Documents considered by the Committee on 16 March 2011 - European Scrutiny Committee Contents

4 EU Budget Support to Third Countries



European Court of Auditors special report: The Commission's Management of General Budget Support in ACP, Latin American and Asian Countries

Legal baseArticle 287 TFEU; —
DepartmentInternational Development
Basis of considerationEM of 8 March 2011; Minister's letter of 2 March 2011
Previous Committee ReportNone; but see (32105) 15240/10: HC 428-viii (2010-11), chapter 11 (17 November 2010)
To be discussed in CouncilTo be determined
Committee's assessmentPolitically important
Committee's decisionCleared


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.


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 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 for full details of the ECA's work. Back

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Prepared 24 March 2011