DOCUMENT DE TRAVAIL. FR Unie dans la diversité FR. Parlement européen

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1 Parlement européen Commission du contrôle budgétaire DOCUMENT DE TRAVAIL Rapport spécial nº 3/2017 de la Cour des comptes européenne (décharge 2016): assistance de l Union européenne à la Tunisie Commission du contrôle budgétaire Rapporteur: Gilles Pargneaux DT\ docx PE v01-00 Unie dans la diversité

2 Introduction Tunisia is a lower middle income country situated in North Africa. In 2015, it had a population of approximately 11 million and a Gross National Income per capita of 3970 USD. The Jasmine Revolution of January 2011, regarded as the first of the Arab Spring series of uprisings, brought an end to a 23-year-long rule of the President Zine El Abidine Ben Ali. Among the post Arab Spring revolution countries, Tunisia is the one with the most advanced political transition. In the past four years, it adopted a new constitution and held free and fair elections. Nonetheless, after 2011 the country experienced significant uncertainty, social unrest and attacks against civil targets by armed militants. Strengthening economic activity is one of the most significant challenges of Tunisia as this is a prerequisite for sustainably addressing the core socioeconomic concerns of the country, namely high unemployment (particularly among women and young people) and regional disparities. In addition, Tunisia faces challenges related to the weak institutional capacity, the excessive centralization of decision making and corruption. Following the 2015 terrorist attacks at the Bardo Museum in Sousse and against the Presidential Guard, security became another domain of priority concern. The EU-Tunisia Association Agreement of July 1995 is the basis for bilateral relations. In November 2006, the Commission produced a Country Strategy Paper laying down the framework for EU cooperation with Tunisia for , yet the EU perspective changed significantly in the wake of the Arab Spring revolution. In May 2011, the European External Action Service (EEAS) and the Commission adopted a new approach towards the sixteen countries of the European Neighbourhood. This new approach aimed at strengthening the partnership between the EU and the countries and societies of the neighbourhood, building and consolidating healthy democracies, pursuing sustainable economic growth and establishing links among the people and the civil society of the countries in the region. Based on the new strategic approach, in 2012, the EU concluded a political agreement with Tunisia on an Action Plan for the period 2013 to 2017 which established a privileged partnership. The bilateral cooperation assistance allocated to Tunisia for the period from 2011 to 2015 was 1.3 billion euro. This financing included programmes of the European Neighbourhood and Partnership Instrument (ENPI) and the European Neighbourhood Instrument (ENI), thematic instruments and programmes, humanitarian aid, the Neighbourhood Investment Facility (NIF), and one Macro-Financial Assistance (MFA) agreement signed in The general budget support programmes implemented by the Commission between 2011 and 2015 aimed at the relaunch of the economy and included measures for structural reforms in various areas. The sectoral budget support programmes covered fields such as education, water, environment and state budget reform. Additionally, the Commission funded projects encompassing services, works, procurement of equipment and twinning programmes. The Commission contracted with different types of implementing bodies such as UN agencies, national agencies and civil society organisations. Audit scope and objectives The audit examined whether the EU assistance delivered to Tunisia after the Arab Spring revolution of 2011 has been well spent. In order to carry out this assessment, the audit of the efficiency and effectiveness of the assistance determined whether the EEAS and the PE v /8 DT\ docx

