Poverty Reduction Budget Support

1. Dave Biggs Senior Governance Adviser Asia Directorate CIPFA Conference16 June 2005 Poverty Reduction Budget Support Background question and answer material on DFID, which can be drawn on when staff make presentations to external audiences about the department can be found at http://insight/info/default.asp?presentation/default.htm Additionally there is a Photo Library that has been designed to enable staff to search a database of over 1000 images.� These images can either be downloaded or ordered as photographs or slide transparencies. Visit http://insight/elibrary/default.asp?edatabases/photolib/plhome.htm Background question and answer material on DFID, which can be drawn on when staff make presentations to external audiences about the department can be found at http://insight/info/default.asp?presentation/default.htm Additionally there is a Photo Library that has been designed to enable staff to search a database of over 1000 images.� These images can either be downloaded or ordered as photographs or slide transparencies. Visit http://insight/elibrary/default.asp?edatabases/photolib/plhome.htm

2. Structure of presentation Poverty Reduction and Millennium Development Goals Aid Effectiveness Poverty Reduction Budget Support DFID�s PRBS The underlying hypothesis DFID�s current policy Is it working? Key Issues

3. Poverty Reduction and the MDGs The focus of the international development community (agreed at various international conferences) Millennium Development Goals (MDGs) agreed at Millennium Summit 2000 and progress to be reviewed later in 2005 8 goals (see next slide), 18 targets, 48 indicators Aid Effectiveness

4. The 8 MDGs Eradicate extreme poverty and hunger Achieve universal primary education Promote gender equality and empower women Reduce child mortality Improve maternal health Combat HIV/AIDS, malaria and other diseases Ensure environmental sustainability Develop a global partnership for development

5. Aid Effectiveness More and better aid � 10 principles Country owned Aligned with national poverty reduction strategy Delivered through effective institutions Results focused Allocated to the poorest Policy coherence from donors (aid + trade + agriculture + investment etc) Harmonisation between donors Predictable and untied� Minimal conditions Choice of aid instruments that strengthen accountability and participation

6. Poverty Reduction Strategies Set out country approach to reducing poverty Linking policy with resources (medium-term) Domestic and international resources Poverty Reduction Budget Support (PRBS)

7. Definition of PRBS A form of financial aid (resource transfer) in which funds are provided: In support of a government programme (typically focussed on growth and poverty reduction) Directly to a partner government�s central exchequer I.e. using government�s systems Can be a general contribution to budget = general budget support - PRBS (G) Can be earmarked to a discrete sector = sector budget support - PRBS (S) Can be provided at national or sub-national level One of a number of aid instruments used by DFID

8. DFID�s PRBS Provided to following in 2004/05: Africa: Ethiopia, Ghana, Malawi, Mozambique, Rwanda, Sierra Leone, Tanzania, Uganda, Zambia Asia: Vietnam, India; sector support in Bangladesh, Pakistan Afghanistan, Bolivia, Palestinian Authority, East Timor (some via World Bank Trust Fund) Averaged �250m p.a. in 2000-2003 (15% bilateral expenditure), �345m in 2003/04, expected to be around �600m 2005/06 and perhaps �1.2bn 2007/08

9. The underlying hypothesis Ownership + empowerment + harmonisation+ policy dialogue + predictability = Stronger, more transparent, more meaningful plans and budgets Improved efficiency, and pro-poor resource allocation, lower transaction costs Improved service delivery and changing �expectations� over public services Increased engagement of public and increasing democratic accountability

10. DFID�s current policy (1) Origins in UK Government�s 2000 White Paper: �The UK Government will work with other donors to channel more of our support through developing country budgetary systems, where governments have strong commitment to poverty reduction, and help strengthen their planning, financial and procurement systems to make this possible� PRBS policy paper officially published in May 2004

11. DFID�s current policy (2) �DFID believes that, when circumstances are appropriate, PRBS is the aid instrument most likely to support a relationship between donor and developing country partners which will help to build the accountability and capability of the state.�

12. DFID�s current policy (3) Assessment of appropriate circumstances: Government�s planned budget priorities support poverty reduction There is sufficient commitment to improving government systems so that they will be able to deliver poverty reduction Provision of PRBS will produce significant benefits relative to other forms of aid delivery

13. Is it working ? Major OECD/DAC evaluation exercise underway (results due by end of 2005) Previous studies indicate: Expected benefits are not automatic: complementary measures, appropriate TA and policy dialogue is needed (�Budget support plus�) PRBS has not increased predictability of donor funds � major concern in countries with high aid dependence - more susceptible to political governance issues (easy to switch off)

14. Key Issues The need to be rigorous in assessing the likely benefits and risks How to attribute PRBS? (i.e. explain where it has been spent) How to improve predictability? (ongoing work to review: policy on conditionality; rolling programmes; timing of tranches) Is it appropriate in �fragile states�?