Hauck, V.; Hasse, O.; Koppensteiner, M.; (2005) EC budget support: thumbs up or down? (ECDPM Discussion Paper 63). European Centre for Development Policy Management (ECDPM): Maastricht, The Netherlands.

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Abstract

Budget support is a form of macro-economic financial assistance that is designed to prioritise the fight against poverty and the achievement of the Millennium Development Goals (MDGs). The European Commission (EC) is providing more and more budget support under the Cotonou Partnership Agreement (CPA), which structures the provision of assistance by the European Union (EU) to the African, Caribbean and Pacific (ACP) countries. The EC also provides macro-economic support through its cooperation agreements with a number of non-ACP countries, for which it is now also introducing budget support. During the course of its work in the ACP regions, the European Centre for Development Policy Management (ECDPM) was approached by parliamentarians, representatives of non-governmental organisations and partner government officials, all of whom had certain questions to ask about the background to and operation of budget support. These actors regard budget support as an increasingly important mechanism for development cooperation, and one that has potentially far-reaching implications for their work. At the same time, it is a relatively new mechanism, is poorly understood and is driven by a relatively small group of experts in aid agencies and partner country finance or planning ministries. We have prepared this Discussion Paper in response to these queries. Our aim is to give policy-makers and practitioners in-depth information on the nature and potential of, and the constraints associated with, budget support as a development cooperation modality. The paper explains the complex nature of budget support and its implications for the actors involved, as well as highlighting issues that have a bearing on its success. Budget support creates opportunities that are not always fully appreciated by its critics. At the same time, it creates risks which tend to be downplayed by its supporters. Against this background, this paper also aims to contribute to this intensely debated issue by providing a balanced view for those seeking to understand its complexities. As this is intended to be a relatively brief paper, it is limited to key policy issues and the challenges arising from recent experiences with budget support. For this reason, we have not devoted much space to discussing the issue of sector budget support. We advise the reader to consult the bibliography for more detailed information on the practice and technicalities of this rapidly evolving mechanism. Finally, it is important to recognise that the move towards budget support has aroused many questions among partner government officials, donor agencies, consultants and academic institutes, which tend to feed into the production of specialist documents assessing approaches and experiences. For this reason, this paper can do no more than to describe the current state of a rapidly evolving debate and practice. We hope to be able to follow up this initial study and produce further publications on specific issues, tailored to the needs of individual ACP audiences, as part of our future work.

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