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Budget Support and the 'Great Expectations' of
European development aid.
Assessing the aid modality of budget support as particularly applied by
the European Commission against the commitments made under the Aid
Effectiveness Agenda.
MA thesis in European Studies Graduate School for Humanities University of Amsterdam Author: Emerick Lovasz Student Number: 11313757 Main Supervisor: dr. P.W Zuidhof Second supervisor: dr. Peter Rodenburg January 2018.2
Table of Contents :
List of abbreviations: ... 3 Introduction: ... 4 1. Budget support: down to the basics ... 8 1.1 How is development cooperation being carried out? ... 8 1.2 How does budget support fit into all of this? ... 9 2. Origins and historical development ... 11 2.1 Relevant developments up to the end of the 1990s ... 11 2.2 Millennium changes ... 13 3. Framework: The Aid Effectiveness Agenda ... 16 3.1 The Aid Effectiveness Agenda framework: 5 constitutive parts ... 16 3. 2 Academic debate of the Aid Effectiveness Agenda: ... 23 3.3 The choice of budget support as aid modality ... 26 3.3.1 Budget support as preferred aid modality: ... 26 3.3.2 County specific considerations ... 30 4. Assessment of budget support against the Aid Effectiveness Agenda: ... 35 4.1 Budget support & ownership: ... 35 4.1.1 General issue of ownership ... 36 4.1.2 Policy dialogue within the framework of ownership ... 39 4.2 Budget support & alignment ... 44 4.2.1 The Public Expenditure and Financial Accountability (PEFA) assessment tool ... 45 4.2.2 Fungibility of funds and fiduciary risks: ... 47 4.2.3 Capacity Development ... 50 4.2.4 Domestic Resource Mobilisation ... 53 4.3 Budget support & harmonisation ... 57 4.3.1 Coordination mechanism: ... 58 4.3.2 Transaction costs: ... 59 4.3.3 Public finance management diagnostic tools: ... 60 4.3.4 Evaluations ... 62 4.4 Budget support & result-orientation ... 63 4.4.1 Fixed & variable tranches: ... 67 4.5 Transparency & accountability ... 75 Conclusion: ... 78 Bibliography: ... 833
List of abbreviations:
• AAA: Accra Agenda for Action • AEA: Aid Effectiveness Agenda • BS: Budget Support • CFAA: Country Financial Accountability Assessments • CPA: Country Procurement Assessment • EC: European Commission • EU: European Union • GGDC: Good Governance and Development Contract • IMF: International Monetary Fund • MDGs: Millennium Development Goals • OECD: Organization for Economic and Combined Development • ODC: Official Development Cooperation • PFM: Public Finance Management • PEFA: Public Expenditure and Financial Accountability • PRSPs: Poverty Reduction Strategy Papers • ROSCs: Reports on the Observance of Standards and Codes • SDG-C: Sustainable Development Goal Contract • SRPC: Sector Reform Performance Contract • TA: Technical Assistance • UN: United Nations • WB: World Bank4
Introduction:
In an era where the effects of Globalization are bearing more and more weight by the day and global inequalities are becoming ever more apparent, the notion that certain inequalities need to be corrected has gained significant importance in the mind of internationally concerned actors. Indeed, we are experiencing a world in which the machinery of globalization is increasingly widening the economic and technological gap between most developing, in particular in Sub-Saharan Africa, and industrialised countries. Alongside this process through which many areas and regions are continuously marginalized, has developed a heated debate on what should be done to overcome this paradigm. Explained in simple terms by Charles Abugre in an article written for CNN: « Sharing is essential to maintain and protect the collective (...), international aid is the instrument by which this very human practice occurs in modern times across borders.»1 In other words, many international actors are seeing development aid as one of the means to address growing global inequalities. In the same article cited above, Charles Abugre goes on to say, “although aid should ordinarily not be controversial, it is -- very much so.''2 Within the development world, there are numerous perspectives and approaches on how to best address developmental challenges. These often clashing perspectives have led to the creation of extensive academic debates ranging from ‘whether’ to ‘how’ aid should be provided. The latter question is of interest in this thesis. Indeed, although there are extensive debates on development aid, one of the fundamental issues to which most disagreements come back to concerns the type of aid that can most effectively address development objectives. In this context, there exist several aid modalities that approach development in different ways. The choice of an aid modality is therefore significant for it defines what the development process will look like as well as determine its impacts and sustainability. This thesis will address the aid modality entitled ‘budget support’ and in particularly as applied by the European Union. The reason for this choice stems from the fact that budget support is considered as the preferred or key instrument of the European
1 Abugre, C. 2010. “Why foreign aid is important for Africa.” Accessed January 13, 2017. Retrieved from
http://edition.cnn.com/2010/OPINION/08/13/aid.africa.abugre/index.html
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Commission3 and has shown to be the most in line with the Aid Effectiveness Agenda that will constitute the framework for this thesis. Quantitatively, budget support commitments represent between 40% and 45% of the financial EU commitments of the programmable resources available to developing countries, and at the end of 2015 total ongoing commitments stood at 12.7 billion euro.4
The Aid Effectiveness Agenda reflects a historical process in which the effectiveness of aid was discussed from its very beginning. Although having been confirmed and reconfirmed by several international agreements, its basic principles were laid down in the first declaration on Aid Effectiveness in Paris in 2005. It is constituted of 5 main points: ownership, alignment, harmonisation, result orientation and transparency and accountability.
Signing off on international agreements is one thing, but the question is what are the contracting parties doing to implement them. Thus, the objective of the thesis is to determine in how far the aid modality of budget support has conceptually and in practice been able to live up to the commitments development partners and partner countries made under the Aid Effectiveness Agenda.
The focus of the analysis that will be carried out under the scope of this research will therefore be twofold. It will discuss in how far development partners and in particular the European Commission have captured the principles of and the commitments made under the Aid Effectiveness Agenda conceptually and analyse in how far there is evidence that all participants are in practice living up to the commitments made with the application of the budget support aid modality. While the first will verify the extent to which the objectives laid down in the Agenda are reflected upon in the updated budget support guidelines of the European Commission of September 20175, the second will make use of
empirical evidence to verify whether these commitments are reflected in reality. In order to carry out the analysis, the thesis will weigh budget support against the five components of 3 European Commission: Directorate-General for International Cooperation and Development and Directorate-General for Neighbourhood and Enlargement Negotiations. 2017. “Budget Support Guidelines, September 2017”. P.8. 4 European Commission. 2016. “Budget support Annual Report 2016, Financial implementation, risk analysis and selected macroeconomic, fiscal and developmental results.” Luxembourg: Publications office of the European Union. P.3. 5 The guidelines of Sept.2017 only update and not revise the guidelines of 2012. No new Council decision was thus required as the updated guidelines continue to be in line with the Council Conclusion of May 2012 on “The future approach to EU budget support to third countries” that provides the overall policy framework.
