Conception for Increasing State Budget Financing for Implementation of the Development Cooperation Policy of the Republic of Latvia 2006 – 2010

12.01.2015. 10:19

Conception for Increasing State Budget Financing for Implementation of the Development Cooperation Policy of the Republic of Latvia

2006 – 2010

(Word document format)

(Cabinet of Ministers Regulation No. 77, 09.02.2006)

Table of contents

1. Problem statement and detailed description

2. Compliance with other policy documents and legislation

3. Solution and forecasts in case of failure to resolve the issue

4. Approaches to resolving the issue

   4.1. Model No. 1 – From 2006 – 2010, Latvia to reach ODA level equivalent to 0.17% of GNP

   4.2. Model No. 2 – From 2006 -2010, Latvia to reach ODA level equivalent to 0.1% of GNP

   4.3. Model No. 3 – From 2006 -2010, Latvia to reach ODA level equivalent to 0.13% of GNP

   4.4. Conclusions

5. Description of draft legislation needed
6. Procedure for submission and assessment of reports

1. Problem statement and detailed description

Conception for Increasing State Budget Financing for Implementation of the Development Cooperation Policy of the Republic of Latvia 2006-2010 (hereinafter – "Conception") has been prepared having regard to Latvia's obligations as a member state of the European Union (hereinafter – "EU") and in accordance with the Basic Principles of Development Cooperation Policy of the Republic of Latvia. The timeframe for implementation of the Conception coincides with that of the Development Cooperation Policy Programme of the Republic of Latvia 2006-2010 (hereinafter – "Programme"; the Programme was adopted by the Cabinet of Ministers, Order No.76 of 09.02.2006.) and the Conception accords with the targets and directions for action defined by the Programme.

In 2000, Latvia joined the Millennium Declaration of the United Nations (hereinafter – "UN"), and thereby undertook to achieve the goals set therein. The UN Millennium Declaration Goals are: to eradicate extreme poverty and hunger; achieve universal primary education; promote gender equality and empower women; reduce child mortality; improve maternal health; combat HIV/AIDS, tuberculosis and other diseases; ensure environmental sustainability and develop a global partnership for development. To foster implementation of the listed goals, it was decided that by 2015 the developed nations should collectively increase the financing for development purposes to 0.7% of the gross national product (hereinafter – "GNP").

To achieve this goal, the EU has set an interim target of reaching 0.5% of the GNP by 2010, thus providing for a progressive increase of financing for development cooperation. To this aim, the Conclusions of the General Affairs and External Relations Council (GAERC) of the Council of the European Union dated 24 May 2005 set the goal of increasing financing for development cooperation; by 2010 the EU is to collectively reach 0.56% of GNP and ensure that each EU member state reaches at least 0.51% of GNP, with the countries having joined the EU in 2004, including Latvia, achieving at least 0.17% of GNP.

Each year the EU member states, including Latvia, are to keep records of financing made available for official development assistance (hereinafter - "ODA") in accordance with the guidelines defined by the Development Assistance Committee of the Organization for Economic Cooperation and Development, (hereinafter - "OECD/DAC"). The ODA is the percentage of the financing provided by a country for development purposes compared to the GNP level of the country. According to these guidelines, in 2004 Latvia allocated 0.06% of its GNP for development cooperation purposes, of which 97% comprised payments to international organizations and programmes run by such organizations, including the European Union, United Nations Agencies, International Organization for Migration, and the International Monetary Fund. The remaining 3% comprised Latvia's bilateral assistance projects in developing countries (classification of countries as defined by the OECD/DAC guidelines) aimed at fostering the social and economic development of these countries.

The amount of Latvia's payments to international organizations has not changed significantly in recent times, and in coming years will either remain at the same level or grow as in the case of the increasing payments to the European Union budget. Accordingly, the main emphasis in the Conception is on the increase of financing for Latvia's bilateral development cooperation activities, and in addition, to provide financing for voluntary payments to international organizations. Financing for planned development cooperation activities is determined annually by the Development Cooperation Policy Plan, which is approved by means of a Cabinet of Ministers Order. The objective of the Conception is to determine the increases in annual financing for development cooperation from 2006 until 2010, so that by 2010 Latvia would be closer to the fulfillment of its obligations as an EU member state, namely, closer to reaching the level of 0.17% of GNP.

