Instruments and structures of development cooperationconcluded

Effectiveness of Budget Support

The direct transfer of funds to the national budget of a partner country, also referred to as budget support, has been the subject of controversial debate for many years. DEval has investigated the effectiveness and also the sustainability of the effects of this instrument of development cooperation. The evaluation was completed in 2017.

For a long time, budget support was considered to be the best instrument for making development cooperation more effective. It aims to support partner governments in implementing their national development strategies. Combined with non-financial inputs such as policy dialogue and capacity development, and attached to a series of conditions, budget support is intended to contribute to promoting good governance in the partner countries.

In recent years, however, budget support has become subject to increasing criticism, with many people voicing doubts about its effectiveness. Many donors have temporarily or even permanently ceased providing budget support as a result of cases of corruption in the recipient countries. Germany, too, largely terminated its general budget support in 2015.

DEval set itself the goal of investigating the effectiveness and sustainability of the effects of budget support in a bid to make the discussion around budget support more objective.

Results and recommendations of the evaluation synthesis

Budget support leads to increased public spending, especially in the education and health care sectors.

It also has a positive effect on the quality of the public financial management of recipient countries and improves access to public services. However, no effect on the quality of public services was established.

Budget support sustains existing macroeconomic stability and makes it possible to pay off domestic debts.

However, no other positive developments in economic output could be clearly attributed to it.

Budget support strengthens the “supply side” of public accountability. This particularly affects the performance of institutions such as the finance ministry, statistic offices or supreme audit institutions.

For the “demand side” of public accountability – such as parliament, civil society and the media – no long-term effects could be identified. There is no evidence that budget support has a systematic negative effect on corruption.

 

The evaluation was completed in 2017. This is a summary of the results and recommendations; you can find the complete results and recommendations in the report.

Results and recommendations of the exit evaluation

If budget support is terminated, the majority of the positive effects are lost in the event of a sudden and uncoordinated exit.

As a result of the exit, the dialogue structures between donors and partners are weakened. This especially applies to the political dialogue on development strategies, policies and the public budget. There is also a considerable negative impact on coordination and harmonisation between the donors. In the short term, economic destabilisation in the partner countries occurs.

To ensure that the positive effects of budget support are sustainable, strategies should be developed from the offset to guarantee a coordinated and carefully controlled exit.

This includes communication with the partner government at an early stage with regard to the exit process. The policy dialogue with the partner governments should also be continued after terminating the budget support. Moreover, the donors should be willing to cover acute funding shortfalls through immediate, short-term measures. This especially applies to social sectors.

The German Federal Ministry for Economic Cooperation and Development (BMZ) and other bilateral/multilateral donors should increasingly re(engage) in such integrated policy-based approaches to development cooperation.

Only in this way is it possible to implement comprehensive strategies such as Germany’s Marshall Plan with Africa or the 2030 Agenda for Sustainable Development.

 

The evaluation was completed in 2018. This is a summary of the results and recommendations; you can find the complete results and recommendations in the report.

Objectives of the evaluation

The evaluation was intended to provide lessons learned for the design and implementation of  future budget support programmes and related financing instruments. Moreover, it was intended to pinpoint how the sustainability of the effects of budget support can be ensured. The evaluation also looked into the consequences that exiting budget support might have for the recipient countries and how possible negative effects could be limited.
The results of the evaluation are aimed at political decision-makers in Germany, at other bilateral donors and multilateral institutions and at implementing organisations that plan financing instruments and implement development programmes in partner countries. The findings may also be of interest to stakeholders in partner countries who have to proactively plan donors' exit from budget support and handle possible consequences.

Background

For a long time, budget support has been considered the best instrument for implementing the principles of effective aid formulated in the 2005 Paris Declaration. A series of multi-donor evaluations have reached the conclusion that budget support has contributed to an increased provision of funds to combat poverty and to improved development results in the partner countries. Nevertheless, budget support has become subject to increasing criticism in recent years. Bilateral donors, in particular, have partially or fully ceased to provide their support, while the EU Commission has shifted its focus from general to sectoral budget support.

Methods

The evaluation comprised an evaluation synthesis and an evaluation on the exit from budget support (exit evaluation). As part of the evaluation synthesis, 95 relevant documents (budget support evaluations, scientific and “grey” literature) were assessed and the effects of budget support systematically recorded. Building on this, the exit evaluation investigated the extent to which the effects of budget support could continue or be preserved following the exit of individual donors or even entire donor groups. This involved identifying possible approaches to sustain the positive effects of budget support and avoid negative consequences.

As part of a theory-based case study design, the evaluation team also used four country studies – Zambia, Uganda, Rwanda and Malawi – as a basis for analysing changes in the portfolio, in the implementation of development programmes and in the relationship between donors and partners.

Related documents

Contact

Portrait von Magdalena Orth-Rempel
© DEval

Magdalena Orth-Rempel

Senior Evaluator - Team Leader

Phone: +49 (0)228 336907-952

E-mail: magdalena.orth@DEval.org

[Translate to Englisch:] Portrait Stefan Leiderer
© DEval

Dr Stefan Leiderer

Head of Department: Governance, Bi and Multilateral Development Cooperation

Phone: +49 (0)228 336907-940

E-mail: stefan.leiderer@DEval.org

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