Budget support is central to our international cooperation. The EU is the world’s top provider of budget support. It involves direct financial transfers to the national treasury of partner countries engaging in sustainable development reforms. These transfers are conditional on policy dialogue, performance assessment, and capacity building.
EU budget support promotes progress towards all 17 Sustainable Development Goals (SDGs). It has, for example, contributed to halving the poverty rate in partner countries between 2005 and 2020. Another example is in achieving gender equality and women empowerment (SDG5) where 50% of the portfolio is directed towards this goal. Finally, EU budget support helps to control corruption. Countries receiving EU budget support perform better in controlling corruption than other developing and emerging countries (SDG16). Lately, EU budget support was instrumental in helping countries to cope with the COVID crisis.
In the past two years, EU budget support helped countries with overall EUR 4.2 billion payments - EUR 3 billion in 2020 and EUR 1.2 billion in 2021 - to prevent further socio-economic setbacks and to continue supporting reforms. It accounted for 18% of EU external assistance (including neighbourhood countries and the Instrument for Pre-Accession Assistance). The distribution of budget support operations by region shows that sub-Saharan Africa remains the largest recipient of budget support in volume (35%), followed by neighbourhood countries (31%), Asia (16%), Latin America (6%), Western Balkans (4%), the Caribbean (3 %), overseas countries and territories (3%) and the Pacific (2%).
Further information and data can be found in the report Budget Support – Trends & Results 2021.
How budget support works
Budget support favours true partnerships, in which we work with our partner countries as equals. We accompany them in their reform process towards achieving the SDGs, through a balanced and open policy dialogue, and reward their performance when results are met.
Budget support fosters our partner countries’ ownership of development policies and reforms. It relies on transparency, mutual respect, accountability, performance, and risk management, with the aim of increasing the effectiveness of our development cooperation.
The rules of EU budget support were set by the European Commission communication on ‘The future approach to EU budget support to third countries’ (2011), approved by the European Council in 2012, which also highlights the need for a coordinated approach at EU level, to ensure the effectiveness of this aid modality.
This initial framework was later completed by our international commitment to the UN 2030 Agenda for Sustainable Development (2015) and the Addis Ababa Action Agenda (2015). The European Consensus on Development (2017), which implements the 2030 Agenda in the EU, reiterates the importance of a coordinated approach to budget support and insists also on the need for a rights-based approach, to make sure no one is left behind.
As a general objective and in line with the above commitments, EU budget support aims at strengthening our partnerships with partner countries, to promote sustainable development, eradicate poverty, reduce inequalities, and consolidate peace and democracy.
EU budget support is tailored to the development needs of our partner countries. Specific objectives therefore vary but are always in line with our partner countries’ own development policies, priorities, and objectives, and consistent with the EU’s external action policy.
Budget support also helps partner countries mobilise domestic revenue and depend less on external aid. As it fosters transparency and good governance, budget support contributes to the fight against corruption and the creation of a favourable climate for private investments in our partner countries.
Requirements and conditions
To benefit from budget support, partner countries must have:
- relevant and credible national or sector strategies, policies, and/or reforms
- stability-focused economic policies
- a relevant and credible plan to improve public financial management and domestic revenue mobilisation
- budget oversight and publicly available budget information
Beneficiary governments also need to adhere to EU fundamental values of human rights, democracy, and the rule of law.
Financial transfers under budget support are tied to performance. If a partner country does not meet the agreed upon conditions for results, payments will be withheld until they do. The use of a variable tranche based on indicators also allows for partial payment in case of partial performance.
Budget support and corruption
Budget support encourages an accountable and effective public administration. Budget support addresses corruption and fraud through:
- assistance to audit and anti-corruption institutions or judicial bodies
- strengthened political/policy dialogue on transparency and oversight functions
- reforms to fix systemic weaknesses favouring corruption in revenue administration, spending and procurement processes or in service delivery
- support for civil society organisations to enable participation and oversight in the budgetary and policy process
Types of budget support
As budget support implies a tailored assistance, it can be granted through 3 types of contracts. The choice of contract will depend on the partner country’s context and own development objectives.
Sustainable Development Goals Contracts
Sustainable Development Goals Contracts (SDG-Cs) are meant to support the partner countries’ own efforts to achieve several SDGs. They support high-level strategic development objectives, which require a comprehensive and transversal approach.
SDG-Cs can only be assigned after a satisfactory assessment of the partner government’s commitment to EU fundamental values.
Sector Reform Performance Contracts
Sector Reform Performance Contracts (SRPCs) focus on sector policies and reforms, to improve governance and service delivery. They focus on one or a few SDGs. They support our partner countries’ efforts to ensure inclusive access to qualitative public services, promote women’s and children’s rights, and create at sector level the conditions for sustainable growth.
State and Resilience Building Contract
State and Resilience Building Contracts (SRBCs) are used in fragile contexts. They support our most fragile partner countries’ transition towards recovery, development, and democracy and help them address the structural causes of their fragility. They can also be deployed right after a crisis or a natural disaster. This video illustrates it further.
Eligibility criteria for SRBCs are the same but they are assessed using a forward-looking approach. A strong policy dialogue – and safeguard measures when necessary – is a pillar of SRBCs. SRBCs typically address several SDGs.
SRBCs usually prepare the ground for SDG-Contracts and SRPCs, as they support the formulation of national or sectoral development strategies in our partner countries.
Since 2012, we have established clear rules to manage the specific risks of budget support, and ensure a good risk-benefit balance.
Our risk management framework requires that we:
- identify the risks (including the risk of non-intervening), mitigating measures, and risk responses
- discuss them with all parties concerned as part of our policy dialogue
- monitor them during the budget support implementation
- identify how to react to sudden changes in the country’s situation (crises)