If a decision to increase financing for development cooperation is not made, that is, if the financing in absolute terms remains at the same level, then as Latvia's GNP increases there is a likelihood of the ODA decreasing. For instance, in 2002 and 2003 the financing for development cooperation in absolute terms was similar - 0.897 million USD (2002) and 0.880 million USD (2003), yet, with the increase of GNP the amount of the ODA decreased from 0.01% in 2002 to 0.008% in 2003. Likewise, if a decision to increase financing annually for development cooperation is not made, it would not be possible to plan long-term development cooperation activities, which otherwise would allow project co-financiers to be more readily attracted, and would enhance the effectiveness of the projects and programmes.

In view of the above, a decision regarding a planned and progressive increase of the ODA would facilitate not only a move towards the meeting of Latvia's obligations as an EU member state, but also planning of long-term development cooperation activities.

The Conception proposes three possible models for increasing financing for development cooperation from the state budget from 2006 until 2010: –

1st model – to reach 0.17% of GNP,

2nd model – to reach 0.1% of GNP

3rd model – to reach 0.13% of GNP.

It is now necessary to select the model that is most suitable and appropriate to Latvia's situation, based on the analysis of the proposed models provided in Section 4 of this Conception.

It is beyond the scope of this Conception to define Latvia's priorities, targets and directions for action in implementing development cooperation, as these are set by the annual Development Cooperation Policy Plans that are approved by a Cabinet of Ministers Order, and the Development Cooperation Policy Programme of the Republic of Latvia 2006 - 2010. The said policy documents place emphasis not only on the priority action directions, but also such principles as coordination, complementarity and coherence of Latvia's development cooperation programmes with the development cooperation programmes of the EU and of other EU member states.

2. Compliance with other policy documents and legislation

The Conception has been drawn up in accordance with the Basic Principles for the Development Cooperation Policy of the Republic of Latvia (hereinafter – "Basic Principles"). Based on the Basic Principles, the Ministry of Foreign Affairs annually prepares Development Cooperation Policy Plans. The first such plan for 2005 was approved by Cabinet of Ministers Order No. 594 of 31 August 2004 "On the Development Cooperation Policy Plan 2005". As a result, LVL 100,000 LVL were allocated for development cooperation purposes in 2005. To proceed with the development cooperation activities commenced in 2005, the Development Cooperation Policy Plan 2006 was approved by Cabinet of Ministers Order No.771 of 30 November 2005 "On the Development Cooperation Policy Plan 2006", resulting in LVL 150,000 allocated for development cooperation purposes in 2006.

The timeframe for implementation of the Conception coincides with that of the Programme (Programme was adopted by the Cabinet of Ministers, Order No.76 of 09.02.2006.) and is in compliance with the targets and action directions defined by the Programme. The Programme defines medium-term development cooperation policy targets, the results of both the policy and activities undertaken, main directions for action, timescales for implementing the set tasks, institutions responsible for implementation of the tasks and the reporting procedure. The implementation of the Programme requires a regular and progressive increase of state-budgeted financing for development cooperation.

3. Solution and forecasts in case of failure to resolve the issue

It is of major importance for Latvia to demonstrate its commitment to progressively increase the financing for development cooperation in view of its international obligations. If a decision to increase financing for development cooperation is not made and the financing for development cooperation in absolute terms remains at the present level, then as the level of Latvia's GNP increases, the amount of ODA may decrease, which will contravene Latvia's international obligations as an EU member state.

All EU member states, including those having joined the EU in 2004, have stated their commitment to increasing the financing for development cooperation. Latvia, also, needs to define its position similar to the position of the other new EU member states, especially to that of the Baltic States, as the economic situation and history of these countries is similar.

4. Approaches to resolving the issue

This Conception offers three potential approaches or solution "models" for increasing the financing of development cooperation from the state budget during the period 2006 – 2010. The analysis of these models is provided in Articles 4.1., 4.2. and 4.3. and Tables No.1, No.2 and No.3 of this Conception.

