfT  is  reported  in  about  50%  of  partner 
countries,  with  a  particularly  strong  increase  of  AfT  demand  in  EU  Neighbourhood  countries 
(reported in 70% of cases for this region). It is interesting to note that overall, the Field responses do 
not actually support the notion that there is a clear link between the inclusion of trade issues in the 
policy  dialogue  and  demand  for  Aid  for  Trade.  On  the  contrary,  there  appears  to  be  rather  little 
correlation between these two elements and more in-depth analysis is necessary to fully understand 
the inter-linkages between dialogue and demand. 

Almost  half  of  the  Field  responses  report  that  the  partner  country  has  effective  national 
coordination  processes  in  place  to  develop  and  implement  an  integrated  trade  strategy.  The 
other half of the countries are said either not to have such coordination processes, or to have them 
formally  but  not  use  them  actively.  Reasons  given  relate  to  lack  of  capacity,  understaffing  and 
reconciling different interests among the private sector players. This remains an important area for 
further attention to ensure that AfT is effective. 

This year's exercise showed that in half of the partner countries a comprehensive trade needs 
assessment  has  been  undertaken  in  the  last  5  years  (and  partially  in  a  further  17%  of  partner 
countries). This is a modest improvement compared to situation signalled in the 2008 responses, but 
still  seems  to  imply  that  in  at  least  one  third  of  partner  countries  EU  and  its  Member  States  are 
providing AfT on the basis of an out of date or non-existent trade needs assessment. In these cases, 
other  methods  are  used  to  agree  on  AfT  priorities.  It  should  also  be  noted  that  even  if  a  recent 
comprehensive  trade  needs  assessment  is  available,  the  findings  appear  to  be  fully  reflected  in 
national trade strategies only in about 60% of cases. 

2.6.5.2.  Joint Aid for Trade operations and harmonisation: moderate progress 

This  year’s  field  responses  indicate  that  in  21%  of  partner  countries,  EU  donors  significantly 
improved their donor coordination compared to 2008 (in terms of joint needs assessments, joint 
implementation,  joint  monitoring/evaluation  etc).  Moderate  improvement  is  reported  by  43%  of 
respondents. The responses to the OECD/WTO questionnaire support this finding - nine out of 16 
Member  States  indicate  that  harmonisation  of  AfT  strategies  between  Member  States  have  been 

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progressing  at  a  moderate  pace.  No  Member  State  characterised  the  overall  improvement  as 
‘significant’  –  suggesting  that  their  "aggregate"  response  "hides"  the  important  progress 
experienced by some field offices.  

2.6.5.3.  Regional dimension of Aid for Trade 

The field responses indicate that in 54% of partner countries EU donors supported (of which 40% 
partially)  the  partner  country  in  strengthening  the  inclusion  of  strategic  economic  regional 
integration  priorities  in  the  national  development  plan  or  trade  strategy.  64%  of  responses 
report that this is an improvement compared to 2008. 

When  grouping  the  responses  by  sub-region,  a  strongly  diverging  picture  emerges.  EU  donors 
appear  particularly  to  have  supported  the  inclusion  of  regional  economic  integration  in  national 
development plans or trade strategies in the EAC and the Caribbean (60%) and to a somewhat lesser 
extent in Latin America and Neighbourhood (50%). Noteworthy is the relatively low score of other 
African regions where donors are supporting regional integration initiatives at national level, such 
as ESA, SADC, Central and West Africa. Although regional integration is more advanced in some 
regions than in others, this does not fully explain the diverging responses from the EU field offices. 

2.6.5.4.  LDCs and EU AfT 

The  questionnaires  paid  specific  attention  to  AfT  in  LDCs,  following  last  year's  finding  that  the 
share of EU and Member States ODA allocated to AfT in LDCs was smaller than for developing 
countries as a whole, despite the apparent trade-related needs of LDCs. Thirteen of the 37 responses 
to the questionnaire received from EU donors based in LDCs (35%) reported that trade issues were 
a regular element of policy dialogue in their partner countries. Eighteen (49%) said that it was so 
only  to  a  limited  extent.  Six  said  that  trade  was  not  part  of  the  dialogue  at  all.  In  12  countries 
(32%),  the  policy  dialogue  was  considered  to  have  improved  compared  to  the  situation  in 
2008.  This  should  be  compared  with  the  responses  for  all  countries  for  which  45%  had  noted  an 
improvement.  As  the  baseline  situation  was  better  in  the  total  sample,  this  would  suggest  that 
despite progress, LDCs do not appear to be catching up with the other developing countries on this 
front. Comments relating to the reasons for changes or lack of changes in the LDC policy dialogue 
often  relate  to  either  progress  or  stagnation  in  trade  negotiations.  Another  reason  cited  was  that 
several countries were in a crisis or post crisis situation, leading to a generally scaled down dialogue 
or a focus on basic constitutional and socio-economic issues. As many as 19 of the joint responses 
received from EU donors in LDCs (more than 50%) considered that demand for Aid for Trade had 
increased since 2008; 11 said it had not. Three reported it had increased significantly.  

Responses  from  EU  donors  in  LDCs  indicate  a  lower  degree  of  availability  and  use  of  trade 
policy coordination mechanisms in LDCs as compared to the total sample. Only 11 of the 37 
LDCs (30%) EU field offices considered that national mechanisms were in place to coordinate trade 
policy  –  featuring  inter-ministerial  and  inter-institutional  coordination  –  compared  to  50%  for  all 
countries.  A  further  16  (43%)  said  that  such  mechanisms  existed  formally,  but  were  not  actively 
used. In 9 countries, such mechanisms were said not to exist.  

Several references were made to the Enhanced Integrated Framework (EIF) which could improve 
coordination platforms although there were also quite a number of reports on EIF not using fully its 
potential in this regard.  

Responding  to  the  question  whether  LDCs  had  carried  out  a  comprehensive  trade  needs 
assessment in the past 5 years, there were 21 positive answers (57%), 14 negative (38%), and 2 
partially.  This  indicates  if  anything  a  potential  worsening  compared  to  2008  when  22  out  of  31 

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(79%)  LDCs  were  said  to  have  undertaken  a  comprehensive  trade  needs  assessment  in  the  last  5 
years. The score is comparable to the total sample. 

33 responses considered that a main constraint to increasing the attention to trade in LDCs was low 
absorption capacity. 21 responses referred to the LDC country’s low capacity to identify needs and 
priorities. Eight responses indicated that the most important or important constraint was insufficient 
availability  of  donor  resources;  but  25  considered  that  this  was  not  important  or  less  important. 
“Other more pressing priorities" were mentioned by 15 respondents as important. No one said 'very 
important', but 15 respondents indicated that they were not sure about the answer to this question. 

This indicates a need to focus more on LDCs' capacity to position trade issues in their development 
strategy,  identify  more  clearly  the  trade-related  needs,  and  place  more  attention  on  absorptive 
capacity. 

2.6.5.5.  Aid for Trade monitoring and evaluation 

The past few year's have seen a search for improved methods to demonstrate the impact of AfT on 
trade  and  development  performance  of  partner  countries  -  a  challenging  task,  not  least  due  to 
attribution  problems.  Asked  about  the  difficulties  that  donors  encounter  in  assessing  AfT 
programmes  and  projects,  EU  Delegations  in  developing  countries  considered  the  difficulty  in 
obtaining  in-country  data  as  the  most  important  challenge  (69%  of  respondents).  The 
difficulty to identify quantifiable objectives for intervention was rated  as  another important 
hurdle  (67%).  To  a  slightly  lesser  extent  the  difficulty  in  defining  suitable  indicators  was 
considered  as  an  important  challenge  (57%).  A  key  aim  of  monitoring  and  evaluation  is  to  feed-
back results into the government's trade development strategy. For this specific processes need to be 
in  place,  but  the  responses  to  the  EU  field  office  questionnaire  indicate  that  this  is  often  lacking. 
Only  3%  of  respondents  reported  that  this  'significantly'  applies  and  37%  'moderately'.  This  is 
clearly an area where further work is required. Monitoring and evaluation was also addressed in the 
OECD  questionnaires:  nine  Member  States  indicated  that  AfT  monitoring  had  moderately 
improved.  Regarding  evaluation  of  AfT  strategies,  programmes  and  projects,  Member  States 
reported  a  number  of  challenges  they  face,  in  decreasing  order  of  importance:  'difficulty  of 
assigning trade outcomes to the programme' (attribution) was considered as most the important by 
seven  Member  States,  followed  by  ‘difficulty  in  identifying  quantifiable  objectives’  which  was 
considered ‘most important’ by four Member States. 

2.6.6.  Conclusions 

The outcome of this year's AfT monitoring exercise demonstrates that both the EU and its Member 
States  continue  to  advance  in  implementing  the  EU  AfT  Strategy.  The  results  point  to  a 
strengthening  of  EU  engagement  in  AfT,  both  in  terms  of  volume  commitments  as  well  as  on 
enhancing the impact of AfT delivery on the ground: 

The  EU  combined  annual  AfT  reached  EUR  10.5  billion  in  2009,  maintaining  the  all-time  high 
registered  the  year  before  and  a  substantial    increase  was  reported  for  EU  TRA,  bringing  the 
collective  amount  to  nearly  EUR  3  billion,  well  above  the  Hong  Kong  target  to  spend  (as  from 
2010) EUR 2 billion per year on TRA.  

Reports  from  the  EU  field  offices  point  to  moderate  improvement  in  the  processes  that  underpin 
both the volumes and the effectiveness of AfT, such as; addressing trade in the partner-donor policy 
dialogue;  improved  coordination  to  develop  and  implement  trade  strategies;  availability  of  trade 
needs  assessments;  joint  operations  and  harmonisation;  and  the  inclusion  of  strategic  economic 
regional integration priorities in national development plans. 

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In order to sustain this advance of the EU AfT agenda and to further strengthen its impact on the 
world's poorest, enhanced endeavours by the EU and Member States are essential in the following 
key areas: 

-  Enhancing  AfT  support  to  the  LDCs  by  increasing  attention  to  the  capacity  of  LDCs  to 
formulate  and  implement  trade  development  strategies  in  support  of  inclusive  growth  and  to 
further capitalise on the potential of the Enhanced Integrated Framework in this respect;  

- 

Improve the effectiveness of AfT identified at country level, including by making better use of 
trade  needs  assessments,  enhancing  the  effectiveness  of  platforms  intended  to  support  the 
development  of  trade  related  strategies;  and  acting  on  opportunities  for  increasing  joint 
operations; 

-  Step up support for regional integration, building further on existing initiatives such as the EU 
Aid  for  Trade  packages  for  the  ACP  countries  and  increasing  attention  to  regional  issues  in 
assistance provided at the national level; and 

-  Support  partner  countries'  own  monitoring  of  results  and  impact  of  Aid  for  Trade  and  the 

progress of their trade development strategies 

The European Commission's Trade and Development Communication which is foreseen for the last 
quarter  2011  provides  an  opportunity  to  further  highlight  these  issues  and  to  suggest  concrete 
actions on the way forward.   

2.7. 

