Explaining the New Guidelines for Budget Support
Budget Support comprises around 20% of the European Union’s aid to partner countries, with 125 ongoing operations in more than 80 countries. New Guidelines provide improved levels of safety and transparency in its application.
Budget Support is not only about financial support. It promotes capacity development in the important areas of policy formulation and public financial management. It can also help partner countries improve their performance in terms of results in poverty reduction, in social sectors, and it involves policy dialogue.
The aim of using Budget Support is to help partner countries implement their own policies and to achieve shared goals in terms of poverty reduction, consolidating democracy, and to improve inclusive, sustainable growth. As an aid modality, it responds to the principles of the European Union’s Aid Effectiveness agenda, promoting alignment of donors to policy from partner countries, better harmonisation between donors, and to reinforce ownership and accountability.
‘But it is also a controversial aid modality, and is sometimes not well understood,” said Jose Correia Nunes, Head of Unit at EuropeAid’s Budget Support, Public Finance and Macroeconomic Analysis department. “The reason why we have new guidelines and we are starting with a new policy is because Budget Support was challenged at different levels by different stakeholders.’
The main challenge came from Member State countries, who wanted to see a better articulation of Budget Support with poverty reduction, and closer alignment with the fundamental principles.
“Knowing that Budget Support reflects political choice, it is important to see how those choices are reflected in the budget of a country. Issues such as Democracy, Rule of Law, Human Rights, were important in our discussions of how Budget Support modalities could be improved,” continued Mr Correia Nunes.
The European Court of Auditors also required improvements in methodology, in the ways Budget Support eligibility and conditions are assessed, and in how to treat the risk.
In 2010, after wide consultation in Europe, with partner countries, and international organisations such as the World Bank, IMF and regional banks, the Commission revised its Budget Support policy. With previous policy set in 2000, there were ten years of implementation, lessons learned and evaluations to base the revision upon. The new Communication was released in October 2011, and Member States voiced strong support for it in May 2012. In September, Commissioner Piebalgs approved the new Guidelines.
While the new Guidelines build upon what was successful in the former policy - for instance, the focus on results and performance - there is also important change. Budget Support consultants, Martin van der Linde and Karolyn Thunnissen, delivered a training last month in Brussels and summarised the new approach.
“The main difference of the new approach is that there is now a strong emphasis on evaluating fundamental values before Budget Support operations can be started,” said Mr van der Linde.
“Another important criteria that has been added is the evaluation of the transparency and oversight of the government budget of the recipient, for use by third parties such as civil society. A third major improvement is that there is a well-structured risk management framework. Finally, now there are three types of Budget Support contracts - Good Governance and Development, Sector Reform, or for fragile countries, a State Building contract - whilst in the past there were only two.”
Karolyn Thunnissen pointed out that while the new approach will require more work and involvement at Delegation level, there are tools to enable a more structured and formalised approach, supported by two new levels of management: Regional Budget Support teams and secondly, a Budget Support Steering Committee based at Headquarters.
“The Steering Committee is a board that is shared by our Director General, senior management of DEVCO and EEAS, and with Audit Service, “ explained Mr Correia Nunes. “It deals with the most difficult cases when we feel that the risk, identified through the risk management framework, is substantial or high, and there needs to be high level engagement with the decision making process.”
Training for the new approach is being provided by regional Delegations, plus specialised training is on offer in specific Delegations and Headquarters, including for Public Finance Management. Please visit the Budget Support training page to find out more information on this course and to download the training materials. You can also visit the Methodological Training page for more details on other training courses.
Please watch the full length interview by Mr Correia Nunes here.
Please visit the capacity4dev.eu Public Group on Economics, Public Finance and Budget Support and also the Topic page Economics, Public Finance & Budget Support where you will find a list of all content on this subject.
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.