Poverty Reduction Budget Support -- A DFID Policy Paper

Posted by Michel Lazare

Further to our March 17 post: Is Providing Budget Support to Developing Countries Effective? -- Evaluation of DFID's Direct Budget Support by UK's National Audit Office, which discussed NAO's assessment of effectiveness of budget support, it is important to note that the UK's Department for International Development (DFID) has recently published a policy paper on budget support.

This paper updates DFID's previous policy (dating back to 2004). It draws on the conclusions of a May 2006 multi-donor Joint Evaluation of General Budget Support -- which provided new evidence about the effectiveness of general budget support -- and on the implications of the 2005 Paris Declaration on aid effectiveness.

It "reaffirms DFID's commitment's to using budget support -- alongside other aid instruments -- where it is appropriate to deliver aid to partner governments to reduce poverty. "

Poverty Reduction Budget Support (PRBS), which constituted 18 percent of DFID's total bilateral programme in 2006/07, is defined by DFID as "a form of financial aid to governments in which funds are:

• provided in support of a government policy and expenditure programme whose long-term objective is poverty reduction;

• spent using national (or sub-national) financial management and procurement systems and accounted for by the recipient’s accountability systems

• normally transferred to the central exchequer account directly or may be transferred to a sub-national level bank account over which Government has full financial authority."

Here are a few of the key points of the policy papers, (excerpts from the paper's executive summary--emphasis added by PFM blog):

In the right circumstances, PRBS achieves similar benefits to other forms of aid, along with the additional benefits of strengthening institutions, systems and the accountability relationship between governments and their citizens. We will therefore use budget support and encourage other donors to use it when circumstances are appropriate – when partner governments are committed to poverty reduction, upholding human rights and international obligations, and improving public financial management, promoting good governance and transparency and fighting corruption – and when we assess that provision of PRBS will produce significant benefits relative to other forms of aid delivery. [...]We will aim to maximize the impact that our budget support has on poverty reduction by designing and delivering it as part of a comprehensive country programme where different interventions work together to meet the broad range of development challenges. Alongside budget support we will provide technical assistance to key sectors to build their capacity to deliver effective services and to improve the efficiency and effectiveness of all public spending. We will also work with other donors to strengthen accountability between the state and its citizens by strengthening monitoring, transparency, Parliamentary oversight and civil society. We will also design and deliver budget support so that we give governments as much information as possible about our future commitments, so that governments can plan to use the money in the most effective ways. We will ensure that our budget support builds government’s own systems and reduces the burden on governments of managing lots of donor programmes

Careful risk assessment and management is an essential part of delivering budget support. Our first pillar of risk management is to only deliver budget support where the government is committed to reducing poverty, strengthening public financial management, promoting good governance and transparency and fighting corruption, and up-holding human rights and other international obligations. We will always undertake thorough Fiduciary Risk Assessments before delivering PRBS to help ensure that our resources are not misused or wasted through inefficiency or corruption. We take a zero tolerance approach to mis-use of DFID funds. We will specifically assess the credibility of the government’s programme to strengthen its financial management and the risk of corruption. We will regularly assess risks when delivering budget support so that we can effectively monitor and manage them.

Budget support will not always be the most effective way of delivering aid to governments. For example, where government budgets do not prioritize the needs of poor people or where governments are not tackling weaknesses in their public financial management systems or corruption. In these cases we will use other ways of delivering our aid. Multi-donor trust funds have been highly effective at delivering aid to governments, to support emerging poverty reduction strategies, while retaining greater financial control over the use of aid resources. In other cases where the government is simply not committed to helping its citizens, we will work outside the government, and with international agencies like the UN and civil society organizations.

The full text of DFID's Policy Paper can be accessed here: Download prbspolicy0702081.pdf .

PFM Blog's view: Let's not hide the pleasure we took in reading this policy paper. It is simply an excellent policy paper and represents the state of the art in terms of aid policy. We are of course pleased to see the reaffirmation of the role that "improving public financial management, promoting good governance and transparency and fighting corruption" play in support of the provision of budget support and in the careful assessment of delivery risks. We also note the role that technical assistance has to play to "build capacity to deliver effective services and improve the efficiency and effectiveness of all public spending." Our only reservation regards the content of footnote 4 on page 5, which indicates that "the sector budget support may be earmarked and may be transferred to a sector specific bank account over which government has financial authority;" our preference in terms of public financial management good practice would rather be to avoid earmarking and to transfer all cash to a treasury single account.

Comments

[Marshall Jevons]

Can you please correct the title- Policy Reduction?

[Michel Lazare]

Corrected. Thanks for alerting us.

[Poor child]

great post! thanks very much for sharing!