3 Commission addressed key challenges faced by Tunisia and whether the Commission implemented its programmes well. The audit covered the spending through the ENPI and the ENI. It focused on the economic crisis response programmes and the EU actions in the areas of democratic transition, governance, justice, and economic growth. Seven budget support programmes and fourteen projects as well as the MFA loan were scrutinised. The audit work was carried out between March and July Evidence for the assessment was gathered through documentary review and interviews with the EEAS, the Commission and the EU Delegation in Tunis, the Tunisian authorities, Civil Society Organisations, as well as International Financial Institutions and other donors. A two-week visit to Tunisia in May 2016 was also carried out. European Court of Auditors findings and observations I - The EEAS and the Commission addressed most key challenges with substantial additional funds in coordination with the main donors but aid was not sufficiently focused With respect to a proper adaptation of priorities and financial allocations to Tunisia after 2011, the Court observed that funds were significantly increased to address urgent requirements. In the aftermath of the revolution the total EU aid package for the period 2011 to 2013 almost doubled from 240 to 445 million euro. The augmented funding was granted in particular through the incentive-based mechanism more for more which provided additional assistance to the partner countries showing sustained commitments to and progress in reforms. As one of the targeted areas for assistance since 2011, support for democracy was provided by programmes strengthening civil society, justice and the activities of the new Parliament. In order to tackle the regional disparities - one of the causes of security and social tensions - the Commission prepared programmes supporting marginalised areas, the rehabilitation of lowincome neighbourhoods and the health sector. A substantial contribution was also assigned to the national programme for economic recovery (PAR), bringing together the financial aid from various donors to confront the the pressing economic needs. The Commisison s funding was disbursed under five general budget support programmes that committed 448 million euro 1, which was bolstered by an extra 155 million euro more for more allocation in the period This general budget support had particular significance for the Tunisian authorities as most of the other funding provided from donors was in in the form of loans, which had servicing costs and payback obligations. Additional support came in the form of an MFA loan and specific projects. While the macroeconomic and democratic reform challenges could be tackled relatively quickly, the same was not true for the security sector reform. The Tunisian government signed up to the Commission s proposal for a security sector reform in November 2015, four years after the initial request, because it took two years before Tunisian authorities agreed on the terms of reference for a peer review of the country s security sector. 1 This amount represents more than half of the funds allocated under ENPI and ENI for the period DT\ docx 3/8 PE v01-00

4 Due the lack of a reliable and comprehensive national development plan that would give an overall view of the priorities and progress made, EU actions were designed on the basis of the continuous and intensive policy dialogue with the Tunisian authorities, on reports produced by various needs assessment and identification missions organised by the EEAS and the Commission. The Court noted that an excessively wide range of activities was covered and strategic documents set very broad priority areas. The huge variety of actions was contrary to the Commission s own objective, and at the same time best practice, of focusing aid on a small number of fields. By not sufficiently focusing its efforts, the Commission diluted the potential impact of the funding and made its management more difficult. With regard to donor cooperation, the EU actions were well coordinated with the main international development stakeholders in Tunisia such as the IMF, World Bank, African Development Bank (ADB) and the Agence Française de Développement (AFD). The EU Delegation (EUD) actively facilitated the coordination of the donors who met at least monthly and discussed in detail the planning of the programmes as well as the problems which arose during their implementation. However, despite an ongoing collaboration the Commission and the EEAS did not manage to establish joint programming with the Member States as recommended by the ENI regulation. II - EU actions substantially assisted Tunisia but there were shortcomings in the Commission s implementation of programmes Four types of programmes were under examination - general budget support, sectoral budget support, the MFA loan and projects. The Court acknowledged that general budget support was disbursed quickly but the conditionality attached was too flexible. By the end of 2015, the PAR programmes have paid out 78 % of the amounts committed for , 85 % of which has already been contracted. These disbursements totalled about 350 million euro. From 2013 onwards the EU contribution to the PAR programmes by means of general budget support was classified as state-building contracts, designed for countries in a fragile situation or transition. In the case of Tunisia, they lasted three years, which is more than the maximum duration of two years suggested in the Commission s guidelines. Under the best practices applicable to this form of aid, the Commission allows a period of time for the partner country to implement the agreed reforms and consequently fulfil the conditions of disbursement. Nevertheless, the conditions for the PAR programmes had been substantially met already prior to the financing agreement, which resulted in the swift release of the first tranches. On the other hand, in one case the necessary measures to receive the second tranche were not fixed when the contract was signed, but one year later. Moreover, when using more for more funds, supposed to stimulate the realisation of the reform agenda by linking the support to the progress made, the Commission rarely imposed additional requirements. Only a variable tranche in the PAR3 programme included specific conditions that must have been fulfiled in order to obtain extra funding. It was also noted that the large number of addressed areas diluted the focus of the policy dialogue with the partner country 1. 1 The PAR disbursements were conditional on the respect of several specific measures, namely 27 specific measures, covering a wide range of areas such as transparency, democratic participation, justice and the fight against corruption, public finance, regional disparities, micro-finance and economic growth. PE v /8 DT\ docx

