Budget Support in Decentralised Contexts (2016)

The methodological note is not meant to help design decentralisation reforms as such. It is focused on better taking into account the existing decentralised context when analysing eligibility for budget support and designing a budget support operation. Support to encompassing reform of intergovernmental relations, including best practices on decentralisation policies, will be addressed in the context of the above-mentioned guidance on EU support to decentralisation.

Decentralised contexts in partner countries constitute complex environments for budget support. Each country context is different and depends on the constitutional realities, traditions and local political economy. When assessing budget support in a decentralised context, particular attention should be paid to the legal framework, mandates, institutional capacities at the local level and the articulation between central and local government responsibilities and resources. These are just some of the frequently observed key challenges facing policy implementation and sound financial management.

This note aims to provide guidance on aspects to be taken into consideration with regard to three types of operations:

■ Budget support to decentralised public service delivery (Type 1 operation): this corresponds to a ‘standard’ budget support operation to implement a central government sector policy at the local level and within a given decentralisation arrangement.

■ Budget support to decentralisation reforms and local authority system development (Type 2 operation): this corresponds to a budget support operation focused on deepening the decentralisation arrangement.

■ Budget support to local authority territorial development policies (Type 3 operation): this targets implementation of local authorities’ own place-based development policies in situations where a subnational authority enjoys extensive political, administrative and fiscal powers, such as in a federal system. This type of support implies particular risks and preconditions, and experience with it is so far very limited.