4 EU Budget Support to Third Countries
| (32542)
6957/11
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| European Court of Auditors special report: The Commission's Management of General Budget Support in ACP, Latin American and Asian Countries
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| Legal base | Article 287 TFEU; —
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| Department | International Development
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| Basis of consideration | EM of 8 March 2011; Minister's letter of 2 March 2011
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| Previous Committee Report | None; but see (32105) 15240/10: HC 428-viii (2010-11), chapter 11 (17 November 2010)
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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
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Background
4.1 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."[26]
4.2 At our meeting on 17 November 2010, we considered a Commission
Green Paper: The future of EU Budget Support to Third Countries.[27]
The Commission noted that its 2000 Communication on budget support
had helped to shape the design of budget support for the following
decade. With five years to go before the 2015 MDG deadline, budget
support had become an increasingly prominent element of the aid
effectiveness agenda. Over the period 2003-2009, the Commission
made budget support commitments totalling over €13 billion
— about 25% of all commitments in this period; about 56%
in Africa, Caribbean and Pacific (ACP) countries, 24% in neighbourhood
countries, 8% in Asia, 6% in Latin America and 5% in South Africa.
4.3 However, questions about the quality, value for
money and impact of budget support were increasingly being raised
by a range of stakeholders, including the European Court of Auditors.
These needed to be answered as the Commission worked to improve
its approach to budget support. Key issues about which questions
needed to be asked were: i) political governance and the role
of political dialogue; ii) the role of policy dialogue,
role of conditionality, and links to performance and results;
iii) domestic and mutual accountability; iv) programming
of budget support and its coherence with other instruments;
v) strengthening risk assessment and dealing
with fraud and corruption; vi) budget support in situations
of fragility; and vii) growth, fiscal policy
and mobilisation of domestic revenues. The Green
Paper would gather views from stakeholders regarding the objectives
and use of EU budget support, building on the joint experience
of the last 10 years; inform an Issues Paper; and lead on to a
Communication, setting out the main parameters for its future
budget support.
4.4 Full details of the Green Paper and the views
of the Minister (Mr Stephen O'Brien) are set out in our earlier
Report. In particular, the Minister noted that in countries where
the UK provides bilateral budget support, the Commission is one
of the most important development partners, so its approach to
budget support would have an impact on the effectiveness of the
overall multi-donor budget support programme in those countries.
He accordingly welcomed the Commission's efforts to review its
budget support policy with a view to improve its effectiveness
and maximise results. The Government would respond by end December
2010. Looking ahead, the Minister expected Foreign Affairs Council
Conclusions in May or June 2011 on the projected Commission Communication.
Our assessment
4.5 We reported this development to the House and
are also drew it to the attention of the International Development
Committee.
4.6 We also asked the Minister to write to the Committee
in due course about the outcome of his Department's consultation
and the Government's response.
4.7 In the meantime, we cleared the Communication
from scrutiny.[28]
The Minister's letter of 2 March 2011
4.8 In his letter, the Parliamentary Under-Secretary
of State for International Development (Mr Stephen O'Brien) said
that the Government's response emphasised that EU policy on budget
support should:
— provide
greater transparency about budget support allocation decisions;
— show how budget support can help to achieve
a stronger focus on results and value for money;
— strengthen domestic accountability in
partner countries;
— raise political governance issues through
its dialogue on budget support with partner governments.
4.9 The Minister also enclosed a copy of the Government's
full response, in the form of a letter of 14 February 2011, and
attachment with detailed comments, from his Department to the
relevant Commission Director General. The main part of the letter
says:
"We welcome the opportunity to contribute to
your consultation process on the future of EU budget support to
third countries. In the current economic climate, we believe that
it is important to show that our aid achieves real results. As
budget support has recently come under increased scrutiny by Parliaments
across Europe, as well as by the public, we all need to ensure
that we strengthen this instrument so that it can achieve more
results and better value for money. The Green Paper on the future
of budget support has come at a crucial time for DFID. As you
know we have embarked on several reviews of our bilateral and
multilateral aid programmes, as well as a policy refresh of our
own bilateral budget support policy. Our contribution to the Green
Paper therefore needs to be seen in this context.
"In preparing our response, we have consulted
widely with our country offices, relevant departments at DFID
Headquarters and also with our Foreign and Commonwealth Office.
"I attach our contribution to the key issues
raised in your paper to this letter."[29]
The European Court of Auditors' special report
No 11/2010
4.10 The European Court of Auditors carries out audits,
through which it assesses the collection and spending of EU funds.
