EU aid funding crunch — filling one hole by digging another?

The European Parliament’s budgets committee has given the green light to an extra €150 million ($207 million) for the European Commission’s most urgent humanitarian aid and food assistance needs, and a further €37 million for its democracy and human rights instrument. The sum will allow the Commission to pay its most urgent bills, but according to lawmakers, payment problems in the EU external action field are likely to recur in the course of this year. As explained by MEPs last week, the additional funds are taken from the budget lines for pre-accession assistance (€45 million), development cooperation with Latin America and Asia (€74 million), the emergency aid reserve (€50 million), the neighborhood instrument (€10 million) and the nuclear safety cooperation instrument (€8 million). However and according to a parliamentary statement, these budget lines will themselves “run dry” in the course of the year, so “fresh money will be needed later on.” So is the parliament “robbing Peter to pay Paul”? Certainly, the amount of unpaid humanitarian aid bills is still considered a problem by EU institutions and development implementers alike. Indeed, an official from the Commission’s humanitarian aid and civil protection directorate-general — known as ECHO — described the unpaid bills as “a millstone around our neck,” adding that at least €250 million extra will be needed to meet 2014 obligations alone. Anne Jensen, the Danish MEP in charge of the 2014 budget, said the parliament was now “filling one hole by digging another,” adding that the payment problems in the field of humanitarian aid “did not come as a surprise, given the low budgeting in this area for this year.” Finding a solution: a work in progress? Nonetheless, the decision will go some way to relieving the tension felt by NGOs following rumors of a €400 million funding shortfall took hold following comments last month by a senior European Commission official. Concerns — first voiced in January — resurfaced in March after Walter Schwarzenbrunner, ECHO’s director of resources, partnerships and operational support, told EurActiv that the the situation had become “critical” with the department needing to find “institutional reinforcement” of almost half its annual budget “to avoid a real crisis.” The apparent aid shortfall is the result of a gap between the sums that EU member states’ pledged for aid operations in so-called “commitment credits” and what they have so far delivered. Back in January, EU humanitarian aid chief Kristalina Georgieva gave reassurances that Brussels would “meet in full” the commitments made in 2014, adding that life-saving activities were being prioritized “while a solution to the cash-flow situation is being put in place.” And on March 4, speaking at a public budget and development committee meeting at the European Parliament on emerging financing needs — in particular in relation to EU humanitarian aid — she confirmed she was working with Development Commissioner Andris Piebalgs “to identify all possible elements … in the budget for development that can be deployed for stabilization purposes, and for resilience.” Notwithstanding the fact that ECHO had been working simultaneously on an unprecedented 4 so-called “level-3” crises — Syria, the Central African Republic and South Sudan, as well as operations following Typhoon Haiyan in the Philippines — Georgieva warned that such a situation should not be considered a one-off and stressed the importance of “preventing this snowball from happening again” and urging the parliament to accept “on an exceptional basis the exclusion of humanitarian aid from this discrepancy between commitments and payments.” NGOs voice concern Despite Georgieva’s assurances, NGOs contacted by Devex in the past weeks will likely need further reassurances that the aid crunch will not impact the provision of life-saving operations, see jobs axed or the contracts of short-term external staff being allowed to run down without renewal. “The current budgetary problem is a structural problem in the long term,” Alexandra Makaroff, head of Plan International’s EU office told Devex. “There is currently a big gap between commitments and payments,” she said, explaining that liquidity problems first emerged as far back as 2012. “Plan — just like other NGOs — is concerned by the absence of clear guarantees on financing [and] the fact that this uncertainty and phased approach that ECHO has adopted makes difficult the co-financing of projects,” she noted. Kathrin Schick, director of the humanitarian aid network VOICE, meanwhile confirmed the concerns of member aid groups: “The current funding shortfall is already impacting on the planning and implementation of this year's programs and projects in numerous countries where humanitarian aid is urgently needed. Speed and timeliness matter in humanitarian aid and many projects cannot be postponed. Medicines and food can only be bought with cash money.” Over the past month, Schick explained, NGOs have been informed that their projects have either received less funding, or have had to be curtailed or postponed. As a consequence, the situation is already affecting numerous people on the ground. “The worst-case scenario for ECHO partners is that all projects — including life-saving activities — come to a halt in the summer. This would have tremendous consequences for people who are dependent on [Commission] humanitarian aid for their daily survival,” Schick said. Projects on hold, staff in limbo Asked if the shortfall is expected to result in any job cuts, or hiring freeze for particular projects, sectors or countries, Makaroff said that the fact that ECHO has decided to adopt a phased approach on a case-by-case basis, has had an immediate impact on the work of NGOs in the field, with some operations facing being put “on hold” due to the uncertainty. “Some NGOs will have serious difficulties to support programs or maintain their staff until the next payment is made,” she said. “The current situation is already impacting on NGOs ability to plan their field presence and projects. It leaves national and international staff in limbo, not knowing if they will be able to do their life-saving job in the [coming] months.” However, a well-placed source in the Commission told Devex that a doomsday scenario was highly improbable: “There’s no [issue] about jobs being cut. The budget is well on the way to being sorted out. We don’t believe that ECHO will break its contracts and NGOs will get their money by the end of summer.” Schick meanwhile called on the European Commission, the European Parliament and EU member states to collectively find both a short-term solution for 2014 and a long-term solution that ensures predictable annual funding is delivered to ECHO’s partners. “This situation affects both ECHO and implementing partners, so we need to work in close collaboration not only to solve the current situation, but also to avoid a similar liquidity crisis in the future,” she said. It is to be hoped that last week’s decision by the European Parliament is the first step towards a permanent resolution to ECHO’s cash-flow problems. Read more development aid news online, and subscribe to The Development Newswire to receive top international development headlines from the world’s leading donors, news sources and opinion leaders — emailed to you FREE every business day.