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the Aid Effectiveness Agenda on the basis of academic papers, national and international reports and studies, EU guidelines and evaluations. The evaluations, that will constitute the most important source of empirical evidence, were led by different development partners and partner governments but conducted by professional evaluators on an independent basis according to an OECD/DAC 3-step methodological approach for budget support evaluations internationally agreed upon in 2012 by all parties involved.
The thesis will carry out its research as follows. The first chapter will provide a contextual background setting the scene of the broader field of development cooperation. It will clarify terms utilised to determine the relation between industrial and developing countries, explain the main objectives of aid and situate budget support within development cooperation. This is important for it will lay down the basic notions necessary to understand the logic of development aid and the particular relevance of budget support within this context.
The second chapter will contextualise the evolution of budget support by briefly addressing its historical roots within the wider context of development cooperation. Indeed, before exploring the intricacies of budget support and whether it is achieving its stated objectives, the aid modality needs to be situated in the broader history of development aid. This will explain how the aid modality came about and why it is as it is today. The chapter will focus on the period until the end of the 1990s, determined by structural adjustment programmes introduced by the Bretton Woods institutions in the 1980s and on the period as of the New Millennium that introduced considerable changes in the approach to and the provision of development aid, including the emergence of untargeted budget support.
The third chapter will sketch out the Aid Effectiveness Agenda established in the Paris Declaration in 2005 that will constitute the framework against which budget support will be assessed. Based on the historical experiences, the Agenda expressed the acknowledgement that a change in approach to development aid was necessary. The Agenda was further elaborated upon in the Accra Agenda of Action (2008), the Busan Partnership for Effective Development Cooperation (2011) and the Nairobi Global Partnership for Effective Development Cooperation (2016). On the basis of these agreements, the section will outline the 5 constitutive points of the framework: ownership, alignment, harmonisation, result orientation and accountability. Once these have been explained, the section will provide an overview of the broader academic debate on the
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framework. Without rejecting it as such, the critical perspectives that will be discussed put into question a number of specific issues that will be taken up. Finally, the chapter will explore why budget support is a key aid modality and why it conceptually best embodies the commitments made under the Aid Effectiveness Agenda. However, the chapter will also point out that budget support is not a panacea but that before deciding on whether it is the appropriate aid modality, country specific considerations need to be taken into account. The fourth chapter encompasses the core case study of the thesis. It will concentrate on verifying the extent to which development partners, and here in particular the EC, have conceptually translated the principles and commitments of the 5 constitutive components of the Aid Effectiveness Framework into their policies on budget support, and secondly assess in how far these commitments are empirically reflected in the reality of providing aid. By weighing the empirical evidence from individual cases and country experiences against the commitments that were made under the agenda, the thesis will shed light on the reality of budget support programmes. As mentioned, the thesis will make use of studies, reports and in particular evaluations of budget support programmes as well as reflect the controversial international discussion led by academics.
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1. Budget support: down to the basics
The term 'development cooperation' is known under several different names including 'foreign aid', 'development aid' and 'development assistance', but over time there was common agreement to utilise the term 'cooperation' in order to highlight the collaborative aspect of development and put forward the fact that developing countries should be considered as partners rather than financial recipients.6
As defined by the United Nations, ‘Official Development Cooperation’ (O.D.C) is an ''Activity that aims explicitly to support national or international development priorities, is not driven by profit, discriminates in favour of developing countries, and is based on cooperative relationships that seek to enhance developing country ownership.''7 More
recent objectives include the working with partner countries in order to promote democracy and good governance and guarantee the provision of universal social basic standards to their citizens that allow them to exercise their basic human rights.8
One element that the definition does not explicitly highlight and that needs to be pointed out is that development cooperation, contrary to humanitarian aid, is an activity that is meant to ensure a country's sustainable growth by addressing long term objectives rather than providing immediate relief.9 1.1 How is development cooperation being carried out? There are two aspects to the utilization of development cooperation that need to be considered, the 'what' and the 'how? In other words, 'what' type of support can be provided and ‘how’ is it being carried out?
In regards to the 'what', development cooperation can be provided in the form of financial support and capacity development support. While the former is most commonly 6 Van Bilzen, G. 2015. “The development of aid.” Newcastle upon Tyne: Cambridge Scholars Publishing. P°2 7 Alonso, J. and Glennie, J. 2015. “What is development cooperation?” (2016 Development Cooperation Forum Policy Briefs.) Accessed February 17, 2017. Retrieved from : http://www.un.org/en/ecosoc/newfunct/pdf15/2016_dcf_policy_brief_no.1.pdf 8 European Commission. 2016. “Commission Staff Working Document: Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Proposal for a new European Consensus on Development Our World, our Dignity, our Future.” SWD(2016) 387 final. 9 Van Bilzen, G. 2015. “The development of aid.” Newcastle upon Tyne: Cambridge Scholars Publishing. P.21
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associated with development cooperation for it relates to financial grants and loans that are provided to a partner government in order to increase its fiscal space, the latter also plays an important role by providing them with expertise, experience and training through technical assistance and fellowships. Capacity development support often operates as an accompanying measure to financial assistance in order to support the partner country in its efforts to improve the management of its developmental process.10 In his book The development of aid, Van Bilzen provides an interesting answer to the 'how' question. Development cooperation, he explains, can be carried out in numerous ways but most often relate back to two fundamental approaches: project and programme aid.11 Project aid is an approach according to which funds being provided to a partner country are targeted for a specific set of activities aiming to reach specific objectives, i.e. building a school, a road, a hospital, training x amount of teachers, etc.. This type of aid allows donors to maintain control over the process, set objectives, monitor progress and thus clearly define the input and output of the activity. Programme aid on the other hand is defined by Van Bilzen as ''a type of aid which makes resources available for a larger set of activities, without necessarily defining all the different components.''12 In other words, programme aid
covers more than just one project but relates to the development of a country, a whole sector (health, education, etc.) or sub-sector.
