The Management of UK Budget Support Operations

This review assesses budget support, aid given directly to a recipient government, which represents 15% of the UK’s bilateral aid budget. In the right conditions, budget support can offer an effective and efficient way of providing development assistance.

This review assesses whether DFID makes appropriate decisions as to where and in what quantity to provide budget support and whether the processes by which DFID manages its budget support operations are appropriate and effective.

We found that in the right conditions, budget support can offer an effective and efficient way of providing development assistance. Its practical value, however, varies substantially according to the country context and the dynamics of the development partnership. The amount of budget support should be determined by reference to the policy and institutional environment. In most cases, budget support should be balanced by other, more hands-on, aid instruments.

As a result of our findings this review is marked Green-Amber.

Recommendations

Recommendation 1: DFID should determine the amount of budget support to provide based on an assessment of how much poverty reduction can realistically be achieved through expanding public expenditure given the quality of national policies and institutions.

Recommendation 2: DFID should build its general budget support operations around the possibility of higher and lower levels of funding, with a substantial increment between them, to send clear signals on performance and free up resources from non-performing operations.

Recommendation 3: DFID should set clear targets for progress on public financial management reform and anti-corruption for each of its budget support operations and link future funding levels to progress achieved.

Recommendation 4: DFID should strengthen its approach to managing short-term fiduciary risk in its budget support operations through more active measures to address specific risks identified in Fiduciary Risk Assessments.

Recommendation 5: Both general and sector budget support operations should include explicit strategies for tackling constraints on efficient public spending and ensure that these are addressed systematically in policy dialogue and reform programmes.

Recommendation 6: DFID should develop explicit influencing strategies in respect of the issues it deems critical to each country’s development path, combining budget support dialogue with other approaches such as funding research and advocacy, media campaigns and working with parliament in the recipient country.

Recommendation 7: DFID should look for every opportunity to promote national accountability, including through sharing information on recipient government performance generated within budget support operations with parliament and other national stakeholders.

Recommendation 8: DFID should change the way it assesses and reports on the results of its budget support operations, to capture the transformational effects of UK budget support rather than simply the extent of the UK subsidy to basic service delivery.