The Counterpart Fund | Governing Bodies | Selection of Projects | Monitoring of the projects | List of projects

Origins: the Debt Swap Agreement 

“Debt Swap” is shorthand for a transaction in which a government or organization in a creditor country retires a fraction of a developing country’s external debt, in exchange for a commitment by the debtor government to invest local currency in designated programs.  In essence, the debt swap concept can also be viewed as a form of foreign assistance to a debtor country by its creditors, whether these creditors are commercial institutions or simply credit-granting governments.

Italy and Egypt signed the “Debt-for-Development Swap” agreement in Rome on February 19, 2001 with the aim of converting eligible Official Development Assistance (ODA) bilateral debt owed by the Arab Republic of Egypt to the Italian Republic into financial resources to implement development projects in Egypt. The total amount of debt subject to swap operations under the Agreement is approximately $ 149 million for a period of five years (July 2001 – July 2006).

Egypt is one of a number of middle-income countries that have taken advantage of the growing international awareness for the debt relief of developing nations.  Egypt has negotiated four bilateral Debt Swap agreements, with the governments of France (1994), Switzerland (1995), Germany and Italy (2001).

In Italy, debt swap operations are regulated by law no. 449/ 1997 and law 209/2000. The regulation establishes, among other things, that swaps can be carried out only for the debts of those countries "for which a multilateral understanding has been reached" and, in that sense, among the creditor members of the Paris Club whose juridical/financial effectiveness is obviously bound to the related Applicative Bilateral Agreement of the multilateral Understanding on debt restructuring. The Paris Club in general foresees that, upon the request of the debtor country with which restructuring is being negotiated, pending examination on a voluntary and bilateral case by case basis, swaps can be done on an unlimited amount for assistance loans being restructured by the Club and for not more than 20%-30% of commercial loans (this percentage is lower for so-called "higher middle income countries").

 The Counterpart Fund

According to Art. 2 of the IEDS Agreement, a Counteraprt Fund (CPF) in Egyptian pounds was opened within the Central Bank of Egypt (CBE) and the Egyptian Government deposits into the CPF the equivalent, in Egyptian Pounds, of each installment of the ODA debt (principal and interest) due to the Italian Government at its maturity date, in the period between 9 July 2001 and 8 July 2006.

The Central Bank of Egypt communicates to the Italian institution the amount deposited into the CPF and after relevant verification the debt installment is cancelled. The exchange rate US$/Egyptian Pound is calculated at the due date of each installment.

The mechanism of the transfer of funds into the CPF is directly linked to the process of projects selection since the outstanding amount of the CPF (that is the total amount of the installments transferred into the CPF) should not exceed the total budget of selected projects.

Installments of funds are transferred from the CPF to the projects every six months according to the approved financial plans. They are dependant on the performance of the projects reflected in the progress reports and in the related updated work plan and financial plan.

Governing Bodies

The Management Committee

The Italian Egyptian Debt for Development Swap Program is managed by a bilateral Management Committee (MC) supported by a Technical Support Unit (TSU), acting as a MC secretariat, to monitor and evaluate the results achieved by each project.

The Management Committee includes representatives of both parties: on behalf of the Government of the Italian Republic, the Ambassador of Italy to Egypt assisted by experts in the sector of development cooperation and other specific sectors as the case may be; on behalf of the Government of the Arab Republic of Egypt, the Minister of International Cooperation, assisted by representatives of the Ministry of Foreign Affairs, the Ministry of Finance and the Central Bank of Egypt as well as representatives of other relevant Ministries and/or organizations as the case may be.

The major tasks of the Management Committee are to monitor the correct implementation of the agreement, to select projects to be financed by the funds generated by the debt-for-development swap, to monitor their implementation and verify their achievements.

The MC meetings are held normally three times a year.

The Technical Support Unit

According to art. 4.1 of the Agreement, the Management Committee is responsible for monitoring projects implementation and verifying their achievements. To this end, a Technical Support Unit (TSU) acting as Management Committee Secretariat is appointed under the direct responsibility of the Heads of the Committee. The TSU also provides technical support to the Management Committee for projects selection and for monitoring the implementation of the whole agreement.

The TSU is composed of Italian and Egyptian staff and maintains constant contacts with all the projects financed. The TSU established procedures for drafting the technical and financial progress reports to be submitted by the projects and constantly monitors the progress of each project, both from the technical and financial side, through reports, meeting and field visits.

The TSU also monitors the transfer of funds in and out of the CPF and their utilization in accordance with the plans of the approved projects, also evaluating requests for adjustments to the approved plans in order to adapt to the changing conditions during the life of the project.

Moreover the TSU implements strategies directed at the capacity building of the projects’ staff where needed and, in order to strengthen sustainability and impact, the TSU facilitates also synergies among projects and links with other development initiatives in the country.

Selection of Projects

Funds from the CPF mainly finance projects in the fields of human development, poverty alleviation and environmental protection. The following organizations are entitled to apply to the IEDS for financing

Funds collected in the CPF may also be used to finance local costs of relevant projects and programs undertaken by the Italian Development Cooperation in Egypt.

The Management Committee is responsible for project selection. Project selection is based upon the evaluation of the proposal presented by the applicant, the details of which are listed below. Each applicant must first submit their logical framework, and submit a work plan followed by a resource allocation sheet, and finally a budget.

Upon completion of the project selection process, the budget of each selected project is allocated and disbursed according to the relevant annual financial plan. Within three months before the end of each financial year, the applicant submits to the MC a financial report for the current year and a proposed work plan for the following year and the relevant updated annual financial plan.

 Monitoring of the projects

Financial and technical monitoring is very important for good management of the fund and the sustainability of the projects.  Every six months all projects are required to submit a progress report to the MC.  This specifies achievements, activities, results and expenditure according to the work plan targets. The progress report, which includes technical and financial data, is drafted according to a standard format.

The TSU assist the Projects to draft the progress reports correctly, while at the same time    improving the performance of the staff of the projects on technical and financial management and thus adding to their skills base.

For financial monitoring the TSU has adopted the techniques of “Performance Budget” and “Activity Based Financial Planning” where expenditures are related to activities implemented. Assisting the projects to adopt this vision required full involvement of the TSU in the area of capacity building, institutional empowerment and knowledge transfer to raise and upgrade the skills of the projects' staff.  The philosophy behind this is not only to facilitate the monitoring activities but also to express a strong commitment towards improving national institutions performance through capacity building. Within this wide broader vision the monitoring technique becomes part of the project learning process which eventually results in enhancing the project performance in management and reporting.

When the necessary monitoring is done with an external auditor, this indicates the financial performance of the implementer, and avoids any mismanagement of funds.