Budget Support and Democracy: a twist in the conditionality tale

Abstract

Budget support—aid delivered directly to developing country government budgets—accounts for a growing proportion of overseas development assistance. In theory it has multiple benefits over other forms of aid in terms of attaining poverty reduction and development objectives. However, recent years have seen several incidents of budget support being frozen, halted or redirected because of slippage in the democratic credentials of certain countries, including Ethiopia, Uganda, Nicaragua, Honduras, Madagascar and Rwanda. This article analyses these incidents in relation to debates over aid conditionality. It finds that donors are willing to apply political conditionality when otherwise good performing governments go politically astray, but it questions whether budget support is a viable instrument for pushing for democratic change. Co-ordinated donor action appears to be increasing, but aid flows to the countries discussed remain high and the governments in question tend to be dismissive in the face of such pressure.

Notes

1 T Unwin, ‘Beyond budgetary support: pro-poor development agendas for Africa’, Third World Quarterly, 25(8), 2004, pp 1501–1523.

2 Budget support is direct financial assistance to a recipient government. General budget support refers to assistance provided directly to the central treasury of the recipient government, which the government is more or less free to use for whatever purpose it chooses within the confines of an agreed programme with the donor. Other forms of budget support may be earmarked for particular purposes, such as supporting a specific sector.

3 IDD and Associates, Evaluation of General Budget Support: Synthesis Report, Birmingham: International Development Department, May 2006; S Koeberle, Z Stavreski & J Walliser, Budget Support as More Effective Aid? Recent Experiences and Emerging Lessons, Washington, DC: World Bank, 2006; and Strategic Partnership with Africa, 2006, 2009, at http://www.spasurvey.info/index.php. See also J Beynon & A Dusu, ‘Budget support and MDG performance’, European Commission, Development Paper 2010/01, March 2010.

4 P de Renzio, ‘Aid, budgets and accountability: a survey article’, Development Policy Review, 24(6), 2006, pp 627–645.

5 See S Maxwell, ‘Heaven or hubris: reflections on the new “New Poverty Agenda”’, in R Black & H White (eds), Targeting Development: Critical Perspectives on the Millennium Development Goals, London: Routledge, 2004, pp 25–46; and ED Stern, ‘Thematic study on the Paris Declaration, aid effectiveness and development effectiveness', Ministry of Foreign Affairs of Denmark, November 2008.

6 D Booth & A Lawson, ‘Evaluation Framework for General Budget Support: Framework for country-level case studies. Report to the OECD–dac Evaluation Network Management Group for the Joint Donor Evaluation of General Budget Support’, Europe Aid and ODI, 2004; Unwin, ‘Beyond budgetary support’; T Killick, ‘Politics, evidence and the new aid agenda’, Development Policy Review, 22(1), 2004, pp 5–29; and J Barkan, ‘Rethinking budget support for Africa: a political economy perspective’, in R Joseph & A Gillies (eds), Smart Aid for African Development, Boulder, CO: Lynne Reinner, 2009, pp 67–86.

7 Barkan, ‘Rethinking budget support for Africa’; M Knoll, ‘Budget support: a reformed approach or old wine in new skins?’, UNCTAD Discussion Paper, 190, 2008; and RC Alvarez, ‘The rise of budget support in European development cooperation: a false panacea’, FRIDE Policy Brief, 31, January 2010.

8 While the USA does not officially provide budget support, full grants through the Millennium Challenge Account bear many similarities to budget support in providing large quantities of financial assistance to governments who then have flexibility in how the money is used.

9 The SPA survey of 2009 notes that 41 per cent of delays in disbursement in 2008 were down to administrative problems on the donor side. Strategic Partnership with Africa (SPA), ‘Strategic Partnership with Africa: Survey of Budget Support, 2008, Volume II—Detailed Findings', final draft, September 2009, p 59, at http://www.spasurvey.info/index.php.

10 Ibid, pp 47–48. While some macroeconomic stability issues are clearly beyond the control of governments, for example the impact of drought or fluctuations in commodity prices, these can cross over into governance factors, where for instance a government has taken a deliberate policy choice to run deficits.

11 Ibid, p 61.

12 SPA, ‘Strategic Partnership with Africa: Survey of Budget Support, 2005. A Report for the SPA Budget Support Working Group’, January 2006, at http://www.spasurvey.info/index.php.

