Various Documents considered by the Committee - European Scrutiny Committee Contents

11 EU Budget Support to Third Countries



COM(10) 586

Commission Green Paper: The future of EU Budget Support to Third Countries

Legal base
Document originated19 October 2010
Deposited in Parliament27 October 2010
DepartmentInternational Development
Basis of considerationEM of 9 November 2010
Previous Committee ReportNone
To be discussed in CouncilTo be determined
Committee's assessmentPolitically important
Committee's decisionCleared, but further information requested


11.1 The Commission recalls the Millennium Development Goals (MDGs) set in 2000, which it says:

"galvanised international support for development and triggered other initiatives to increase the volume and effectiveness of aid, based on a sound partnership between donors and partner countries. The Monterrey Consensus (2002), the European Consensus on Development (2005), the Paris Declaration on Aid Effectiveness (2005) and the Accra Agenda for Action (2008) were key milestones in this process, establishing the five key principles of ownership, harmonisation, alignment, managing for results and mutual accountability."

11.2 Eldis is one of a family of knowledge services from the Institute of Development Studies, Sussex. It is core funded by Sida (Sweden), Norad (Norway), SDC (Switzerland) and the UK Department for International Development (DFID). According to its website:

"Budget support is a form of quick-disbursing programme aid which is channelled directly to partner governments, uses local accounting systems and is linked to sector or national policies rather than specific project activities. It aims to promote pro-poor growth through encouraging fiscal stability and more equitable and efficient allocation and use of public funds. It offers the potential to address key cross-cutting issues such as public sector reform, gender, and the environment in ways that other aid instruments cannot, and also seeks to make maximum use of local capacity."[32]

The Commission Communication

11.3 In the introduction to this Green Paper, the Commission notes that in 2000 it produced a Communication on budget support — "Community support for economic reform programmes and structural adjustment: review and prospects" — which it says helped to shape the design of budget support for the following decade. With five years to go before the 2015 deadline for the UN Millennium Development Goals (MDGs), the Commission says that budget support has become an increasingly prominent element of the aid effectiveness agenda. It notes that, over the period 2003-2009, the Commission made budget support commitments totalling over € 13 billion, amounting to about 25% of all commitments; with about 56% made in Africa, Caribbean and Pacific (ACP) countries, 24% in neighbourhood countries, 8% in Asia, 6% in Latin America and 5% in South Africa.

11.4 However, the Commission goes on to say:

"questions about the quality, value for money and impact of budget support are increasingly being raised by a range of stakeholders, including the European Court of Auditors, European and national Parliaments and civil society. These need to be answered as the Commission works to improve its approach to budget support."

11.5 The Commission also sees a need for improved coordination across the EU because "the Lisbon Treaty and the establishment of the European External Action Service are changing the EU institutional context in which budget support is provided."

11.6 The Commission describes the purpose of this Green Paper as:

"to gather views from stakeholders regarding the objectives and use of EU budget support, building on the joint experience of the last 10 years, while recognising differences in the context and nature of EU cooperation with different regions and countries."

and the specific objectives as:

"to identify opportunities and challenges, to raise specific questions on how these opportunities can be exploited and challenges addressed, and to collect views and evidence that will improve our approach to budget support."

11.7 The Commission defines the key issues, and the questions to be answered, as

—  Political governance and the role of political dialogue: Should EU budget support be explicitly conditional on a country's respect for human rights, democratic principles and the rule of law? How can donors ensure consistency of approach? Is there a role for political dialogue in budget support programming (alongside the existing policy dialogue on reforms, objectives and results) or should this only take place in the context of the overarching political dialogue between partner and donor countries?

—  Role of policy dialogue, role of conditionality and links to performance and results: Through policy dialogue, clear targets and policies are agreed to ensure budget support delivers maximum results. How can this dialogue be more effective and better support reform? How should donors use budget support conditionality to improve performance? How can results and value for money be measured more effectively?

—  Accountability: Budget support is subject to Parliamentary scrutiny and audit in partner countries in a way that project support often is not. How can budget support further enhance domestic accountability so that citizens and democratic institutions in partner countries have greater oversight of how resources are used? How can mutual accountability be improved so donors and partners can better hold each other to account on their commitments?

