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Budget Support

Budget support has become increasingly important in the context of a partnership-based approach to development cooperation based on the Paris Declaration on Aid Effectiveness. The EC defines budget support as the transfer of financial resources of an external financing agency to the national treasury of a partner country. Broadly speaking, budget support involves the direct transfer of funds to a partner country’s budget. These financial resources form part of the partner country’s global resources, and are used in accordance with its public financial management system. There are two main types of budget support: General Budget Support representing a transfer to the national treasury in support of a national development or reform policy and strategy; Sector Budget Support representing a transfer to the national treasury in support of a sector programme policy and strategy. Sometimes there is also budget support directly to the budgets of regional or local government. However, the term of budget support is normally used in the context of national budgets.

The advantages of budget support, compared to project aid are usually stated as follows: Budget support is more predictable, it supports and is aligned with nationally-owned (poverty reduction) strategies, it helps governments to expand public services, and it fosters State and administrative capacities. It is also argued that Budget support can help support stronger ownership of aid inflows and accountability, although others fear increased misuse of funds and corruption. It is essential that governments are held internationally and domestically accountable for the use of budget support aid. Therefore, budget support should be accompanied by an increased support for institutions of domestic scrutiny: national parliaments, Court of Auditors, the media, civil society organisations.

In principle, these advantages and challenges are also applicable to donors’ budget support directly to local authorities (instead of a project-based approach to local services). By privileging certain regions compared to others, providing direct support to local budgets may particularly challenge the overall development strategies of the country and existing financial equalization schemes – and can be incompatible with the principle of alignment. Thus, direct support to local budgets may trouble existing mechanisms of fiscal decentralization and thus pose a problem with regard to sustainability of income.

National budget support can be strongly relevant for the success of decentralization processes. In some cases, national budget support has been successfully earmarked for or explicitly conditioned by decentralisation processes and strengthening local authorities, thus contributing to bring additional resources down to local authorities. In other cases, budget support just provided additional resources to the central level, thus contributing to weaken the position of decentralized structures.


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