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EC Approves First Tranche Of V-FLEX Funding

by Phillip Morton, Investors

17 December 2009

The European Commission has approved financing in favor of 11 African and two Caribbean countries for a total of EUR230m (USD335m), including EUR215m under the so-called Vulnerability FLEX (V-FLEX) mechanism.

This is the first package of financing decisions in the framework of the EUR500m V-FLEX mechanism, which was adopted in August 2009 as a response to the economic crisis for African, Caribbean and Pacific Countries (ACP).

Karel De Gucht, Commissioner for Development and Humanitarian Aid, said: "Developing countries were hit hard by the crisis due to their poor resilience to external shocks. This has left funding gaps in many ACP governments' budgets. The Vulnerability FLEX mechanism is the European Union's swift response to help countries maintain priority spending, thereby assisting the worst affected countries to reduce the social costs of this crisis."

The V-FLEX is a short-term instrument supporting the most vulnerable ACP countries to cope with the impact of the global financial and economic crisis and to mitigate its social consequences. The first countries to benefit from the V-FLEX mechanism, at their request, are Benin, Burundi, the Central African Republic, the Comoros, Ghana, Grenada, Guinea Bissau, Haiti, Malawi, Mauritius, the Seychelles, Sierra Leone, and Zambia. For this first tranche, all amounts are paid in the form of budget support, which will enable partner countries to maintain their level of public spending in priority areas, including in the social sectors, without jeopardizing macroeconomic stability. Most of these funds are expected to be paid before end-2009. Additional allocations will follow in 2010.

The instrument against vulnerability works pre-emptively, based on forecasts of fiscal losses and other vulnerability criteria, helping to ease the impact rather than acting after the damage is done. It provides rapid and targeted grants and is acting as a complement to the loan-based assistance of the World Bank, the International Monetary Fund and other regional development banks.

The V-FLEX is demand-driven and targeted at countries with a high degree of economic, social and political vulnerability, but which have the right policies in place to fight the crisis.

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