The Tables reflect the components of Latvia's total financing for development cooperation: Latvia's payments in the EU budget, of which about 5% is regarded as financing for development cooperation (column "EU (million LVL)"), payments by Latvia as an EU member state in the European Development Fund (column "EDF (million LVL)"), payments to international organizations and the programmes run by such organizations (column "IO (million LVL)"), financing for bilateral development cooperation not provided from the total development cooperation budget, but covered by the budgets of the respective state institutions under development cooperation activities (column "Ad hoc bilateral ODA (million LVL)"), and the financing allocated by Latvia's government specifically for the purpose of bilateral development cooperation activities under the annual Development Cooperation Policy Plan (column "Planned bilateral ODA (million LVL)"). The total ODA amount in absolute terms is obtained (column "Total ODA (million LVL)") by adding the figures provided in each column. The ratio of total ODA in absolute terms to the GNP (column "GNP a.p., million LVL") shows the percentage of ODA for the respective year (column "% of GNP"). The figures provided by Tables No.1, No.2 and No. 3 of the present Conception differ in the following columns – "Planned bilateral ODA (million LVL)", "% of GNP" and "Total ODA (million LVL)". The other figures are the same in all tables.

The increase of financing essentially refers to Latvia's planned bilateral development cooperation, which includes projects with its partner countries. In addition to bilateral activities, financing may also be provided for voluntary payments to international organizations. It should be noted, however, that initially, while the financing available for development cooperation remains limited, priority should be given to bilateral development cooperation (column "Planned bilateral ODA (million LVL)").

4.1. Model No. 1 – from 2006-2010, Latvia to achieve ODA level equivalent to 0.17% of GNP (see Table No.1)

The target of reaching 0.17% of GNP by 2010 applicable to countries having joined the EU in 2004 (including Latvia) has been set by the Conclusions of 24 May 2005 of the General Affairs and External Relations Council of the Council of the European Union (GAERC).

By approving this problem solution model for increasing financing for development cooperation, Latvia's obligations as an EU member state will have been fully met. In this case, LVL 15.13 million would have to be allocated from the state budget in 2010 for the purpose of planned bilateral co-operation.

 

GNP a.p, million LVL

EU

(million

LVL)

EDF

(million

LVL)

IO

(million

LVL)

Ad hoc

bilateral ODA

(million LVL)

Planned bilateral ODA (million LVL)

% of GNP

Total ODA (million LVL)

2004

7214.0

3.70

 

0.68

0.12

 

0.06

4.5

2005

8339.7

4.17

 

0.70

0.12

0.10

0.061

5.09

2006

9353.7

4.37

 

0.70

0.12

0.15

0.057

5.34

2007

10334.2

5.50

 

0.80

0.13

2.78

0.09

9.3

2008

11369.6

5.70

0.87

0.80

0.13

6.10

0.12

13.6

2009

12507.4

5.95

0.90

0.90

0.13

9.62

0.14

17.5

2010

13741.6

6.20

0.94

1.00

0.13

15.13

0.17

23.4

Table No. 1

Explanations:

  • GNP – gross national product, actual prices, million LVL – forecast provided by the Latvian Ministry of Finance of November 2005.
  • EU – payments to the EU budget calculated as financing for development cooperation – the indicator for 2004 (LVL 3.7 million) is the information provided by the European Commission regarding the EU budget in the context of the ODA payments made by the member states. The indicators for 2005 forward have been calculated based on the assumption that 5% of the payments of the Republic of Latvia to the EU budget are allocated for the ODA. The figures provided in the column should therefore be regarded as indicative.
  • EDF –payments by the Republic of Latvia to the European Development Fund (EDF), assuming that these represent 0.76% of the payments of the Republic of Latvia to the EU budget. The payments of the Republic of Latvia to the EDF have been determined by the Article 6 Clause 4 of the Act Concerning the Conditions of Accession of the Czech Republic, the Republic of Estonia, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Republic of Hungary, the Republic of Malta, the Republic of Poland, the Republic of Slovenia and the Slovak Republic and the adjustments to the treaties on which the European Union is founded.
  • IO – actual and planned payments of the Republic of Latvia to international organizations, the payments that are classified as ODA and provided for by the budgets of the respective state institutions of the country.
  • Ad hoc bilateral ODA – financing for bilateral development cooperation, which has not been provided for by the total development cooperation budget, but is covered from the budgets of the respective state institutions for development cooperation activities.
  • Planned bilateral ODA – financing allocated by the Republic of Latvia specifically for the purpose of bilateral development cooperation activities under the annual Development Cooperation Policy Plan.

 4.2. Model No. 2 – from 2006 – 2010, Latvia to reach ODA level equivalent to 0.1% of GNP (see Table No. 2)

This Model of increasing financing for development cooperation provides for achieving 0.1% of GNP by 2010, maintaining annual growth at about 0.01%. With this model, Latvia's international obligations are not fulfilled. However, this model allows for an increase in financing, thus demonstrating Latvia's political commitment to satisfying its international obligations as an EU member state.

