Aid through budget support (RiR 2007:31)

The Riksdag (Swedish Parliament) adopted a new Policy for Global Development in 2003. This policy established a new objective for development cooperation: to contribute to an environment supportive of poor people’s own efforts to improve their quality of life. At the same time, the Riksdag decided that development aid should amount to 1 per cent of the Swedish gross national income. The growing importance of budget support can be seen against this background. In addition, this development is also a result of international agreements to the effect that aid should increasingly be given in more general forms and that the handling of aid should be harmonised among donor countries.

Budget support is financial support provided to the national budget of a poor country in order to support poverty reduction in that country. The choice of this type of support is based on the assumption that aid will be more effective if it is governed to a greater extent by the recipient country’s own priorities rather than by requirements imposed by donors.

From the perspective of recipient countries, it is important that budget support is predictable. This requires that decisions on budget support be based on long-term positions which, in turn, must build on careful analysis.

The effectiveness of budget support depends on two factors: first, the extent of political will in the recipient country to implement measures to reduce poverty and, second, the effectiveness of economic policy and public financial management in that country. For budget support to be an appropriate type of aid, certain basic conditions with regard to the economic policy and public financial management of the recipient country must be met. In addition, the recipient country must have a poverty-reduction strategy whose content is deemed to be credible and relevant.

The Riksdag has emphasised that the Government should create conditions ensuring that decisions on budget support can be based on a solid foundation, given that budget support constitutes support to the overall policy of the recipient country. The Government has authorised Sida (Swedish International Development Cooperation Agency) to prepare matters, enter into agreements and make disbursements in the field of budget support. This delegation of responsibility makes heavy demands on the ability of the Government Offices (i.e. ministries) and Sida to determine whether the conditions for the provision of budget support are met.