Budget support an effective way to finance development Conference on Budget support tools for development cooperation Madrid, 12 November 2009 José E. Leandro Macroeconomic support
Outline Setting the scene Eligibility Conditionality: focus on results Special situations (fragile states, financial crisis) The potential benefits of budget support The limits of budget support The risks of budget support Conclusion
Setting the scene
Budget support is a financing instrument not an objective of development assistance Warning: Deciding to use budget support modality before objectives of the assistance are determined, would be like putting the cart before the horse. International commitment on the use of country systems (Paris, Accra), including by increasing the share of assistance provided through budget support.
What is budget support The Chinese Wall Partner Country s Central Bank EC Funds in Foreign Exchange Reserves Treasury Account(s) Tax and Non tax revenues + Conditions for disbursements: (i) General Conditions (ii) Specific Conditions (Performance Orientation) Budget implementation through partner country s Public Financial Management
Why budget support--the pharmaceutical sub-sector in Kenya Commodity Logistics System in Kenya (as of April 2004) Constructed and produced by Steve Kinzett, JSI/Kenya - please communicate any inaccuracies to skinzett@cb.jsikenya.com or telephone 2727210 Commodity Type (colour coded) Contraceptives and RH equipment Condoms for STI/ HIV/AIDS prevention STI Drugs Essential Drugs Vaccines and Vitamin A TB/Leprosy Blood Safety Reagents (inc. HIV tests) Malaria MOH Equipment Anti- Retro Virals (ARVs) Laboratory supplies Organization Key Government World Bank Loan Bilateral Donor Multilateral Donor NGO/Private Source of funds for commodities U S A I D K f W E U U N F P A D F I D W H O GOK B T C J I C A C I D A G A V I UNICEF G D F K N C V S I D A D A N I D A GOK, WB/ IDA US Gov Global Fund for AIDS, TB and Malaria MSF Procurement Agent/Body U S A I D K f W E U R O P A U N F P A Crown Agents Government of Kenya Japanese Private Company UNICEF MEDS GTZ (procurement implementation unit) C D C The "Consortium" (Crown Agents, GTZ, JSI and KEMSA) MSF Point of first warehousing KEMSA Regional Depots KEMSA Central Warehouse KEPI Cold Store MEDS NPHLS store Organization responsible for delivery to district levels NLTP (TB/ Leprosy drugs KEMSA and KEMSA Regional Depots (essential drugs, malaria drugs, consumable supplies) JSI/DELIVER/KEMSA Logistics Management Unit (contraceptives, condoms, STI kits, HIV test kits, TB drugs, RH equipment etc) KEPI (vaccines and vitamin A) MEDS (to Mission facilities) Provincial and District Hospital Laboratory Staff Private Drug Source Organization responsible for delivery to subdistrict levels Mainly District level staff: DPHO, DPHN, DTLP, DASCO, DPHO, etc or staff from the Health Centres, Dispensaries come up and collect from the District level
Eligibility for budget support
Cotonou and Budget Support Article 61(2) Direct budgetary assistance in in support of of macroeconomic or or sectoral reforms shall be be granted where (a) (a) Public expenditure management is is sufficiently transparent, accountable, and and effective (b) (b) Well Well defined macroeconomic or or sectoral policies established by by the the partner country itself and and agreed by by its its main donors are are in in place; and and (c) (c) Public procurement is is sufficiently open and and transparent
Eligibility for Budget Support Macroeconomic policy Existence of of stability-oriented policies is is confirmed in in consultation with with the the IMF IMF Public Public Financial Management (PFM) (PFM) Assessment (PEFA (PEFA methodology), but but no no crosscountry minimum standard cross- Government s PFM PFM Reforms National/Sectoral policy policy and and strategy National Programmes (PRSP) (PRSP) Sector Sector reform reform strategies 10
Budget support s share in the overall EC development assistance (commitments) 10.000.000.000 9.000.000.000 8.000.000.000 7.000.000.000 6.000.000.000 5.000.000.000 4.000.000.000 3.000.000.000 Others SBS GBS 2.000.000.000 1.000.000.000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 forecast
EC Budget support commitments by regions 4.000.000.000 3.500.000.000 3.000.000.000 2.500.000.000 2.000.000.000 1.500.000.000 MEDA/ENPI Latin America Asia South Africa EDF 1.000.000.000 500.000.000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 forecast
Conditionality: focus on results
Conditionality EC makes a distinction between o General conditions (BS eligibility assessed on a continuous basis) o Specific conditions (indicators, policy measures etc. to assess progress over a specific period of time) EC shares a common framework on BS with EU/non-EU donors on performance assessment. For instance: Vietnam o 10 EU MS: BE, DK, FI, FR, DE, IR, NL, SE, ES, UK o Others: WB, UNDP, USAID, ADB, AusAID, CIDA, JBIC Mozambique o 13 EU MS: AT, BE, DK, FI, FR, DE, ES, IR, IT, NL, PT, SE, UK o Others: AfDB, CDN, CH, NO, WB
Focus on results: typology of indicators IDEA IDEA EXAMPLE EXAMPLE IMPACT OUTCOME/RESULT Wider Wider effects effects Consequences Consequences of of outcomes outcomes Focus Results Results at at the the level level of of beneficiaries beneficiaries (supply (supply meets meets demand) demand) Literacy Literacy rates rates Enrolment Enrolment rates rates OUTPUT Concrete Concrete consequences consequences of of resources resources or or measures measures taken taken (supply) (supply) Schools Schools built built INPUT INPUT Money Money or or measures measures taken taken Funds Funds Budgeted/spent, Budgeted/spent, laws laws passed passed 15
Special situations: fragile states The implementation of budget support can be adapted to fragile situations taking into account the particular risk profile for the country Need for an IMF program in place or a comfort letter Focus is on the short-term and on the process of getting strategies in place Countries: Burundi, CAR, Guinea Bissau, Sierra Leone, Haiti, Liberia, Comoros, DRC
Special situations: response to the economic and financial crisis Communication on Supporting Developing Countries cope with the crisis (COM (2009) 160 of 8.4.2009) Temporarily re-focusing budget support on maintaining macroeconomic stability and protecting pro-poor expenditures Vulnerability FLEX is additional money, to be disbursed quickly and without additional conditionality Macro-financial assistance instrument (grants/loans) is made available to a limited number of candidate/ neighbourhood countries; it is strictly linked to an IMF-program; short-term focus
The Potential Benefits of Budget Support
Short and medium-term potential benefits Increased Increased Ownership; Ownership; Dialogue Dialogue on on policies; policies; improved improved domestic domestic accountability accountability Efficient Efficient use use of of resources, resources, capacity Greater capacity Greater development; development; result harmonisation result harmonisation orientation, orientation, increased and increased and alignment; alignment; and and impact impact and and sustainability coherence sustainability coherence Lower Lower transaction transaction costs costs (for (for partner partner countries) countries) 19
The Limits of Budget Support
Budget support is an aid modality, not an end in itself It is not an easy way to disburse funds requires thorough preparation and constant policy dialogue with beneficiary country Requires high coordination between beneficiary and donors, and among donors It is not the most appropriate vehicle to enforce political conditionality (human rights, democracy, rule of law ). These matters are better treated at political level
The Risks of Budget Support
Budget support is not more or less risky than projects It follows a different profile of risks as compared to projects Risk assessment is key part of BS preparation and updated during implementation with a particular focus on public finance management EC is reinforcing its approach on risk assessment, with focus on fiduciary, developmental and political risks
Conclusion
Budget support: the risk of too high expectations 25