—  Programming of budget support and its coherence with other instruments: Decisions on whether and how much budget support to provide need to be taken in the context of other aid instruments and a thorough assessment of needs and performance. What criteria should the Commission use for this? Should general budget support and sector budget support be used in the same country? Should a range of aid instruments be used alongside each other, as opposed to one single budget support instrument?

—  Strengthening risk assessment and dealing with fraud and corruption: Weak governance and corruption are key factors that affect arguments for and against budget support. Thorough risk assessment and management are essential to inform policy dialogue and protect donors' financial investments. How can the effectiveness of budget support be improved through a comprehensive risk management framework? How should donors respond coherently to cases of large scale corruption in countries receiving budget support? How can the impact of external economic factors such as commodity price volatility be mitigated?

—  Budget support in situations of fragility: Budget support can be critical in helping to provide a degree of economic and political stability to fragile states. While the risks are by definition high, these may be outweighed by the costs of non-intervention and the benefits of effective support. Should budget support be used to promote stability in fragile states; and, if so, how?

—  Growth, fiscal policy and mobilisation of domestic revenues: Budget support contributes to economic growth by promoting macroeconomic stability, fostering a business-friendly environment and promoting more efficient fiscal policy. How can budget support better promote inclusive and sustained growth, improve domestic revenue collection and end aid dependency? How can budget support also assist with regional integration?

11.8 The consultation will run from 19 October 2010 until the end of December. Based on the outcome of the consultations, the Commission will prepare an Issues Paper, followed by a Communication, setting out the main parameters for its future budget support.[33]

The Government's view

11.9 In his Explanatory Memorandum of 9 November 2010, the Parliamentary Under-Secretary at the Department for International Development (Stephen O'Brien) points out that the Green Paper is neither a proposal for legislation, nor a new policy statement; that it refers to budget support managed by the European Commission, but not to the bilateral budget support of EU Member States; and that therefore it does not directly affect the UK's policy on budget support.

11.10 He then comments as follows:

"However, a number of questions are raised in the Green Paper about how to improve donor coordination on budget support, for example on political conditionality. Over the last year there has also been an ongoing technical process to discuss a coordinated approach to budget support between EU Member States and the Commission, which has informed the Green Paper. This technical discussion has covered policy dialogue and political dialogue; programme design and implementation; promoting domestic and mutual accountability; and conducting and communicating the results of evaluations.

"Budget support programmes managed by the Commission have important implications for DFID country programmes and for UK bilateral budget support. In countries where the UK provides bilateral budget support, we do it under a multi-donor budget support programme (a joint financing arrangement based on a Memorandum of Understanding (MoU)). In many countries the Commission is one of the most important development partners in these MoUs, so its approach to budget support will have an impact on the effectiveness of the overall multi-donor budget support programme in those countries."

11.11 The Minister goes on to express his support for the Green Paper's inclusive consultation process, and to welcome the Commission's efforts to review its budget support policy with a view to improve its effectiveness and maximise results. He says that:

—  the Government will provide comprehensive responses to the questions under each of the key issues in the Green Paper and send them to the Commission by end December 2010;

—  DFID has also instigated reviews of its bilateral, multilateral and humanitarian aid programmes and is updating its guidance on budget support; and that

—  these reviews "aim to maximise the impact and value for money of UK development aid and will inform our future development engagement with the EU."

11.12 Looking ahead, the Minister notes that:

—  the Department for International Development (DFID) will be consulting the FCO and other Departments to inform a UK response to the Green Paper;

—  during the first quarter of 2011, based on the Green Paper consultations, the Commission will prepare an Issues Paper on the future of budget support, which will then inform a Commission Communication;

—  he expects Foreign Affairs Council Conclusions in May or June 2011.


11.13 We are reporting this development to the House because of the importance of the subject matter and are also drawing it to the attention of the International Development Committee.

11.14 We ask the Minister to write to the Committee in due course about the outcome of his Department's consultation and the Government's response.

11.15 In the meantime, we clear this Communication from scrutiny.

32   See Back

33   The link to the consultation exercise is Back

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