Reducing the Debt Burden of Developing Countries 

EU Commitments 

Council Conclusions of 18 May 2009: Support to developing countries in coping with the 
crisis  (§12):    ‘the  EU  will  continue  supporting  the  existing  debt  relief  initiatives,  in 
particular  the  Heavily  Indebted  Poor  Countries  (HIPC)  Initiative  and  Multilateral  Debt 
Relief Initiative (MDRI) and values the Evian approach as an appropriate flexible tool to 
ensure debt sustainability’.  

In line with the Doha Declaration, the EU has also confirmed in the Council Conclusions 
of  18  May  2009  (§12),  that  it  ’supports  discussions,  if  relevant,  on  enhanced  forms  of 
sovereign  debt  restructuring  mechanisms,  based  on  existing  frameworks  and  principles, 
including the Paris Club, with a broad creditors’ and debtors participation and ensuring 
comparable  burden-sharing  among  creditors  with  a  central  role  for  the  Bretton  Woods 
Institutions (BWI) in the debate. 

2.7.1.  Challenge of recent economic trends: Preserving debt sustainability 

To  assess  debt  sustainability,  three  main  international  methodologies  have  been  developed:  the 
Heavily  Indebted  Poor  Countries  Debt  Relief  Analyses,  the  Low  Income  Countries  Debt 
Sustainability  Framework  (LIC-DSF)  and  the  Middle-Income  Countries  Debt  Sustainability 
Framework (MIC-DSF). They all involve making projections of intended borrowings and economic 
variables  over  a  maximum  20-year  period,  and  then  using  ratios  comparing  debt  stock,  present 
value or service with GDP, exports or budget revenue to assess payment capacity. 

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The indicative debt burden thresholds are not intended to be used as rigid ceilings. There are four 
possible ratings for the risk of debt distress:101  
–  Low risk: all debt indicators are well below the indicative debt burden thresholds 

–  Moderate risk: the debt service ratio may reach its indicative threshold but debt-stock ratios may 

breach them 

–  High  risk:  the  baseline  scenario  indicates  a  breach  of  debt  stock  and/or  service  ratios  over  the 

projection period 

–  Debt distress: the country is already having repayment difficulties.  

Operational  implications.  The  classification  of  risk  distress  forms  the  basis  for  determining  the 
grant/loan mix of future International Development Association (IDA) allocations under IDA14 and 
some  other  multilateral  creditors  such  as  the  African  Development  Fund.  Accordingly,  IDA-only 
countries that are classified at:  

–  High risk of debt distress receive 100% grant financing from IDA at a 20% volume discount. 

–  Moderate risk of debt distress receive 50% grant financing at a 10% discount.  

–  Low risk of debt distress receive 100% loan financing. 

Debt  crises  tend  to  be  costly  and  disruptive,  especially  for  the  poor  and  other  vulnerable  social 
groups. Debt crises also have a negative impact on access to schooling and health services, reducing 
human capital accumulation and long-run economic growth. Therefore, policies aimed at mitigating 
the prevalence and cost of debt crises can yield large payoffs in terms of poverty reduction and can 
play  a  key  role  in  helping  achieve  the  Millennium  Development  Goals.  Such  policies  involve  a 
broad  choice  of  mechanisms:  the  promotion  of  newer  and  safer  debt  instruments;  regulation    to 
reduce destabilising capital flows; the creation of an effective international lender of last resort; the 
design of a set of guidelines to  limit solvency crises by promoting responsible sovereign borrowing 
and lending to sovereigns; and the design of a mechanism for dealing with sovereign debt crises. 

Debt  relief  provides  a  crucial  cushion  to  developing  countries  in  times  of  difficulty.  Encouraging 
progress has been made in the past year on  delivering debt relief to heavily indebted poor countries. 
However,  the  global  financial  crisis  and  the  recent  stagnation  of  aid  flows,  means  there  is  still 
concern for the increased debt vulnerabilities of many developing countries. 

Until  recently,  liquidity  crises  affected  mostly  financially  globalised  economies,  which  borrow  in 
foreign currency from the international capital market, and spared low-income countries, which rely 
on  more  stable  official  financial  flows.  Now,  however,  the  process  of  financial  globalisation  is 
rapidly  expanding  to  middle  and  low-income  countries  (the  so-called  frontier  markets),  making 
those countries subject to potential liquidity shocks. The least developed countries that are currently 
in debt distress include Comoros, the Democratic Republic of the Congo, Eritrea, Guinea, Guinea-
Bissau,  Liberia,  Myanmar,  Somalia,  the  Sudan  and  Togo.  Countries  at  high  risk  of  debt  distress 
include  Afghanistan,  Burkina  Faso,  Burundi,  Djibouti,  the  Gambia,  Haiti,  the  Lao  People’s 
Democratic Republic, Maldives, Sao Tome and Principe and Yemen. 

Debt service burdens of HIPC were expected to remain higher in 2010 and beyond than in the 
pre-crisis years102. The economic crisis led to a drop in the dollar value of exports and GNI. As a 

101 UNCTAD, Debt Sustainability Analysis (DSA): An E-Learning Training Course 

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consequence, the average external debt-to-export ratio of HIPC increased from 64 to 82% between 
2009  and  2010,  and  their  external  debt-to-GNI  ratio  went  from  22.0  to  23.5%  over  the  same 
period103.  This  is  a  substantial  setback,  as  it  reversed  some  of  the  advances  achieved  between  
2000-2008 period, when debt dropped from 133 to 64% of exports of goods and services and from 
37 to 22% of GNI. 

The  economic  crisis  may  also  have  an  impact  on  debt  sustainability  for  Middle  Income 
Countries. The IMF has set a framework focusing on the sustainability of both public and external 
debt, implicitly addressing the interaction with the financial sector. The IMF Classical Framework 
for  Middle  Income  Countries  with  Market  Access104  aims  to  introduce  a  greater  degree  of 
consistency  and  discipline  in  sustainability  analysis  in  an  attempt  to  make  better  informed 
judgements under a set of clear and transparent assumptions. To assess sustainability, the IMF looks 
at several scenarios of potential events and projections. The ‘baseline’ medium-term projections of 
the balance of payments and fiscal developments, which is based on current policies projected over 
a five-year horizon, is the benchmark scenario for the IMF DSA framework. The framework is not 
intended to be applied in a completely mechanical and rigid fashion. It serves as an indication of 
potential trends in debt.  

The  IMF  has  also  developed  a  set  of  tools  for  exploring  medium-term  current  account  and  real 
exchange  rate  sustainability.  Financial  sector  stability  assessments  are  made  to  help  identify  the 
vulnerability  of  the  financial  sector  to  various  shocks.  Beyond  the  baseline  projection,  the 
framework incorporates a standard set of sensitivity tests. The purpose is to examine the effects of 
alternative  assumptions  about  the  time  paths  of  variables  affecting  both  the  ability  to  service  the 
debt and the cost of financing it. This framework may be useful in at least three cases:  

-  For  countries  that  have  moderately  high  indebtedness,  the  framework  can  help  identify 

vulnerabilities; 

-  For countries on the edge or in the midst of a crisis, it can be used to examine the plausibility 

- 

of the debt-stabilising dynamics set out in the programme projections; 
In the aftermath of a crisis and/or debt default, it can be useful to examine the consistency of 
the debt restructuring required to achieve a desired or projected outcome. 

2.7.2.  Analysis of debt relief initiatives 

25  out  of  28  respondents  to  the  questionnaire  said  they  delivered  on  commitments  to  the  HIPC 
(High Indebted Poor Countries) Initiative and MDRI (Multilateral Debt Relief Initiative), including 
commitments  to  the  IDA  and  the  African  Development  Bank,  without  delays.  But  only  13  have 
taken  new  steps  to  help  restore  and  preserve  debt  sustainability  in  low-income  countries.  Most 
Member  States  agree  that  action  to  support  external  debt  sustainability  is  more  effective  if 
undertaken multilaterally. Spain mentioned that it has supported the IMF’s temporary moratorium 
on interest payments and the general reform of its financing. 

By December 16 2010, debt reduction packages under the HIPC Initiative were approved for 
36  countries,  32  of  them  in  Africa,  providing  EUR  54.36  billion  (USD72  billion)105  in  debt-

102According to the latest status of HIPC Initiative and Multilateral Debt Relief Initiative (MDRI) prepared by IDA and 
IMF  staff,  September  14,  2010;.  confirmed  during  the  Ministerial  Meeting  On  Enhancing  The  Mobilization  Of 
Financial Resources For Least Developed Countries’ Development in Lisbon, 2 3 October 2010. 
103Global Development Finance 2011: External Debt of Developing Countries, World Bank, 12 Dec 2010. External debt 
sustainability and development, UN Report, Sixty-fifth session, July 2010. 
104UNCTAD, Debt Sustainability Analysis (DSA): An E-Learning Training Course 
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service relief over time. Out of the 40 eligible countries, 30 have now reached completion point, 6 
have reached decision  point and 4 have yet  to begin  HIPC.  Of these, 24 qualified for irrevocable 
debt relief under HIPC and MDRI.  

A ’sunset clause’ was included in the HIPC Initiative to prevent it from becoming a permanent 
facility. The clause has been extended four times to allow the remaining HIPCs to begin to establish 
a  policy  track  record  to  qualify  for  HIPC  relief  consideration.  The  sunset  clause  took  effect  on 
December 31 2006, but the Executive Boards of the IMF decided to grandfather all countries that 
had  been  assessed  (or  in  the  future  are  assessed)  to  meet  the  HIPC  Initiative’s  income  and 
indebtedness criteria based on end-2004 data. This would allow countries that had not yet met the 
policy performance criterion of the HIPC Initiative by the end of 2006 sunset-clause date to become 
eligible for debt relief if they adopt, at any time, a qualifying economic programme.106 

Figure 21 – Post decision-point HIPC’s debt stock at different debt relief stages  
(in billions of U.S. dollars, in end-2009 NPV terms) 

Source: HIPC Initiative country documents and IDA/IMF staff estimates, September 14, 2010107 

The  World  Bank  classifies  nearly  all  of  the  countries  that  have  yet  to  complete  the  Initiative  as 
fragile economies, indicating their need for additional assistance to expedite relief. 

Some creditors have given debt relief to HIPC that goes beyond the requirements under the 
HIPC Initiative. For Paris Club official bilateral creditors, the amount of beyond HIPC debt relief 
provided  was  EUR  6.9  billion  (USD9.6  billion)108  in  end-2009  PV  terms.  Under  the  Least 
Developed Countries (LDC) Initiative, the EU cancels all outstanding amounts on special loans of 
eligible least developed countries after the application of HIPC Initiative relief. From the start to the 
end of July 2010, the EU provided additional debt relief on special loans of seven completion-point 
countries and one decision-point country amounting to EUR 53.4 million. 

106 IDA and IMF, Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI)—
Status of Implementation prepared IMF and World Bank staff. October 15, 2007 
107Source HIPC Initiative country documents, and IDA/IMF staff estimates. In “IMF, HIPC Initiative and Multilateral 
Debt  Relief  Initiative  (MDRI)—Status  of  Implementation,  Prepared  by  IDA  and  IMF,  September  14,  2010.  Note: 
Estimates based on decision-point debt stocks.  
1082009 DAC exchange rate: 1 dollar = 0.719 euro. 

