11 EU Budget Support to Third Countries
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15240/10
COM(10) 586
| Commission Green Paper: The future of EU Budget Support to Third Countries
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| Legal base | —
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| Document originated | 19 October 2010
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| Deposited in Parliament | 27 October 2010
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| Department | International Development
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| Basis of consideration | EM of 9 November 2010
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| Previous Committee Report | None
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| To be discussed in Council | To be determined
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| Committee's assessment | Politically important
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| Committee's decision | Cleared, but further information requested
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Background
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.
Conclusion
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 http://www.eldis.org/go/topics/resource-guides/health-systems/health-sector-financing/budget-support. Back
33
The link to the consultation exercise is http://ec.europa.eu/development/how/consultation/index.cfm?action=viewcons&id=5221&lng=en. Back
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