1.2 How does budget support fit into all of this?
The before mentioned programme aid can be provided in a way that the management, including the procurement, of the different components is carried out according to the regulatory framework of the donor and not the recipient country. But programme aid can also be provided in form of targeted or untargeted budget support that is defined by the OECD-DAC as “a method of financing a partner country’s budget through the transfer of resources from an external financing agency to the partner government’s national treasury. The funds thus transferred are managed by the recipient’s budgetary 10 Krisch, F., Schmitt, J. and Dr. Ulrike, D. 2015. “Accompanying measures to General budget support In Sub-saharan Africa.” German Institute for Development Evaluation, Bonn. P.13. 11 Van Bilzen, G. 2015. “The development of aid.” Newcastle upon Tyne: Cambridge Scholars Publishing. P.10-11. 12 Ibid
10 process.”13 According to this definition budget support may be provided in form of grants or loans, as long as the support is providing funds to the recipient’s budget and is aiming at assisting the development of a country or a specific sector. It is not a balance of payment support used for debt relief paid to the countries creditors. While targeted budget support is attached to the financing of specific budget lines, untargeted budget support does not apply these ‘conditional’ strings but is a programme based aid that puts a strong emphasis on the changes of the livelihood of the beneficiaries of government activities.14 Thus, targeted budget support is focusing more on the financial input and maybe on some outputs (e.g. infrastructure in form of school or hospital buildings) of government expenditures, and untargeted budget support is focusing on the outcome or results as experienced by the targeted beneficiaries (e.g. enrolment or passing rates, vaccination rates) of government activities financed through the budget. The instrument of targeted budget support was mainly utilised during the 1990s and rarely thereafter, but untargeted budget support (hereafter budget support) became very ‘popular’ during the first decade of the New Millennium. At the end of the decade most EU member states moved, however, totally or partially away from budget support, with the consequence that only the European Commission continued to consider it as its preferred financial instrument. More recently EU member states have opted for new aid modalities working similar to budget support. As pointed out before, 40-45% of the EU programmable aid to developing countries was and still is channeled through this aid modality. For the European Union budget support is a key instrument used to carry out programme aid. It does not constitute an end in itself but should rather be considered as a way to provide ''better aid and achieve sustainable development results.''15 13 OECD-DAC. 2006. “Harmonising Donor Practices for Effective Aid Delivery, Volume 2: budget support, Sector Wide Approaches and Capacity Development in Public Financial Management.” DAC Guidelines and Reference Series, OECD 2006. P.26 14 European Commission : EuropeAid Development and Cooperation Directorate-General. 2012. “Working document: Tools and Methods Series, budget support Guidelines, Programming, Design and Management. A modern approach to budget support.”P.71 15 European Commission: EuropeAid Development and Cooperation Directorate-General. 2012. “Working document: Tools and Methods Series, budget support Guidelines, Programming, Design and Management. A modern approach to budget support.”P.11
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2.
Origins and historical development
Understanding the role of budget support within the development world today and answering the question on whether budget support is achieving its stated objectives requires an explanation of the historical roots and evolution of this aid modality within the overall context of development aid. This chapter will thus briefly outline the main developments relevant to budget support by focusing on two time periods. The first will address the period leading up to the end of the 1990s marked by structural adjustment programmes of the Bretton Woods institutions, and the second will focus on the New Millennium in which major changes were adopted in order to enhance the effectiveness of aid. This will paint a clear picture of how development aid has evolved over time and explain why budget support is the way that it is today. 2.1 Relevant developments up to the end of the 1990s The basic roots of budget support as applied over the last few decades go back to the structural adjustment programmes introduced by the Bretton Woods institutions, the World Bank and IMF, in the 1980s.16 The programmes provided funds to developing countries for the reduction of balance of payment difficulties and budgetary deficits. They were conceived to be an answer to their high debts and budgetary deficits. Based on the neoliberal school of thought prevailing at that time, the ex-ante conditionalities of the programmes promoted a series of economic reforms and austerity measures in particular effecting social expenditures of recipient governments. While the IMF focuses on macro-economic stabilization, the World Bank concentrates on longer-term structural economic reforms and sector problems.17 As a consequence more shorter-term IMF loans in form of balance of payment support meant to allow countries to reduce their debts are not considered as budget support, but long-term World Bank loans used within government budgets are classified as budget support. However, the conditionalities of both institutions have certainly budgetary implications and are thus of high relevance when analysing budget support to developing countries. 16 Van Bilzen, G. 2015. “The development of aid.” Newcastle upon Tyne: Cambridge Scholars Publishing . P.416-432 17 Van Bilzen, G. 2015. “The development of aid.” Newcastle upon Tyne: Cambridge Scholars Publishing. P.430-431
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In light of the fact that structural adjustment programmes did not lead to the desired changes over the next years and decade, i.e. the required economic growth leading to a reduction of debt and fiscal deficits in a large number of developing countries did not materialise and the social indicators had not improved, more and more donors put pressure on the World Bank and IMF to change their policies and increased their allocations to the social sectors and prioritised poverty alleviation on their agendas.18 In this context some donors such as the European Commission started to provide programmes and the before mentioned targeted budget support to developing countries. The Bretton Woods institutions launched the ‘Highly Indebted Poor Country Initiative’ in order to provide debt relief. The condition to access the relief was based, however, on the “obligation (of the beneficiaries) to elaborate Poverty Reduction Strategy Papers.”19 These provided the World Bank and IMF with information on the country’s overall macroeconomic situation as well as structural and social programs. The international donor community appreciated these initiatives, in particular the approach of increasing the ‘ownership’ of developing countries.
A historical brief of the 1990s would not be complete without mentioning the broader political developments that took place at the time. At the end of the 1990s, with the effects of the Cold War thawing, development aid was also surrounded by questions of ‘good governance.’ As it became of much less political interest to the US and USSR to provide aid to politically dubious regimes, factors such as accountability, rule of law and democratic leadership were thrusted into the limelight of all development partners. These questions were paralleled with a certain wave of donor fatigue, based on the lack of improvements in the livelihood including the social indicators in developing countries. Within this international context it became clear that if development aid was to achieve its stated objectives, a comprehensive revision of the approach and way in which aid was to be provided needed to take place. 18 Van Bilzen, G. 2015. “The development of aid.” Newcastle upon Tyne: Cambridge Scholars Publishing. P.555 19 Van Bilzen, G. 2015. “The development of aid.” Newcastle upon Tyne: Cambridge Scholars Publishing. P.531
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2.2 Millennium changes
On the basis of the above outlined critical economic, political and social situation of many developing countries and the negative experience development partners had made with structural adjustment programmes and their development impacts, there were four main adaptations of development aid that were carried out at the end of the 1990s and beginning 2000s that were of significance to budget support.20 The first concerned the issue of ‘ownership’. There was an international recognition that in order for development aid to reach its intended results, it needed to conform to the policies and strategies developed by recipient countries. Linked to ‘ownership’ was also the principle of ‘alignment’ according to which the implementation of the funding would take place according to the recipient country’s institutional rules and regulations. A second important adaption concerned a performance oriented approach, i.e. to adopt a methodology from an 'input-output' approach to one that included 'outcome and impact.' Development partners recognized that it was more important to put their attention to the actual changes additional resources had on the livelihood of the target beneficiaries than to track their funding (input) or look at some infrastructure (output) that had been financed. The third adaptation related to the stronger emphasis on issues related to accountability of public finance management systems, i.e. to carry out with developing countries comprehensive assessments of their public finance management systems and to address the weaknesses identified rendering these systems more transparent, efficient and effective. This was also expected to lead to a reduction of the misuse of funds and corruption. Finally, the fourth significant change addressed greater harmonisation, i.e. stronger coordination and cooperation between donors in their development work in order to avoid multiple overlapping projects or programmes. Alongside these changes in approach, development also witnessed a renewal of objectives. These were laid out in eight Millennium Development Goals (MDGs) endorsed by 192 countries covering income, education, health, gender environmental and cooperation objectives, that the developing countries with the support of the donor community would strive to attain by 2015.21 20 Van Bilzen, G. 2015. “The development of aid.” Newcastle upon Tyne: Cambridge Scholars Publishing. P.577 21 Herfkens, E. and Bains, M. 2015. “Reaching our development goals: why does aid effectiveness matter?” Accessed February 10, 2017. P.3. Retrieved from : https://www.oecd.org/development/effectiveness/40987004.pdf.
