Budget Support

What is budget support

Budget support is a term used for development assistance where funds are channeled to the partner government using the country's own allocation, procurement and accounting system.

The support is not linked to specific project activities. This means that the support is fully aligned with the partner government's system.

Two main forms of budget support

There are two main forms of budget support, which can be defined by the following:

• General budget support is budget support where the purpose is to contribute to the implementation and overarching goals in the poverty reduction/ national development strategy.
• Sector budget support is budget support where the purpose is to accelerate progress towards the government's sector goals.

Why budget support

The Paris Declaration on aid Effectiveness that was agreed at the High-level Meeting in Paris in March 2005 is particularly important for all development cooperation. The key principles of the Paris Declaration are (I) Ownership; (II) Alignment with Partner country policies and priorities; (III) Harmonization and coordination of donor procedures and practices; (IV) Managing for results; and (V) Mutual Accountability. Budget support is the instrument which to the highest degree promotes these principles.

The appropriate scope and focus of budget support should be decided within the country context, with adherence to strategies developed by the Partner country.

Experiences with budget support.

Evaluations of budget support underlines that budget support can be an efficient, effective and sustainable way of supporting national poverty reduction strategies. Budget support also tends to enhance the country- level quality of aid as a whole, through its direct and indirect effects on coherence, harmonization and alignment.

Evaluations show positive effects on efficiency of public expenditure as well as on public finance management systems. Budget support has also contributed to strengthening of government ownership and accountability.

Features of budget support

Evaluation work underlines that key features of budget support are:

• Its orientation to the support of nationally- owned poverty reduction strategies. Budget support offers an exceptionally powerful instrument for focusing both government and international partner’s attention to the development and implementation of the poverty reduction strategy.
• Its orientation towards the strengthening of government capacity to promote pro- poor development, and its systematic approach – using the systems that need to be strengthened.
• Its focus on results, via the links between policy and implementation.
• Its inevitable concern with public finance management. This steams immediately from fiduciary concerns about the resources entrusted to national public finance management systems and, more fundamentally, from the budget’s role as the key link between policy and implementation.
• Its explicit intention to improve the quality of aid – immediately, by advancing harmonization and alignment; and more fundamentally, by promoting a virtuous circle in which improvements in the capacity of government and improvements in the quality of aid reinforce one another.

Norway's budget support

The Norwegian white paper on development policy (No. 13, 2008-2009) confirms the emphasis on budget support in development assistance. Budget support is intended to help ensure that national authorities have greater genuine ownership of national plans and strengthen democratic processes.

According to Norwegian guidelines, budget support should be considered provided to countries with which Norway has cooperation based on a longer-term perspective.

National poverty reduction strategies, often in the form of a Poverty Reduction Strategy Paper (PRSP), play an increasingly important role in development assistance dialogues. Fragile states may also be eligible for budget support in support of a peace- building or stabilization process.

Norway provided in 2010 totally NOK 1 079 mill in general budget support. The countries/areas receiving general budget support were:  Burundi (NOK 60 mill), Malawi (NOK 70 mill), Mozambique (NOK 160 mill), The Palestinian area (NOK 300 mill), Tanzania (NOK 265 mill), Uganda (NOK 60 mill) and Zambia (NOK 164 mill). The support to Burundi and the Palestinian area were through trust fund managed by the World Bank. In addition Norway provided NOK 285 mill in support to the Afghanistan Reconstruction Trust Fund (ARTF) in 2010.

Norad’s role

Norad’s role is to provide advice and contribute to quality assurance of the planning process and the follow up of the various budget support programs.