5 The Court pointed out that the Commission took payment decisions having assessed overall progress and the government commitment to a national development plan rather than the completion of each measure required from the Tunisian authorities. This approach reduced the partner s incentive to take the measures set out in the financing agreement and weakened the leverage the Commission could exert on the Tunisian authorities to implement much needed reforms. The Commission also focused on output measures as opposed to long term results because of the political instability in the country. In consequence, even in the areas where the Tunisian government has taken some steps, implementation of certain structural reforms continues to be unsatisfactory or slow. Another shortcoming was the absence of an overall evaluation of the PAR programmes. Although the Commission made use of various evaluations that were carried out by different international organisations on specific aspects of governance, they were not intended to subsitute for Public Expenditure and Financial Accountability (PEFA) - a thorough and widely respected overall assessment of public financial management. PEFA would have acted as an indicator of possible weaknesses which might have needed to be urgently addressed. However, major delays in contracting an expert and in discussing the draft report with the Tunisian authorities postponed the finalisation of this instrument by three years, until March In general, some progress has been made in the areas covered by the programmes, but the pace of reforms has been slow. The actions undertaken in the domains of transparency and participation, Civil Society participation, public finance management, regional disparities, social inclusion, micro-finance, and economic growth brought about tangible improvements, yet there are still plenty of challenges lying ahead. The MFA loan was another type of the EU assistance, which the Tunisian government asked for in August This aid 1, deemed as urgent, took 21 months from the initial request to the first payment. Although much of the delay could be seen as outside the control of the EU, the Court recognised that, in the context of a request for prompt financing, it still took a considerable amount of time (9-10 months) to process this loan at the EU level. The MFA programme provided for specific reforms through the conditions for disbursement in the loan agreement. The Commission ensured that the loan was well coordinated with the PAR programmes and the technical assistance provided by the EU and the other donors. As a result, Tunisia was encouraged to adopt additional reforms in exchange for much needed finance at low cost. The Court considered the sectoral budget support programmes to be relevant but lacking credible strategies. For two out of the three programmes audited relating to the water sector and support to municipalities no detailed comprehensive plan was available showing the priorities and how these were to be tackled. There were also problems with the design of the conditions. Some of them had unknown baselines at the time of the signature of the programme, others were not appropriate, and certain eligibility criteria were not met at the time of the signature of the financing agreement. 1 The EU agreed a loan of 300 million euro split in three tranches with low interest rates between 0,498% and 1,125%. DT\ docx 5/8 PE v01-00

6 Furthermore, substantial delays occurred (due to either the programme s environment or weaknesses in the design) in the execution of the two programmes. In one case the implementation period has been extended by 70% of the originally planned schedule and in another case by 33%. The delays also concerned two technical assistance projects (accompanying the sector budget support programmes) while there was no technical assistance directly related to the implementation of the third one. In several cases the impact of the programmes was significanly limited due to slow progress of the required reforms. The last form of the EU assistance were projects. According to the Court, projects tackled relevant issues but were affected by design weaknesses which made performance assessment difficult. The main reservations comprised a lack of relevant, specific and measurable project objectives, missing indicators which didn t allow proper measurement of performance, monitoring of activities, and timely corrective actions as well as a lack of baseline indicators which restricted the comparison of the situation before and after the action. In four out of the fourteen projects examined it was not possible to properly assess the reasonableness of costs and therefore facilitate an assessment of efficiency. The Commission s planning documents were also unable to prove the added value of using an intermediary instead of contracting directly with the final beneficiary with regard to two projects. Substantial delays in the execution of the projects took place. To a large extent, they were due to the fact that the time needed to achieve certain results had been initially underestimated. In most of the cases, time extensions result in the increase of certain costs categories, such as staff costs, which have to be funded from the Commission s fixed contribution. Less funding will be then available to finance the core activities. The impact and sustainability of the results achieved were not safeguarded by a proper exit strategy for three projects. The jobs that they created were mainly temporary and their continuation will depend on the availability of further support from other donors. Another factor impeding the project impact was the slow progress of required reforms. Despite the obstacles, however, the Court stated that projects generally addressed real country needs and contributed to some important progress in relevant areas. Summary of the EEAS and the Commission s replies The Commission and the EEAS agreed with the assessment of the quick response, but stressed that several areas had to be tackled because of the large number of socioeconomic needs/emergencies the Tunisian government was confronted with following the revolution. In this context, the EU was called on to assist Tunisia to respond to these needs which were a matter of political credibility as much as an operational necessity. Results obtained in the course of the period are good since the EU assistance contributed significantly to the country s economic and political stability after the revolution, notably by accompanying major socioeconomic and political reforms. The Commission considered that assistance was therefore not diluted, but rather responded to the vast number of emergency reforms which Tunisia inevitably faced in the postrevolutionary period. The Commission acknowledged that the Tunisian authorities may have encountered difficulties in managing all the assistance, due to the post-revolution context and frequent changes of governments and within the administration. However, it must also be emphasised that the absorption rate for EU projects was higher than that of other donors. PE v /8 DT\ docx