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The adaptations that took place in the 2000s covering the objectives and approach were established in a series of international agreements seeking to enhance the effectiveness of development cooperation. They will be discussed in the next chapter.
With the adapted objectives and approach to development aid, aid modalities changed as well. This was particularly the case for the aid modality of budget support that became the preferred instrument for most of the major development partners. The European Commission that had provided considerable amount of targeted budget support, i.e. tying the disbursement of funds to specific budget lines mainly in the field of social services, since the beginning of the 1990s, was a driving force within the donor community introducing untargeted budget support. Under this type of budget support no tracking of the provided funds took place, and it was fully in line with the above outlined international approach of ownership, alignment, result orientation, public finance management focus and harmonisation between development partners.
In light of several developments during the second half of the first decade of the New Millennium such as the 2008 world economic crisis, a change in the political climate, in some cases the rise of conservative governments in several European countries having provided substantial budget support (e.g. UK, Germany and Sweden) and the detection of several cases of corruption and misuse of funds due to more transparent and improved public finance management systems in developing countries, many donors turned away from the aid modality of budget support. As the European Commission was and is not exposed to the same direct political pressure of national electorates, it was able to continue (and continues) to use budget support as its preferred or key aid modality and made adjustments to its approach only in 2012 to include in particular governance related issues. But although budget support is in our days mainly utilised by the European Commission, over the last few years certain important EU member states such as Germany and the UK have gradually begun providing funds through aid modalities such as ‘Common Funds’ and ‘Cash on Delivery’ that share strong similarities with budget support. It can be concluded that budget support in its present form was only introduced at the beginning of the New Millennium in the context of the changing perspective of the international community of how to provide aid more effective and efficiently. While at the
15 beginning of the 2000s budget support became the preferred aid modality by all development partners, at the end of the decade most donors distanced themselves increasingly from the instrument that continued to be given preference by the European Commission.
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3. Framework: The Aid Effectiveness Agenda
3.1 The Aid Effectiveness Agenda framework: 5 constitutive parts On the basis of the historical experience outlined in the last chapter, the thesis will now discuss its analytical framework: The Aid Effectiveness Agenda. The chapter will be organised in three parts. The first will outline the framework’s historical development and explain its five constitutive points that will serve as the basis upon which budget support will be assessed thereafter. The second will address the framework more critically by reflecting the academic debate surrounding it. This part will explore several critical perspectives that highlight certain specific limitations and drawbacks of the agenda. Finally, the third and final part will explain why budget support is considered as the most adapted aid modality to meet the principles laid down in the agenda. The chapter will therefore establish both a theoretical and critical understanding of the framework as well as explain why budget support is conceptually superior to other aid modalities when meeting the principles of the agenda.The historical experiences had demonstrated that not only objectives needed to be changed, but also the overall approach of providing aid. There was thus a growing concern that besides the quantity of aid, a stronger focus had to be laid on qualitative aspects. In other words, emphasizing how aid was provided and not only how much was being provided. Indeed, although the last couple of decades witnessed continual growth in aid flows and a significant enlargement of the donor community, the provision of aid was fragmented and poorly coordinated. Therefore, as well as making the delivery of aid more predictable and reliable, the change that took place needed to put forward a complete revision in approach to better align with the MDGs22. The discussion on aid effectiveness
gained momentum in 2002 at the first UN sponsored ‘International Conference on Financing for Development’ in Monterrey, Mexico, where over 200 ministers of finance, foreign affairs, trade and development23, official development bodies and development organisations from
civil society including business agreed to increase funding for development—but also 22 OECD. 2005. “Paris Declaration on Aid Effectiveness.” Paris: OECD. P.1. Accessed January 10, 2017. Retrieved from: http://www.oecd.org/dataoecd/11/41/34428351.pdf 23 UN. 2002. Accessed January 10, 2017. “International Conference on Financing for Development.” Monterrey Mexico, retrieved from: http://www.un.org/esa/ffd/monterrey/MonterreyConsensus.pdf.
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stressed that more money alone was not sufficient. Donors and developing countries wanted to see aid to be used in an effectively manner.
A year later in 2003 the First High Level Forum on Aid Effectiveness focusing on the harmonisation of operational policies, procedures and practices was sponsored by the OECD/DAC.24 25
The Second High Level Forum on Aid Effectiveness, also sponsored by the OECD/DAC, took place in Paris in 2005, and the above mentioned Declaration on Aid Effectiveness was signed.26 It constituted a new approach and consensus amongst donors to produce better development results and was based on five mutually reinforcing principles: Ownership, alignment, harmonisation, result orientation and mutual accountability. But these principles were not suddenly invented but resulted from the historical experiences outlined before. It was also not a ‘once and for all’ approach, but evolved further over time.
