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Budget support is a particular way of giving international development aid, also known as an aid instrument or aid modality. With budget support, money is given directly to a recipient country government, usually from a donor government. Budget support differs from other types of aid modalities such as:
In practice, budget support varies dramatically and is done in a large range of different ways. One of the broadest distinctions is between general budget support and sector budget support.
General budget support is unearmarked contributions to the government budget including funding to support the implementation of macroeconomic reforms (structural adjustment programmes, poverty reduction strategies).
Budget support is a method of financing a recipient country's budget through a transfer of resources from an external financing agency to the recipient government's national treasury. The funds thus transferred are managed in accordance with the recipient's budgetary procedures.
Funds transferred to the national treasury for financing programmes or projects managed according to different budgetary procedures from those of the recipient country, with the intention of earmarking the resources for specific uses, are therefore excluded.
Sector budget support, like general budget support, is an un earmarked financial contribution to a recipient government's budget. However, in sector budget support, the dialogue between donors and partner governments focuses on sector-specific concerns, rather than on overall policy and budget priorities. [1] [ full citation needed ]
The underlying rationale for budget support is variously seen as:
a) Researchers at the Overseas Development Institute (ODI) describe how highly fragmented, ad hoc, small projects were not delivering results and cumulatively may have been undermining aid agencies' own objectives. [2] There is some evidence that the effect of ad hoc, small projects is not systematic, but there is a wide range of individual evaluations of project as well as some more meta-review data such as Wapenhans report (1992) and ‘Assessing Aid’ (1998). [2] Thus the ODI highlights the following benefits: [2]
b) that building recipient government capacity and accountability to their own populations for service delivery, as the only sustainable way of reducing poverty in the long term. Evidence is scarce, since it is hard to tell what level and type of effect budget support is or even could have on these long term and highly political processes. The findings of the largest review to date are over all positive. For more information, see the 8-country evaluation of GBS (1994-2004), 4-page summary: http://www.oecd.org/dataoecd/16/63/37421292.pdf
In practice the other types of aid instruments are still running concomitantly which means the potential expressed in the underlying rationale is unlikely to be fully tested.
The risks for donor governments and recipient governments are very different. The literature describes a range some of which are summarised below.
For the donor government the risks include:
For the recipient government the risks include:
The United Nations Development Programme (UNDP) is a United Nations agency tasked with helping countries eliminate poverty and achieve sustainable economic growth and human development. The UNDP emphasizes developing local capacity towards long-term self-sufficiency and prosperity.
The government budget balance, also referred to as the general government balance, public budget balance, or public fiscal balance, is the difference between government revenues and spending. For a government that uses accrual accounting the budget balance is calculated using only spending on current operations, with expenditure on new capital assets excluded. A positive balance is called a government budget surplus, and a negative balance is a government budget deficit. A government budget presents the government's proposed revenues and spending for a financial year.
Government spending or expenditure includes all government consumption, investment, and transfer payments. In national income accounting, the acquisition by governments of goods and services for current use, to directly satisfy the individual or collective needs of the community, is classed as government final consumption expenditure. Government acquisition of goods and services intended to create future benefits, such as infrastructure investment or research spending, is classed as government investment. These two types of government spending, on final consumption and on gross capital formation, together constitute one of the major components of gross domestic product.
Official development assistance (ODA) is a category used by the Development Assistance Committee (DAC) of the Organisation for Economic Co-operation and Development (OECD) to measure foreign aid. The DAC first adopted the concept in 1969. It is widely used as an indicator of international aid flow. It refers to material resources given by the governments of richer countries to promote the economic development of poorer countries and the welfare of their people. The donor government agency may disburse such resources to the government of the recipient country or through other organizations. Most ODA is in the form of grants, but some is measured as the concessional value in soft (low-interest) loans.
Development aid is a type of foreign/international/overseas aid given by governments and other agencies to support the economic, environmental, social, and political development of developing countries. Closely related concepts include: developmental aid, development assistance, official development assistance, development policy, development cooperation and technical assistance. It is distinguished from humanitarian aid by aiming at a sustained improvement in the conditions in a developing country, rather than short-term relief. Development aid is thus widely seen as a major way to meet Sustainable Development Goal 1 for the developing nations.
Aid effectiveness is the degree of success or failure of international aid. Concern with aid effectiveness might be at a high level of generality, or it might be more detailed.
In international relations, aid is – from the perspective of governments – a voluntary transfer of resources from one country to another.
