Beitrag vom 29.06.2012

DIE Newsletter Nr 2, 2012

The future of EU budget support

European Think-Tanks Group
in collaboration with the Institute of Development Policy and Management, University of Antwerp

May 2012

Conclusion
The EC's new approach to budget support has been largely driven by the dissatisfaction of members states, who consider that the EU's policy has been too insensitive to political issues. Although there are a number of good reasons why donors should not turn a blind eye to governance issues, tying budget support more strictly to the political conditions in a recipient county is not without its pitfalls. It is unclear whether this attempt to protect some of the positive attributes of budget support will in fact be its downfall.
Four interrelated messages have emerged from our analysis:

1. The idea of accounting for political condition in varying degrees to sector and general budget support operations makes little sense from a purely technical perspective. Yet from a political perspective, such approach is likely to shield the EC and the EU member states from domestic criticisms. Technically all types of budget support are equally fungible, so SBS is just as likely to be abused for corruption or spent for different purposes as GBS. However, the reputational risk associated with the latter is often perceived to be less than the former. This is largely because of a misplaced sentiment held by the wider public that SBS is less of an endorsement of a country's regime, subject to less fiduciary risks and closer to actual service delivery and beneficiaries than GBS. Seen in this way, applying political governance conditions differentially makes sense if it appeases those concerned about wasteful GBS aid and at the same time protects at least one form of budget support (SRC and SBC) and its associated positive attributes.

2. The Communication and the Council Conclusions are rather ambiguous on how political conditions in a recipient country will be tied to budget sup¬port operations. Both documents highlight that budget support and especially GGDCs (the new form of GBS) should be provided more selectively and that budget support should promote human rights and democratic values. Yet, there are no clear criteria for a selective approach nor is there a conclusive strategy on how to use budget sup¬port to leverage political change.

3. If rigid selectivity is pursed and the EC aligns with the same restrictive budget support policy of member states, it may undermine the EC's comparative advantage and force the EC in to the role of the ‘28th European' donor with less engagement on high-level policy dialogue. The proposed political selectivity to be applied to GGDCs may result in a large drop in budget support. Fewer countries will be able to access GGDCs (than currently access GBS) and the re¬cipient country demand for it is likely to be low. This will weaken the EC's ability to engage in high-level policy dialogue - important, not only for de-velopment outcomes, but also crucial for its visibil¬ity, scope of action and legitimacy. Thus, in giving more weight to democracy and human rights concerns, the EC must balance the challenge of becoming more selective without becoming too selective, so that its leverage and scope for ac¬tion won't be significantly undermined.

4. For budget support to leverage performance changes in democratic governance, the EC and EU member states would need to introduce conditionalities that are in touch with existing reform efforts. They also need to address a tre¬mendous collective action problem. Specifically, they would need to provide a well-coordinated, coherent incentive system for the recipient and also employ a credible set of sanctions in case of non-compliance. The ability of budget support to promote democracy and human rights will depend largely on the context (converging pref¬erences between donors and partner countries) and on the ability to solve collective action prob¬lems between EU donors. However, given the sobering experience of the past in crafting and implementing harmonized political conditional¬ity, the EC should be very careful about raising expectations that are not covered by a political consensus. If the EC and EU member states do not substantially advance the harmonization of budget support implementation, the modality will fail to achieve its political objectives.