In contrast to general budget support, which generated important gains in overall governance issues such as PFM, transparency and oversight, SRPCs focussed more narrowly on sector governance issues.
Dialogue in the context of SRPCs was more about operational matters and the discussion of performance at program and subsector level than about wider strategic objectives. However, where budget support was used to support new programs, such as Peru’s fight against drugs or the creation of the Salvadoran National Quality Control System, the EU delegation and the technical assistance provided policy advice to the government at a crucial time while these new policies were being developed. In South Africa, such advice was very limited. In Morocco, the EU’s technical advice on PFM led to progress on two highly sensitive areas in terms of defining strategic policy directions, namely the estimation and publication of tax expenditure and tax rationalisation (Box 3.8).
Box 3.8. Support for Governance in Morocco
Tax reform, which began in Morocco in the mid-1980s, achieved positive results until the late 1990s, when progress slowed. A new wave of reforms was undertaken from the late 1990s and was accompanied and supported by the EU and other development partners from 2005 onwards with budget support. This led to the simplification, rationalization, and harmonization of taxes, the development of a new Public Finance Law, and, importantly, since 2007 made it possible to report on tax expenditures in the Finance Act.
In the field of taxation, budget support was instrumental, not for launching reforms (which were initiated by the government), but for influencing their orientation on such critical issues as value-added tax (VAT), corporate tax, tax neutrality, rationalization of tax expenditure in order to align with good practices, particularly those underway in the EU. The intensity of the policy dialogue, the technical assistance and analytical work provided during the preparation phases, and the choice of disbursement conditions (performance indicators) were instrumental in advancing the reforms.
In most cases, technical assistance played an instrumental role in strengthening government capacities and producing tools and systems which were important to advance the reforms. In Morocco, technical assistance was particularly effective in supporting regulatory and institutional changes to modernize the Moroccan economy and facilitate its entry into the world economy. In Cambodia, El Salvador, and Peru, technical assistance played a key role in improving sector governance and in particular public finance management. Technical assistants exchanged ideas and provided analysis and policy proposals to nourish institutional strategies and policy development, produced management and technical tools, and delivered training in areas such as sector planning, budget management, financial management and results-based management reforms.
Great strides forward were identified in results-based planning and budgeting (Cambodia and Peru), in monitoring capacities (Cambodia), in strengthening inter-ministerial relationships and in the technical capacities of the institutions supported. This improved governance was recognized as key to sustainable and systemic improvements in policies and delivery that would lead to better sector outcomes. All such sector-level improvements were linked to technical assistance.
Even though the volume of funding provided by budget support was small relative to total public spending, budget support funds were essential in maintaining or even increasing spending in selected areas. In the six countries examined, the fiscal space created by budget support was used by the governments to ensure funding of specific programs, or to increase funding of existing programs.
- Cambodia. EU budget support helped reverse an increasing trend of underfunding non-salary expenditure in education by convincing authorities to increase school operating budgets and by enabling continued funding of some specific education initiatives, such as scholarships and multilingual education, which had been successfully piloted by other development partners.
- El Salvador. In 2010, EU macroeconomic support to El Salvador helped relieve the pressure on the national treasury in the aftermath of the global financial crisis of 2007–2009, when the government sought to implement an anti-crisis plan and increase social spending.
- El Salvador, Paraguay, and Peru. EU budget support allowed governments to increase funding of specific spending programs, including: the Salvadoran Quality Systems Programme; the very limited capital budget and the purchase of books and stationery in the education sector in Paraguay; and social protection for vulnerable people and nutritional programs in three regions in Peru.
- Morocco. Although aggregate budget spending remained stable, the budgets allocated to non-formal education and adult literacy were boosted by the attention given to these areas in the policy dialogue and indicators that accompanied EU budget support.
- South Africa. Budget support funds were used by the government to top up the budgets for innovative spending in service delivery processes in different areas (water and sanitation, health, justice, education, employment, private sector development, and the provincial legislative assemblies). In cases where public spending was verified to have reduced poverty and inequality levels, corresponding programs were mainstreamed into policy, scaled up, and funded domestically through the budget.
In all cases, EU funding enabled the respective governments to increase the scope of services delivered to the population. In Paraguay, Peru, and South Africa, this was easily identifiable as funds were channelled by the government to specific spending programs and regions, increasing coverage and efficiency in specific policy areas (education, social protection, and health). In other budget support programs, the link between EU funding and the increased access to public services was more indirect.
Evaluations also noted that, although EU budget support had contributed to an expansion in services, it was not always successful in increasing the quality of those services (e.g., education in Cambodia) or in addressing persistent inequalities in access to services.