13 X Furtado & WJ Smith, ‘Ethiopia: retaining sovereignty in aid relations’, in L Whitfield (ed), The Politics of Aid: African Strategies for Dealing with Donors, Oxford: Oxford University Press, 2009, pp 131–155.

14 BBC News, ‘Aid cut over Ugandan transition’, 19 July 2005; Department for International Development, ‘UK cuts direct budget aid to Uganda by £15 million, withholds further £5 million', Press Release, 20 December 2005; World Bank, ‘World Bank approves US$200 million for Uganda's seventh Poverty Reduction Support Operation’, Press Release No 2008/303/AFR, 6 May 2008. Note, however, that the European Commission signed a large long-term MDG-Contract agreement with Uganda in 2008, providing [euro]175 million in budget support over six years.

15 P Gosparini, R Carter, M Hubbard, A Nickson & L Nuñez, ‘Nicaragua Country Report: Joint Evaluation of General Budget Support 1994–2004’, Birmingham: International Development Department, May 2006, pp 92, 103.

16 European Commission, ‘Honduras: Mid-Term Review of the Country Strategy for 2007–2013’, Annexe, European Commission, 2010, at http://www.eeas.europa.eu/honduras/docs/2010_midterm_honduras_annex_en.pdf, accessed 22 September 2010.

17 Honduras page of the Millennium Challenge Corporation, at http://www.mcc.gov/mcc/countries/honduras/index.shtml, accessed 18 August 2010.

18 ‘EU suspends aid to Madagascar’, New Era, 10 June 2010, at http://allafrica.com/stories/201006100804.html, accessed 9 September 2010.

19 Letter to the Dutch Parliament from the Dutch Minister of Foreign Affairs and the State Secretary of Foreign Affairs, 6 December 2010, at http://associazioneumoja.wordpress.com/2010/12/11/netherlands-freezes-budget-support-to-rwanda/ , accessed 20 February 2011.

20 Swedish Ministry for Foreign Affairs, ‘Strategy for Development Cooperation with Rwanda, January 2010 to December 2013’, 2010.

21 O Stokke, ‘Aid and political conditionality: core issues and state of the art’, in O Stokke (ed), Aid and Political Conditionality, London: Frank Cass, 1995, p 7.

22 G Crawford, Foreign Aid and Political Reform: A Comparative Analysis of Democracy Assistance and Political Conditionality, Basingstoke: Palgrave, 2001.

23 Stokke ‘Aid and political conditionality’; P Burnell, Foreign Aid in a Changing World, Buckingham: Open University Press, 1997; and H White & G Dijkstra, Programme Aid and Development: Beyond Conditionality, London: Routledge, 2003.

24 Crawford, Foreign Aid and Political Reform, p 13.

25 Burnell, Foreign Aid in a Changing World; White & Dijkstra, Programme Aid and Development, p 11; and J Gould (ed), The New Conditionality: The Politics of Poverty Reduction Strategies, London: Zed Books, 2005.

26 Killick, ‘Politics, evidence and the new aid agenda’.

27 Stern, ‘Thematic study on the Paris Declaration’.

28 Booth & Lawson, ‘Evaluation Framework for General Budget Support’.

29 Department for International Development (DFID), Poverty Reduction Budget Support: A DFID Policy Paper, London: Department for International Development, 2004, p 4.

30 Directorate General for Development, European Commission, ‘European Commission budget support: an innovative approach to conditionality’, in Koeberle et al, Budget Support as More Effective Aid?, p 81.

31 Killick, ‘Politics, evidence and the new aid agenda’.

32 T Cordella & G Dell'Ariccia, ‘Budget support versus project aid: a theoretical appraisal’, IMF Working Papers, WP/02/115, Washington, DC: IMF, 2001.

33 Unwin, ‘Beyond budgetary support’.

34 M Foster & J Leavey, ‘The choice of financial aid instruments’, ODI Working Paper, 158, 2001.

35 Norwegian Agency for Development Cooperation (NORAD), ‘From earmarked sector support to general budget support—development partners' experience’, Department for Governance and Macroeconomics, Public Finance Management Unit, 2004, p 4.

36 DFID, Poverty Reduction Budget Support, p 11.

37 P Mosley & S Abrar, ‘Budget support, conditionality and poverty’, Sheffield Economic Research Papers Series, 2005012, 2005.