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Seven Paris Club meetings were held in the year to July 2010, all of them devoted to tackling 
the debt of HIPC. Below are three examples:  

•  After  the  HIPC  completion  in  January  2010,  Paris  Club  creditors  met  with 
representatives of Afghanistan in March 2010. The country obtained a 100% write-off 
on  its  pre-cut-off-date  debt,  which  included  additional  debt  cancellations  granted  by 
creditors on a voluntary and bilateral basis. The agreement with the Paris Club creditors 
includes a comparability of treatment clause. 

•  In  March  2010,  a  Paris  Club  meeting  was  held  to  consider  the  debt  situation  of  the 
Democratic  Republic  of  Congo  after  it  reached  HIPC  completion  in  January.  The 
country obtained a complete cancellation of its stock of eligible debt, with the provision 
that it keep the Paris Club secretariat informed of the progress made with other creditors 
for  the  next  three  years.  That  meeting  highlighted  the  controversial  role  played  by 
vulture  funds  in  the  international  financial  system.  The  amounts  involved  were  large, 
around EUR 377 million (USD500 million)109, and the Democratic Republic of Congo 
obtained a minimum discount on them. 

Box 5 - Review of debt relief by main creditors (Status Dec 2009, HIPC)  

Denmark provides 100% cancellation of ODA loans and non-ODA credits contracted and disbursed before 
September 27, 1999. 

France: cancellation of 100% of debt service on pre-cut off date commercial claims on the government as 
they  fall  due  starting  at  the  decision  point.  Once  countries  have  reached  completion,  debt  relief  on  ODA 
claims on the government will go to a special account and will be used for specific development projects. 

Finland: no post-Cancellation of Date (COD) claims. 

Italy: cancellation of 100% of all debts (pre- and post-cut off date, ODA and non-ODA) incurred before June 
20,  1999  (the  Cologne  Summit)  cancellation  of  related  amounts  falling  due  in  the  interim  period.  At 
completion point, cancellation of the stock of remaining debt. 

The Netherlands: 100% ODA (pre- and post-cut off date debt is cancelled at decision point) For non-ODA,  
in  some  cases  (Benin,  Bolivia,  Burkina  Faso,  Ethiopia,  Ghana,  Mali,  Mozambique,  Nicaragua,  Rwanda, 
Tanzania, Uganda and Zambia), NL will write off 100% of the consolidated amounts on the flow at decision 
point.  All  other  HIPCs  will  receive  interim  relief  up  to  a  90%  reduction  of  the  consolidated  amounts.  At 
completion  point,  all  HIPCs  will  receive  100%  cancellation  of  the  remaining  stock  of  the  pre-cut  off  date 
debt. 

Norway and Switzerland have cancelled all ODA claims. 

Sweden and Russia have no ODA claims. 

Spain provides 100% cancellation of ODA and non-ODA claims contracted before January, 2004. 

United  Kingdom:  ‘beyond  100%’  full  write-off  of  all  debts  of  HIPCs  as  of  their  decision  points,  and 
reimbursement at the decision point of any debt service paid before the decision point. 

United States: cancellation of 100% of all debts (pre and post-cut off date, ODA and non-ODA) incurred 
before June 20, 1999 (the Cologne Summit). At decision point, cancellation of accrued arrears and maturities 
falling due in the interim period. At completion point, cancellation of the stock of remaining eligible debt 

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In  July  2010,  Guinea-Bissau  concluded  an  agreement  with  Paris  Club  creditors  to  reschedule  its 
debt under the Cologne terms, thus reducing by 98% the debt service falling due between January 
2010  and  December  2012.  Under    the  agreement,  the  country  obtained  a  deferral  until  December 
2012 of payments on its short-term and post-cut-off-date debts, including a deferral of moratorium 
interest.  This  was  intended  to  support  adjustment  efforts  in  Guinea-Bissau  to  reach  its  HIPC 
completion. 

The HIPC Debt Relief Initiative and the MDRI have significantly reduced the debt burden in many 
countries, freeing critical resources to help finance governments’ growth programmes.   
The  perception  of  a  large  fiscal  space  in  some  LICs,  however,  has  led  to  the  emergence  of  new 
creditors  and  new  opportunities  to  access  non-concessional  sources  of  financing.  These 
opportunities,  while  welcome,  raise  new  risks.    Countries  are  frequently  faced  with  new  and 
conflicting market proposals, and other bilateral creditors on new financing options. In many cases, 
they lack the means to fully assess the related costs and risks.  Poor financial choices, including on 
the  terms  on  which  new  debt  is  contracted,  could  contribute  to  the  re-emergence  of  debt 
vulnerabilities in these countries, putting debt sustainability at risk. 

When poor, heavily indebted countries contract commercial loans while simultaneously benefiting 
from IDA grants, credits or debt relief, it is classified as free riding. The World Bank uses this term 
to denote ‘situations in which IDA debt relief or grants could potentially cross-subsidise lenders that 
offer  non-concessional  loans  to  recipient  countries’.  The  Bank  has  proposed  a  two-pronged 
approach  to  free  riding.  First,  creditor  coordination  should  be  stepped  up  to  prevent  non-
concessional  lending  to  the  countries  concerned  and,  secondly,  these  countries  should  be 
discouraged from non-concessional borrowing through penalties, or reductions in either the amount 
or the grant element of IDA flows110 

2.7.3.  Vulture funds or the threats associated with commercial creditor litigation 

The  EU  should  also  help    to  find  ways  to  tackle  the  problem  of  so  called  “vulture  funds”,  i.e.  to 
prevent the actions of distressed-debt funds. 22 Member States have not planned specific actions to 
prevent  aggressive  litigation  against  HIPC.  However,  some  EU  countries  are  already  leading  the 
way.  Spain  participates  actively  in  the  Paris  Club  initiative  working  towards  a  coordinated  fight 
against  the  implications  of  action  by  ’vulture  funds’  for  debtor  countries.  In  the  UK,  the  Debt 
Relief  Act  has  prevented  litigation  against  HIPCs  in  UK  courts  since  June  2010  (see  Box  6). 
Belgium  passed  a  bill  in  April  2008  to  prevent  the  seizure  or  transfer  of  public  funds  for 
international  cooperation,  in  particular  related  to  the  methods  used  by  vulture  funds.  Germany, 
Belgium and the European Commission report that they support the African Legal Support Facility 
(ALSF), launched by the African Development Bank (AfDB) in mid 2009, which provides support 
for African countries facing litigation from commercial creditors. 

In the US, a member of the. House of Representatives has also tabled legislation that would limit 
the ability of non-participating creditors to seek awards from HIPCs via U.S. courts111. 

Therefore, while some commercial creditors continue to pursue litigation to recover claims against 
HIPCs, rather than participate  in the provision of debt relief under the  Initiative, the  incidence of 
new  litigation  has  fallen  in  recent  years.  According  to  survey  responses  (September  2010)  from 

110  Free  Riding  and  Debt  Relief:  Implications  for  IDA,  February  2007.  Jan  Willem  Gunning  Free  University, 
Amsterdam and AIID and Sweder van Wijnbergen University of Amsterdam and AIID 
111The “Stop VULTURE Funds” Bill introduced in June 2009 

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HIPC authorities, the number of outstanding litigation cases against HIPCs fell from 33 to 14 cases 
in 2008 and then rose to a total of 17 cases in 2009112. 

Box 6 – The U.K. Debt Relief Act 
On  April  8,  2010,  the  UK  Parliament  enacted  the  Debt  Relief  (Developing  Countries)  Act.  It  seeks  to  introduce  a 
mandatory element to debt relief under the HIPC Initiative by limiting the proportion of debts previously contracted by 
a HIPC that a commercial creditor can reclaim through litigation under U.K. law. The limit is set in reference to the 
debt reduction expected on claims under the HIPC Initiative. The Act came into force on June 8 2010. 
The key aspects of the Act are: 
1. The debt covered by the Act is the debt eligible for relief under the HIPC Initiative, but it is limited to HIPC debt 
incurred prior to a HIPC’s decision point and prior to commencement of the Act. 
2.  Qualifying  debt  is  limited  to  the  debts  of  the  countries  that  meet  the  HIPC  eligibility  criteria  in  effect  at 
commencement. Any changes to those criteria going forward (whether resulting in an expansion or reduction of HIPCs) 
are  disregarded  by  the  Act.  The  Act  is  therefore  restricted  to  an  identifiable  stock  of  historic  debt.  It  makes  no 
distinction between HIPC debt still held by the original creditor and HIPC debt that has been traded on the secondary 
markets. 
3. The Act limits the amount of qualifying debt (and associated causes of action such as damages claims) recoverable 
by  a  creditor  in  the  U.K.  courts  to  the  amount  the  creditor  would  have  received  if  it  had  applied  the  most  recently 
published Common Reduction Factor set by the IMF and World Bank under the HIPC Initiative (on top of traditional 
relief). 
4. For the five countries that had not yet reached decision point at the time the Act was passed, no Common Reduction 
Factor was available. As a result, the Act only takes into account the 67% traditional relief, leaving a reduced amount of 
33%  payable.  This  may  encourage  creditors  to  settle  with  the  pre-decision-point  HIPCs  before  they  reach  decision 
point. 
5. In addition to reducing the recoverable amount on due debts, the Act also applies the same reduction to qualifying 
debts on which judgment has been obtained but not yet enforced. 
6. Qualifying debt  includes HIPC debt  governed  by foreign  law  as well  as  UK  law. Therefore,  the Act  will  apply  to 
cases decided by UK courts, where the governing law is foreign. 
7. The Act contains a sunset clause. Unless the UK Government decides to extend the Act permanently or for one year, 
it will expire on June 8 2011. This would also need to be approved by the UK Parliament. 
8. The Act also promotes the negotiated settlement of these debts on terms compatible with the HIPC Initiative by 
excluding from the scope of the legislation debts where the HIPC government does not offer to do this. 

2.7.4.  Alternative debt management initiatives 

In  their  answers  to  this  year’s  questionnaire,  Member  States  mentioned  an  extensive  list  of  debt 
management initiatives beyond HIPC and MDRI:  

•  Activities of the African Legal Support Facility (ALSF) 

•  The  DMFAS  Programme  (Debt  Management  and  Financial  Analysis  System),  an  UNCTAD 
(UN  Conference  on  Trade  and  Development)  provider  of  technical  cooperation  and  advisory 
services on debt management 

•  The  DMF  (Debt  Management  Facilitation  for  Low  Income  Countries),  a  World  Bank  Multi 
Donor  Trust  Fund,  scaling  up  World  Bank  work  on  debt  management  technical  assistance  in 
LICs 

•  Implementing  a  bill  to  prevent  the  seizure  or  transfer  of  public  funds  for  international 

cooperation, in particular related to the methods used by vulture funds. 

•  National legislation (Belgium, UK), or within the Paris Club. 

1122010 Survey of commercial creditor participation and creditor lawsuits against HIPCs. The survey 
elicited responsesfrom the authorities of 37 countries out of 40 surveyed in May/June 2010 in 
’HIPC Initiative and Multilateral Debt Relief Initiative (MDRI) -Status of Implementation, Prepared by the 
Staffs of IDA and the IMF, September 14, 2010’. 

