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Draft Caribbean Development Bank (Tenth replenishment of the Special Development Fund (Unified)) Order 2021

Draft Asian Development Bank (Twelfth replenishment of the Asian Development Fund) Order 2021

Debated on Tuesday 18 May 2021

The Committee consisted of the following Members:

Chair: †James Gray

† Adams, Nigel (Minister for Asia)

Caulfield, Maria (Lewes) (Con)

Harman, Ms Harriet (Camberwell and Peckham) (Lab)

† Harris, Rebecca (Lord Commissioner of Her Majesty's Treasury)

Hendrick, Sir Mark (Preston) (Lab/Co-op)

Keeley, Barbara (Worsley and Eccles South) (Lab)

Mak, Alan (Lord Commissioner of Her Majesty's Treasury)

† Mann, Scott (Lord Commissioner of Her Majesty's Treasury)

Morris, James (Lord Commissioner of Her Majesty's Treasury)

Morrissey, Joy (Beaconsfield) (Con)

† Qureshi, Yasmin (Bolton South East) (Lab)

† Rimmer, Ms Marie (St Helens South and Whiston) (Lab)

Rutley, David (Lord Commissioner of Her Majesty's Treasury)

Sharma, Mr Virendra (Ealing, Southall) (Lab)

Thomson, Richard (Gordon) (SNP)

Throup, Maggie (Lord Commissioner of Her Majesty's Treasury)

Tomlinson, Michael (Lord Commissioner of Her Majesty's Treasury)

Kevin Maddison, Committee Clerk

† attended the Committee

Second Delegated Legislation Committee

Tuesday 18 May 2021

[James Gray in the Chair]

Draft Caribbean Development Bank (Tenth Replenishment of the Special Development Fund (Unified)) Order 2021

I beg to move,

That the Committee has considered the draft Caribbean Development Bank (Tenth Replenishment of the Special Development Fund (Unified)) Order 2021.

With this it will be convenient to consider the draft Asian Development Bank (Twelfth Replenishment of the Asian Development Fund) Order 2021.

There is no greater pleasure than serving under your chairmanship, Mr Gray.

The two orders will permit the United Kingdom Government to make financial contributions up to the stated values to two multilateral development banks, namely the Caribbean Development Bank and the Asian Development Bank. I will set out the case for supporting those institutions and provide more details on the orders and the impact that our contributions will have.

The MDBs are at the heart of the international development system. They are important partners in delivering the UK’s development, prosperity and security objectives as a force for good in the world. The Caribbean and Asian Development Banks have deep local knowledge, and are highly trusted by the Governments who borrow from them. They play a key role in supporting nations to become more self-sufficient through economic growth and increased resilience, including by strengthening cross-border trade and regional integration. They also contribute to solving global challenges, such as climate change and health crises. Our proposed contributions to those banks demonstrate the UK’s deep and ongoing commitment to the multilateral system, as set out in the integrated review.

The first order under consideration permits the UK Government to provide up to £21 million over four years to the tenth replenishment of the special development fund, or SDF. The SDF is used by the Caribbean Development Bank to provide grants, low-interest loans and technical assistance to the Caribbean region’s poorest countries. The UK is one of the founding members of the bank, which is an important partner in the region. Nine of the 11 countries that receive SDF financing are Commonwealth nations.

Caribbean states are highly vulnerable to climate change and natural disasters. They are also heavily dependent on the tourism sector, which has been especially hit hard by the covid-19 pandemic, having accounted for 15.5% of GDP and 2.4 million jobs in 2018. Funding from the SDF will play a critical role in supporting economic recovery and strengthening resilience and preparedness for future crises. Over the next four years, 180,000 students are expected to benefit from educational projects, and more than 60,000 households are expected to have improved sanitation and water supply.

Negotiations for the tenth replenishment of the SDF concluded in February. Through the negotiations, the UK secured an agreement from the bank to set its first-ever climate finance target: to use 25% to 30% of its own resources for climate change mitigation and adaption. An overall financing envelope of $383 million over four years was agreed. Our pledge will maintain the UK’s position as the second largest donor to the SDF, with a burden share of 14%.

