Aid Delivery Budget Support And Economic Governance

For all developing countries, the issues of managing a sustainable budget and economic governance are intimately related. The European Commission provides budget support to an increasing number of developing countries, whilst paying particular attention to aspects of economic governance like the quality of public financial management (PFM), the transparent management of natural resources (mining, forestry, …) as well as the basis upon which revenue is collected. The European Commission has also contributed to the improvement of debt sustainability through its participation to the HIPC initiative and has constituted international initiatives in this area. Managing debt levels will remain a priority for the future as more non-concessional financing becomes available, therefore great emphasis will be placed on a set of principles for sustainable lending, on fighting distressed debt funds and focussing increasingly also on sustainable levels of internal debt.

The Commission explores also further opportunities of innovative financing mechanisms for development.

Coming back to budget support, the ultimate objective is of course to contribute to the national budget of the country in order to move forward towards attaining the Millenium Development Goals (MDG's). The European Commission is now foreseeing in the context of the 10 th European Development Fund, about 44% of its resources in providing General Budget Support (GBS) as well as Sector Budget Support (SBS). Budget support takes different shapes.

In dealing with Fragile States, the European Commission has been able to intervene, where appropriate, with budget support designed in such a way as to address the high risks incurred. Often it has been a short-term support (one-shot) on the basis of policy commitments and in some cases targeted towards those budgetary expenses which are vital to secure delivery of essential services to the population (salaries of health workers, teachers, etc…). We often act in order to help stabilising the macroeconomic framework and ease access to the international financial community, to enable countries receiving further much–needed support from multilateral institutions. Once the country reaches a more stable situation, we move gradually to longer term budget support programmes (3 years horizon) based on a system of fixed and variable tranches, with the variable part being linked to performance indicators for the country concerned to deepen dialogue on social sectors and PFM reforms.

A new form of general budget support (the MDG contract) is now available for countries which have a solid track record over the past years in managing such support. The MDG Contract provides long term, highly predictable budget support commitments in support of countries' programmes to reach the MDGs, particularly in the social sectors.

In conclusion, we may state that Budget Support is a very effective instrument to support the development policies of our partner countries for the medium term to reach the MDG-targets. Longer term emphasis must be on national budget performance through transparent management of national resources.

Top