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The African Legal Support Facility decided in November 2010 to provide a USD 500.000 grant 
to  fund  services  of  a  reputable  international  law  firm  in  connection  with  the  dispute  between  the 
government  of  the  Democratic  Republic  of  Congo  (DRC)  and  a  renowned  vulture  fund.  Legal 
assistance  to  the  DRC  is  the  first  of  its  kind  by  the  ALSF  since  its  creation  by  the  African 
Development Bank (AfDB) Group in 2008. The support to DRC falls within the ALSF’s mission to 
provide  technical  legal  advice  to  its  members  in  creditor  litigation.  This  includes  technical  legal 
assistance to strengthen their legal expertise and negotiating capacity in matters pertaining to debt 
management,  natural  resources  and  extractive  industries  management  and  contracting;  investment 
agreements and related commercial and business transactions. Belgium and Germany participate in 
the ALSF.  

The DMFAS programme offers countries a set of solutions for improving their capacity to handle 
the  day-to-day  management  of  public  liabilities  and  produce  reliable  debt  data  for  policy-making 
purposes.  At  the  programme’s  core  is  software  that  can  be  used  for  the  purposes  of  recording, 
monitoring,  reporting  and  analysis.  Usually  installed  in  the  Ministry  of  Finance  and/or  Central 
Bank,  it supports  external  and  domestic public debt (loans and securities), whether this be short-, 
medium-  or  long-term.  It  also  provides  coverage  for  private  debt,  grants  and  on-lent  loans.  The 
DMFAS enables the debt office to develop a debt database containing detailed and aggregated data 
on  loan  contracts,  bonds  and  grants,  real  operations  (disbursements  and  debt  service)  as  well  as 
future  operations  (disbursements  and  debt  service).  As  the  system  can  process  large  quantities  of 
debt  data,  more  time  and  energy  can  be  focused  on  analytical  and  management  tasks.  Its  design 
allows for easy customisation and adaptation in accordance with the needs and preferences of each 
client institution. It can also be integrated with other financial systems if the institution so wishes. 

The DMF is a grant facility financed by a multi-donor trust fund managed by the World Bank that 
helps  strengthen  debt  management  policies  and  institutions  in  eligible  countries  by  financing  the 
systematic application of the World Bank’s Debt Management Performance Assessment (DeMPA). 
It  supports World Bank participation in joint Bank/Fund technical assistance efforts to facilitate the 
country-led  application  of  a  toolkit  for  formulating  and  implementing  a  Medium-Term  Debt 
Management Strategy (MTDS). 

Spain carried out relief of debts contracted before 2003 partially through Debt Swap Agreements. 
In  2009  and  2010,  Spain  signed  Debt  Swaps  Programmes  with  LICs  and  HPCs,  including 
Mozambique, Ghana and Bolivia. Italy subscribes to and has been in the lead, as a co-sponsor, of 
the ’principles and guidelines to promote sustainable lending practices in the provision of official 
export  credits  to  LICs’.  The  provision  of  official  export  credits  to  public  buyers  and  publicly 
guaranteed buyers in LICs should reflect Sustainable Lending practices, i.e. lending that supports a 
borrowing  country’s  economic  and  social  progress  without  endangering  its  financial  future  and 
long-term  development  prospects.  The  Principles  will  yield  their  full  benefits  only  if  all  creditors 
act in harmony. 

2.7.5.  Discussion on enhanced forms of sovereign debt restructuring mechanisms 

There  is  some  degree  of  support  among  Member  States  for  a  reform  of  the  international  debt 
rescheduling system. 12 out 28 Member States see a need to reform the international architecture 
for the restructuring of sovereign debts in order to deal with potential cases of debt distress in low-
income countries. Further work is required to reach an EU common approach on this issue. 

The German government supports the creation of a debt workout mechanism and wants to promote 
discussions.  Although  some  parties  are  calling  for  a  sovereign  debt  restructuring  mechanism  by 
setting  up  an  international  arbitration  body,  Belgium  is  of  the  opinion  that  there  is  no  need  for 

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another  international  body.  For  Belgium,  debt  distress  in  developing  countries  can  be  handled 
within  the  existing  frameworks  and  principles,  in  particular  the  Paris  Club  and  the  Debt 
Sustainability  Framework  of  the  Bretton  Woods  Institutions.  Within  the  Paris  Club,  Belgium 
favours  broad  creditor’  and  debtor  participation  to  ensure  comparable  burden  sharing  among 
creditors. 

Some Member States (Germany for example) feel that a common EU-position must be found. In its 
dialogue, especially with non-Paris Club countries, the EU should stress that debt sustainability is a 
shared responsibility of all borrowers and creditors (including emerging economies). Spain argued 
that a further implication of non-Paris Club members in the debt relief of LICs would be necessary, 
particularly  in  light  of  the  growing  importance  of  emerging  creditors  and  even  private  creditors. 
Denmark calls for the involvement of non-Paris Club creditors in restructuring and cancel sovereign 
debt for HIPC countries in the boards of the IMF and the World Bank.  

Others (Netherlands, UK) are not in favour of a structural sovereign debt restructuring mechanism. 
They do not see the potential for the EU to take special initiatives, except of course taking part in 
international discussions. 

The new debt workout mechanism would be based on the Paris Club but may also involve a role for 
International Financial Institutions within the Debt Sustainability Framework of the Bretton Woods 
Institutions.  EU  Member  States  have  already  agreed  to  discuss  these  issues  but  a  common  EU-
position may be needed. 

On 8-9 April 2010, the OECD, World Bank Group and IMF convened the 11th OECD-WBG-IMF 
Global  Bond  Market  Forum  in  Washington  D.C.  Debt  managers  and  central  bankers  from  23 
advanced  and  emerging  market  economies  came  together  with  private  sector  representatives  to 
discuss  the  post-crisis  outlook  for  government  bond  markets.  Discussions  focused  on  four  key 
areas: i) the impact of crisis-related measures and the potential implications of exit; ii) measuring 
sovereign  risk;  iii)  the  determinants  of  investor  demand;  and  iv)  debt  managers’  response  to  the 
crisis.  Overall,  participants  felt  that  the  steps  taken  to  stabilise  financial  conditions  had  generally 
been effective and that conditions in financial markets were normalising.  
Discussions highlighted a number of ongoing risks including:  

i)  while  credible  consolidation  plans  were  needed,  fiscal  and  monetary  policy  could  be 

tightened too soon; 

ii)  managing investor uncertainty would prove critical in managing risk in the near-term; 
iii) regulatory  changes  may  lead  to  a  deterioration  in  conditions  in  primary  and  secondary 

markets and aggravate the challenges facing debt managers. 

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3. 

IMPROVING THE EFFECTIVENESS OF SUPPORT TO DEVELOPING COUNTRIES  

3.1.  Making EU aid more effective 

EU Commitments 

●  On  17  November  2009,  the  Council  (General  Affairs  and  External  Relations)  adopted 
the Conclusions on an Operational Framework on Aid Effectiveness, with additions made 
in June 2010 (cross country division of labour DoL) and December 2010 (accountability 
and transparency).113 
● The Operational Framework includes detailed commitments on accelerating Division of 
Labour  (DoL);  increased  use  of  country  systems;  ensuring  technical  cooperation  for 
enhanced capacity development; and strengthening accountability and transparency. 

Aid  effectiveness  is  one  of  the  key  pillars  of  development  cooperation  to  which  the  EU  and  its 
Member  States  are  firmly  committed.  Improving  aid  effectiveness  will  augment  the  quality  and 
impact of aid and contribute to more value for money. 

The EU and its Member States are working on a range of measures to implement commitments in 
relation  to  the  Paris  Declaration  principles  and  the  Accra  Agenda  for  Action.  Since  2003  the 
Commission  has  reviewed  the  efforts  of  all  EU  donors  to  implement  those  commitments.  The 
replies of the Member States to this year’s questionnaire on financing for development114 show that, 
although some improvements have been made, enhanced efforts are needed to maximise the impact 
of aid.  

The Fourth High Level Forum on Aid Effectiveness in Busan in 2011 will review the evidence of 
implementing aid effectiveness principles in the wider context of development. The EU as a whole 
will be expected to present results that are in line with the declared EU level of ambition.  

In  November  2009,  the  General  Affairs  and  External  Relations  Council  adopted  an  Operational 
Framework  on  Aid  Effectiveness  which  contains  measures  in  key  areas  of  the  aid  effectiveness 
agenda, such as division of labour, use of country systems and technical cooperation for enhanced 
capacity  development.  Based  on  Commission  proposals,  the  Operational  Framework  was 
complemented, in 2010, by a subchapter on cross-country division of labour115 and a new chapter 
on  a  common  EU  approach  for  implementing  commitments  on  mutual  accountability  and 
transparency116. 

Article 210 of the Lisbon Treaty marks a new era in European development policy; it states that , 
the Union and the Member States shall coordinate their policies on development cooperation, and 
consult  each  other  on  their  aid  programmes,  including  in  international  organisations  and  during 
international  conferences,  and  may  undertake  joint  action,  and  contribute  if  necessary  to  the 
implementation of Union aid programmes. 

113See Council document 18239/10 of 11.11. 2011: . Operational Framework on Aid Effectiveness – Consolidated text. 
114To avoid duplication with the ongoing OECD/ DAC Paris Declaration Survey, the Aid Effectiveness chapter in the 
annual questionnaire on financing for development was substantially reduced. As the results of the OECD/ DAC survey 
have  not  been  available  prior  to  publication  of  this  report,  this  chapter  includes  less  detailed  information  than  in 
previous years. 
115Council Conclusions of 14.06.2010. 
116 Council Conclusions of 9.12.2010. 

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This  is  a  new  opportunity  to  make  EU  development  aid  more  effective,  efficient,  and  potent  in 
terms of actual impact on the ground. It should also make a real difference in terms of EU political 
impact and visibility. A study carried out on behalf of the European Commission117 found that the 
potential  benefits  from  a  European  approach  (i.e.  joint  programming,  country  and  cross-country 
division of labour) towards aid effectiveness could save an estimated EUR 3 to 6 billion per year. 

3.1.1.  EU and Member States action on ownership 

Ownership is the first principle established in the Paris Declaration. Donors committed themselves 
to respect partner country leadership and help strengthen their capacity to exercise it. 

Member  States  (20)  emphasised  consultation  as  the  main  tool  to  build  ownership,  followed  by 
support  for  capacity  development  (16).  Most  Member  States  rely  on  bilateral  negotiations  and 
consultations. Ownership is achieved by aligning strategies and conducting consultations. Germany 
emphasises  at  national  and  international  levels  the  importance  of  capacity  development  as  a 
prerequisite  for  implementing  the  aid  effectiveness  principles,  and  the  need  to  make  capacity 
development  support  more  effective.  Capacity  development  is  thus  understood  as  a  process 
whereby systems are enabled to unfold their capability for self-reliant action and management. 

