Budget Support: Issues and Challenges

Description

The principal rationale for moving from project/programme aid to budget support is its leverage on donors’ aid to reinforce a country’s policy-results chain. This is encapsulated in the Paris Declaration and Accra Agenda for Action. The Foundations of Budget Support professional development workshop provides a useful basis to think and analyse issues on budget support and meaningfully discuss solution options through the use of simple analytical frameworks.  Budget support is typically justified by the following principal objectives:

• It seeks to reduce transaction costs in delivering aid;
• It acknowledges the national budget instrument as well as the strategies that it  is derived from, along with the national PFM institutions, systems, procedures as the primary mechanism  for the implementation of  policies;
• It adopts the country’s own monitoring and evaluation frameworks to specify, monitor policy implementation outcomes and evaluate results in light of the budgetary implementation as opposed to the evaluation of a stand alone programme;
• It uses the country’s Treasury to channel the funds with the subsequent adoption of the national payments, procurement, financial reporting , external audit and oversight by the parliament;
• It recognises a corresponding greater requirement  to provide greater predictability to budget releases which impacts very significantly on budget implementation performance; and
• It facilitates greater alignment of investment allocations with forward linked recurrent charges with better integration and alignment of budgetary implementation of sector strategy objectives.

These are assumptions and need careful country by country consideration to see to how to manage budget support to ensure that these objectives are met.  This professional development workshop empowers the participant to do so.  The professional development workshop includes the following:

• The course introduces basic budget support concepts and the language of budget support: such as general versus sector budget support, general versus specific conditions, untargeted versus targeted support, fixed versus variable tranches, floating versus non-floating conditions, output and outcome indicators, baseline and target indicator scores.
• The course reviews the different aid modalities (budget support and programme/project aid) in light of the mechanisms for engagement with the budget as well as the different kinds of budgeted support – general and sector budget support. It explores the mechanisms for the flow of funds to the national treasury.   It looks at the concept of the fungibility of funds and what impacts that can have.
• The course examines the national and sector planning steps and the necessary requirements for successful integration of national and sector strategies into the budget.  It looks at budget formulation introducing the Medium Term Expenditure Framework (MTEF) as an approach to linking plans to the annual budget process and explores the points of entry for budget support.
• The course explores each of the stated potential benefits of budget support and evaluates them from the perspectives of both development partners as well as country recipients of budget support. These include increased ownership, a more stable macroeconomic environment, an improved framework for public policy and public expenditure, increased coherence, improved capacity development, increased efficiency and sustainability, and improved domestic accountability and the lowering of transaction costs.
• Also addressed in the course are the main risks introduced by budgetary support including fiduciary risk, unpredictability of flows especially as measured within a multi-year perspective, the conversion of budget support to balance of payment support as a policy response to the potential negative short macroeconomic impacts of budget support; and also the corresponding risk mitigation strategies that can be employed including the use of fixed and variable tranches; synchronising aid flows with seasonal export and import profiles etc.
• The course examines the eligibility criteria to be met and how these might be interpreted including: macroeconomic performance (and hence the importance of being on track with the IMF); PFM performance (given a dynamic interpretation); a national development framework; a capacity development programme; donor harmonization and alignment with national policies; performance monitoring; adopting a medium term perspective to budget support.
• The course covers special topics including the complicating impacts of reforming PFM systems alongside adopting budget support.   There are special challenges with respect to sequencing and coordination; and with respect to PFM performance movements.

• The course explores approaches to dialoguing effectively with donors, with line ministries, with the ministry of finance and with the planning institution. 

Objective

The principal workshop objective is to provide participants with the tools to effectively understand the advantages as well as disadvantages, the opportunities as well as the risks of adopting budget support in contrast to programme/project aid.  It equips participants with the skills to effectively negotiate budget support agreements, manage them and evaluate policy implementation performance as part of the larger evaluation of budget implementation. 

Audience

The target audience is Planning Institution staff, planning and budget staff in the Ministry of Finance, planning and budget staff in line ministries as well as development partner officials involved in designing or administering budget support programmes.   The vantage point for the course is a presumption of basic macroeconomic concepts and some familiarity with the upstream elements of public finance management. 

Pre-requisites

There are no pre-requisite for this course however participants should have some basic exposure to macroeconomic concepts and must appreciate the main upstream elements of planning and budgeting.  Given its intensive and comprehensive approach, it will be useful for participants to familiarize themselves with basic economic, planning and budgeting concepts and terminology prior to attending the course.

Learning outcomes

The expected learning outcomes for the participants are:

• Understand the language of budget support
• Have a clear understanding of the objective of Budget Support and understand how it recognises the Budget Instrument a central mechanism for policy transmission;
• Understand the mechanisms for the transfer of funds under budget support to the Treasury, the issues raised by the fungibility of money and the impacts on macroeconomic factors and how they can lead to policy responses that may include conversion to balance of payments support.
• Know and understand the application of eligibility criteria, the EC dynamic interpretation and current changes in approach;
• Familiarity with the design cycle of a Budget Support operation and to recognise where problems typically occur and the most effective risk mitigation strategies;
• Obtain a good grasp of the macroeconomic and public finance management concepts and tools used in assessing the eligibility of a  country as well as in engaging with the planning strategy, budgeting, monitoring and evaluation steps;
• Have a good grasp of how indicators are defined and targets set for the monitoring and management of budget support operations, and how they might impact predictability and the country’s M&E and reporting systems;
• Be familiar with tools and approaches to be able to guide, influence or conduct dialogue in sector working groups;
• Be aware of key policy coordination challenges and how they impact budget support (a focus on social sectors and climate change financing or governance will be discussed);
• Be aware of some of the pitfalls of Budget Support Operations at the implementation stage and ways to mitigate against such pitfalls.

Learning methods

The learning methods will include the following

• Introduction to key concepts through the “teaching and discussion” methods
• The use of original source material of key writers/thinkers in this area
• The use of extensive examples from many different countries with different experiences to illustrate the points put across
• The use of exercises (in particular short "buzz-group" sessions) to provoke and consolidate certain points raises
• The use of substantial case studies to illustrate some of the key aspects and themes of the course.