More effective budget support for developing countries

This Commission policy paper sets out a new policy for budget support that aims to adapt the EU’s budget support policy to the changing environment and to make budget support more effective.

ACT

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: The future approach to EU budget support to third countries (COM(2011) 638 final of 13 October .2011 - not published in the Official Journal).

SUMMARY

This Commission policy paper presents an EU approach to make budget support more effective and efficient in delivering development results by strengthening contractual partnerships with developing countries.

A significant share of EU aid is delivered as budget support, which takes the form of financial transfers to government budgets in developing countries together with policy dialogue, performance assessment and capacity building.

One of the main novelties of the paper is its proposal for greater differentiation between budget support contracts to respond better to the political, economic and social context of the partner country. These would be as follows:

• good governance and development contracts (GGDCs) to strengthen core government systems;
• sector reform contracts (SRCs) to improve service delivery;
• state building contracts (SBCs) are specifically for fragile states or states making their way out of a crisis and are designed to help ensure vital state functions and basic services.

Importance of fundamental values such as human rights

Respect for the fundamental values of human rights, democracy and rule of law will be of increased importance for all budget support contracts. A country will have to demonstrate a commitment to fundamental values to obtain a GGDC.

EU coordination

A further aspect is the importance of EU coordination. Here, the paper lists key principles.

Eligibility

To be eligible for budget support, countries need to have in place:

• a well-defined national or sectoral development or reform policy and strategy;
• a stability-oriented macroeconomic framework;
• a credible and relevant programme to improve public financial management.

The policy paper strengthens these criteria and adds a new one regarding the public availability of budgetary information. Countries will have to show that they either provide the relevant information to the public or are making progress towards doing so.

Other key elements include:

• more focus on accountability, transparency and domestic revenue mobilisation (i.e. raising revenue via fair and transparent tax systems);
• an improved risk management framework adapted to the specific risk profile of budget support, covering political governance, macroeconomic stability, development risk, public financial management, corruption and fraud;
• more emphasis on results, performance, predictability and ownership. The EU focuses on results and performance through its variable tranche approach. The Commission generally provides budget support using a combination of fixed tranches linked to eligibility criteria and variable tranches that are also linked to progress in meeting agreed targets in, for example, health, education or public financial management.

See also: European Commission - Directorate-General for International Cooperation and Development

13.06.2014