Sweden highlighted the impact of the choice of aid modalities on ownership. Sweden’s Action Plan 
on Aid Effectiveness, valid 2009-2011, aims in its entirety to increase the conditions for exercising 
country  leadership/ownership,  e.g.  by  increasing  the  use  of  country  systems  and  applying 
programme-based approaches in Swedish development cooperation. The three-year plan includes a 
number  of  measures  to  achieve  seven  concrete  objectives.  The  plan  includes  concrete  measures 
related to staff incentives to work on aid effectiveness. 

3.1.2.  EU and Member States action on alignment 

Increasing alignment of aid with partner countries’ priorities, systems and procedures and helping to 
strengthen  their  capacities  is  a  central  principle  of  the  Paris  Declaration.  To  improve  alignment 
donors agreed to use country systems (national arrangements and procedures for public financial 
management,  accounting,  auditing,  procurement,  results  frameworks  and  monitoring)  to  the 
maximum  extent  possible.  Using  a  country’s  own  institutions  and  systems  increases  aid 
effectiveness by strengthening the partner country’s sustainable capacity to develop, implement and 
account  for  its  policies  to  its  citizens  and  parliament.  Donors  also  committed  themselves  to  align 
their conditions, whenever possible, with their partner’s national development strategy, and make 
them public. Improving the predictability of aid is another aspect of alignment, and donors have 
committed  themselves  to  disburse  aid  in  a  timely  and  predictable  fashion  according  to  agreed 
schedules.  In  terms  of  technical  cooperation,  donors  have  agreed  to  reduce  the  stock  of  parallel 
project implementation units, in order to strengthen the capacities of partner countries. 

Use  of  Country  Systems  (UCS).  A  study  prepared  for  the  third  High  Level  Forum  (HLF3)  in 
Accra in 2008118 found that progress in the use of country systems had been limited as only a 3% 
improvement  has  been  recorded  in  the  aggregate  (from  40%  to  43%),  with  almost  no  change  in 
country averages. The Operational Framework on Aid Effectiveness identified actions (general and 

117HTSPE, Aid Effectiveness Agenda: Benefits of a European Approach, October 2009. 
118Third High Level Forum on Aid Effectiveness hosted by the Government of Ghana in Accra, 2-4 September 2008. 
OECD DAC (2008), Working Party on Aid Effectiveness, Joint Venture on Public Financial Management, Report on 
the Use of Country Systems in Public Financial Management. 

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time-bound)  for  the EU and its Member States to report on. Progress on some  of  these  actions  is 
reflected in the responses to the questionnaire as follows: 

On using country systems as a first option119, 15 out of 24 Member States supported the use of 
country  systems  through  an  assessment  to  identify  internal  constraints.  11  Member  States  revised 
the design of aid instruments irrespective of modality; staff training was provided by 12 Member 
States  and  17  out  of  24  Member  States  supported  partner  country  capacity  development  for 
improving the quality of country systems. 

With regard to additional time-bound actions not covered by the questionnaire, in response to the 
action on budget support120 the Commission, following the  public consultation, launched with the 
Green  Book  on  the  Future  EU  Budget  Support  for  third  countries  of  2010,  is  currently  preparing 
policy  proposals  on  this  issue.  Likewise,  good  practice  examples  on  the  use  of  country  systems 
collection by the end of 2010 is covered by the DAC work to which the Commission and the EU 
Member States contribute.  

On  undertaking  Joint  Assessments  to  promote  the  Use  of  Country  Systems121  16  Member 
States supported partner country capacity development for improved quality of country systems; 12 
Member States conducted joint assessments with others; 16 Member States used methodologies and 
results  from  other  donor’s  assessments;  and  11  Member  States  made  methodologies  and  results 
from their assessments available to others.  

EU Member States usually support UCS through:  

•  Use of general and sector budget support; 

•  Improving procurement systems to facilitate the actual use of UCS at a later stage’; 

•  Public  finance  management  (PFM)  at  sector  level,  e.g.  Finland:  strengthening  local  PFM-
systems in the planning phase of its forestry sector project and is now using local PFM systems 
both in forestry and water sector cooperation; and 

•  Strengthening  of  domestic  accountability  systems  (for  example  through  support  for  Supreme 

Audit Institutions in several countries). 

Many EU Member States do not use country systems due to: 

•  Lack of quality systems and subsequent fiduciary, political and reputational risk of using country 

systems (particularly for the treasury); 

•  Lack  of  knowledge  among  staff  of  different  options  to  gradually  use  country  systems  (e.g. 
CABRI  dimensions  of  putting  aid  on  budget),  particularly  when  systems  are  still  weak  and 
cannot be fully used;  

•  Trade-off between quick implementation and results-orientation and UCS; 

•  Overall resource demands/initial labour intensity of increasing use of partners’ systems; and  

119  See  European  Council,  11  January  2011,  Doc.  18239/10.  Operational  Framework  on  Aid  Effectiveness  – 
Consolidated text: paragraphs 6, 8, 12 and 13 (A. Use of country systems as a first option),  
120’The Commission and its Member Sates will initiate a dialogue towards a coordinated approach on budget support by 
early 2010’. 
121Consolidated  version  Operational  Framework:  B.  Undertake  joint  assessments  to  promote  the  Use  of  Country 
Systems, paragraphs 14-17. 

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•  Difficulty  of  assessing  systems  and  processes  at  decentralised/organisational  level,  making 

decisions on use or non-use based on incomplete information.  

In  2010,  the  Belgian  Development  Cooperation  (BDC)  developed  guidelines  for  using  country 
systems in the field of procurement and financial management. The important aspects of human 
resource  management,  quality  management  (monitoring  and  evaluation),  scope  management  and 
coordination management will be dealt with in a second phase. The BDC subscribes to the Accra 
Agenda for Action and gives priority to the use of country  systems. All formulation reports must 
contain  an  analysis  of  the  opportunity  to  use  the  country  public  procurement  and  financial 
management  systems.  If  the  conclusion  is  that  one  of  the  country  systems  cannot  be  used,  then  a 
donor system should be adopted (ideally in a harmonised way with other donors providing project 
support in the sector).  

For the United Kingdom, decisions on the use of country systems are made in the light of DFID’s 
three  partnership  commitments  (commitment  to  reducing  poverty,  meeting  human  rights  and 
other international obligations, and improving public financial management and accountability) and 
through dialogue with partner countries and other donors.  Use of country systems is the preferred 
method, providing countries can demonstrate a credible commitment to improving public financial 
management  and  accountability.  This  is  assessed  as  part  of  a  fiduciary  risk  assessment  of  the 
national  Public  Financial  Management  and  Accountability  system,  which  is  obligatory  in  country 
planning where financial aid (i.e. use of country PFM systems) is considered. DFID’s approach to 
this  is  set  out  in  the  How  to  Note:  ‘Managing  Fiduciary  Risk  when  Providing  Financial  Aid’ 
(December 2009).  This provides guidance on assessing country PFM systems, including the use of 
additional safeguards, which seek to reduce the risk of using country systems while also helping to 
strengthen them. 

Changing the nature of conditionality. 13 out of 14 Member States that answered this question 
said that they harmonised condition with other donors.  Only 3 reduced them. 
Making aid more predictable. Table 12 below presents the ratios between actual ODA flows and 
budgets prepared one or two years before.  Ratios below 100% mean that actual expenditure was 
below  budget,  while  ratios  above  100%  are  over  budget.    Table  13  shows  that  most  EU  Member 
States’ aid has achieved a good degree of predictability with ratios above the DAC average both for 
one-year and two-year predictability. Only Denmark, Ireland, Italy, Netherlands and Spain have a 
one-year predictability ratio below average. 

15  EU  Member  States  can  make  multi-annual  commitments  for  projects,  twelve  for  general 
programme  based  support,  and  eleven  for  budget  support.  For  several,  outer  year  budgets  are 
indicative and subject to change (e.g. Ireland). 

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Table 12 – Predictability Ratios of 2009 flows 

DAC Members 

Predictability Ratios of 2009 flows 

One-year predictability 
ratio 
2009 Outturn/programmed 
early 2009 (%) 

Two-year predictability ratio 

2009 Outturn/programmed early 
2008 (%) 

Australia 
Austria 
Belgium 
Canada 
Denmark 
European Commission 
Finland 
France 
Germany  
Greece 
Ireland 
Italy 
Japan 
Korea 
Luxembourg 
Netherlands 
New Zealand 
Norway 
Portugal 
Spain 
Sweden 
Switzerland 
United Kingdom 
United States 
DAC Total 

111 
100 
119 
67 
91 
117 
103 
107 
120 
na 
88 
60 
na 
89 
104 
85 
73 
71 
97 
82 
101 
99 
99 
na 
93 

134 
na 
56 
97 
101 
100 
98 
68 
140 
na 
48 
63 
na 
na 
97 
87 
86 
82 
91 
121 
113 
na 
86 
na 
94 

Source: OECD DAC Forward spending plans (2010) 

21 Member States stated that they align their technical cooperation to partner country policies and 
plans.19 make the information on expenditure related to providing technical cooperation (including 
in-kind technical assistance) available to the general public. EU Member States gave about 22% of 
their ODA in the form of technical cooperation stand alone projects in 2009, according to data from 
OECD DAC’s CRS database. 

3.1.3.  EU and Member States action on harmonisation 

Harmonisation refers to cooperation between donors to improve the efficiency of aid delivery. The 
focus under the Paris Declaration process was initially on how to harmonise rules and procedures 
and  on  developing  new  instruments,  including  programme-based  approaches,  pooled  funding 
arrangements,  joint  country  plans  and  other  common  arrangements.  Experience  suggests  that 
organising  joint  activities  with  too  many  donors  is  often  unproductive,  and  the  focus  has  shifted 
towards  achieving  a  better  division  of  labour  among  donors,  focusing  on  areas  of  comparative 
advantage, and using silent partnerships and lead donor arrangements elsewhere. 

EU  donors  have  committed  themselves  to  establishing  a  more  effective  division  of  in-country 
division of labour. In terms of achieving this goal, joint programming represents a fundamental 
tool for the EU. In Accra, donors agreed to start a dialogue on cross-country division of labour, 
and this is also a subject for EU-level action in the Operational Framework. Coordinating missions 

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is also important in terms of harmonisation, since the number of donor missions often represents a 
serious challenge in terms of the time and resources that must be devoted to these visits. 

Better  in-country  division  of  labour.  Since  2008,  the  EU  Fast  Track  Initiative  on  Division  of 
Labour  and  Complementarity  (FTI  DoL),  which  involves  the  European  Union  and  currently  14 
Member States as facilitators has supported DoL processes in approximately 30 partner countries. 
The  network  of  EU  DoL  is  being  continuously  updated  and is  regularly used for communication. 
Work  is  underway  to  facilitate  better  web-based  communication  and  information  exchange, 
fulfilling  one  of  the  commitments  with  regard  to  DoL  adopted  in  the  Operational  Framework  on 
Aid  Effectiveness122.The  3rd  Monitoring  Report  and  Progress  Review  of  the  EU  Fast  Track 
Initiative on Division of Labour123 and trends since 2008 show encouraging progress, especially in 
the 19 countries involved since the beginning. 

