I have today laid a departmental minute which describes a new liability the Foreign, Commonwealth and Development Office (FCDO) is undertaking to support education in lower middle-income countries (LMICs).
The departmental minute sets out details of a new liability undertaken by the Foreign, Commonwealth and Development Office (FCDO). The liability is a new guarantee of up to $102 million to the International Financing Facility for Education (IFFEd). The length of this liability is 23 years. In addition to the contingent guarantee, FCDO will also provide a paid-in capital guarantee of $18 million and grant finance up to £80 million over four years. This total FCDO contribution of up to £180 million will contribute to unlocking around $1 billion in new, additional and affordable education loans to address the learning crisis in lower middle-income countries (LMIC), with a focus on girls and the most marginalised.
It is normal practice, when a Government Department proposes to undertake a contingent liability in excess of £300,000 for which there is no specific statutory authority, for the Minister concerned to present a departmental minute to Parliament giving particulars of the liability created and explaining the circumstances; and to refrain from incurring the liability until 14 parliamentary sitting days after the issue of the statement, except in cases of special urgency.
I am making a written ministerial statement (WMS) to the House for information and have separately notified the Chairs of the Public Accounts Committee, Foreign Affairs Committee, and International Development Committee of the UK’s intention to undertake this liability.
IFFEd is a new, innovative multi-donor instrument that will use a combination of donor guarantees and grants to unlock significant affordable finance for education in LMICs. LMICs are home to the largest number of children not in school. Some 77% of children in LMICs are unable to read a simple sentence by the age of 10. LMICs are unable to access suitable education financing at the required scale. Working through the multilateral development banks (MDBs), IFFEd will address this gap in the education aid architecture. The initial MDBs to participate in IFFEd are the Asian Development Bank (ADB) and the African Development Bank (AfDB). More MDBs will be able and encouraged to join in the future.
IFFEd uses donor guarantees to provide portfolio support to MDBs. This allows MDBs to expand their total lending capacity for education by insuring their entire portfolio against the risk of late payment. In combination with the guarantee, IFFEd also provides grants which makes the additional education finance affordable for LMICs.
IFFEd unlocks seven times donors’ cash investments in additional affordable education finance. This represents an efficient use of official development assistance (ODA) finance, maximising donor resources for education in an unprecedented way.
FCDO will support IFFEd together with Sweden and another donor who is due to approve financing soon. FCDO will only sign its guarantee agreement with IFFEd when that third donor has approved its guarantee. The initial total guarantee amount is expected to be $245 million. This will unlock $1 billion of new, additional, and affordable finance for LMICs. The aim is for more donors to join during the first IFFEd replenishment period of five years, to increase the size of the IFFEd guarantee and unlock up to $10 billion of new, additional, and affordable finance.
IFFEd will contribute to the delivery of the Government’s commitment to “stand up for the right of every girl around the world to 12 years of quality education”. It will contribute to the International Development Strategy (2022) and to the FCDO’s International Women and Girls Strategy (2023) where girls’ education is one of the top priorities.
IFFEd will contribute to increasing the proportion of children and young people who achieve minimum proficiency in literacy, numeracy and transferable skills, with a focus on reaching the most marginalised children and youth.
The $102 million IFFEd contingent liability will be recorded by way of disclosure in FCDO’s annual report and accounts (ARA) and annual estimates in accordance with the applicable accounting standards. The guarantee has been reviewed by the Government’s contingent liabilities central capability (CLCC) and by the Government Actuary’s Department (GAD). The IFFEd guarantee is low risk. The maximum amount which could be demanded from the UK in a single year is $6 million. The impact of the guarantee on FCDO’s risk exposure has been scrutinized and approved by FCDO’s Accounting Officer. In the unlikely event that the guarantee is called the FCDO will have sufficient time to make the necessary budgetary arrangement to fulfil the requirements of the guarantee. Authority for any expenditure required will be sought through the normal supply procedure. HM Treasury has approved this guarantee with the FCDO. A copy of the departmental minute to Parliament has been placed in the Library of the House.
If any Member has questions, please do not hesitate to get in touch.
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