By Martin Banks - 28th January 2013
Budget support has helped make headway in poverty reduction. It improves public services like health and education and has proved to be an efficient tool to fight corruption and improve government financial management capacity
The international charity Oxfam has made a robust defence of the EU's budget support policy.
It comes after a recent report by Karel Pinxten, of the European court of auditors, described budget support as a "particularly problematic area".
Similar concern was expressed by Belgian ECR deputy Derk Jan Eppink who said that Ben Ali's Tunisia and Hosni Mubarak's Egypt received around €60m and €100m respectively in the form of budget support from the European neighbourhood policy in 2009.
He told a parliamentary meeting earlier this month these are particular examples of funds that "should never have been given" in the form of budget support.
However, Catherine Olier, Oxfam's EU policy expert, has reacted angrily to the attack on budget support, describing it as a "well-established aid financing modality" that has "proved efficient for poverty eradication".
Setting out the "case" for budget support, Olier added, "It should be considered within a mix of aid modalities and within the specific context of each country's situation.
"Budget support helps connecting the dots."
Oxfam says that in Tunisia, budget support "has proved to prevent a fragile context to deteriorate further".
Such funding, it says, has been "particularly effective" in supporting "important" economic and education reforms in the country.
Budget support, insists the charity, has contributed "significantly" to a decline in poverty in Tunisia from 6.2 per cent in 1995 to 3.8 per cent in 2005.
"Budget support has helped make headway in poverty reduction. It improves public services like health and education and has proved to be an efficient tool to fight corruption and improve government financial management capacity."
"Like any investment, risk always exists but many examples, including the experience in Tunisia, have proved that returns in terms of poverty reduction outweigh the risk and this is the whole point of aid."
Oxfam says that budget support "is shown to have positive and sustainable impacts on public investment".
Olier added, "Compared to aid earmarked for projects, it is shown to improve public services like health and education by improving public expenditure.
"Also, when these services are paid for out of general budget, they are more likely to continue when aid is withdrawn than those which have a separate funding stream."
The charity also says that studies had shown that budget support "punches above its weight" and has a "powerful leverage effect".
It points to an OECD report saying that "contrary to the myth that direct budget support is more prone to corruption than project aid, budget support has proved to reduce the risks of corruption".
Oxfam adds, "Budget support is an effective tool to improve financial management and build strong and accountable states."
It says that eligibility conditions with "strict and tighter rules" are being introduced by the commission this year to put in place safeguards on human rights, transparency and accountability.
This, says Oxfam, is designed to ensure that budget support "delivers the most results for the poorest".
Olier adds, "Obviously, the risks remain, but studies show that the returns in terms of poverty reduction are outweighing the risks.
"Budget support is also a good tool to strengthen civil society and domestic accountability by increasing donors' support to oversight bodies and enable them to hold governments and donors to account."