There  is  widespread  use  and  institutionalisation  of  donor  mappings  as  an  aid  management 
instrument,  an  upward  trend  in  country-level  agreement  on  sector  definitions  as  an  important 
precondition for DoL and solid use of lead donor arrangements that can generate more momentum 
for  DoL.  Perceptions  of  partner  country  commitment  to  DoL  processes  have  also  somewhat 
improved. The results of DoL processes are increasingly positive with regard to the quality of sector 
dialogue and, to a lesser degree, the rationalisation of aid allocations. Responses show an increasing 
expectation of positive contributions to aid and development effectiveness. Nevertheless, the DoL 
approach  is  demanding  and  takes  time  to  yield  measurable  results.  It  still  faces  challenges  with 
regard  to  some  methodological  issues,  questions  of  country  ownership  and  donor  commitment.  It 
needs to be better adapted to specific country conditions and integrated with other aspects of the aid 
effectiveness agenda. An emerging issue concerning HLF 4 is the rapidly increasing importance of 
‘new  donors’  and  ‘new  funding  lines’  reported  from  country  level.  This  phenomenon  adds  to  the 
complexity of the Global Aid and Development Architecture. 12 EU Member States (out of 23 that 
responded)  have  fully  integrated  the  principles  of  the  Code  of  Conduct  on  Complementarity  and 
Division of Labour (2007) in their strategies, staff guidance and programming processes/guidelines.  
Another six have done so partially, while only two have not done so yet. 

Delegated  cooperation.  15  out  of  23  Member  States  have  legal  and  administrative  arrangements 
for  delegated  cooperation  in  place.  As  regards  the  European  Commission,  Finland’s  assessment 
procedure for indirect centralised management was finalised in June 2010, providing a framework 
for cooperation between the Foreign Ministry and the European Commission.’ All projects funded 
by CyprusAid are implemented through the delegated cooperation method. 

For the following organisations the European Commission assessment procedure to administer EU 
funds under indirect management has been concluded: Agence Française de Développement (AFD), 
Deutsche  Gesellschaft  für  Internationale  Zusammenarbeit  (GIZ),  Cooperation  Technique  Belge 
(BTC  CTB),  Austrian  Development  Agency  (ADA),  Kreditanstalt  fur  Wiederaufbau  (KfW),  UK 
Department  for  International  Development  (DFID),  NL  Ministry  of  Foreign  Affairs,  Instituto 
Portugues  de  Apoio  ao  Desenvolvimento  (IPAD),  Lux-Development  SA,  Ministry  of  Foreign 
Affairs  Finland,  Danish  Ministry  of  Foreign  Affairs  (DANIDA)and  the  British  Council.  For  the 
following  organisations  the  assessment  is  ongoing:  France  Cooperation  Internationale  (FCI),  
Societa  Italiana  per  le  Imprese  al’Estero  (SIMEST),  Agencia  Española  de  Cooperación 
Internacional  al  Desarrollo  (AECID),  Fundación  Internacional  y  para  Iberoamérica  de 

122I. Division of Labour, paragraph 4. 
123European Commission, The 3rd Monitoring Report and Progress Review of the EU Fast Track Initiative on Division 
of Labour, Draft Version, February 24 2011. 

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Administración  y  Políticas  Públicas  (FIIAPP)  and  Australian  Development  Agency  (AusAID). 
Denmark,  Finland,  Ireland,  the  Netherlands,  Sweden  and  the  United  Kingdom  subscribe  to  the 
Nordic  Plus  principles124  for  delegated  cooperation,  where  Nordic  Plus  countries  have  agreed  to 
mutually  approve  each  other  as  potential  partners  for  delegated  co-operation  arrangements.  The 
majority of Member States (14 out of 23) do not have a mechanism in place at headquarters level to 
track cases of delegated cooperation.   

Improving joint programming. Overall Member States reported 13 cases of joint programming, 
only  five  of  which  involved  joint  analysis  and  response  strategies  according  to  the  EU  agreed 
Common  Format  for  Country  Strategy  Papers.  A  recent  desk  review  of  the  experience  with  joint 
programming125 found that there has been a lack of progress in implementing joint programming.  
Joint  programming  differs  greatly  from  country  to  country.  Experiences  range  from  agreeing  a 
strategy (e.g. Sierra Leone, Somalia) to harmonising approaches at sector/programme level. These 
findings are confirmed by the 2011 survey. Only 13 Member States out of 27 are currently involved 
in joint programming exercises.  Reasons for not participating vary. Cyprus, for example, does not 
do  programming  directly  but  participates  in  programming  of  Lead  Donors  through  delegated 
cooperation. Malta works directly with NGOs. Poland and Romania cannot carry out multi-annual 
programming  due  to  the  fact  that  ODA  budget  allocations  are  annual.  The  United  Kingdom  is 
involved  in  joint  programming  in  a  number  of  countries,  such  as  Bangladesh,  where  a  joint 
cooperation strategy involving the government and 17 development partners including the UK was 
signed in 2010. Other examples are Afghanistan, Kenya,  Nigeria, Uganda, Zambia, which all use 
different  models  depending  on  the  country  context.  In  South  Africa,  the  UK  is  signed  up  to  a 
Country Strategy Paper that is in line with the 2006 Council Conclusions.   

Cross-country  division  of  labour.  The  Commission  survey  revealed  that  in  recent  years,  EU 
Member States have reorganised their bilateral aid portfolios by refocusing their assistance, often in 
the  presence  of  stable  or  increasing  aid  budgets.  There  are  123  cases  of  planned  exits  by  EU 
Member States from 69 partner countries. Italy, Sweden, Spain and the United Kingdom accounted 
for three quarters of the exit cases. There seem to be only five cases of EU Member States currently 
starting a new bilateral aid relationship. Once EU Member States leave a country, some ODA that is 
counted  as  country  programmable  aid  -  CPA  (e.g.  cultural  cooperation,  scholarship  via  state 
programmes, special education schemes like German schools abroad) and some ODA that does not 
count  as  CPA  (ODA  through  NGOs  and  Civil  Society,  imputed  student  cost,  equity  capital 
investment) may remain.  

Exit takes time. In the case of the German cooperation, partner governments and other donors are 
informed and if possible consulted, as the exit period lasts normally for several years. It allows for 
orderly  conclusion  of  activities,  achievement  of  intended  results  and,  if  possible,  other  donors  to 
take over certain support schemes. 

3.1.4.  EU and Member States action on mutual accountability 

Mutual accountability lies at the heart of the Paris Declaration, and is a process by which two (or 
multiple) partners agree to be held responsible for the commitments that they have voluntarily made 
to each other. It helps build trust and partnership around shared agendas and provides incentives for 

124  These  are  principles  developed  to  enhance  aid  effectiveness.  Delegated  cooperation  is  aimed  at  significantly 
reducing the transaction costs for both partner governments and donors. http://www.norad.no/en/  (Norad - Norwegian 
Agency for Development Cooperation) 
125European  Commission,  IQSG  Secretariat,  DG  DEV  A,  State  of  Play  of  EU  Joint  Programming    of  External 
Assistance - Desk Study of Recent Experiences,  2010. 

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behaviour  change  needed  to  achieve  better  results.  A  central  aspect  is  making  aid  flows  more 
transparent. Likewise, as stated in the Operational Framework126 'in the Accra Agenda for Action, 
donors  and  partner  countries  agreed  to  provide  timely  and  detailed  information  on  current  and 
future  aid  flows  in  order  to  enable  more  accurate  budget,  accounting  and  audit  by  developing 
countries’. 

Improving mutual accountability. A 2010 study127 of national mutual accountability initiatives in 
70 countries found that only 8 partner countries made major progress on mutual accountability, 52 
partner countries do not have an aid policy or agreed document outlining targets for ODA providers, 
and  32  partner  countries  had  an  aid  information  management  system  in  place.  In  almost  all 
countries,  non-DAC  donors,  global  funds  and  NGOs  do  not  supply  data  to  aid  management 
systems. Joint frameworks for monitoring joint commitments have been set up in at least 15 priority 
countries for EU Member States (i.e., Bhutan, Burkina Faso, Cape Verde, Ethiopia, Ghana, Kenya, 
Malawi, Mali, Mozambique, Nicaragua, Peru, Rwanda, Tanzania, Uganda, and Zambia). They are 
either  formal  frameworks  or  policy  dialogue  groups.  In  2010,  for  example,  the  United  Kingdom 
worked with other partners to establish and review mutual accountability frameworks in a number 
of  countries  including  Ghana  (aid  policy  and  joint  donor  Performance  Assessment  Framework), 
Bangladesh  (joint  cooperation  strategy),  Uganda  (to  help  develop  an  aid  policy  and  joint 
Memorandum of Understanding ), Nepal (the joint transparency and accountability initiative with 
the UN and a number of bilateral donors) and Zambia (to develop a new Joint Assistance Strategy).  

Making aid more transparent. Increased reporting on ODA flows. Most EU non-DAC donors 
report  their  ODA  to  the  OECD/DAC.  The  Commission  encourages  all  of  them  to  do  this,  in  line 
with DAC reporting rules, although none of the EU-12 is yet a DAC member. Bulgaria and Malta 
have yet to start reporting systematically to the DAC. The Commission will continue to work with 
the  DAC  secretariat  to  provide  support  to  the  EU’s  non-DAC  donors  to  enhance  their  statistical 
reporting capacity. 

The  European  Commission  and  several  Member  States  (Denmark,  Finland,  Germany,  Ireland, 
Netherlands,  Spain,  Sweden  and  the  United  Kingdom)  are  party  to  the  International  Aid 
Transparency Initiative (IATI) launched in 2008 at Accra. IATI’s role is to develop consistent and 
coherent  international  standards  for  the  way  donors  report  more  timely  information  on  past  and 
future aid spending. 21 out of 22 Member States make their ODA volumes public on their websites, 
often in an annual report. Member States mentioned several good examples of ODA data tools. In 
Mozambique the Government of Mozambique Medium-Term Expenditure Framework (MTEF) and 
Budget processes, in Ethiopia the Development Assistance Group (DAG) and EU, in Vietnam, the 
EU annual blue book exercise and annual Ministry of Foreign Affairs report. For the Netherlands, 
an  important  tool  to  disclose  information  on  aid  volumes  is  the  Bi-annual  Results  Report  that 
presents  the  results  achieved  and  the  Dutch  policy  and  philosophy  on  giving  aid.  The  report  is 
meant to inform parliament, stakeholders and the public. The Results Report is coproduced by the 
Ministry of Foreign Affairs and Dutch CSOs. 

3.1.5.  EU action on managing for development results 

The  promotion  of  management  for  development  results  (MfDR)  is  central  to  the  entire  aid 
effectiveness  agenda.  It  means  that  stakeholders  hold  partner  country  governments  and  donor 
agencies accountable to show results, i.e. to demonstrate the effectiveness and actual impact of aid. 

126Consolidated version: IV Accountability and transparency, paragraph 1 
127UN  Development  Cooperation  Forum  (DCF),  Review  of  Progress  in  International  and  National  Mutual 
Accountability and Transparency on Development Cooperation, May 2010. 

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It means that donors and recipients oblige each other to demonstrate that they are honouring their 
commitments and promises. 

