Budget support involves direct financial transfers to the national treasury of the partner country – conditional on policy dialogue, performance assessment and capacity building.
This is a way of fostering partner countries' ownership of development policies and reforms, focusing on results for people and sustainable development.
In 2015, budget support disbursements amounted to € 1.59 billion and accounted for 20% of all EU development aid (including neighbourhood countries). The breakdown of commitments by region shows that sub-Saharan Africa remains the largest recipient of budget support in volume (47 %), followed by neighbourhood countries (30 %), Asia (10 %), Latin America (6 %), the Caribbean (4 %), overseas countries and territories (2 %) and the Pacific (1 %). In 2015, the first budget support operations were introduced in the Western Balkan region within the Instrument for Pre-Accession Assistance.
Further information and data can be found in the 2016 Annual Report on EU Budget Support.
5 challenges addressed by budget support:
- promotion of human rights and democratic values;
- better financial management, macroeconomic stability, inclusive growth and less corruption and fraud;
- sector reforms and sector service delivery;
- statebuilding in fragile states/addressing the specific challenges of small island development states (SIDS) and overseas countries and territories (OCTs);
- better domestic revenue mobilisation and less aid dependency.
The European Commission's policy on budget support is fully in line with the 2030 Agenda for Sustainable Development. It supports countries in providing the resources required to ensure the right mix of public goods and services to achieve their policy objectives. It assists countries' efforts to improve their tax systems and to benefit more from domestic resources, without increasing the tax burden for the poor, as explained in the 2015 Staff Working Document Collect More - Spend Better.
Adherence by beneficiary governments to the fundamental values of human rights, democracy and rule of law is a major consideration in the Commission's decision to grant budget support through its three different programmes:
- Good governance & development contracts – replacing general budget support when there is full confidence aid will be spent in line with fundamental values. The beneficiary's commitment to these practices is assessed before and during implementation (to identify slippage, policy reversals and deterioration).
- Sector reform contracts – to address sector reforms and improve service delivery. Commitment to democratic practices is taken into account, but carefully balanced against the need for continued provision of vital basic services.
- Statebuilding contracts – to provide budget support in fragile situations. Committing to democratic practices is a criterion to award such contracts – but the EU takes a long-term approach in which the risk of inaction is weighed against the needs of the country.
To be eligible for budget support, a country must have:
- a well-defined national or sectorial development or reform policy and strategy;
- a stable macroeconomic framework;
- good public financial management or a credible and relevant programme to improve it;
- transparency and oversight of the budget (budget information must be made publicly available).
In addition, budget support is performance related – it is only disbursed when agreed conditions for results are met – for example targets in health, education, public financial management, etc.
If the Commission considers performance on any of these points is insufficient, it withholds disbursement until credible reassurances or measures have been established.
Implementing budget support
The Commission generally provides budget support in a combination of fixed tranches linked to the eligibility criteria, and variable tranches that are also linked to progress in meeting the agreed targets (health, education, public financial management, etc.).
General rules for budget support
Budget Support Steering Committee
This body – attended by all relevant Commission decision-makers and representatives from the European External Action Service – provides tight governance and strategic guidance.
Consulted early in the decision-making process, it discusses prospective programmes and examines issues with disbursements in ongoing programmes where a decision may be required by senior management or Commissioners.
Since the 2012 reform, the Commission has in place a set of dedicated, structured rules to manage the specific risks of budget support in line with general Commission practice – at all stages of the process (from identification to implementation).
These rules – which enable us to properly balance risks with potential benefits:
- identify specific risks (mostly using existing assessments, like human rights strategies and eligibility criteria);
- identify mitigating measures and risk responses;
- inform budget support dialogue;
- monitor the identified risks and mitigating measures during implementation;
- identify how to react to immediate deteriorations in a partner country's situation.