Making policies work

Talking Points

Modernising EU budget support or overloading the boat?

16-05-2012

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Dr. Nadia Molenaers co-authored this article.

++ SERIES: ECDPM ANALYSIS OF NEW EU DEVELOPMENT POLICY REFORM PROPOSALS ++

On 14 May the EU Council of Ministers adopted a new policy on providing budget support – a composite aid modality that involves financial transfers to partner countries’ treasuries, capacity development, policy dialogue and a results focus. This policy introduces a fundamental shift in the use of budget support. In contrast with the former policy, budget support will no longer be exclusively linked to poverty reduction and growth objectives, but also to the promotion of human rights and democracy.

The European Think-Tanks Group (ETTG) and the Institute of Development Policy and Management (IOB) warn of the implications of such a policy shift in a paper entitled “The Future of EU Budget Support: Political Conditionality, Differentiation and Coordination”. In this Talking Points blog post, Nadia Molenaers and ECDPM’s Jan Vanheukelom, two contributors to the ETTG paper, highlight its key arguments and specific points donors should pay attention to if they want to avoid undermining the potential strengths of budget support.

Political conditionalities may satisfy donors, but nullify budget support as an aid modality

From a political point of view, the adoption of democratic and human rights goals within the budget support framework is understandable, given that for the EC and the EU, human rights and democracy constitute core values in the overarching EU’s external policy. The evolution is also understandable from a donor-accountability perspective. European public opinion, including parliaments and the media, hold a critical, if not cynical, view on budget support, as it is considered a regime-endorsing modality. On top of this, the Arab Spring exacerbates the desire of the Western public and donors to support democratic change.

The ETTG paper argues that while linking budget support to political conditionalities may very well satisfy highly normative legitimacy concerns on the donor side, it does not at all give due attention to aid and development effectiveness concerns on the recipient side. Moreover, the new budget support policy will substantially reduce the entry points for the EC and EU member states to effectively lever for change or reforms in partner countriesAs such, the risks are real that the EU’s attempts to modernise budget support “overloads the boat” and the potential strengths of this aid modality are nullified.

Three constraining problem areas demand particular attention

  • The new EU policy differentiates between three budget support contracts, with a markedly raised bar for General Budget Support. This may very well soothe the concerns of public opinion and the political accountability concerns of (particularly bilateral) donors, but it also forces the EC in a straightjacket, which significantly limits its potential role in high-level policy dialogues. The EC is a big donor with some political weight. It has more potential to lever change than EU member states, at the highest levels, in part because it can move more autonomously from (sometimes unhealthy) public opinion pressures. So it can engage in dialogue with recipient governments when other donors cannot due to pressures from domestic constituencies. This added-value of the EC should be exploited fully, rather than turning the EC into the 28th donor by trapping it in highly ineffective, volatile and unpredictable aid practices.
  • Despite major efforts to harmonise EU budget support, it has become obvious that such an endeavour has hard political limits. Donors will always differ in their assessment of political governance and what constitutes cut-off points for discontinuing budget support. Differing pressures from accountability systems and dynamics within member states and the EC result in different degrees of preparedness to assume political and other risks in partner countries.
  • The EC Communication stressed the importance of a portfolio approach – the right-mixing of various aid modalities in response to a partner country’s specificities. Yet, the Council Conclusions isolate general budget support (and the use of selectivity and political conditionality) from this context-sensitive portfolio approach, while at the same time expecting that this modality will carry the full weight of the EC’s ambitious goals and agenda. Building democratic states requires, more than anything else, an apt, strategic mix of modalities that aim at supporting different dimensions of democracy and different actors in society over time. Budget support cannot carry this weight alone.

Modernising budget support needs to be part of a broader agenda for change

Recognising the problems outlined above may help define and implement a modernisation agenda for budget support that is part of a broader agenda for change that puts an emphasis on:

  • Division of labour: The EC could continue to provide stable and long term General Budget Support whereas bilateral donors might consider moving more into Sector Budget support. This would increase aid predictability for the recipient, and lower accountability and reputational risks for the bilateral donors
  • Adaptation to regime contextSuch division of labour between the EC and EU member states should adapt to country contexts. In authoritarian regimes, the bilateral strategies of EU member states would avoid government-to-government aid (even projects). Instead, donors could fund drivers of change in society (through civil society for example). The multilateral strategy could allow for some budget support aid to support technocratic governance change, yet at the same time the EC can in due time address democratic governance issues and lever for more accountability. The EC can simultaneously use diversified channels of aid to support local  accountability institutions. In hybrid regimes, the bilateral aid strategy emphasizes sector budget support to tackle sector performance, while the multilaterals continue to combine a portfolio approach including General Budget Support so as to lever for reform.
  • Deepening  context analysisthe EC is already investing in political economy analysis at country and sector level. This ought to be rolled out in more purposeful and systematic ways. Knowledge of the political, institutional and economic dimensions driving or constraining reform processes is key for answering essential questions to inform more coherent EU response strategies (involving aid, but also other dimensions of the EU’s external action).
  • Appropriate levels of communication and coordinationThe EC can add substantial value in implementing the EU budget support policy by stressing the importance of effective communication and coordination with the member states, and strengthening the EC capacities in the field and at headquarters accordingly. This may help overcome some of the collective action problems of the various institutional EU actors – and may shield the modernisation agenda of budget support from further fragmentation and political contamination. If donors want to support democracy, a wide variety of modalities and instruments are to be used, including a clear democracy assistance strategy supporting existing bottom up pressures for more accountability.

Ignoring these challenges and likely problems will result in undermining probably the most promising aid modality, not so much in terms of visible, short-term outcomes, but longer-term, institutional transformations.

See also ECDPM’s Niels Keijzer’s highlights of where the EU falls short and where it goes beyond ambitions in its Agenda for Change in his separate Talking Points Blog post.

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Jan Vanheukelom is Senior Adviser Political Economy & Governance at  ECDPM.

Dr. Nadia Molenaers, who co-authored this article, is Lecturer at Institute of Development Policy and Management (IOB), University of Antwerp, Belgium.

 

This blog post features the authors’ personal view and does not represent the view of ECDPM.

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African institutionsEuropean external affairsEU Inter-Institutional Relations in External ActionBudget supportEuropean External Action Service (EEAS)Europe

External authors

Dr. Nadia Molenaers