It examines whether financial operations have been properly recorded
and disclosed, legally and regularly executed. It also, via its
special reports, carries out audits designed to assess how well
EU funds have been managed so as to ensure economy, efficiency
and effectiveness.[30]
4.11 This special report from the European Court
of Auditors (ECA) focuses on the European Commission's management
of General Budget Support (GBS) through the European Development
Fund (EDF) in African, Caribbean and Pacific (ACP) countries and
through the Development Co-operation Instrument in Latin American
and Asian countries. It provides a performance audit of how effectively
the European Commission manages its GBS programmes.
4.12 The ECA notes that the volume of Commission-managed
budget support has increased over the last ten years; whereas
in the ninth EDF (2001-2007), budget support represented 30% (GBS
21% and sector budget support 9%), for the tenth EDF (2008-2013),
the total budget support funding is expected to reach 48% (31%
GBS and 17% sector budget support). So far, GBS has been used
by the Commission in 35 ACP countries and seven Asian and Latin
American countries.
4.13 The report notes that the Commission has improved
its approach to GBS over the last ten years and acknowledges the
potential benefits that GBS can deliver, viz:
— supporting
national ownership;
— improving policy dialogue, coordination
and predictability of aid flow;
— encouraging improvements in public financial
management;
— providing additional support packages
involving capacity building measures and the establishment of
conditions for disbursements.
4.14 However, the report also identifies weaknesses
in the methodology and management — planning, implementation
and follow up — that may reduce the effectiveness and impact
of GBS programmes. It notes that the Commission's decision-making
process for allocating GBS is often unclear. The report also states
that the Commission's external reporting tends to focus on the
potential benefits GBS can have in improving aid delivery, but
provides little evidence of actual impact on poverty reduction.
The report emphasises the need to improve the GBS evaluation methodology,
though acknowledging that this is something the Commission is
already working on.
4.15 The report makes the following recommendations:
— the
Commission should set out objectives and expected results that
are sufficiently precise, measurable and time-bound to allow monitoring
of progress and assessment of achievements, taking into account
the country specific context and partner country priorities;
— the Commission should strengthen its
risk management to better protect against leakage, waste and inefficiency;
— there is scope for improving the capacity
building support linked to GBS and focusing more on country-specific
priorities;
— more attention should be given to accountability
and anti-corruption mechanisms;
— the Commission should strengthen its
approach to dialogue in countries with GBS or scope for GBS programmes.
4.16 In its reply to the report, the Commission welcomes
the ECA's recommendations and details how it aims to make GBS
more effective. It noted that it has already introduced results-based
conditions for budget support and plans to develop more precise
objectives and more robust risk management in its budget support
guidelines.
The Government's view
4.17 In his Explanatory Memorandum of 8 March 2011,
the Minister (Mr Stephen O'Brien) again refers to the importance
of the Commission as a major development partner and the impact
its approach to budget support has on the effectiveness of multi-donor
budget support programmes in many countries including the ones
where the UK is active. He also refers to his department's recent
response to its Green Paper consultation on the Future of EU Budget
Support.
4.18 He continues as follows:
"Overall, we welcome the improvements the Commission
has made over the last few years. We also support the ECA report's
recommendations and the Commission's commitment to further improve
its management of GBS programmes.
"The UK will continue to work with the Commission
and Member States to ensure Commission-managed budget support
programmes deliver clear results, stronger risk management and
better value for money, and that allocation decisions are more
accountable and transparent. We will also emphasise the need for
a more robust methodology to clearly attribute the results of
budget support programmes."
4.19 The Minister concludes by noting that, along
with the outcome of the Green Paper consultations, the Court of
Auditors' report will feed into the Commission's Issues Paper
on the future of budget support and thus the proposed Commission
Communication, upon which he continues to anticipate Council Conclusions
in May or June 2011.
Conclusion
4.20 We again report this development to the
House because of the importance of the subject matter and also
draw it to the attention of the International Development Committee.
4.21 The next step will presumably be the Commission
Communication. When it is submitted for scrutiny, we ask the Minister:
—
to pay particular attention to the extent to which the recommendations
in this report as well as his Department's comments on the Green
Paper have been reflected in it;
— to outline as much as he can about
the scope and nature of the Council Conclusions that he anticipates
will be adopted on the Communication.
4.22 In the meantime, we clear the European Court
of Auditors' special report from scrutiny.
26 See http://www.eldis.org/go/topics/resource-guides/health-systems/health-sector-financing/budget-support. Back
27
(32105) 15240/10: HC 428-viii (2010-11), chapter 11 (17 November
2010). Back
28
See headnote: (32105)15240/10: HC 428-vii (2010-11), chapter 11
(17 November 2010). Back
29
The attachment is reproduced at the Annex to this chapter of our
Report. Back
30
See http://eca.europa.eu/portal/page/portal/eca_main_pages/home
for full details of the ECA's work. Back
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