Thus, at the Third High Level Forum on Aid Effectiveness in 2008 the Accra Agenda for Action was endorsed by 137 countries, twenty-nine multilateral and bilateral development organisations and fourteen civil society organisations.27 The principles laid
down in Paris were reconfirmed but a slow implementation of the substance of Paris Declaration was pointed out. The Accra Agenda was particularly significant as it put an emphasis on the incorporation of more development actors including civil society and private business, besides central government executive branches. The chapter on alignment was incorporated into that of ownership. At the Fourth High Level Forum on Aid Effectiveness in Busan, the Global Partnership for Effective Development Cooperation was established and endorsed by 161 countries and 24 The Organisation for Economic Cooperation and Development/ Development Assistance Committee is part of the OECD and presently composed of 29 countries plus the European Commission. The World Bank, IMF and UNDP serve as observers. The OECD/DAC is therefore grouping the most important providers of ODA. Its Working Party on Aid Effectiveness is the major international platform where multilateral and bilateral donors work together with developing countries on the improvement of the aid effectiveness. 25 OECD. 2003. “Rome Declaration on Harmonisation.” Paris: OECD. Accessed January 10, 2017. Retrieved from: http://www.oecd.org/dataoecd/54/50/31451637.pdf. 26 OECD. 2005. “Paris Declaration on Aid Effectiveness.” Paris: OECD. Accessed January 10, 2017. Retrieved from: http://www.oecd.org/dataoecd/11/41/34428351.pdf 27 OECD. 2008. “Accra Agenda for Action.” Paris: OECD. Accessed January 10, 2017. Retrieved from: http://www.oecd.org/dac/aideffectiveness/41202012.pdf
18 fifty-six organisations.28 The commitments made earlier under the Aid Effectiveness Agenda were reconfirmed and an even stronger emphasis was put on the principle of partnership covering countries of all income categories and all actors within these countries. As a follow up to Busan two high level meetings on the global partnership took place, first in Mexico in 2014 and then in Nairobi, in December 2016.29 It can therefore be seen that since Busan, the donor-recipient relationship has “been replaced by approaches that view all stakeholders as equal and interdependent partners in development.”30 It reaffirmed past commitments under the Aid Effectiveness Agenda and expanded on the necessity for result orientation and more inclusive national partnerships between the different bodies of the public sector at national and local level, the private sector, trade unions and civil society. It also pointed to the importance of domestic resource mobilisation in order to achieve the sustainable development goals set for 2030.31 They replaced the MDGs and were laid down in the 2030 Agenda for Sustainable Development, adopted by the UN General Assembly in September 2015. 32
Therefore, the conceptual framework of the Aid Effectiveness Agenda and of the Global Partnership for Effective Development Cooperation was established under the Paris Declaration and several of its elements were developed in the agreements thereafter. For purposes of this thesis the five principles established under the Paris Declaration -that have not lost their significance over time- shall form the analytical framework. 28 OECD. 2011. “Busan Partnership for Effective Development Cooperation.” Busan: OECD. Accessed January 10, 2017. Retrieved from : http://www.aideffectiveness.org/busanhlf4/images/stories/hlf4/OUTCOME_DOCUMENT_-_FINAL_EN.pdf 29 The 17 measurable Sustainable Development Goals for 2030 replacing the before mentioned Millennium Goals were established in 2015 by the UN General Assembly 30 Nairobi Outcome document. 2016. “Global Partnership for Effective Development Co-operation, Nairobi Kenya.” Accessed January 10, 2017. P.1. Retrieved from: http://effectivecooperation.org/wp-content/uploads/2016/12/OutcomeDocumentEnglish.pdf 31 Ibid 32 UN. 2015. ‘’Transforming our world: the 2030 Agenda for Sustainable Development.” UN-Sustainable Development knowledge platform. Accessed 23 August 2017. Retrieved from: https://sustainabledevelopment.un.org/post2015/transformingourworld.
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1. Ownership:
The first constitutive element of the Aid Effectiveness Framework relates to the necessity for developing countries to own the developmental process.33 One of the most important realisations that donors made concerned the fact that in order for development aid to reach its intended results, it needed to conform to the policies and strategies developed by recipient countries. As stated by Koeberle, “country owned development programs are prerequisites for achieving sustainable results.”34 This was something that the Poverty Reduction Strategy Papers introduced at the end of the last millennium did not promote, as they were largely directed by Bretton Wood institutions.
In Article 16 of the Paris Declaration it is stated: ‘’Draw conditions- whenever possible from a partner country’s development strategy.’’35 It came to the recognition by the
international community that donors needed to stray away from imposing their requirements upon partner governments in light of making the development process their own both in terms of design and implementation. The same principle of national ‘ownership’ is applicable to performance assessment frameworks. Indeed, the Busan declaration identifies that “country level results frameworks (…) will be adopted as a common tool.”36
However, this does not signify that the donor’s role will be taken out of the equation, part of strengthening country ownership implies a strong policy dialogue. This point was further elaborated upon in the Accra Agenda which states, ‘’We will engage in open and inclusive dialogue on development policies”37 and reconfirmed at the Busan and Nairobi
Conferences.38 Maintaining an open and inclusive dialogue is necessary for all concerned
actors to be informed on the process as well as the progress of development policies. 33 OECD. 2005. “Paris Declaration on Aid Effectiveness.” Paris: OECD. Accessed January 10, 2017. Retrieved from: http://www.oecd.org/dataoecd/11/41/34428351.pdf 34 Koeberle, S., Stavreski, Z., and Walliser, J. 2006. “Budget support as more effective aid?: recent experiences and emerging lessons.” Washington, D.C.: World Bank. P.4. 35 OECD. 2005. “Paris Declaration on Aid Effectiveness.” Paris: OECD. Accessed January 10, 2017. P.3. Retrieved from: http://www.oecd.org/dataoecd/11/41/34428351.pdf. 36 OECD. 2011. “Busan Partnership for Effective Development Cooperation.” Busan: OECD. Accessed January 10, 2017. P.5. Retrieved from : http://www.aideffectiveness.org/busanhlf4/images/stories/hlf4/OUTCOME_DOCUMENT_-_FINAL_EN.pdf 37 OECD. 2008. “Accra Agenda for Action.” Paris: OECD. Article 13. Accessed January 10, 2017. P.16. Retrieved from: http://www.oecd.org/dac/aideffectiveness/41202012.pdf 38 Nairobi Outcome document. 2016. “Global Partnership for Effective Development Co-operation, Nairobi Kenya.” Accessed January 10, 2017. P.1. Retrieved from: http://effectivecooperation.org/wp-content/uploads/2016/12/OutcomeDocumentEnglish.pdf
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2. Alignment
A partnership between development partners and recipient countries is thus required to achieve common objectives. Linked to ‘ownership’ is also the principle of ‘alignment’ according to which the implementation of funding takes place according to the recipient country’s administrative rules and regulations. In order for developing countries to own the development process, donors had to focus and align themselves with country procedures and priorities. This principle was introduced in the Paris Declaration under Article 17: “Using a country’s own institutions and systems, where these provide assurance that aid will be used for agreed purposes, increases aid effectiveness.”39 In order for donors to be able to
decide on the use country systems, “diagnostic reviews are an important…source of information to governments and donors on the state of country systems in partner countries.” (Article 18)40
A further very important area captured under the chapter ‘Alignment’ of the Paris Declaration concerns the strengthening of development capacity.41 It is pointed out that
“capacity to plan, manage, implement, and account for results of policies and programmes, is critical for achieving development objectives” 42
Besides spending domestic and foreign resources more effectively, over the last years a growing emphasis has been put by development partners and partner countries within the Aid Effectiveness Agenda on the issues of domestic resource mobilisation. The underlying purpose of domestic resource mobilisation is to promote functioning and effective tax systems in order to allow countries to generate their own revenues and by doing so reducing reliance on external aid and ultimately creating an exit strategy for development partners. While Article 25 of the chapter on alignment under the Paris Declaration only mentions domestic resource mobilisation, the Nairobi ‘Outcome Document’ puts this issue on a much higher platform by stating “the mobilization and effective use of domestic resources to support national development priorities (…) is critical for sustainable long term
39 OECD. 2005. “Paris Declaration on Aid Effectiveness.” Paris: OECD. Accessed January 10, 2017. Article 17. Retrieved from: http://www.oecd.org/dataoecd/11/41/34428351.pdf 40 Ibid Article 18. 41 Ibid Article 22. 42 Ibid P.4.
