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Does General Budget Support Work?. Stephen Lister Copenhagen, 16 May 2006 . Overview of Presentation. The Study joint donor (+government) study rigorous methodology, 18 month study seven countries, 1994—2004: Burkina Faso, Malawi, Mozambique, Nicaragua, Rwanda, Uganda, Vietnam

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Does General Budget Support Work?

Stephen Lister

Copenhagen, 16 May 2006


Overview of presentation l.jpg
Overview of Presentation

The Study

  • joint donor (+government) study

  • rigorous methodology, 18 month study

  • seven countries, 1994—2004:

    Burkina Faso, Malawi, Mozambique, Nicaragua, Rwanda, Uganda, Vietnam

    Presentation

  • theory and practice of budget support

  • scope of the evaluation

  • principal findings

  • implications

Does Budget Support Work?


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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”

  • Does Budget Support Work?


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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

    Does Budget Support Work?


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    What did we find to evaluate?

    • illustrative sample of countries

    • large volume, but recent, uneven distribution of PGBS

    • useful contrasts in “penetration”

      (e.g. Uganda vs. Vietnam)

    Partnership GBS flows (Table 3.3)

    Does Budget Support Work?


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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

  • Does Budget Support Work?


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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.

  • Does Budget Support Work?


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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..)

  • Does Budget Support Work?


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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

  • Does Budget Support Work?


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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.

    Does Budget Support Work?


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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?

    Does Budget Support Work?


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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.

    Does Budget Support Work?


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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)

    Does Budget Support Work?


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    Thank You

    Does Budget Support Work?


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