Contributions to the Debate on the Future of EU Budget Support

As the European Commission and the Member States of the European Union are busy shaping the future of EU Budget Support, voices from civil society and developing countries call for strengthened budget support as one of the most effective ways of providing aid to poor countries.

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The EU is one of the largest providers of budget support in the world. Over the period 2003-2009, the EC made budget support commitments totalling over 13 billion euro, or the equivalent of about 25% of all commitments in this period.

In December 2010, the EC launched a debate on the future of EU budget support. Proposals from the Commission on the issue are scheduled for October and the EU Member States are expected to adopt conclusions in spring 2012. This process will decide what budget support will look like for the coming years.

While debates are taking place on the benefits and pitfalls of budget support, voices from civil society organisations and developing countries call on European donors to increase their use of budget support.

"The European Commission has been a champion in using budget support," said Hetty Kovach, a senior policy adviser at Oxfam. "It is not a perfect instrument and it could be improved but its does deliver results, and we hope to see the European Commission and EU Member States continue to increase its usage in the future."

According to Oxfam, an international confederation of Non-Governmental Organisations working to find lasting solutions to poverty and injustice, budget support is one of the most effective ways of providing aid to poor countries.

"Budget support actually delivers results for poor people on the ground," explained Ms Kovach. "We've found out that it has led to increase in pro-poor expenditure, increase in services available and most importantly increase in pro-poor outcomes."

Oxfam's own research in 2008 reveals that out of the top ten recipients of EC budget support seven have increased their public expenditure by an average of 46% between 2001 and 2004. A more recent study by the European Commission suggests that aid recipients with higher levels of general budget support performed better on a range of development indicators, such as primary enrolment, gender parity in education, child mortality and access to water, than those with lower levels of budget support.

Budget support, Oxfam highlights, is also an instrument that helps build vital government capacity. It contributes to strengthening public finance management and national systems.

"When you do project aid, you are outside of governments. You are not actually making their systems more transparent, you are not improving decision making within these countries," added Ms Kovach. "Oxfam is a clear advocate that - particularly for the health and education Millennium Development Goals - you need public systems in place."

For Samura Kamara, Finance Minister of Sierra Leone, budget support is particularly relevant in post conflict countries such as his own.

Between 1991 and 2002 civil war devastated Sierra Leone leaving more than 75,000 people dead, much of the country's infrastructure destroyed and over two million people displaced in neighbouring countries. 

"During the war, we had plenty of humanitarian assistance but when we signed the peace agreements, all this aid started to go away," explained Dr Kamara. "Budget support helped us to support recurrent budget expenditures and to complement the efforts in governance building. It has helped in restoring macro-economic stability, which is a benchmark if you want to move forward."

Sierra Leone has been receiving budget support since 2004 from four partners mainly, Britain, the EC, The World Bank and the African Development Bank. Together, Sierra Leone has received between US $60 and $70 million a year - not a vast amount of cash, but enough to make a difference.

"Budget support represents below 5% of our GDP," added Mr Kamara. "It is not huge but it has had a strategic importance".

Budget support is a way of channelling finances directly into the treasury of partner governments and its opponents argue that it can be a financial money pit and catalyst for corruption.

Ms Kovach doesn’t agree. She says budget support has actually proven to reduce corruption in poor countries.

"We have seen that in countries like Rwanda, Malawi and Zambia improved public finance management has led to reduced risk of corruption," she said. "But it is true that the budget support instrument needs to be improved, especially around domestic accountability."

Oxfam call on the European Commission to commit to give a certain amount of the money they provide in budget support to strengthening local civil society organisations that are doing budget tracking and monitoring, national parliaments, the media and audit institutions.

"If you are going to give money to a [developing country's] government,” Ms Kovach concluded, “then you need to strengthen the accountability within that country to make sure that money is being used properly."