To modernise the European Union’s budget support to developing countries, the Commission proposes to set up three types of contractual partnerships, outlined in a communication ⁽¹⁾ published on 13 October. The objective is to provide support essentially for democratic transition, sustainable economic growth and the eradication of poverty. The EU executive also recommends the introduction of a new eligibility criterion for budget support and a coordinated EU approach.

Used particularly in the Union’s development cooperation, budget support is based on financial transfers to the partner country’s national treasury under given conditions, in particular eligibility criteria, and matched with sustained political dialogue.

“We welcome the Commission’s leadership on promoting budget support,” Angela Corbalan, spokesperson for Oxfam International, told Europolitics. “However, budget support must remain a poverty reduction tool. It should not be used as a political tool,” she added, mentioning the conditions related to respect for democracy and human rights.

The Commission’s communication proposes the use of “good governance and development” contracts aimed at providing general budget support to countries that agree to respect fundamental values, such as human rights, democracy and the rule of law. This support should target the promotion of human rights and democratic values but also assure enhanced financial management, macroeconomic stability, inclusive growth and the fight against corruption and fraud.

“Sector reform contracts” would help ensure budget support for sector reforms and improve the provision of services to the population.

For countries in an extremely fragile situation, the Commission recommends the conclusion of “state-building contracts” to help the partner countries ensure vital state functions and to facilitate their transition towards development.

The Commission also proposes to add a fourth eligibility criterion to assess the transparency and surveillance of the partner country’s budget and to strengthen the other three eligibility criteria (stable macroeconomic framework, reform policies and public financial management).

COORDINATION

Lastly, the EU executive recommends coordination of budget support between the Commission and member states, with a view to increasing aid effectiveness and efficiency. It nevertheless suggests working towards a “single EU good governance and development contract” and identifies ten principles to underpin coordination.

⁽¹⁾ ‘The future of EU budget support’