21 owned development.”43 3. Harmonisation:
As explained before, the increase in aid flows combined with the considerable enlargement of the donor community in the last couple decades required a greater level of coordination and cooperation. In addition, in line with the principles outlined above, in order to make better use of country systems and thus promote country ownership, the Aid Effectiveness Agenda emphasizes that donors and recipients need to harmonise their development procedures. Article 32 of the Paris Declaration states: ‘’Implement (…) common arrangements at country level for planning, funding, disbursement, monitoring, evaluating and reporting.”44 In other words, encourage stronger cohesion between donors
and recipients in their development work in order to increase efficiency of aid and avoid having multiple overlapping programmes. The ultimate objective of harmonisation, lies therefore in making aid more effective in order to reduce transaction costs.
The Paris Declaration outlines areas that offer themselves to harmonisation. In this context a harmonisation of procedures45 and diagnostic reviews46, and common
arrangements for planning, funding, disbursement, monitoring and evaluating are mentioned.47
4. Result orientation:
As pointed out by Koeberle: “In the past, policy-based lending and other forms of development assistance focused on policy actions and did not always pay enough attention to intended outcomes.”48 In order to assess whether development aid was getting closer to fundamental objectives, development partners recognized that it was more important to 43 Nairobi Outcome document. 2016. “Global Partnership for Effective Development Co-operation, Nairobi Kenya.” Accessed January 10, 2017. P.6. Retrieved from: http://effectivecooperation.org/wp-content/uploads/2016/12/OutcomeDocumentEnglish.pdf 44 OECD. 2005. “Paris Declaration on Aid Effectiveness.” Paris: OECD. Article 32. Accessed January 10, 2017. Retrieved from: http://www.oecd.org/dataoecd/11/41/34428351.pdf 45 Ibid article 35 46 Ibid article 32 47 Ibid article 32 48 Koeberle, S., Stavreski, Z., and Walliser, J. 2006. “Budget support as more effective aid?: recent experiences and emerging lessons.” Washington, D.C.: World Bank.. P.5
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focus their attention to the actual changes additional resources had on the livelihood of the target beneficiaries than to track their funding (input) or look at the building of infrastructure (output). This reasoning was introduced in the Paris Declaration: ‘’Managing for results (…) in a way that focuses on the desired results”49 and further specified in the Accra Agenda seeking more sustainable and long term improvements: “We will be judged by the impacts that our collective efforts have on the lives of poor people.”50 In line with the principles outlined above, it is also highlighted that donors should to the largest extent use the country’s own monitoring framework for reporting and harmonise their assessments in order to promote country ownership of the process.51
Adopting a result oriented approach is also significant for the disbursement of funds. Contrary to structural adjustment programmes used in the past according to which funds were disbursed on the basis of anticipated policy changes, under the aid effectiveness framework funds are provided against the achievement of results. The conditions imposed on partner countries are thus no longer tied to ‘ex ante’ policy changes but rather to ‘ex post’ delivery of results.52 The content and focus of conditionalities are therefore much
more in line with obtaining meaningful results and reaching agreed objectives.
5. Transparency and accountability
While the Paris Declaration focuses on mutual accountability looking at the relationship between development partners and partner countries, since Accra this topic also includes domestic accountability, thus covering the relationship between the partner government and its citizen and ‘check and balance’ institutions as well. Since Busan the chapter is entitled “Transparency and Accountability.”53 While accountability for donors and domestic
stakeholders is of importance to be assured that budgetary funds are spent efficient and 49 OECD. 2005. “Paris Declaration on Aid Effectiveness.” Paris: OECD. Article 41. Accessed January 10, 2017. Retrieved from: http://www.oecd.org/dataoecd/11/41/34428351.pdf 50 OECD. 2008. “Accra Agenda for Action.” Paris: OECD. Article 22. Accessed January 10, 2017. Retrieved from: http://www.oecd.org/dac/aideffectiveness/41202012.pdf 51 OECD. 2005. “Paris Declaration on Aid Effectiveness.” Paris: OECD. Article 45. Accessed January 10, 2017. Retrieved from: http://www.oecd.org/dataoecd/11/41/34428351.pdf 52 Koeberle, S., Stavreski, Z., and Walliser, J. 2006. “Budget support as more effective aid?: recent experiences and emerging lessons.” Washington, D.C.: World Bank. P°5 53 OECD. 2011. “Busan Partnership for Effective Development Cooperation.” Busan: OECD. Accessed January 10, 2017. P.3. Retrieved from : http://www.aideffectiveness.org/busanhlf4/images/stories/hlf4/OUTCOME_DOCUMENT_-_FINAL_EN.pdf
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effectively in accordance to the rules and regulations of a country, partner countries are interested to receive credible donor commitments and “timely, transparent and comprehensive information on aid flows.”54 It is also pointed out in the Declaration and the agreements thereafter that “donors will provide full and timely information on annual commitments and disbursements so that developing countries are in a positon to accurately record all aid flows in their budget estimates and their accounting system.”55 Within the area of accountability, the predictability of the flow of aid funds is therefore of high relevance. 3. 2 Academic debate of the Aid Effectiveness Agenda: Having outlined the five main constitutive pillars of the Aid Effectiveness Agenda, the following chapter will discuss its critical reception amongst the academic community. The critiques of academic scholars do not, however, question the value of the Agenda as such, but they rather concentrate on some of its specific aspects pointing out certain limitations and drawbacks. This is important for they allow for a more constructive critique of the framework and will be further addressed in the elaborations of the following sections of this thesis.