12 Member States (out of 23 who replied) provide support for MfDR. The results approach suffers 
from  an  over  elaborate  and  technical  approach  focused  on  donors  and  their  capacity.  Donor 
countries  are  struggling  to  demonstrate  their  attribution  rather  than  their  contribution  to  partner 
countries’ results. Donors could increase support to partner countries to focus on results (improving 
statistical data, analytical capacity etc) and then use these results to communicate to the public the 
successes and challenges of their development cooperation programmes 
Sweden  felt  that  the  aid  effectiveness  agenda  needed  to  be  more  specific  to  different  cooperation 
contexts, particularly in conflict and post-conflict countries and in reform cooperation with Europe, 
including how the reporting and measurement of results is conducted.  

3.2. 

Supporting better Global Governance 

EU Commitments 
March 14, 2002 European Council Conclusions on the International Conference on Financing for 
Development. To influence the reform of the International Financial System by combating abuses of 
financial  globalisation,  strengthen  the  voice  of  developing  countries  in  international  economic 
decision-making, and, while respecting their respective roles, enhance coherence between the UN, 
International Financial Institutions and the WTO. 

3.2.1. 

Introduction 

The objective of this Chapter is to give an update of the reform initiatives in the main International 
Financial Institutions (namely the World Bank, IMF, and to a lesser extent, other key multilateral 
development banks), as well as the UN and its specialised agencies.  

The  reform  of  these  institutions  was  accelerated  by  perceived  shortcomings  in  the  international 
financial  and monetary  architecture  revealed by the global  financial and economic  crisis in 2008-
2009,  the  effects  of  which  continue  to  be  felt  today  and  are  further  exacerbated  by  increases  in 
commodity prices in early 2011. An objective would be to ensure more effective and coordinated 
management of global issues, such as financial stability, food and energy security, climate change 
and the fight against major pandemics. The main challenge is to strike the correct balance between 
legitimacy  (through  representativeness  and  accountability)  and  the  effectiveness  of  global 
institutions. 

The way forward that the Commission proposed in 2010128 was as follows: 

•  The  Commission  will  monitor  emerging  discussions  on  how  best  to  use  the  general  SDR 

allocations, in particular to the benefit of low-income countries. 

•  In  line  with  the  decision  taken  by  the  G20  and  the  Joint  World  Bank/IMF  Development 
Committee,  the  EU  and  other  Governors  on  the  Boards  need  to  ensure  that  the  increases  in 
developing  and  transition  countries  voting  shares  are  implemented  swiftly  in  both  institutions 
and that the IMF quota is revised. 

128  COM  (2010)  159  of  21.04.2010  and  Statement  of  Commissioner  Piebalgs  at  the  World  Bank/  IMF  Development 
Committee meeting in April 2010 

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•  Europe’s voice international financial institutions should be amplified through consolidated, less 
fragmented  European  representation,  with  the  ultimate  objective  of  having  a  single  European 
seat at the IMF and the World Bank. EU coordination should be stepped up, particularly within 
regional development banks. 

•  The replenishments for concessional arms of Multilateral Development Banks such as the IDA at 
the World Bank Group and the African Development Fund at the African Development Bank are 
of particular concern regarding assistance to the most vulnerable.  

•  The ’UN system-wide coherence reform’ needs support in order to reduce fragmentation of the 
UN to strengthen its operational capacity and improve its efficiency at headquarters and in the 
countries where it operates. 

The next section presents the key reforms in the above areas undertaken in Multilateral Institutions. 
It  sets  out  the  points  of  view  of  the  European  Commission  and  Member  States,  based  on  their 
responses to the relevant part of the questionnaire.  

3.2.2.  Reforming multilateral institutions 

3.2.2.1.  IMF129 

The 2008 quota and voice reform was the first step towards realigning IMF members’ quotas with 
their  relative  positions  in  the  world  economy.  On  16  December  2010,  the  IMF’s  Board  of 
Governors approved a far-reaching quota and governance reform130. Once implemented (no target 
date  so  far),  the  reform  package  will  result  in:  (a)  a  doubling  of  quotas;  (b)  a  shift  of  more  than 
6%of quota shares to dynamic emerging market and developing countries, Brazil, China, India, and 
Russia will be among the 10 largest shareholders in the Fund, while the combined voting share of 
the US and EU Members will fall below 50%, and (c) preserving the quota and voting share of the 
poorest member countries. A comprehensive review of the current quota formula will be completed 
by  January  2013.  Completion  of  the  15th  General  Review  of  Quotas  will  be  brought  forward  by 
about  two  years  to  January  2014.  Any  future  realignment  is  expected  to  result  in increases  in  the 
quota shares of dynamic economies in line with their relative positions in the world economy. 

New  concessional  facilities  for  Low  Income  Countries  (LICs)  were  established  in  January  2010 
under  the  Poverty  Reduction  and  Growth  Trust  (PRGT)  as  part  of  a  broader  reform  to  make  the 
Fund’s  financial  support  more  flexible  and  better  tailored  to  the  diverse  needs  of  developing 
countries.  Access  limits  and  norms  were  broadly  doubled.  Financing  terms  were  made  more 
concessional, and the interest rate will be reviewed every two years. All facilities support country-
owned  programmes  aimed  at  achieving  a  sustainable  macroeconomic  position  consistent  with 
strong and durable poverty reduction and growth. These facilities are as follows: (a) The Extended 
Credit Facility; (b) The Standby Credit Facility (SCF); and (c) The Rapid Credit Facility (RCF).   

The  2010  reforms  do  not  fully  address  the  existing  agenda.  One  major  ongoing  effort  is  for  any 
future  competition  for  the  leadership  of  the  IMF  to  become  more  open.  All  of  the  Fund’s  ten 
Managing  Directors  have  been  European.  All  eight  of  the  Deputy  Managing  Directors  (First 
Deputies since 1994) have been from the United States. For the past decade, while non-European 
candidates for Managing Director have been nominated but ultimately rejected, pressure has been 
intense  for  the  selection  process  to  be  fully  open  to  all  candidates  regardless  of  geography.  The 

129See summary posted in December 2010 http://blog-imfdirect.imf.org/2010/12/28/2010-the-year-of-imf-reform/ 
130http://www.imf.org/external/np/exr/facts/pdf/quotas.pdf 

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IMF’s Executive Board, which selects the Managing Director, agreed in principle several years ago 
to open up the process, but winning higher political support for the reform has not been easy. EU 
members  are  ready  to  participate  in  changing  the  process  of  appointing  the  Heads  of  the 
International  Financial  Institutions  (IFIs).  The  heads  and  senior  leadership  of  all  IFIs  should  be 
appointed  through  an  open,  transparent  and  merit-based  process,  irrespective  of  nationality  and 
gender. This change should apply to all IFIs including the IMF and the World Bank.  

3.2.2.2.  World Bank (WB) Group 

On  April  25  2010,  the  Development  Committee  endorsed  WB  general  and  selective  capital 
increases  equivalent  to  EUR  66.7  billion131  (USD86  billion).  The  IDA16  replenishment  was 
concluded  with  an  18%  increase  (compared  to  IDA15)  for  a  total  amount  of  EUR  38.2  billion 
(USD49.3 billion). The World Bank’s governance reform is to be implemented in two phases, the 
first of which has already been approved and is under implementation. The package aims to create a 
new  WB  Group  that  is  strategically  focused  on  where  it  can  add  most  value,  has  21st  century 
governance,  remains  financially  strong,  and  is  more  responsive,  innovative  and  accountable.  This 
will be pursued through the following additional measures: 

•  Shifting  voting  power  for  developing  and  transition  countries  (DTCs)  to  47.19%  for  the 
International  Bank  for  Reconstruction  and  Development  (IBRD),  representing  a  total  shift  of 
4.59% to DTCs since 2008132; 

•  The  Bank's  private-sector  arm,  the  International  Finance  Corporation  (IFC,—significantly 

increasing DTC voting power from 33.4% at present to about 40%; 

•  International Development Association (IDA)—raising the voting shares of borrowing member 

countries from about 40% prior to the reforms to around 46%; 

•  Multilateral Investment Guarantee Agency (MIGA)—maintaining voting power parity between 

developed and developing members; 

•  In all institutions, helping the smallest poor members to maintain their voice and voting power; 

•  Establishing  unique  IBRD  Shareholding  Principles,  primarily  reflecting  evolving  economic 
weight  and  the  Bank’s  development  mission,  including:  (a)  economic  weight  in  the  world 
economy,  measured  through  a  formula  which  is  compatible  with  -  but  also  suitably  different 
from  -  IMF  quotas;  (b)  integrated,  substantive  and  permanent  recognition  of  past  member 
contributions  to  IDA,  combined  with  incentives  for  future  IDA  contributions;  and  (c)  moving 
over time towards equitable voting power between developed country and DTC members; 

•  Holding  regular  IBRD  and  IFC  shareholding  reviews  every  five  years  to  allow  for  more 
dynamism  and  to  account  for  changes  in  economic  weight  and  member  contributions  to  the 
World Bank Group mission; 

•  Amplifying  the  DTC  voice  on  the  World  Bank  Boards  by  adding  a  third  Director  to  represent 

member countries in Sub-Saharan Africa in October 2010; 

131 Using an average 2010 US$/Euro exchange rate of 0.775. 
132
http://siteresources.worldbank.org/DEVCOMMINT/Documentation/22553921/DC2010-006(E)Voice.pdf  

http://siteresources.worldbank.org/DEVCOMMINT/Documentation/22553921/DC2010-006(E)Voice.pdf 

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3.2.2.3.  Regional Development Banks 

EU countries also play a major role in the financing and governance of the regional development 
banks listed below. These institutions play an important role in transferring aid flows to developing 
countries and European countries in transition. They have recently risen to the twin challenges of 
carrying  out  their  mandate  of  reducing  poverty  and  at  the  same  time  responding  to  the  adverse 
effects of the economic crisis and its impact on economic growth in many countries. 

African Development Bank (AfDB). Donors concluded negotiations of the Twelfth Replenishment 
of the African Development Fund (ADF-XII) in October 2010. They agreed133 on a replenishment 
level equivalent to EUR 7.4 billion (USD 9.5 billion) for the ADF over the next three years (2011-
2013),  a  10.6%  increase  in  donor  contributions  over  ADF-11.    This  came  as  an  important 
complement to the endorsement on May 27 2010 by governors representing AfDB’s shareholders of 
a tripling of the Bank’s capital resources to nearly USD100 billion134.  

Asian Development Bank (ADB). The Asian Development Bank’s (ADB) Board of Governors had 
already  agreed  in  2009  to  triple  ADB’s  capital  base  from  EUR  42.7  billion  to  EUR  127.9  billion 
(USD  55  billion  to  USD  165  billion).135    The  negotiations  on  the  replenishment  of  the  Asian 
Development  Fund  (ADF  X)  are  due  to  commence  next  year.    ADF  IX  mobilised  over  EUR  8.5 
billion (USD 11 billion136). 

Inter-American Development Bank (IDB). The IDB’s Board of Governors on July 21 2010, agreed 
to the terms of the increase of the Bank’s ordinary capital by EUR 54 billion (USD 70 billion). 