The second order under consideration permits the UK Government to provide up £117,640,000 over four years to the twelfth replenishment of the Asian Development Fund, or ADF. The ADF is used by the Asian Development Bank to provide grants and technical assistance to the poorest countries in the region. The UK has been a member of the bank since it was founded in 1966 and has contributed to every replenishment of the ADF since its establishment.

As set out previously in the House by the Foreign Secretary, the Asia-Pacific region is critically important to the UK. The Asian Development Bank is a key partner in that context. I met the bank’s president, Asakawa, only last week to discuss the bank’s work on climate change and financing for covid-19 vaccines. I also had the pleasure of meeting him in Manilla last year, where I heard first-hand about the bank’s economic response to covid-19.

Prior to the pandemic, the Asia-Pacific region was making good progress on sustaining economic growth and poverty reduction. However, many countries continue to face significant challenges. For example, at least 10% of people in the countries that receive grants from the ADF live in extreme poverty. Many of the countries supported by the ADF are small island developing states in the Pacific, whose reliance on tourism has led to significant economic setbacks as a result of the pandemic. They are also highly vulnerable to climate change. For example, rising sea levels could result in Kiribati, Tuvalu and the Marshall Islands becoming uninhabitable by 2050.

The ADF also provides significant levels of funding to fragile states, including Afghanistan. That funding is critical for ensuring stability and security across the region.

Over the past four years, the ADF has funded the construction of more than 1,000 km of roads. It has supported more than 900,000 women and children to benefit from new and improved infrastructure, and strengthened the resilience of more than 1.7 million people to climate change and natural disasters.

Negotiations for the twelfth replenishment of the ADF concluded last September. Through those negotiations, the UK secured important commitments, including an increase in the share of resources used for climate mitigation and adaptation from 23% to 35%, in direct support of our COP26 goals. An overall envelope of just over $4 billion over four years was agreed, and 42% of that will be financed by the bank’s own resources, with the remainder covered by pledges from donors. The UK’s pledge will maintain our position as the second largest non-regional donor to the ADF, with a burden share of 5.4%.

In conclusion, the Caribbean and Asian Development Banks remain important strategic partners for the UK. Our proposed contributions to the SDF and the ADF will allow those banks to support vulnerable countries to recover from the pandemic crisis, tackle climate change and reduce poverty. Those contributions will also strengthen the UK’s influence over those banks, which are well aligned with our objectives and values. They will support the delivery of the sustainable development goals and our ambitions as president of the G7 and COP26, and as Chair of the Commonwealth. I welcome this opportunity to hear Members’ views on the orders, which I commend to the Committee.

It is a pleasure to serve under your chairmanship, Mr Gray.

The Opposition support the transfer of funds to the Asian and Caribbean Development Banks, but I have some questions and points to put to the Minister.

We welcome the funds to the Caribbean Development Bank. Helpfully, the explanatory memorandum has set out what the sums of money will do. However, four years ago, during the previous replenishment, Ministers made it clear that they were approaching the bank with a degree of caution, and as such a quarter of the money was set aside as a performance incentive. Can the Minister explain whether those performances were met, that the money was disbursed and, looking to the future, does the new agreement contain any performance incentive? Given that the order provides for an increase on the previous replenishment, if only modest, can the Minister explain if that is part of a more concerted shift in priorities?

Funding to support the UK’s priorities, such as poverty reduction, girls’ education and climate change are welcome, particularly given the scale of the Government’s cuts to aid more generally. It would be useful to know from the Minister what specific improvements he intends the funds to achieve. How does that compare with previous contributions?

We know that a Department for International Development review into multilateral development in 2016 said that the Caribbean Development Bank, especially its special development fund was

“still performing well below the standard DFID expects, and below its own targets”.

It cited concerns about transparency and project delays, and said that a DFID team would be embedded in the bank to support future delivery and oversight. Now that DFID has been disbanded, can the Minister tell us how the UK will use its influence to ensure that the progress and development outcomes of the bank continue to be carried forward to future years and directed towards the world’s most marginalised?