In his critical contribution, Booth addresses the aspect of ownership, one of the fundamental objectives of the Agenda to achieve better development results. He criticizes that the framework wrongfully assumes “that country ownership … already exists, and that the only issue for international actors is how to avoid undermining it.”56 This would be “completely unrealistic.”57 Booth expresses his view that the political leadership of most
countries (he particularly refers to low income Sub-Saharan countries) does not have a long term developmental outlook but “engages in short-term clientelistic strategies for gaining votes and seeking legitimacy.”58 Donors therefore need to promote approaches that incentivize political leaders to take a longer term perspective, as otherwise their support 54 OECD. 2005. “Paris Declaration on Aid Effectiveness.” Paris: OECD. Article 49. Accessed January 10, 2017. Retrieved from: http://www.oecd.org/dataoecd/11/41/34428351.pdf 55 OECD. 2008. “Accra Agenda for Action.” Paris: OECD. Article 26. Accessed January 10, 2017. Retrieved from: http://www.oecd.org/dac/aideffectiveness/41202012.pdf 56 Booth, D. 2012. “Aid effectiveness: bringing country ownership (and politics) back in, Conflict, Security & Development.” 12:5, 537-558. P.553 57 Ibid 58 Booth, D. 2012. “Aid effectiveness: bringing country ownership (and politics) back in, Conflict, Security & Development.” 12:5, 537-558. P.553
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shields existing structures, and there is a risk that donors align themselves with country policies and strategies that are not always in the interest of promoting long-term development. In order to get a better understanding of country contexts, political economy analyses are required.59 On the basis of changed political outlooks external actors can then make a positive contribution through the transfer of funds and technical skills to solve ‘collective action problems’. Ownership is thus the outcome and not the ‘established fact’ of a process.
In his article discussing the Aid Effectiveness Agenda and the rise of emerging donors such as China, India, Brazil, etc, Woods points to the “yawning gap between the talk about coordination and ownership on the one hand and, on the other, actual donor practices, which are neither coordinated nor linked to instruments or institutions within aid-receiving countries.”60 The proliferation of governmental and non-governmental agencies involved in
development cooperation has imposed an increasing, mainly bureaucratic burden on recipient countries and results in heavy transaction costs.
Also Hyden deals with the issues of harmonisation and coordination but points to the partial incompatibility with the objective of ownership. Indeed, in cases such as described by Woods where donors fail to act unanimous, promoting country ownership may become easier, as under these circumstances developing countries often “find space for their own initiatives, (but) many of which may differ from the goals of the global agenda, whether with regards to good governance or poverty reduction.”61 Furthermore, Hyden elaborates that an
increasing ownership of partner countries governments, implying them deciding on policy priorities and resource management, has made it more difficult for development partners to find out what is really happening.62 Donors thus need to invest much more in understanding the political economies of partner countries. This situation is aggravated by the change of donor staff every three to four years, leaving very little institutional memory behind.63 59 Booth, D. 2012. “Aid effectiveness: bringing country ownership (and politics) back in, Conflict, Security & Development.” 12:5, 537-558. P.551. 60 Woods, N. 2008. “Whose aid? Whose influence? China, emerging donors and the silent revolution in development assistance.” International Affairs,84(6), 1205-1221. P.1218 61 Hyden, G. 2008. “After the Paris Declaration: Taking on the Issue of Power.” Development Policy Review, 26(3). P.265 62 Ibid P.71 63 Hyden, G. 2008. “After the Paris Declaration: Taking on the Issue of Power.” Development Policy Review, 26(3). P.71
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Andersen and Therkildsen further elaborate the issue of ownership and alignment, and coordination and harmonisation by pointing to the mixed results that were reached in these areas.64 On ownership and alignment they point out that the strong involvement of donors in the design of poverty reduction strategy papers and setting of performance indicators gives them too much influence on the development process.65 Therefore, although theoretically the Agenda enhances ‘administrative’ ownership, this may not be the case for ‘political’ ownership.66 As regards harmonisation and coordination they argue that the transaction costs of policy dialogue, a core element of budget support, may not decrease, neither for the donor nor the partner country, in light of the necessity for a more intensive dialogue including the establishment of many specific working groups that require staff resources from all parties involved.67 In this context empirical evidence was already provided by Steward and Young in 2003 showing that national governments had only “formally” taken the lead in the drafting of development agendas but that the “substance” was heavily influenced externally. 68
Barder provides a more general critique of the agenda by addressing the fact that its implementation is too determined by a bureaucratic ‘’planning mindset.’’69 There are two
main aspects to this critique: The first relates to the overemphasis that is placed on long coordination meetings between donors and partner governments and the second, to the lack of accountability for donors to uphold their commitments. In order to remedy these two issues, Barder suggests the introduction of a so called ‘collaborative market’ composed of ‘markets’ and ‘networks’.70 In order to introduce the notion of a market in the context of
development aid, Barder proposes, for example, the implementation of explicit contracts between donors and partner countries with measurable performance indicators focusing on results and not on inputs. This idea is also discussed by Rogerson that suggests ‘’the inclusion of rating instruments that could inform country choices and perhaps shape allocations”71 in 64 Andersen, O., and Therkildsen, O. 2007. “Harmonisation and Alignment: The double-edged swords of budget support and Decentralised Aid Administration.” Danish Institute for International Studies, DIIS. 65 Ibid P.17 66 Ibid P.20 67 Ibid P.3 68 Frances, S and Wang, M. 2003. "Do PRSPs empower poor countries and disempower the World Bank, or is it the other way round?" Queen Elizabeth House, University of Oxford. 69 Barder, O. 2009. “Beyond Planning: Markets and Networks for Better Aid.” SSRN Electronic Journal. P.1 70 Barder, O. 2009. “Beyond Planning: Markets and Networks for Better Aid.” SSRN Electronic Journal. P.30 71 Rogerson, A. 2005. “Aid Harmonisation and Alignment: Bridging the Gaps between Reality and the Paris Reform Agenda.” Development Policy Review23, no. 5. P.550
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which the ‘price’ should be in the form of a financial commitment linked to performance and to providing incentives that promote innovation and rewards success. As a complement to the market mechanism, Barder points to the development of networks that have a function to ultimately improve transparency and accountability by providing more information and knowledge and thus enabling all parties involved, including civil society and check-and-balance organizations, to have a stronger say and control over development partners and partner governments.72
As mentioned before, the critical comments made by the different scholars are of significance in the context of this thesis and will be made reference to, where relevant, in the following chapters. 3.3 The choice of budget support as aid modality Before assessing budget support against the different components of the Aid Effectiveness Agenda outlined above, it must be made clear why budget support is considered as the most adapted modality to meet the agreed principles under the Aid Effectiveness Agenda. This section will therefore discuss the different reasons for which budget support is conceptually superior to other forms of aid provision. Once this has been explained, the section will also elaborate on the fact that although budget support incorporates all the conceptual advantages, it is not a ‘fit for all’ approach, and country specific considerations need to be taken into account in order to determine which aid modality is the most appropriate. Finally, the introduction of ‘fundamental values’ by the EC in its budget support contracts will be discussed critically. 3.3.1 Budget support as preferred aid modality: As outlined under chapter one, within development cooperation there are a number of aid modalities that can be grouped into project and programme support.73 Project funds determined by the donor are provided to implement some specific and predefined
72 Barder, O. 2009. “Beyond Planning: Markets and Networks for Better Aid.” SSRN Electronic Journal. P.29 73 Van Bilzen, G. 2015. “The development of aid.” Newcastle upon Tyne: Cambridge Scholars Publishing. P.10
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development activities with a specific objective or ‘output’ and detailed expenditures.74 In almost all cases projects are using parallel management and accounting systems to that of governments. If one considers the above outlined principles of the Aid Effectiveness Agenda, it becomes obvious why projects have received considerable criticism over time. As experience has shown, most projects were designed and appraised under the lead of the donor and not the government. Projects fragment the development of a country and do not take into consideration the wider context of the development implying that also a wider sector or even national policy dialogue is not possible.75 Projects lacking country ownership, not making use of country systems, being fragmented and thus preventing harmonisation and entailing high transaction costs therefore do not comply with the fundamental principles under the global partnership for effective-development cooperation.