38 Unwin, ‘Beyond budgetary support’.

39 T Killick, Aid and the Political Economy of Policy Change, London: Routledge, 1998; P Mosley & MJ Eeckhout, ‘From project aid to programme assistance’, in F Tarp (ed), Foreign Aid and Development: Lessons Learnt and Directions for the Future, London: Routledge, 2000, pp 131–153; and White & Dijkstra, Programme Aid and Development.

40 C Clapham, Africa and the International System: The Politics of State Survival, Cambridge: Cambridge University Press, 1996, p 183.

41 J Degnbol-Martinussen & P Engberg-Pedersen, Aid: Understanding International Development Cooperation, London: Zed Books, 2003, p 41.

42 See de Renzio, ‘Aid, budgets and accountability’; and Koeberle et al, Budget Support as More Effective Aid? for good overviews of these evaluations.

43 de Renzio, ‘Aid, budgets and accountability’. This also came out in discussions on budget support held by the author with representatives of donors in Rwanda in August 2008 and September 2009.

44 Y Hadziyiannakis & J Mylonakis, ‘The budget support instrument new paradigm: can it enhance ownership in development assistance?’, International Research Journal of Finance and Economics, 3, 2006, pp 48–55.

45 ‘Memorandum of Understanding governing the provision of direct budget support in the implementation of Rwanda's economic development and poverty reduction strategy’, October 2008.

46 DFID, Poverty Reduction Budget Support: A DFID Policy Paper’ London: Department for International Development, 2008, p 11.

47 European Communities, Budget Support: The Effective Way to Finance Development?, Brussels: European Commission, 2008, p 9.

48 P Uvin, Human Rights and Development, Bloomfield, CT: Kumarian Press, 2004; and R Hayman, ‘The complexity of aid: government strategies, donor agendas and the coordination of development assistance in Rwanda 1994–2004’, PhD thesis, University of Edinburgh, 2006.

49 White & Dijkstra, Programme Aid and Development, p 19.

50 Cordella & Dell'Ariccia, ‘Budget support versus project aid’; Degnbol-Martinussen & Engberg-Pedersen, Aid; Booth & Lawson, ‘Evaluation Framework for General Budget Support’; and Killick, ‘Politics, evidence and the new aid agenda’.

51 SPA, ‘Strategic Partnership with Africa’, 2009.

52 BBC News, ‘The politics of aid in Ethiopia’, 1 August 2006.

53 T Robert, Evolving Party–Movement Relations in Uganda: The Case of the 2006 Election, Chr Michelsen Institute and Makarere University, December 2005.

54 R Hayman, ‘Rwanda: milking the cow—creating policy space in spite of aid dependence’, in L Whitfield (ed), The Politics of Aid, pp 156–184.

55 R Riddell, Does Foreign Aid Really Work?, Oxford: Oxford University Press, 2007.

56 Human Rights Watch, World Report 2006, New York: Human Rights Watch, 2006.

57 Human Rights Watch, World Report 2010: Events of 2009, New York: Human Rights Watch, 2010, p 118.

58 See Governance Matters, ‘Country Data Report for Ethiopia 1996–2008’, 2009, at http://info.worldbank.org/governance/wgi/pdf/c72.pdf, accessed 20 February 2010.

59 See Governance Matters, ‘Country Data Reports for Nicaragua 1996–2008, Honduras and Madagascar 1996–2008’, at http://info.worldbank.org/governance/wgi/pdf_country.asp, accessed 20 February 2010.

60 See Whitfield, The Politics of Aid, for a discussion of how different aid-dependent African countries respond to policy dialogue.

61 OECD–dac ‘Aid at a glance: Ethiopia’, 2009, at http://www.oecd.org/dataoecd/21/7/1880804.gif, accessed 13 November 2009.

62 See ‘Uganda: donors cut budget support’, Independent, 9 August 2010, at http://allafrica.com/stories/201008101266.html, accessed 22 September 2010.

63 Human Rights Watch, World Report 2010.

64 MG Marshall & BR Cole, Global Report 2009: Conflict, Governance and State Fragility, Vienna, VA: Center for Systemic Peace, 2009.

65 R Hayman, ‘Going in the ‘right’ direction? Democracy promotion in Rwanda since 1990’, Taiwan Journal of Democracy, 5(1), 2009, pp 51–75.

66 de Renzio, ‘Aid, budgets and accountability’.