Whither EC Aid?

Recently, the EU has advocated for a new aid modality, that is, the Budget Support, which as main objective has the alignment with partner strategies, the reduction of transaction costs and the increase of accountability to their populations rather than agencies.

In fact, this method has become the preferred delivery method, but the European Commission considers it as complementary to other instruments of aid delivery.

Following this tendency, the Commission has raised the so called “MDG contracts” in order to gain in predictability with long term strategies (6 years instead of 3) and with a more predictable disbursement, conditioned to the performance with regard to MDG indicators.

In summary the “MDG contracts” involve the following key features:

• Six year commitment of funds making full use of the EDF 10 period.
• Base component of at least 70% of the total commitment.
• Variable performance component of up to 30%.
• Eligible countries would be those under the 10th EDF.

Nevertheless, this mechanism of Budget Support presents some risks such as the problem of fungibility and the risk of misuse because of the lack of transparency among donors and partners. Thereby, the EU Parliament insists that “the EU and partner governments ensure that this Budget Support takes the form of sector-specific budget aid that earmarks money for a specific sector in which the funding should be spent, use poverty-related targets that directly measure the outcome of policies instead of mere budgetary input…”

Furthermore EURODAD recommends that the Budget Support should be accompanied by initiatives to improve governance, therefore the risk of fungibility could be reduced.Moreover it will be necessary a controlling instrument such as audits, as well as the need of delivering at least 0, 5% of this instrument for the CSO and last but not least transparency.

Other concerns have been raised by CSO, such as the lack of predictability in terms of delivering aid and the conditionality related to it. In this sense it is necessary that donors commit themselves to create effective agendas for the delivering of aid as well as they relate conditionality to good practice and good use of the aid.

Other concerns are related to the lack of participation of the CSO with this kind of mechanisms. In fact CSO as well as Parliaments should be incorporated at least in the partner side to cooperate in the creation of relevant policies in order to maintain a real democratic ownership and to enhance transparency. Moreover, the CSO can control the delivery of aid as an additional source for the good implementation and as the key element between governments and citizens to whom they are accountable.

Finally, the results of a multi-donor budget support shows that predictability of aid has been enhanced as well as the reduction of transaction costs, therefore, there is a need of transformation of this mechanism in order to enhance its potentialities and reduce its risks.

Further resources:

• Lucy Hayes, Linking budget analysis with aid advocacy: How civil society groups can monitor donor budget support? A joint EURODAD and International budget project briefing.
• Commission discussion“The MDG contract, an approach for longer term and more predictable general budget support”.19/06/2007.
• EU Parliament resolution of 20 June 2007 on the MDGs—The midway point (2007/2103(INI))
• Communication from the Commission to the Council and the European Parliament. “Financing for Development and Aid Effectiveness”, the challenges of scaling up EU aid. COM (2006)85 Final.
• “How multidonor budget support Works?”, DFID 2003, London.
• “Budget support consequences for sexual and reproductive health“, German Foundation for World population (DSW).

Filed under: Beyond WECA