The future of Budget Support

22 March 2011

European Commission Green Paper on “The future of budget support”

Presentation of the main issues of the Green Paper

With five years to go before the 2015 MDG deadline, budget support[1] has become an increasingly prominent element of the aid effectiveness agenda. Over the period 2003-2009, the European Commission made budget support commitments totalling over € 13billion (about 25 % of all commitments in this period). About 56 % of commitments were made in Africa, Caribbean and Pacific (ACP) countries, 24 % in neighbourhood countries, 8 % in Asia, 6 % in Latin America and 5 % in South Africa.

However, questions about the quality, value for money and impact of budget support are increasingly being raised by a range of stakeholders, including the European Court of Auditors, European and national Parliaments and civil society. These need to be answered as the Commission works to improve its approach to budget support.

The European Commission published in November 2010 a green paper on the “future of budget support” highlighting a number of challenges remaining to improve the quality, value for money and impact of budget support. Key issues of the Commission green paper are related to:

• Political governance and the role of political dialogue;
• Role of policy dialogue, role of conditionality, links to performance and results;
• Domestic and mutual accountability;
• Programming of budget support and its coherence with other instruments;
• Strengthening risk assessment and dealing with fraud and corruption;
• Budget support in situations of fragility;
• Growth, fiscal policy and mobilization of domestic revenues.

RC contribution through CONCORD HIV/AIDS WG

After the publication of its Green Paper, the European Commission launched a public consultation in November-December 2010, encouraging key stakeholders to provide their contributions and vision about budget support. The European Commission received around 100 contributions (17 from citizens, 42 from organizations and 39 from governments and local authorities).

The Red Cross/EU Office did not send a personal contribution but provided inputs to the CONCORD HIV/AIDS working group, gathering several health organizations in Brussels. The EU office was especially interested in the issues of domestic and mutual accountability, programming of budget support and its coherence with other instruments and budget support in situation of fragility.

The CONCORD HIV/AIDS working group contribution includes a series of key messages related to health specifically:

• The EC should take a stronger stance in the political dialogue with partner countries for the inclusion of civil society in the development of health policies to ensure that the needs of the most vulnerable and marginalised populations are able to be reached. The EC should strengthen its role as a facilitator of dialogue between the partner country governments, civil society and the private sector.

• The capacities of civil society organizations on BS should be reinforced for their better involvement in the dialogue, implementation of BS and also to act as an independent watchdog to BS implementation at country level. The Commission should make full use of the 10% of General Budget Support funding that is reserved for providing technical assistance to strengthen sectoral ministries but also to provide support for monitoring and scrutiny of budget support by civil society. Concretely, EU Delegations should invest much more in the capacity building of CSOs on budget support procedures and modalities for instance by supporting the establishment of capacity building programmes for them.

• From research, it is clear that GBS alone cannot deliver for strong health outcomes: despite the many strong arguments for GBS, the actual evidence is mixed about whether it’s the best aid modality for country ownership or investments in social sectors, such as health. Therefore, in order to achieve its policy objectives, the EC should consider moving towards more sector budget support and keeping a broad palette of aid instruments alongside budget support. A mix of funding mechanisms can ensure that the needs of the whole population, including vulnerable groups, will be covered.

• In parallel, in the political and policy dialogue, partner countries should be encouraged to prioritise health and other social sectors in strategy documents such as Country Strategy Papers.

Follow-up of the discussions at the European Parliament

The Red Cross/EU Office has pursued the discussion on budget support at the European Parliament, where Commissioner for Development, Andris Piebalgs, presented in November 2010 the main points of the Green Paper. During this presentation, he agreed that the EC should go for more Sector Budget Support, which would allow a better track of where the money goes and into which sectors.

The Red Cross/EU Office also met with MEP Charles Goerens, rapporteur on the budget support report for the European Parliament. The RC/EU Office had the opportunity to raise awareness on key points regarding budget support and its impact on social sectors. The office pleaded for more sector budget support, specifically allocated to health and on the necessity to keep a small percentage of budget support allocations to build the capacity of civil society organizations in country, to make sure they have all information and tools available to play their role at the decision-making table and as watchdog of governmental actions.

The Development Committee of the European Parliament will vote on this budget support report on 22^nd of March with an adoption during the plenary session in April. This report will contribute to feed the discussion in the follow-up of the consultation launched by the European Commission last year.

General budget support may have unintended spending consequences at the health sector level, if health is a low priority for governments and/or poorly reflected in poverty reduction strategies. General Budget Support has also the potential to be an effective instrument that provides medium to long term predictable finance. This is vital for building effective systems for health, for which the training and employment of millions of health workers is essential around the developing world. It is therefore important that the use of General Budget Support is explicitly linked to meeting the MDGs, and that the review mechanism for monitoring the use of national budgets have this as a central objective.