Who benefits from exchange rate gains on the enlargement contribution?

Maternity ward in Lithuania
Thanks to the strength of the Swiss franc, the SDC is able to equip the maternity wards in five more hospitals (27 in total) with up-to-date medical equipment and SECO is able to carry out energy-related renovations in eight additional hospitals (24 in total). © SECO

Switzerland agreed to make its enlargement contributions in Swiss francs. This avoids foreign-exchange risk for Switzerland. If Switzerland had agreed to make the contributions in euros or Polish zloty, for example, it would have had to make additional payments in the event of a depreciation of the Swiss franc.

As the Swiss franc has appreciated in recent years against the currencies of all partner countries, many projects have seen their budgets increase, some of them significantly (in the order of up to 30%). To date exchange rate gains in local currencies in the EU-10 countries could amount to approx. CHF 100 million. Procurements that turned out cheaper than the planned costs also potentially generated savings. This made ​​it necessary for Switzerland and the responsible partner country institutions to agree on the following principles for the use of the related savings:

1.     Switzerland insists that the funds allocated for the enlargement contribution be used as fully as possible to reduce economic and social disparities.

2.     Unless otherwise stated in the project agreement, the savings should be used in a meaningful way on the same project. If the contracting party is not able to do this, Switzerland will not consent to the changes required in the project agreement.

3.     The savings must be used in a way that corresponds with the original project objectives.

4.     Implementation of extensions to the project must not jeopardise the project's completion by the agreed date.

5.     The partner country must ensure co-financing of at least 15% of the project extension.

6.     The partner country assumes the currency risk in the event of a depreciation of the Swiss franc.

By applying these principles, Switzerland is able, for example, to expand its support for healthcare in Lithuania. The SDC is able to equip the maternity wards in five more hospitals (27 in total) with up-to-date medical equipment  and SECO is able to carry out energy-related renovations in eight additional hospitals (24 in total). Since 1994 infant and child mortality rates in Lithuania have been reduced by approximately 80% with Switzerland's help.

Despite the efforts of all parties to use the savings with regard to enlargement contributions in a meaningful way, ultimately Switzerland is unlikely to disburse 100% of the enlargement contribution to the EU-10. There are a number of reasons for this. In some projects, there are no or only limited opportunities for meaningful use of the savings. In other cases, the end of 2016 deadline does not leave sufficient time to implement extensions to projects or co-financing cannot be ensured.