Budget Support in Situations of Fragility: Emerging Issues

1
Budget Support in Situations of Fragility
Emerging Issues

• Nicola Pontara
• International Parliamentary Conference on State
  Building Tackling State Fragility
• London, February 2, 2010

2
Outline of Presentation

• 1. Introduction
• 2. Definitions
• 3. Budget support in situations of fragility key
  issues
• 4. Evidence from budget support retrospectives
• 5. Strengthening the case for budget aid some
  ideas

3
1. Introduction

• Focus on the needs of fragile situations
• Development assistance is inherently risky in
  these contexts
• Strong rationale for engagement (high returns,
  regional dimension)
• Need for coordination donors cant exert a
  significant influence over outcomes
  single-handedly
• Paris Declaration (2005) and the AAA (2008) on
  budget support
• Budget aid can be deployed to strengthen the
  transition to resilience
• Emerging issues from recent work (focus on the
  talk today)

4
2. Definitions

• Fragile situations. Weak institutional capacity,
  poor governance, political instability, ongoing
  violence or the legacy of past violence (wide
  spectrum).
• Composite WB, AfDB and ADB CPIA rating of 3.2 or
  less or b) the presence of UN and/or regional
  peace-keeping or peace-building mission (e.g. AU,
  EU), with the exclusion of border monitoring
  operations, in the past 3 years.
• Budget support. Move away from project support
  (parallel systems) emphasis on country
  ownership, systems and capacity medium-term
  support to reform.
• Foreign exchange, placed with the central bank to
  be converted in local currency and credited to
  the government account (treasury account) at the
  central bank. General vs. sector, PBL or grants
  against progress in PRS, TF.
• Trust funds have grown into a significant source
  of support in post-conflict (or post-disaster)
  situations where capacity is extremely low
  (MDTFs).
• Budget aid ensemble to instruments and sources
  of budget financing (PBL vs. support to recurrent
  cost with strict fiduciary arrangements).

5
3. Budget support in situations of fragility key
Issues

• Reservations by some donors (or WB and AfDB
  shareholders, as well as a number of member
  states in the EU) on the undertaking of BSOs in
  fragile environments.
• Budget support may raise fiduciary risk in
  countries with weak public financial management
  (PFM) or the volatility of aid flows in
  countries where the policy environment is poor.
• Evidence shows that budget support has been used
  effectively even in fragile situations with
  extremely weak fiduciary systems, such as Timor
  Leste and Afghanistan.
• In these cases, clear expenditure priorities and
  a strong government commitment to address
  institutional weaknesses reduced the risk to an
  acceptable level.
• What are the emerging issues? Initial results
  from research on budget support in situations of
  fragility (collaborative effort WB, AfDB and EC,
  with IMF involvement).

6
4. Evidence from budget support retrospectives

• Decisions to engage in the provision of budget
  support in situations of fragility are usually
  taken on an ad hoc basis.
• Fiscal transfer vs. package to stabilize the
  macro-budgetary framework, support peace and
  state-building, and strengthen capacity.
• BSOs focus largely on economic governance (PFM,
  procurement, anti-corruption). What about non
  traditional sectors?
• Delays continue to hamper the delivery of funds
  channeled through budget support, jeopardizing
  predictability.
• A more comprehensive treatment of risk elements
  and benefits of engagement would be desirable.
• Insufficient attention continues to be paid to
  ME systems. Importance of measuring progress
  toward peace- and state-building.

7
5. Strengthening the case for budget aid some
ideas

• Highlight the benefits of budget aid stabilize
  the macro-framework, support peace- and
  state-building, strengthen state capacity.
• Pay more attention to risk elements (risk
  typology, risk trade-offs, , risk of
  not-engaging, political risk, going beyond
  fiduciary risk).
• Discuss the trade-offs between aid predictability
  and aid effectiveness (country performance vs.
  need for stable flow of resources) gt Budget aid.
• Focus on non-traditional areas, which may be key
  to strengthen state legitimacy and reduce the
  chances of conflict relapse (grievances,
  horizontal inequalities).
• Improve donor coordination in fragile situations
  (design of operations, measurement of progress,
  disbursement on the basis of prior actions vs.
  outcomes).

8

• Thank you

9
(No Transcript)