Capacity building is the improvement in an individual's or organization's facility "to produce, perform or deploy". The terms capacity building and capacity development have often been used interchangeably, although a publication by OECD-DAC stated in 2006 that capacity development was the preferable term. Since the 1950s, international organizations, governments, non-governmental organizations (NGOs) and communities use the concept of capacity building as part of "social and economic development" in national and subnational plans. The United Nations Development Programme defines itself by "capacity development" in the sense of "'how UNDP works" to fulfill its mission. The UN system applies it in almost every sector, including several of the Sustainable Development Goals to be achieved by 2030. For example, the Sustainable Development Goal 17 advocates for enhanced international support for capacity building in developing countries to support national plans to implement the 2030 Agenda.
Tied aid is foreign aid that must be spent on products & services provided by companies that are from the country providing the aid or in a group of selected countries. A developed country will provide a bilateral loan or grant to a developing country, but mandate that the money be spent on goods or services produced in the selected country. From this, it follows that untied aid has no geographical limitations.
A government budget is a projection of the government's revenues and expenditure for a particular period of time often referred to as a financial or fiscal year, which may or may not correspond with the calendar year. Government revenues mostly include taxes while expenditures consist of government spending. A government budget is prepared by the government or other political entity. In most parliamentary systems, the budget is presented to the legislature and often requires approval of the legislature. Through this budget, the government implements economic policy and realizes its program priorities. Once the budget is approved, the use of funds from individual chapters is in the hands of government ministries and other institutions. Revenues of the state budget consist mainly of taxes, customs duties, fees and other revenues. State budget expenditures cover the activities of the state, which are either given by law or the constitution. The budget in itself does not appropriate funds for government programs, hence need for additional legislative measures. The word budget comes from the Old French bougette.
Fund accounting is an accounting system for recording resources whose use has been limited by the donor, grant authority, governing agency, or other individuals or organisations or by law. It emphasizes accountability rather than profitability, and is used by Nonprofit organizations and by governments. In this method, a fund consists of a self-balancing set of accounts and each are reported as either unrestricted, temporarily restricted or permanently restricted based on the provider-imposed restrictions.
The Directorate-General for International Partnerships is the European Commission department responsible for international development policy. It operates under the authority of the European Commissioner for International Partnerships, Jutta Urpilainen.
Access to water supply and sanitation in Ethiopia is amongst the lowest in Sub-Saharan Africa and the entire world. While access has increased substantially with funding from foreign aid, much still remains to be done. Some factors inhibiting the achievement of these goals are the limited capacity of water bureaus in the country's nine regions, two city administrations and water desks in the 770 districts of Ethiopia (woredas); insufficient cost recovery for proper operation and maintenance; and different policies and procedures used by various donors, notwithstanding the Paris Declaration on Aid Effectiveness.
The hypothecation of a tax is the dedication of the revenue from a specific tax for a particular expenditure purpose. This approach differs from the classical method according to which all government spending is done from a consolidated fund.
Public budgeting is a field of public administration and a discipline in the academic study of public administration. Budgeting is characterized by its approaches, functions, formation, and type.
Water supply and sanitation in Tanzania is characterised by: decreasing access to at least basic water sources in the 2000s, steady access to some form of sanitation, intermittent water supply and generally low quality of service. Many utilities are barely able to cover their operation and maintenance costs through revenues due to low tariffs and poor efficiency. There are significant regional differences and the best performing utilities are Arusha and Tanga.
Climate finance is "finance that aims at reducing emissions, and enhancing sinks of greenhouse gases and aims at reducing vulnerability of, and maintaining and increasing the resilience of, human and ecological systems to negative climate change impacts". The term has been used in a narrow sense to refer to transfers of public resources from developed to developing countries, in light of their UN Climate Convention obligations to provide "new and additional financial resources", and in a wider sense to refer to all financial flows relating to climate change mitigation and adaptation.
The Enhanced Integrated Framework for Trade-Related Assistance for the Least Developed Countries is a global development program with the objective of supporting least developed countries (LDCs) to better integrate into the global trading system and to make trade a driver for development. The multi-donor program was launched on 1 January 2007 as the successor of the Integrated Framework for Trade-Related Technical Assistance to the Least-Developed Countries, which existed from October 1997 to December 2006. The second phase of the EIF has started on 1 January 2016 and will last for 7 years.
Fiscal transparency refers to the publication of information on how governments raise, spend, and manage public resources. More specifically, it means publication of high quality information on how governments raise taxes, borrow, spend, invest, and manage public assets and liabilities.
Four high level forums on aid effectiveness were held between 2003 and 2011 as part of a "continuous effort towards modernising, deepening and broadening development co-operation and the delivery of aid" coordinated through the OECD. They took place at Rome (2003), Paris (2005), Accra (2008) and Busan (2011).