Within the framework of programme-based aid, wider sector or national developments are taken into consideration, and it therefore allows for a comprehensive policy dialogue. More concretely, programme support covers aid modalities related to a sector in the form of pool/basket funding or sector budget support, or to the national development through general budget support. Newly developed modalities such as ‘Cash on Delivery’ and ‘Programme for Results’ are functioning similar to budget support programmes. Within pool or basket funding, resources are transferred into the government budget but in the first instance pooled between different donors in a special account and “either managed by one of the participating donors or by the respective line ministries”76
Within the context of budget support, it can be provided in a targeted or untargeted form.77 As pointed out before, the targeted approach, according to which donor funds are
earmarked to specific budget lines, was utilised by the EU during the 1990s. It was abandoned in almost all cases at the beginning of the New Millennium as it was ‘input’ oriented and thus not in line with the approach of result orientation focusing on changes for the targeted beneficiaries (‘outcome’ oriented approach). The targeting of specific budget 74 Foster, M. and Fozzard, A. 2000. “Aid and Public Expenditure: A Guide, Working Paper 11.” Centre for Aid and Public Expenditure, odi. P.13 & Bandstein, S. 2007. “What determines the choice of aid modalities ? A framework for assessing incentive structures.” (2007:4) SADEV Report. P.8 75 Foster, M, and Leavy, J. 2001. “Proposed Guidance for DFID on the Choice of Aid Instruments.” Centre for Aid and Public Expenditure, odi. P.20. 76 Sida. 2005. “Questions and Answers on Programme Based Approaches.” POM Working Paper 2005. P.7. 77 European Commission: EuropeAid Development and Cooperation Directorate-General. 2012. “Working document: Tools and Methods Series, budget support Guidelines, Programming, Design and Management. A modern approach to budget support.”P.71
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lines took also away the responsibility and thus ‘ownership’ of the government for the financing of the lines. As budgetary funds are fungible it was recognized that only in extreme cases when the risk with public finance management appears to be considerable, e.g. a total lack of budget credibility or a continued cash flow problem leading to agreed priority budget lines and sectors not receiving budgetary funds, a targeting of budget support was useful.78
Untargeted sector or general budget support is making total use of the government public finance management system, i.e. of the allocation, procurement, accounting and auditing of budgetary funds.79 It allows for the government to be in the driving seat as regards the design of its national and sector development policies, strategies, activities and budget allocations. Ownership and alignment with partner country systems are therefore principle characteristics. Furthermore, in order not to provide ‘blanco cheques’, a meaningful policy dialogue is of utmost importance. Harmonisation between donors as regards policy dialogue, utilization of performance indicators, missions, reviews and evaluations allows for the reduction of transaction costs and an increase of the effectiveness of the partner countries’ public administration. Consequently, there has been a historical trend towards a more programme-based approach addressing wider development objectives at a sectoral or national level through a wide range of activities. Looking at the different conceptual characteristics covered by the Aid Effectiveness Agenda as of Rome in 2003 and thereafter, the following table illustrates which aid modality fulfills what specific criteria: 80 78 Ibid P.148 79 European Commission: EuropeAid Development and Cooperation Directorate-General. 2012. “Working document: Tools and Methods Series, budget support Guidelines, Programming, Design and Management. A modern approach to budget support.”P.148 80 OECD. 2003. “Rome Declaration on Harmonisation.” Paris: OECD. Accessed January 10, 2017. Retrieved from: http://www.oecd.org/dataoecd/54/50/31451637.pdf.
29 Aid Modality Conditionality /Perf. Indicators Accountabi lity Alignm-ent Harmonisa-tion Earmark-ing of funds Pol. Dial. Capacity Dev. General budget support Macro/budget / sectoral Gov. system
yes yes none Yes Yes
Sector budget support
Sectoral Gov. system
yes yes none,
notional Yes sector Yes Basket, etc arrangements Sectoral Blend of gov./ donor system
partial partial Yes within sector
Yes sector
Yes
Projects Limited Donor no no Yes
related to projects No; very limited Yes
Source: Adapted from Foster, M, and Leavy, J. 2001. “Proposed Guidance for DFID on the Choice of Aid Instruments.” Centre for Aid and Public Expenditure, odi. , the table includes ‘inputs’ in form of Funds, policy dialogue and Capacity Development.
The table shows that the aid modalities of general and sector budget support are superior to the other aid modalities of meeting the agreed principles under the Aid Effectiveness Agenda. Conceptually budget support respects the ownership of government and allows for a wide and meaningful policy dialogue, makes use of country systems and allows for harmonisation and performance orientation.
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3.3.2 County specific considerations
a. Budget support eligibility criteria
Although budget support incorporates, however, all of the outlined conceptual advantages measured against the Aid Effectiveness Agenda, the country specificities must be taken into account in order to decide which aid modality is finally the most appropriate to use in a specific country situation.81 In its approach the EU has therefore formulated four eligibility criteria that need to be in place in order to be in the position to conclude a financing agreement with the respective partner country. The eligibility criteria are the following: 82 • “Public policy: there is a credible and relevant national/sector development strategy that supports the objectives of poverty reduction, sustainable and inclusive growth, and job creation the consolidation of democracies and peaceful societies, and the promotion of gender equality.
• Macroeconomic: there is a credible and relevant programme to restore and /or maintain macroeconomic stability. • Public finance management: there is a credible and relevant programme to improve public financial management. • Budget transparency: the government has published either the executive’s proposal or the enacted budget within the previous or current cycle” 81 Koeberle, S., Stavreski, Z., and Walliser, J. 2006. “Budget support as more effective aid?: recent experiences and emerging lessons.” Washington, D.C.: World Bank. P°98 82 European Commission: Directorate-General for International Cooperation and Development and Directorate-General for Neighbourhood and Enlargement Negotiations. 2017. “Budget Support Guidelines, September 2017”. P.20.
