Does General Budget Support Work?

1. Does General Budget Support Work? Stephen Lister Copenhagen, 16 May 2006

2. Overview of Presentation The Study • joint donor (+government) study • rigorous methodology, 18 month study • seven countries, 1994—2004: Burkina Faso, Malawi, Mozambique, Nicaragua, Rwanda, Uganda, Vietnam Presentation • theory and practice of budget support • scope of the evaluation • principal findings • implications Does Budget Support Work?

3. What is general budget support (GBS)? • Unearmarked funds to government budget • Using government systems • Complementary inputs: • dialogue and conditionality • harmonisation and alignment • technical assistance and capacity building • Focus on partnership GBS • new style of conditionality (?) • support to poverty reduction strategy • Identified via country-level inventories • overlap with “sector budget support” Does Budget Support Work?

4. What effects did we look for? • Expectations from GBS • ultimately, poverty reduction • via: • more predictable funding • harmonisation and alignment • lower transaction costs • more efficient public expenditure • more effective state and public administration • improved domestic accountability • etc. • i.e. • more efficient, effective use of resources • strengthening government systems • Types of Effect • flow of funds effects • policy effects • institutional effects Does Budget Support Work?

5. What did we find to evaluate? • illustrative sample of countries • large volume, but recent, uneven distribution of PGBS • useful contrasts in “penetration” (e.g. Uganda vs. Vietnam) Partnership GBS flows (Table 3.3) Does Budget Support Work?

6. Main Effects – Flow of Funds • Influence on discretionary expenditure • Influence on “pro-poor” expenditures • support to expansion of public services • Efficiency of expenditure • gains in allocative and operational efficiency • efficiency improvements benefit other modalities • lower transaction costs for government • Macroeconomic effects Does Budget Support Work?

7. Institutional and Policy Effects • Harmonisation and alignment of aid • Public finance management • Bringing discretionary funds on budget, and using government systems does have the anticipated effects on ownership and system strengthening. • Capacity development • TA and capacity building are the least well specified or coordinated inputs of PGBS. • Nevertheless, complementary effects on system development. • Policy processes • A variety of positive effects on policy processes, where PGBS is established. Does Budget Support Work?

8. Effects on growth and poverty • Macro-economic effects • contribution to total aid flow effects, reinforces existing stability and discipline • Effects on poverty reduction Caveats: • problems of data, time scale, correlation vs causality (not unique to GBS) • form vs. content of PGBS: support to evolving PRSs Conclusions: • Weak effect on income poverty (indirect, via macro effect) • Stronger effect on basic services (limited by quality and targeting issues) • Weak empowerment effects (but early..) Does Budget Support Work?

9. Unintended and adverse effects • Unpredictability? • short term predictability improving • destabilising effect of suspension in Malawi • long term predictability? • Bias against private sector / growth? • public services bias reflects first-generation PRSPs • no major “crowding out” effects specific to PGBS • Revenue effect? • no major revenue substitution effects found • Fiduciary risk and corruption? • PGBS increases focus on strengthening public finance management • no clear evidence that PGBS funds have been more vulnerable than other modalities Does Budget Support Work?

10. Interaction with other modalities Important interactions include: • Broad influence on harmonisation and alignment. • Increased policy coherence across sectors. • PGBS flexibility improves expenditure efficiency across all funding sources. • General benefit of strengthening PFM (public finance management). • Complementarity between PGBS and other instruments (e.g. on cross-cutting issues, capacity building, corruption). • PGBS benefits (e.g. on efficiency and t-costs) are diminished when off-budget modalities persist. Potential complementarities are not very systematically exploited. Does Budget Support Work?

11. Feedback and sustainability • Evolutionary design, adaptation. • Some convergence between PGBS and PRSP monitoring systems. • Limited effects so far on domestic accountability (but domestic and donor accountability can reinforce each other). • PGBS needs to be durable for sustained institutional effects – main risk political? Does Budget Support Work?

12. Overall assessment • Overall positive assessment in 5 of 7 cases. • Principal findings: • Relevant response to problems in aid effectiveness. • Efficient, effective and sustainable way of supporting national poverty reduction strategies. • Positive systemic effects on capacity by providing discretionary funds to national budget system. • Spill-over effects enhance quality of aid as a whole. • Initial effects on poverty mainly through expanding public services. Ultimate effects will depend on the quality of the national poverty reduction strategy. • Capacity for learning suggests instrument can become more effective over time. • Did not find unintended effects or side-effects that would outweigh benefits. • Sustainability requires more attention to mitigation of risks. • Findings are more widely relevant to programme-based approaches which share PGBS design principles. Does Budget Support Work?

13. Implications and challenges • Use of budget support as part of portfolio • Range of applications? • Adaptation by both governments and donors to new ways of doing business • Long-term support instruments • Mitigating risks (fiduciary, political) Does Budget Support Work?

14. Thank You Does Budget Support Work?