International Cooperation and Development

Budget support

Budget support is central to our international cooperation. It involves direct financial transfers to the national treasury of partner countries engaging in sustainable development reforms. These transfers are conditional on policy dialogue, performance assessment, and capacity building.

EU budget support contributes to progress towards all 17 Sustainable Development Goals (SDGs). For example, nearly half of the EU’s support to providing inclusive and equitable quality education (SDG4) are supported through EU budget support. Another example is gender equality (SDG5), where gender analyses are used to formulate our budget support contracts.

In 2018, budget support disbursements amounted to € 1.8billion and accounted for 18% of all EU development aid (including neighbourhood countries and the Instrument for Pre-Accession Assistance). The breakdown of commitments by region shows that sub-Saharan Africa remains the largest recipient of budget support in volume (41 %), followed by neighbourhood countries (22 %), Asia (21 %), Latin America (6 %), the Caribbean (3 %), Western Balkans (3 %) overseas countries and territories (3 %) and the Pacific (1%). 

Further information and data can be found in the report Budget Support - Trends & Results 2019.

Budget Support

How budget support works

Budget support favours true partnerships, in which we handle with our partner countries as equals. We accompany them in their reform process towards achieving the Sustainable Development Goals (SDGs), through a balanced and open policy dialogue, and reward their performance when results are met.

Budget support fosters our partner countries’ ownership of development policies and reforms. It relies on transparency, mutual respect, accountability, performance, and risk management, with the aim of increasing the effectiveness of our development cooperation.

Policy context

The rules of EU budget support were set by the European Commission communication on ‘The future approach to EU budget support to third countries’ (2011), approved by the European Council in 2012, which also highlights the need for a coordinated approach at EU level, to ensure the effectiveness of this aid modality.

This initial framework was later completed by our international commitment to the UN 2030 Agenda for Sustainable Development (2015) and the Addis Ababa Action Agenda (2015). The European Consensus on Development (2017), which implements the 2030 Agenda in the EU, reiterates the importance of a coordinated approach to budget support and insists also on the need for a rights-based approach, to make sure no one is left behind.

Objectives

As a general objective and in line with the above commitments, EU budget support aims at strengthening our partnerships with third countries, to promote sustainable development, eradicate poverty, reduce inequalities, and consolidate peace and democracy.

EU budget support is tailored to the development needs of our partner countries. Specific objectives therefore vary but are always in line with our partner countries’ own development policies, priorities, and objectives, and consistent with the EU’s external action policy.

Budget support also helps partner countries mobilise domestic revenue and depend less on external aid. As it fosters transparency and good governance, budget support contributes to the fight against corruption and the creation of a favourable climate for private investments in our partner countries’ sustainable development measures and infrastructure.

Requirements and conditions

To benefit from budget support, partner countries must have:

  • relevant and credible national or sector strategies, policies, and/or reforms
  • stability-focused economic policies
  • a relevant and credible plan to improve public financial management and domestic revenue mobilisation
  • budget oversight and publicly available budget information

Beneficiary governments also need to adhere to our fundamental values of human rights, democracy, and the rule of law.

Financial transfers under budget support are tied to performance. If a partner country does not meet the agreed upon conditions for results, payments will be withheld until they do. The use of a variable tranche based on indicators also allows for partial payment in case of partial performance.

Types of budget support

As budget support implies a tailored assistance, it can be granted through 3 types of contracts. The choice of contract will depend on the partner country’s own development objectives and expected results.

Sustainable Development Goals Contracts

Sustainable Development Goals Contracts (SDG-Cs) are meant to support the partner countries’ own efforts to achieve selected SDGs. They support high-level strategic development objectives, which require a comprehensive and transversal approach.

SDG-Cs can only be assigned after a satisfactory assessment of the partner government’s commitment to our fundamental values.

Sector Reform Performance Contracts

Sector Reform Performance Contracts (SRPCs) focus on sector policies and reforms, to improve governance and service delivery. They support our partner countries’ more specific efforts to ensure inclusive access to qualitative public services, promote women’s and children’s rights, and create at sector level the conditions for sustainable growth.

SDG-Cs and SRPCs can sometimes be awarded in parallel to a same country as they can mutually reinforce each other.

State and Resilience Building Contract

State and Resilience Building Contracts (SRBCs) are used in fragile contexts. They support our most fragile partner countries’ transition towards recovery, development, and democracy and help them address the structural causes of their fragility.

Eligibility criteria for SRBCs differ slightly from regular budget support: they focus on the partner country’s forward-looking political commitment, institutional reforms, and adherence to our fundamental values, rather than on their track record. A strong policy dialogue – and safeguard measures when necessary – is a pillar of SRBCs.

SRBCs usually prepare the ground for SDG-Cs and SRPCs, as they support the formulation of national or sectoral development strategies in our partner countries.

Risk management

Since 2012, we have established clear rules to manage the specific risks of budget support, and ensure a good risk-benefit balance.

Our risk management framework requires that we:

  • identify the risks, mitigating measures, and risk responses
  • discuss them with all parties concerned as part of our policy dialogue
  • monitor them during the budget support implementation
  • identify how to react to sudden changes in the country’s situation (crises)