European Bank for Reconstruction and Development (EBRD). A capital increase from EUR 20 
billion to EUR 30 billion was agreed in May 2010. 

3.2.2.4.  UN System 
The 2010 annual progress report on Financing for Development137 noted that ’The systemic reforms 
decided  at  the  2005  World  Summit  have  yet  to  be  fully  implemented.’  The  reforms  envisaged 
improving  the  transparency,  representativeness  and  effectiveness  of  the  principal  UN  bodies  and 
included major challenges, such as reform of the Security Council and establishment of a Human 
Rights  Council,  as  well  as  the  challenge  of  achieving  system-wide  coherence  by  improving  the 
coherence of operational activities. Some progress has been made during 2010. 

The system-wide coherence reform (SWC) is important to reduce fragmentation of the UN system 
and strengthen its operational  capacity  by improving coordination between  agencies and reducing 
fragmentation. The ‘delivering as one’ initiative138 announced in 2007 and implemented in 8 pilot 
countries is intended to make the UN more coherent, effective and efficient. This process, strongly 
supported by the EU, has moved relatively fast and created an important ‘bottom-up’ momentum. 
Furthermore the call for UN system-wide coherence has led many UN entities to develop intra-UN 
partnerships  and  cooperation.  Building  on  the  positive  experience  of  the  pilot  countries  and  the 

133http://www.afdb.org/en/news-events/article/african-development-fund-replenished-with-usd-9-5-billion-7335/#; 

http://www.afdb.org/en/news-events/article/african-development-fund-replenished-with-usd-9-5-billion-7335/#  

134http://www.afdb.org/en/topics-sectors/topics/capital-increase/; http://www.afdb.org/en/topics-sectors/topics/capital-increase/.  
135http://www.adb.org/Documents/Brochures/InFocus/2010/General-Capital-Increase-V.pdf; 

http://www.adb.org/Documents/Brochures/InFocus/2010/General-Capital-Increase-V.pdf.  

136http://www.adb.org/adf/highlight.asp , http://www.adb.org/adf/highlight.asp. 
137http://ec.europa.eu/development/icenter/repository/SEC_2010_0420_COM_2010_0159_EN.PDF; 

http://ec.europa.eu/development/icenter/repository/SEC_2010_0420_COM_2010_0159_EN.PDF.  

138http://www.undg.org/?P=7. 

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progress  made  on  UN  business  practices  by  heads  of  UN  agencies,  funds  and  programmes,  the 
SWC agenda has managed to move forward. However, the results of this initiative have yet to be 
assessed through a performance evaluation. 

Other important reform processes, also framed in the context of SWC, have made major progress, 
such as the humanitarian reform and the reform of the UN gender architecture.  The humanitarian 
reform process launched by the international humanitarian community in 2005 seeks to improve the 
effectiveness  of  humanitarian  response  by  ensuring  greater  predictability,  accountability  and 
partnership. To strengthen the foundation for understanding the process, Regional Office for Asia 
Pacific  (ROAP)  conducts  workshops  on  humanitarian  reform  at  regional  and  national  level  to 
promote  regional  and  country-level  progress  towards  humanitarian  reform  and  create  dialogue 
between policy-makers and practitioners on the reform. The key elements of the reform are: (1) the 
Cluster Approach;  (2)  a  strengthened  Humanitarian Coordinator (HC)  system; (3)  more adequate, 
timely,  flexible  and  effective  humanitarian  financing;  and  (4)  the  development  of  strong 
partnerships between UN and non-UN actors. 

On  2  July  2010,  the  General  Assembly  unanimously  adopted  the  resolution  on  ’System-wide 
coherence’ establishing the new UN Entity for Gender Equality and the Empowerment of Women, 
to be known as UN Women. With the adoption of this resolution, the new entity will be in a position 
to  close  the  current  gap  between  the  normative  and  operative  work  of  the  UN  on  gender  aspect, 
promote effective system-wide mainstreaming in the UN system, and improve accountability. 

There are also reforms to strengthen UN accountability in a process initiated about five years ago139. 
Achievements during 2010 were as follows:  

•  Transparency and Integrity: (a) The UN has implemented a financial disclosure programme for 
senior  officials  and  procurement  officers  to  ensure  that  potential  conflicts  of  interest  that  may 
arise  from  staff  members’  private  holdings,  affiliations,  or  activities  can  be  identified  and 
addressed  appropriately;  and  (b)  the  UN  issued  a  policy  on  the  ’Reporting,  Retaining  and 
Disposing of Honours, Decorations, Favours, Gifts or Remuneration.’  

•  Procurement: The UN amended the Award Review Board and formed the Senior Vendor Review 
Committee to strengthen internal control, transparency, accountability and risk mitigation in the 
UN procurement process.  

•  Ongoing  Commitments:  Currently, 

is  undertaking  a 
comprehensive review of delegation of authority; and (b) the UN is introducing the International 
Public  Sector  Accounting  Standards  (IPSAS)  to  improve  the  quality  and  transparency  of 
financial  reporting.  WFP  has  adopted  these  standards  and,  due  to  delays,  other  agencies  are 
expected to complete roll-out by 2013.  

the  Department  of  Management 

3.2.3.  Feedback from the EU and Member States 

There  were  12  questions  in  the  EU  and  Member  State  questionnaire  that  related  to  governance 
reforms at the World Bank and IMF. This section reports feedback received from 27 Member States 
and the EU. Very few of the respondents chose not to answer each question. The responses show a 
diversity of opinions and differences on key approaches that would need to be reconciled for the EU 

139http://www.un.org/en/strengtheningtheun/accountability.shtml; 

http://www.un.org/en/strengtheningtheun/accountability.shtml  

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group to adopt a consensus towards the Bretton Woods institutions. Details of the questionnaire and 
responses may be found in Annex 8.   

With  respect  to  World  Bank  reforms,  some  issues  were  raised  repeatedly.  The  key  concerns  and 
proposals were as follows: (a) decentralisation of the Bank; (b) use of results-based approaches for 
greater  effectiveness;  (c)  fairer  voting  power/greater  voice  for  developing countries;  and  (d)  open 
selection  of  Bank  President  (and  of  senior  management).  There  were  also  multiple  mentions  of 
using  a  corporate  scoreboard  and  the  importance  of  improved  internal  governance.  Overall,  this 
agenda seems aligned with ongoing reforms and issues highlighted in the previous section. 

On the issue of quota realignment at the IMF, 16 Member  States (out of 27 replies)  felt  it would 
increase  the  institution’s  legitimacy.  However,  11  Member  States  disagreed.    Many  in  the  latter 
group  felt  that  the  reforms  did  not  go  far  enough.  Others  were  concerned  by  the  increased 
importance of the G20 and the diminishing role for small economies. A number thought ministers 
should  be  more  involved  in  decisions.  This  issue  was  raised  specifically  in  question  75  (do  you 
support the creation of a Ministerial Council for the IMF with decision-making powers?) with 16 of 
25 respondents in favour. Finally, a few were concerned that the IMF may be drifting away from its 
core  mandate,  even  though  others  thought  it  should  expand  that  mandate.  The  issue  of  broader 
governance reform and open selection of head of IMF was also mentioned. 

Respondents  were  equally  split  over  whether  the  EU  should  have  a  single  representation  at  the 
International  Financial  Institutions  (IFIs).  Feedback  provided  showed  that  countries  had  concerns 
such as: (a) a single euro area representation may make more sense, especially at the IMF; (b) how 
would  intra-EU  coordination  will  work  and  conversely  existing  coordination  mechanisms  seemed 
sufficient to others; (c) need to preserve specific separate interests of individual shareholders and of 
small  countries;  (d)  a  potential  difficulty  is  mobilising  funding;  and  (e)  loss  of  synergies  within 
current  constituency  groups,  some  of  which  include  non-EU  countries.  Many  of  these  concerns 
were also expressed as risks to overcome by countries that were in favour of a single representation, 
at least for the euro area. The need to reach a common position was mentioned again as a challenge. 
Related to the coordination issue, almost three-quarters of respondents felt there should be stronger 
Brussels-based coordination on World Bank and MDB issues. 

Three  respondents  were  dissatisfied  with  the  outcome  of  voice  and  participation  reforms  at  the 
World  Bank  and  five  were  highly  satisfied.  The  remaining  two-thirds  were  somewhat  satisfied. 
Nevertheless, major concerns and observations were raised by respondents that were less than very 
satisfied,  in  particular:  (a)  insufficient  recognition  of  the  efforts  of  smaller  states  and  the  need  to 
give adequate weight to IDA contribution; (b) poorer countries may have been left-out; and (c) the 
process should have been less complex/confusing and more transparent.  

A small majority of EU Member States (59%) felt that the EU should push for a greater portion of 
IDA resources to be allocated to Sub-Saharan Africa.  In  the  absence  of  a  follow-up  question,  the 
reasons for the negative answers cannot be determined.  As this may be due to a concern over aid 
effectiveness or other reasons, a follow-up question to this effect could be included in subsequent 
questionnaires.  In  contrast,  the  overwhelming  majority  (93%)  were  in  favour  of  creating  of  a 
permanent IDA crisis window (CRW) and at the time of writing this reform has now been agreed 
to. 

3.2.4.  Concluding Observations 

In  2010,  two  major  risks  faced  by  the  IFIs  were  effectively  mitigated.  Capital  increases  were 
successful and so was the replenishment of IDA, the biggest IFI concessional lending window. IFIs 

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are continuing to implement governance reform programmes, give greater voice to their borrowing 
member  countries  and  promote  stronger  inclusiveness  and  accountability.  The  World  Bank’s 
decision  to  open  more  documents  and  databases  to  the  public  is  also  noteworthy.  In  terms  of  the 
UN,  it  is  important  not  to  lose  the  momentum  of  reforms;  especially  regarding  adoption  of 
International Public Sector Accounting Services (IPSAS). 

An issue not addressed in the above analysis but worth mentioning here concerns another type of 
financing  of  IFIs  and  other  international  agencies  through  multi-bilateral  resources  –  bilateral 
funding disbursed through multilateral agencies. These resources in practice increase the amount of 
concessional resources available for developing countries. However, these earmarked resources also 
contribute  to  the  fragmentation  of  donor  programmes  and  may  affect  IFIs  and  UN  agencies’ 
governance and distort resource allocation. For example on the estimated budget for a given agency 
or  programme,  only  about  one-third  of  it  comes  from  untied  ‘core’  resources.  The  rest  are 
earmarked for specific projects, some quite small, in target countries and for activities that may not 
be fully aligned to that agency’s core competencies. Furthermore, the agency Executive Board only 
approves the core budget, which leads to limited oversight over the majority of the resources. 

The  feedback  from  EU  Member  States  proved  useful.  It  also  identified  significant  differences  on 
key  issues  that  would  need  to  be  resolved  for  the  EU  27  Member  States  to  speak  with  the  same 
voice  at  the  Boards  of  the  IMF  and  the  World  Bank.  Most  Members  States  agreed  that  the  EU 
internal coordination should be improved. While a limited consolidation of European representation 
looks  likely  to  take  place  in  the  IMF,  a  specific  intra-EU  coordination  in  the  World  Bank  and 
multilateral development banks could be warranted. 

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