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Budget Support: More Than Just a Blank Cheque

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published
23 January 2015

In 2014, experts working for the European Commission carried out a synthesis of budget support evaluations from seven different countries. “We have learned that the funds we provide don’t just go into a black hole,” said Jürgen Lovasz, Team Leader for Budget Support in the Evaluation unit at DEVCO. These funds have been used – as intended – to improve people’s livelihoods. 

Over the years budget support has come under criticism, with some seeing it as a blank cheque for governments to do what they want with and others arguing that recipient governments will not invest in their own development efforts. Yet, while some of its member states no longer use budget support as a modality, the European Commission stands firmly behind it.

“If you read our evaluations you will see a lot of good evidence that [Budget Support] works,” said Marcus Cornaro, Deputy Director General of DEVCO. “We are a donor that has a mandate to address poverty across the world and I do think that budget support should be very much at the core of what we are doing.”

 

 

Budget Support Works

The synthesis report backs this argument. Good results were achieved in all seven countries - three of which were middle-income countries - demonstrating not only that budget support works, but that it is more than just an instrument for low-income countries.

“Budget support can work and it can work in a set of quite diverse circumstances, including in circumstances that are really not very favourable,” said Andrew Lawson, the evaluation team leader. “Each of the seven countries had some kind of a governance problem. […] And yet despite that they were able to achieve significant results in the area of service delivery and in the area of reform.” He added that most notably for sectors like health and education where development partners and governments agreed on how to proceed, good progress was made.

For example in Mali evidence showed that the additional funding provided through budget support contributed towards education sector outputs, such as school buildings and text books which in turn led to improved outcomes. Between 2002 and 2009 the enrolment rate for primary education increased by 17% in Mali. A similar experience in Zambia led to the rate increasing by more than 80% over a period of 10 years.

 

 

Trust and Confidence are essential for open and honest policy dialogue

While policy dialogue contributed to these achievements, the synthesis of evaluations found that it was not as effective as it could have been. Reducing income poverty and inequalities remain challenges, but Mr Lawson believes that “budget support [still] has a good deal more untapped potential” to achieve results in these areas.

“The findings across the evaluations is that the reason for the lack of progress was because the policy dialogue largely broke down. And there was too much focus of policy dialogue, if you like, on negative things […] rather than thinking in a constructive way on how to make progress in the core areas related to poverty reduction.”

This resulted in a breakdown of trust, which Mr Lawson believes could have been avoided. 

The report also raised three other key challenges that are necessary for improving policy dialogue. Firstly it is essential to have the right expertise in place to address specific issues and ensure proper implementation of relevant solutions to policy problems. Secondly, donor-donor harmonisation needs to be improved so as to eliminate the inefficiencies of the division of labour, which create unnecessary transaction costs and undermine the predictability of disbursements.

Finally while the establishment of Performance Assessment Frameworks worked reasonably well, it was found that there was a lack of a strategic forward-thinking and problem solving policy dialogue, with donors often pushing performance indicators that they thought were politically right instead of adopting government led indicators, and searching for policy solutions to shared problems.

Money doesn’t buy reform

“Budget support proves to be a formidable instrument to drive reform, but I say deliberately drive reform and not buy reform,” said Mr Cornaro. Holding money back and donor pressure do not guarantee change. For example, in Mali donors requested high-levels of value-added-tax (VAT) on food. The Malian government refused to do this, despite reductions in funds, as they thought the population would protest the increase by rioting. 

“Suspending [large amounts of money] will not change the underlying driving forces for policy change. [These] are internal and they’re political. They’re deep political issues and leverage does not have an impact on these questions,” explained Mr Lawson. “There was change in the areas where there was dialogue and where the government wanted support. It wasn’t the money that bought reform. It was the trust, the confidence and the dialogue in areas of shared interest.”

Moving forward, Mr Lovasz believes that memorandum of understanding and financing agreements need to be made clearer so that partner governments know what to expect regarding payment. So that they know “under what conditions we would be willing and able to make the payment or under what conditions we would defer payments, delay them, or even in some cases not pay at all.”

Communicating Budget Support

José Correia Nunes, Head of Budget Support and Public Finance Management Unit at DEVCO feels that not enough is done to communicate the success of budget support and that something should be done on an annual basis. “We need to make efforts to communicate [budget support results] in the country that we support, but also in Europe to stakeholders.”

In the latest budget support policy, a new eligibility criterion was introduced: transparency and oversight. This ensures that national budgets in partner countries are published to inform citizens and allow them to interact with the government. 

“We have been working in DEVCO with other units trying to set some guidelines how to engage with civil society on budget support operations but also to support civil society to interact in the budget process of their own countries,” added Mr Correia Nunes. 

Next Steps

For the future of budget support, Mr Lawson would like to see more 'policy people' involved in the process. “Because the biggest short coming of budget support is that there hasn’t been enough impact on income poverty. And that is partly about better analysis of how we reduce poverty in these sorts of countries and we need to get 'policy people' involved in that". As a consequence more research to identify development 'bottlenecks' in a country, and a more strategic process of dialogue - both before and in the context of the budget support operations - would need to be carried out.

Looking forward, budget support remains very much on the Commission’s agenda. Mr Correia Nunes, expects that it will play an important role sustaining the outcomes of the post-2015 agenda: “it will be very important in terms of medium and long-term achievements.” While, Mr Cornaro expects that 25-30 % of DEVCO funding will be spent via budget support, he also hopes to see it achieve better public understanding “that it is not just one size fits all European Commission generosity being forked out left and right. But that we have a very tailor made approach, even within that larger modality.” 

 

You can learn about the full list of findings, lessons and recommendations in an interview with Mr Lawson in the Economics, Public Finance and Budget Support group. You can also download a copy of the report

Capacity4dev.eu has also covered three of the seven evaluations. You can find more information on these including interviews with staff and the evaluation reports in the links below: 

 

This collaborative piece was drafted with input from Jürgen Lovasz with support from the capacity4dev.eu Coordination Team.

 

DISCLAIMER: This information is provided in the interests of knowledge sharing and capacity development and should not be interpreted as the official view of the European Commission, or any other organisation.

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