 

GNP a.p., million LVL

EU

(million LVL)

EDF

(million LVL)

IO

(million LVL)

Ad hoc

bilateral ODA

(million LVL)

Planned bilateral ODA (million LVL)

% of GNP

Total

(million LVL)

2004

7214.0

3.70

 

0.68

0.12

 

0.06

4.5

2005

8339.7

4.17

 

0.70

0.12

0.10

0.061

5.09

2006

9353.7

4.37

 

0.70

0.12

0.15

0.057

5.34

2007

10334.2

5.50

 

0.80

0.13

0.77

0.07

7.2

2008

11369.6

5.70

0.87

0.80

0.13

1.60

0.08

9.1

2009

12507.4

5.95

0.90

0.90

0.13

3.42

0.09

11.3

2010

13741.6

6.20

0.94

1.00

0.13

5.43

0.1

13.7

 Table No.2*

*See explanation of the abbreviations under Table No. 1

4.3. Model No. 3 – from 2006 - 2010, Latvia to reach ODA level equivalent to 0.13% of GNP (See Table No. 3)

This Model of increasing financing for development cooperation provides for increasing the amount of ODA to reach 0.13 % of GNP by 2010, which is the mean between Model No 1 (reaching 0.17% of GNP) and Model No. 2 (reaching 0.1% of GNP). By selecting the third model, an increase of financing is ensured, which will demonstrate Latvia's political commitment to meeting its international obligations as an EU member state. In this case Latvia will be able to demonstrate its commitment, while not meeting the obligations in full.

 

GNP a.p., million LVL

EU

(million

LVL)

EDF

(million

LVL)

IO

(million

LVL)

Ad hoc

bilateral ODA

(million LVL)

Planned bilateral ODA

(million LVL)

% of GNP

Total

(million

LVL)

2004

7214.0

3.70

 

0.68

0.12

 

0.06

4.5

2005

8339.7

4.17

 

0.70

0.12

0.10

0.061

5.09

2006

9353.7

4.37

 

0.70

0.12

0.15

0.057

5.34

2007

10334.2

5.50

 

0.80

0.13

1.84

0.08

8.27

2008

11369.6

5.70

0.87

0.80

0.13

3.90

0.1

11.4

2009

12507.4

5.95

0.90

0.90

0.13

7.12

0.12

15.0

2010

13741.6

6.20

0.94

1.00

0.13

9.63

0.13

17.9

Table No. 3*

* See explanation of the abbreviations under Table No. 1

4.4. Conclusions

When selecting the financing increase Model for development cooperation, it is important to retain the amount of the ODA at not less than the level for the previous year. This means that in view of the rapid growth of Latvia's GNP, financing for development cooperation in absolute terms needs to be increased annually, so that the amount of Latvia's ODA is maintained at a level at least that of the previous year.

The new EU member states differ as to their economic situation and historical experience related to development cooperation. Such differences determine the situation regarding the positioning and setting of targets for increasing financing for development cooperation by these states. For example, the Czech Republic and Slovakia have announced their preparedness to reach 0.17% of GNP by 2010, as they have wider experience in development cooperation than, say, the Baltic States, which started building their development cooperation systems relatively recently.

As to the increase of financing, Latvia's to-date experience is similar to that of the other Baltic States that have already announced of the intention to increase the ODA level to 0.1% of GNP by 2010. Due to this, financing increase Model No. 2 referred to in Article 4.2. of this Conception is the most suitable model for Latvia. This Model provides for an increase in ODA from 2006 – 2010 to 0.1% of GNP in 2010 (See Appendix 1: "The possible impact of legislation on the state budget and municipal budgets?").

5. Description of draft legislation needed

By 1 June of each year, the Ministry of Foreign Affairs shall submit to the Cabinet of Ministers a Development Cooperation Policy Plan. The Development Cooperation Policy Plan shall identify the development cooperation policy targets, directions for action, forecast results, steps to be taken to achieve the targets, timescales and performance indicators allowing for assessment of activities, and additional financing from the next year's budget required for the purpose. To implement the Conception, relevant proposals for the draft Annual State Budget shall be prepared and submitted to the Saeima (Latvian Parliament) for review.

6. Procedure for submission and assessment of reports

With regard to the implementation and assessment of the Conception, the Ministry of Foreign Affairs shall submit an Interim Report by 15 June 2008 and a Final Report by 31 December 2011 to the Cabinet of Ministers.