On the draft Asian Development Bank (Twelfth Replenishment of the Asian Development Fund) Order 2021, we welcome the fact that funding will be used to support countries to meet international climate goals, such as the Paris agreement. Those are important objectives, because we know that many Asian coastal cities are exposed to flood and typhoon risk—caused by dramatic increases in heat and humidity. That means that, without adaptation and mitigation, societies and economies will be increasingly vulnerable to climate risk.

DFID’s review into multilateral aid in 2016 was positive about the bank, and judged that it performed well on risk management, anti-corruption and transparency. However, it highlighted a few areas of concern, in particular, it said that the bank could do more to ensure that poor and vulnerable groups benefit from its programmes and to support projects in fragile and conflict-affected areas. What have the Government done since the last replenishment to ensure that the bank improves in the areas where it fell short, and do they have any plans for further such reviews?

I was surprised to see mention of

“more resources for…girls’ education”

given that that long-term DFID commitment was recently reversed when it was discovered that the Government intend to make cuts of 40% to the UK aid budget for girls’ education. Does the Minister share my concern about the far-reaching consequences of that for the world’s most marginalised children, especially girls, at a time when they most need our support?

Both replenishments are increases made at a time when the aid budget for bilateral projects and programmes is being slashed. That seems to contradict a letter sent by the Foreign Secretary to the International Development Committee, which said

“bilateral programmes, with their advantages of effectiveness, local ownership and strategic impact will be the default”.

Can the Minister say whether that is still the position of the Department?

In the light of the Government’s devastating cuts to the aid budget, will the Minister consider reversing that decision or put it to a vote in Parliament?

I welcome the hon. Lady’s comments. As the world recovers from the covid-19 crisis, strong regional financial institutions, such as the Caribbean and Asian Development Banks, have never been more needed. Our contributions to the SDF and ADF will support the delivery of the UK’s development, prosperity and security objectives. As well as funding key development projects, those contributions will also reinforce the UK’s influence over the banks, which will allow us to drive them to be as efficient and effective as they can be. By supporting the orders, the Government maintain and further the UK’s position as a global leader in international efforts to achieve sustainable poverty reduction, climate resilience and international security.

The hon. Lady asked whether the recent temporary changes to the official development assistance budget will be reversed, and the answer to that is no. Those are temporary measures, and I assure that we will remain a world-leading aid donor and across Government we will spend more than £10 billion this year to fight poverty, tackle climate change and improve global health. The portfolio agreed by the Foreign Secretary will focus our investment and expertise on issues where the UK can make the most difference and achieve maximum strategic coherence, impact and value for money.

We will sustain our commitment to the world’s poorest people and, as the third biggest international donor, the UK will spend more on international aid in 2021 as a proportion of our national income than the majority of the G7. As the recent Statistics on International Development show, the UK is already one of the largest donors to the international covid-19 response. We have made £1.3 billion of new public commitments to counter the health, humanitarian and socioeconomic impacts of covid.

The hon. Lady asked how we assess the effectiveness of MDBs. We conduct annual reviews of all of our MDB contributions. The ADF and the SDF scored an “A” in 2020, which means they are assessed to be meeting expectations in terms of their outputs. The ADB was independently assessed by the Multilateral Organisation Performance Assessment Network in 2018 and was rated “highly satisfactory” or “satisfactory” across all eight organisational performance measures. A mid-term review will take place next year, when the banks will report on progress to all donors. The Foreign, Commonwealth and Development Office uses our country network to assess bank impact on the ground and to identify improvements where they are needed. The hon. Lady should rest assured that we hold the MDBs to account on budgetary efficiency and we take a strong line on staff and board member compensation, which drives for further efficiencies. The 2017-18 Multilateral Organisation Performance Assessment Network found ADB’s administrative expenses to be cost-effective and transparent compared to other MDBs. That oversight and scrutiny does work.

The CDB has higher administrative costs relative to its operations, which is partly due to its smaller size compared to other MDBs, but those costs have fallen significantly in recent years, and we expect that improvement to continue as the CDB continues to seek further efficiencies.

I commend the orders to the Committee.

Question put and agreed to.

Draft Asian Development Bank (Twelfth Replenishment of the Asian Development Fund) Order 2021


That the Committee has considered the draft Asian Development Bank (Twelfth Replenishment of the Asian Development Fund) Order 2021.—(Nigel Adams.)

Committee rose.