7 European Court of Auditors recommendations In the light of its findings, the Court set out a number of recommendations to improve the planning of the assistance to Tunisia and the management of the EU actions: 1. The EEAS and the Commission should: (a) use political and policy dialogue to ensure that the Tunisian authorities adopt a comprehensive national development plan; (b) for the next planning period, develop a limited number of specific priorities and reduce the number of actions in order to increase the focus and potential impact of the EU assistance; (c) make sure that joint programming with Member States is achieved, in order to improve the focus and coordination of the aid. 2. The Commission should: (a) for future budget support programmes, reduce the number of measures required to meet the conditions attached to Budget Support and ensure that these measures are significant. In order to incentivise the Tunisian authorities to make significant progress with their reforms, the Commission should make disbursements conditional on the satisfactory attainment of individual measures and performance indicators, rather than on overall progress; (b) strive to ensure that a PEFA, in view of its significance as a planning and monitoring tool, is carried out every four years as a minimum. 3. The Commission should explore with its co-legislators the available options to accelerate the approval procedures of subsequent MFA programmes, particularly for emergency funding. 4. The Commission should, when planning future projects in Tunisia, establish clear objectives and indicators which are realistic in the particular circumstances of the project concerned. Recommandations du rapporteur en vue de leur intégration éventuelle dans le rapport annuel sur l'octroi de la décharge à la Commission [Le Parlement européen] 1. se félicite du rapport spécial qui évalue l efficience et l efficacité de l assistance apportée par l Union européenne à la Tunisie, souscrit à ses recommandations et fait part de ses observations et de ses recommandations ci-après; 2. constate que d'une manière générale les fonds de l Union européenne ont été bien dépensés puisqu'ils ont largement contribué à la transition démocratique et à la stabilité économique de la Tunisie après la révolution; 3. constate que les actions de l Union européenne ont été bien coordonnées avec les principaux donateurs et au sein des institutions de l Union et de leurs départements; invite DT\ docx 7/8 PE v01-00

8 la Commission à veiller à ce qu une programmation conjointe avec les États membres soit réalisée, afin d améliorer l orientation et la coordination de l aide; 4. reconnaît que la Commission et le SEAE ont dû travailler dans un contexte politique, social et de sécurité instable, qui a constitué un défi majeur dans la fourniture d'une aide complète; 5. invite la Commission à affiner l'approche de l'appui budgétaire sectoriel en décrivant les priorités du pays, la conception des conditions et ainsi faciliter une approche européenne plus structurée et ciblée et renforcer la crédibilité globale de la stratégie nationale tunisienne; 6. relève que l'aide financière de l'union a largement contribué à la transition démocratique et à la stabilité économique de la Tunisie; demande toutefois à la Commission et au SEAE de concentrer leurs actions sur un nombre plus restreint de domaines bien définis afin de maximiser les effets de l'aide de l'union; 7. invite la Commission à suivre les meilleures pratiques concernant les programmes de soutien budgétaire et à appliquer les conditions de versement pertinentes qui inciteront les autorités tunisiennes à entreprendre des réformes essentielles; se déclare préoccupé par une attribution prodigue de fonds «plus pour plus» qui n'était généralement pas liée à la réalisation de nouvelles exigences et qui n'était pas précédée d'une mesure approfondie des progrès accomplis; 8. souligne l'importance d'une évaluation approfondie de la gestion des finances publiques, de préférence à l aide du PEFA, afin de répertorier les failles potentielles dans la fourniture de l'aide de l'union et d y remédier; 9. demande à la Commission d'améliorer la conception des programmes et des projets en établissant un ensemble de bases de référence et d'indicateurs précis qui permettront d'évaluer correctement la réalisation des objectifs; 10. souligne la nécessité de se concentrer sur le développement économique durable à long terme plutôt que sur des actions qui n'entraînent qu'une reprise temporaire sur le marché du travail. PE v /8 DT\ docx