Evaluation of General Budget Support: Synthesis Report - Belgium

6. Thematic Issues
rights. There has been a clear trend to make these principles more visible in the MOUs that
underlie collective budget support arrangements, as well as in the bilateral understandings
between individual international partners and partner governments.
6.93 There is consensus, reflected in the DAC good practice guidelines that political
conditionality should not be specifically linked to budget support or any individual aid instrument,
but rather should be handled in the context of the overarching policy dialogue between a partner
country and its donors (OECD DAC 2005d). Nevertheless, experience tends to demonstrate
that budget support, and general budget support in particular, is especially vulnerable when
there is a political deterioration in relations. This potentially undermines PGBS as a long-term
instrument. Apart from immediate disruptive effects (and their effects on the poor), there is likely
to be an effect on the partner government's perspective. An instrument that is seen as
especially vulnerable in this way is less likely to be treated as a reliable source of financing for
medium and long-term planning, and this in turn may undermine some of the distinctive benefits
associated with PGBS.
6.94 We have advocated more donor attention to country-specific political analysis generally,
as a basis for a better understanding of what may or may not be achieved through aid in general
and PGBS in particular. This would be an important input to the joint donor assistance
strategies that are becoming more common. Such analysis would not prevent crises in aid
relationships, but more careful political risk assessment might motivate better design of budget
support instruments (e.g. to provide options for graduated responses to political crises as well as
for other aspects of performance that donors find unsatisfactory). At present an aid portfolio that
comprises a series of specific projects or sector programmes at different stages in the project
life cycle offers obvious options for graduated response when the donor wishes to send a highly
visible political signal: 121 a withholding of new project grants or loans is more commonly resorted
to than the extreme measure of suspending or terminating projects in mid-implementation, for
example. We noted (6.73 above) that re-balancing an aid portfolio from projects towards
budget support potentially increases the amount of aid that is hostage to macroeconomic
conditionality. A similar point applies to political risk. A tranche of budget support that is subject
to a single, annual decisions, requiring positive approval by a minister, is especially vulnerable
to demands for public signalling. 122 This apparent special vulnerability of PGBS to political risk
is part of a more general issue about predictability and risk management in relation to PGBS,
which we consider next.
Predictability and Managing Risks
6.95 We have highlighted the distinctive characteristics of PGBS (6.6), and stressed that
these make PGBS an inherently long-term instrument (6.31). Our comments on predictability
and risk are based on this perspective.
6.96 We noted (Section 5, under EQ3) some of the problems that PGBS in the study
countries experienced with predictability. Useful measures have been taken to make PGBS less
vulnerable to short-term unpredictability. These include agreements to base disbursements on
121 The signal may be as much for the donor's domestic constituency as for the partner government.
122 Conversely, there is less of a "hair-trigger" involved if funds are identified in the public mind with specific (popular)
sectors, if there are longer intervals between decisions, if funds are disbursed via a third party, if there is a joint
agreement with other partners, and so forth. There are precedents, too, for politicians deliberately insulating
themselves from day-to-day disbursement decisions (delegation of monetary policy to central banks is a famous
example; appointments of more or less independent boards to distribute various grants, etc), and agencies which
make a point of assessing likely poverty impact before commencing funding should be equally assiduous in
transparently assessing the poverty impact of suspending funding.
(113)