EPHA Briefing: EU Development Aid and Budget Support

Policy to deliver aid for development

EU action in the field of development is based on the European Consensus for Development (2005) whereby EU Member States (MS), the European Parliament (EP) and the European Commission (EC) agreed to a common vision for global development and the EU’s role in it. The EU - already providing approximately 60% of global development aid - has uniformly committed itself to increase its Official Development Aid (ODA) to 0.56% of its Gross National Income (GNI) by 2010. The 12 newest MS were ’assigned’ with an individual target of 0.17% and the old MS with a target of 0.51% of GNI. By 2015 - in accordance with UN commitments - the EU’s collective ODA has to reach 0.7% of its GNI. To read how the EU performs on these promises please click here and here.

Financing for development

Before the EU Consensus for Development was signed, a number of other preceding global agreements had been made - with probably the most important one the 2002 Monterrey Consensus, which established the partnership between developed and developing countries to find ways of financing development that would meet the MDGs. In the consensus we read that: " We (...) commit ourselves to mobilizing domestic resources, attracting international flows, promoting international trade as an engine for development, increasing international financial and technical cooperation for development, sustainable debt financing and external debt relief, and enhancing the coherence and consistency of the international monetary, financial and trading systems".

In 2008 the follow-up International Conference on Financing for Development in Doha (Qatar) broadened the above-mentioned commitments with good governance in the tax area, customs cooperation, the fight against corruption and illegal financial flows, the development impact of remittances and the financing of new, especially environmental challenges, namely climate change.

Aid delivery modalities

According to the EU Consensus on Development, several different methods of delivering aid are available - project, sector programme, general or sectoral budget support to recipient government - all based on country’s individual needs and performance.

Aid modalities can be conceived as on a spectrum, according to how much ownership/leadership they give to the recipient country - moving from project aid through sectoral budget support to general budget support.

According to the latest figures, 44% of financial resources assigned to European Development Fund (EDF) - a fund to grant technical and financial assistance to developing countries - is scheduled to be channelled through budget support (BS). This shift is most welcome, taking into account that until recently it accounted for a relatively small proportion of global aid (5%). As much as 25-50% of aid was given to donor-driven technical assistance.

There are two types of BS: general and sector. General Budget Support (GBS) is ODA given directly to the treasury of a partner country to pursue its national poverty reduction strategy. Funds are used for country-led priorities, and are funnelled through partners’ own budgetary processes. Sector Budget Support (SBS) is provided for specific sector programmes such as health, education or infrastructure. Funds can also cover recurrent costs such as teachers’ and health workers’ salaries - if needed.

Shift towards more budget support: will it work?

The EC requires that the following be in place in order to qualify for BS:
 a well-defined national or sector policy and strategy;
 a stability-oriented macroeconomic structure;
 a credible and relevant programme to improve public financial management.

These requirements seem essential, taking into account a number of objections being debated by international development aid bodies with respect to aid flows for some time already. One might well wonder whether BS evokes more or less aid ownership for recipient governments and local stakeholders; what if recipient governments turn out to be corrupt and use the money fraudulently (to read a recent case of Zambia click here); will this help the situation where so-called ’donor darlings’ are successful in receiving funds whereas many neglected health conditions unsuccessful in doing so. With respect to the health and social sector, a new form of general budget support (the MDG contract) is currently being implemented in countries that have already proven themselves able to manage such support (i.e. Burkina Faso). The MDG Contract provides long term, highly predictable budget support commitments in support of countries’ programmes to reach the MDGs.

The EU in search for innovative financing for development

As the global economy slows down, the climate and food crises threaten to affect those already most vulnerable to poverty, the achievement of the MDGs around the world will require more and better spent money. It has been agreed therefore that implementation of innovative financing mechanisms for development are necessary - for example Carbon Emission Tax or Currency Transaction Levy. This additional ’fresh’ money could be used to improve key development areas such as health and education.

For the EU to put into operation its development policy and to reach its development goals, financial means to do so are needed. Each EU MS has committed itself to channel a specific proportion of its GNI to international development aid. Even though all EU MS employ a common vision for development, the partnerships made are still bilateral. This means that a single developing country could have 27 separate agreements plus a significant number of partnerships with the rest of the world and additional number of region-to-region commitments. Budget support - general and sectoral - seem an interesting initiative but a more unified and better communicated co-operation between EU MS has to come in order to avoid repeating past mistakes.

EPHA articles

 Health Aspects of EU Development Policy
 European Court of Auditors slams EC development health financing
 EU leaders agree action to improve global health
 European Commission package on Development targets the MDGs

For more information on:
 International Health Partnership for Innovative Finances for Development click here.
 OECD Evaluation of General Budget Support click here.