How the Commission provides budget support
Budget support involves policy dialogue, financial transfers to the national treasury of the partner country, performance assessment and capacity-building, based on partnership and mutual accountability. It should not be seen as an end in itself, but as a means of delivering better aid and achieving sustainable development objectives by fostering partner countries' ownership of development policies and reforms. It addresses the source, not just the symptoms, of under-development, and provides the strongest platform that we have to engage in a broad policy dialogue with our partner countries on key development issues.
Over the period 2003-2009, the European Commission made budget support commitments totalling over 13 billion Euros (about 25 % of all aid commitments in this period), including 56 % of commitments in Africa, Caribbean and Pacific (ACP) countries, 24 % in neighbourhood countries, 8 % in Asia, 6 % in Latin America and 5 % in South Africa.
Following the publication of a Green Paper in October 2010, which received over 100 responses, the Commission has developed a new Communication on the "The Future Approach to EU Budget Support to Third Countries [51 KB] " which was adopted on 13 October 2011.
Budget support as a vector of change
As set out in this communication, budget support is provided as a "vector of change" to address five key development challenges and objectives:.
- Promoting human rights and democratic values,
- Improving financial management, macroeconomic stability, inclusive growth and the fight against corruption and fraud,
- Promoting sector reforms and improving sector service delivery,
- State building in fragile states and addressing the specific development challenges of small island development states (SIDS) and overseas countries and territories (OCTs) and
- Improving domestic revenue mobilisation and reducing dependency on aid.
To support these objectives, the European Commission will provide three different categories of budget support programmes:
- Good Governance and Development Contracts to replace general budget support and be provided when there is trust and confidence that aid will be spent pursuing the fundamental values of human rights, democracy, and rule of law.
- Sector Reform Contracts to provide sector budget support in order to address sector reforms and improve service delivery.
- State Building Contracts to provide budget support in fragile situations.
Eligibility conditions for budget support
The European Commission currently only provides budget support to countries that meet the following eligibility conditions, derived from the various legal frameworks (see links to right):
- A well-defined national or sectoral development or reform policy and strategy is in place.
- A stability-oriented macroeconomic framework is in place.
- A credible and relevant programme to improve public financial management is in place.
The new communication strengthens these criteria and introduces a new eligibility criterion regarding transparency and oversight of the budget, with public availability of budget information identified as an essential element for promoting greater scrutiny over the budget and hence greater domestic accountability.
Budget support is only disbursed when the eligibility criteria and additional agreed conditions on results are met. Compliance with eligibility criteria and fulfilment of conditions is crucial in order to help safeguard the use of resources, mitigate risks, and create incentives for improved performance. Where the EC notes that progress is insufficient, disbursements are withheld until credible reassurances or measures have been established.
Implementing budget support
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.
Further details are set out in the Budget Support Guidelines (2012). These have been revised to reflect the orientations set out in the new budget support communication.