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Accelerating progress towards achieving the Millennium Development Goals (MDG)
Since the European Union (EU) first adopted the commitments to financing for development and aid effectiveness during the 2002 Monterrey Conference, the Commission has provided an update on the state of progress in annual reports. In 2005, the EU reviewed and strengthened these commitments based on the present communication and confirmed the Commission's mandate to assess the progress made by the EU in relation to these commitments (official development assistance, innovative sources of financing, debt relief, aid effectiveness, more predictable aid mechanisms, exogenous shocks, untying aid, international public goods, reform of the international finance system, trade-related assistance). In 2006, the Commission presented the first progress report on the application of the new EU commitments established by the Council in 2005.
Communication from the Commission to the Council and the European Parliament - Accelerating progress towards attaining the Millennium Development Goals - Financing for Development and Aid Effectiveness [COM(2005) 133 final - not published in the Official Journal].
This communication outlines a way towards a new interim target for increased Official Development Assistance (ODA) volumes in the EU by 2010 and towards the UN target for ODA of 0.7% of Gross National Income (GNI) by 2015. The Commission suggests new detailed arrangements for aid, maps out options for innovative sources of finance and proposes ways to address the debt problems of low-income countries that remain after the Heavily Indebted Poor Countries (HIPC) initiative.
The commitment to increase financial resources for ODA
In terms of the ODA/GNI ratio, the Barcelona commitment sets a minimum rate of 0.33% for each Member State. In 2003 the EU average reached 0.34%. In volume terms, ODA rose in 2003 in 12 Member States compared to 2002. EU25 ODA flows increased from EUR 28.4 billion in 2002 to EUR 33 billion in 2003, representing an additional EUR 4.6 billion.
The Commission suggests setting two targets to be reached by 2010:
- an individual threshold for Member States, differentiating between those which were already members of the EU in 2002 (EU15 Barcelona commitments) and those which joined later (EU10);
- a collective average for all Member States (EU25).
The ODA of Member States which participated in the Barcelona Commitments (EU15) should be increased to the new individual baseline of 0.51% ODA/GNI, and Member States that joined after 2002 (EU10) should reach an individual baseline of 0.17% ODA/GNI by 2010.
The Commission calls on EU15 countries that have not yet done so to establish, by 2006, a firm timetable to achieve the UN target of 0.7% ODA/GNI.
Aid effectiveness: coordination and complementarity
Following the second High-Level Forum on Aid Effectiveness (HLF II) held in Paris in March 2005, the EU adopted a comprehensive agenda with time-bound objectives, based on the Council conclusions on harmonisation of November 2004. The EU also committed itself to additional targets (providing all capacity-building assistance through coordinated programmes with an increasing use of multi-donor arrangements; channelling 50% of government assistance through country systems; avoiding the establishment of new project implementation units; doubling the percentage of assistance provided through budget support or sector-wide arrangements; and reducing the number of uncoordinated missions by half).
A genuine European Development Strategy should be agreed to enhance aid effectiveness. Fragmentation, gaps and duplication among donors should be reduced to improve the division of labour and thereby enhance operational complementarity.
Member States have untied their aid to least developed countries (LDCs) in line with a recommendation from the Development Assistance Committee (DAC), and proposals for untying EC aid are currently in the legislative process. In the light of the positive impact of this approach, the EU is supporting the ongoing debates at international level on further untying aid beyond the DAC recommendations, with a specific emphasis on food aid, food aid transport and access by recipient countries to donors' aid.
Trade-Related Technical Assistance (TRTA)
Despite being the largest contributor to Trade-Related Technical Assistance (TRTA) initiatives worldwide, the EU must improve the quality and effectiveness of this aid and respond to new needs. This notably includes intensified information exchange for TRTA planning and delivery and the exchange of best practices, reinforcing the dialogue with recipient countries to ensure that they integrate trade policies into their national poverty reduction and development strategies, ensuring more flexible TRTA programmes that can adapt to changing situations, and so forth.
Global Public Goods
A task force on Global Public Goods was set up in 2003. Member States reached a consensus on:
- the definition of International Public Goods (IPG) and the relevance of the selected six priority IPGs for enhanced action: trade, knowledge, peace and security, financial stability, global commons and the eradication of communicable diseases;
- readiness to examine the Action Plan with a view to establishing an EU common platform for the provision and financing of IPGs;
- the principle that IPGs should only be financed from existing ODA if their provision is linked to the Millennium Development Goals (MDG), the three pillars of sustainable development and other agreed development objectives.
The EU should examine the forthcoming task force Action Plan on the basis of a Commission proposal for a common EU platform for the provision and financing of IPGs, agree which IPGs fall outside the scope of development and should therefore be financed from non-ODA financing sources in their national budgets, and enhance the provision of priority International Public Goods, starting with the establishment of an Action Plan at EU level.
Innovative sources of financing and new delivery mechanisms
Markedly greater aid is needed. Additional, more predictable and more stable sources of finance must be mobilised, something akin to "own resources" for development.
Member States have proposed various types of new finance mechanisms, including the possibility of "front-loading" pledged aid increases through an "International Finance Facility" (the IFF), proposals for international taxation, and voluntary options such as a global lottery or charitable donations.
Whatever options are finally implemented, increased ODA flows and new, more predictable and less volatile aid arrangements are required. This lack of flexibility and predictability prevents partner countries from embarking on the medium-term investments needed to accelerate progress towards the MDGs.
Reform of the international financial system
Despite the improved coordination between the EU Executive Directors of the IMF and the World Bank, several Member States wish to go further.
The Commission requests the Council:
- to present as often as possible a single European position in the international financial institutions (IFIs), and to increase the visibility and influence of the European Union in the IFIs;
- to develop a joint EU position on enhancing the voice of developing and transition countries in international economic decision-making.
Although the EU has made remarkable progress with the extended HIPC initiative, numerous concerns remain regarding the debts of poor countries. In the short term the overall funding of the HIPC initiative is not fully secured as long as non-Paris Club creditors do not deliver their part of debt relief. In the long term, the HIPC initiative will not suffice to ensure sustainable debt levels for poor countries.
Several problems still await solutions, such as the fact that a number of countries, mostly in post-conflict situations, may still remain excluded from the HIPC initiative, and that others, even after their graduation from HIPC, will remain in or return to debt distress situations.
The Commission invites the Council to deliver solutions to assist post-conflict countries which have not been able to benefit from the HIPC initiative to tackle the problem of having fragile institutions and most of the debt stock in arrears, and to explore the possibility of using a temporary debt service relief facility to alleviate the effects of exogenous shocks on debt-distressed countries.