Following consultation over the green paper on the future of budget support, the European Commission has now published a communication on the future approach (attached).
We will have to get used to some new terminology:
- General budget support (GBS) will in be future referred to as 'Good Governance and Development Contracts'
- Sector budget support (SBS) will become 'Sector Reform Contracts'
There will also be 'State Building Contracts' for fragile states where support for vital state functions is required.
The three original eligibility criteria will be retained with some reinforcement of certain aspects:
Stable macro-economic framework: The Commission will pay particular attention to whether fiscal policy and targets are consistent with macroeconomic stability and managed according to sound rules of fiscal transparency and debt sustainability. Domestic revenue mobilisation is also an important dimension that will be reinforced as a crosscutting issue within the macroeconomic eligibility criteria (fiscal policy) and public finance management eligibility criteria (tax administration). The assessment will be in line with the EU policy on tax and development5.National/sector policies and reforms. This should focus on sustainable growth and poverty reduction in line with the policy proposed in the Communication "EU Development policy – An agenda for change: increasing the impact of EU Development Policy"6. Moreover, a sound social fabric requires a high degree of justice and fairness in tax collection and expenditure allocation (pro-poor, gender, and children issues), effective social protection and progress in improving employment and quality of jobs.
Public financial management: Before launching a budget support programme, the Commission will assess the institutional, legislative and regulatory framework and the performance of the public financial management (PFM) system in the partner country in order to identify a baseline upon which the dynamic approach will be based and the key reforms will be addressed during implementation by policy dialogue, capacity building and disbursement conditions.A fourth eligibility criteria has been added which focuses on transparency and oversight of the budget process. The definition of an 'entry point' suggests that there will be minimum level 'openness' required for eligibility:
Transparency and oversight of the budget: The public availability of budgetary information is essential for promoting greater scrutiny of the budget. Based on the most relevant budget information, the Commission will define an "entry point" to assess this eligibility criterion. Countries will have to show that they either provide the relevant information to the public or are making progress in a short period to do so. This may also imply an assessment of the statistical system and in particular of the quality of budget data. Moreover, the Commission will apply a dynamic approach by focusing on the implementation of a credible reform aimed at gradually achieving full disclosure of budgetary information. The Commission will also take into account the specific features of Fragile States and SIDS/OCTs in applying this criterion.There will also be 'pre-conditions' for Good Governance and Development Contracts:
The EU should assess whether pre-conditions exist to entrust Good Governance and Development Contracts to a partner country, i.e; whether fundamental values of human rights, democracy and rule of law or a clear path towards international standards exist and whether such a Contract could clearly act as a driver to accelerate this movement.Reading between the lines, it seems that if the pre-conditions for Good Governance and Development Contracts are not there, then a country would still be eligible for Sector Reform Contracts (which I believe echoes the approach adopted by the Netherlands). Is this distinction anything more than symbolic?
