Briefing Paper

Multi-donor budget support: only halfway to effective coordination

Faust, Jörg / Stefan Leiderer / Svea Koch
Briefing Paper (8/2011)

Bonn: German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE)

Multi-Donor Budget Support (MDBS) has its origins in the critique of traditional aid interventions and is aimed at overcoming related deficiencies of aid by avoiding parallel administrative and decision making structures. It is commonly understood not merely as a financing instrument but also as an instrument with the potential to promote more effective administrative processes and – in the long run – to support democratic accountability.
As a financing instrument, budget support is intended to provide predictable aid flows into the general budget of the recipient. At the same time, MDBS donors also aim at actively strengthening core government capabilities through non-financial contributions, namely conditionality, policy dialogue and targeted capacity building. To be jointly effective, financial and non-financial contributions not only need to be properly aligned to government programmes and priorities but also have to be carefully coordinated among donors – in particular so, if MDBS is provided to countries with weak administrative capacities, high levels of aid dependency and an incoherent state apparatus. In such contexts, donors have to at least partially compensate for these deficiencies with their own harmonisation and alignment efforts.

While MDBS provides for the harmonisation of donor procedures and alignment to government priorities in principle, aligning behind a joint financing mechanism alone is not enough to make MDBS work, particularly since donors are far from having reached a consensus regarding the use of political conditionality attached to MDBS. Yet, such conditionality can only be effective (if at all) if applied in a coherent, transparent, and – above all – credible way. This requires (besides the will to reform on the recipient side) a strongly harmonised and coordinated donor approach, which so far has not been sufficiently implemented due to a missing consensus among donors on the relative weight of MDBS’s strategic goals.

Some (especially multilateral) donors prioritise the financing function, while for others the political goals related to improving governance are at least as important. So far, donors have failed to establish a consensus on the hierarchy of potentially conflicting goals to be pursued with the instrument. In practice, this failure obstructs the creation of coherent incentive systems for recipients necessary for achieving more long-term governance goals.

The lack of such a consensus is caused by different requirements of donor headquarters, which in turn are determined by domestic political concerns. The task of building consensus on what is to be achieved with MDBS and of harmonising the intervention logic accordingly must therefore be taken up at headquarter level. At the same time, headquarters need to delegate actual decision making to their country offices to ensure effective coordination and harmonisation.

Given the dominant role of European donors in the provision of MDBS, this consensus building should be a priority of the ongoing coordination efforts between EU member states and the European Commission.