Does General Budget Support Work

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Does General Budget Support Work?

• Stephen Lister
• Copenhagen, 16 May 2006

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Overview of Presentation

• The Study
• joint donor (government) study
• rigorous methodology, 18 month study
• seven countries, 19942004
• Burkina Faso, Malawi, Mozambique, Nicaragua,
  Rwanda, Uganda, Vietnam
• Presentation
• theory and practice of budget support
• scope of the evaluation
• principal findings
• implications

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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

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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

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What did we find to evaluate?
Partnership GBS flows (Table 3.3)

• illustrative sample of countries
• large volume, but recent, uneven distribution of
  PGBS
• useful contrasts in penetration
• (e.g. Uganda vs. Vietnam)

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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

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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.

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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..)

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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

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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.

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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?

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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.

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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)

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Thank You