The first positive finding is the EC’s increasing use of budget support and itsstrong commitment to it. In the past few years, on average one-fifth of theCommission’s aid has been delivered in the form of budget support, and thisis likely to increase in the coming years.The second positive feature is that the Commission links its budget supportto developing-country governments achieving positive results in health andeducation. Oxfam’s research shows that over half of the performanceindicators tied to the Commission’s general budget support agreements callfor direct improvements in poor people's health and education, in particularfor girls and women, who often carry the heaviest burden of poverty.Oxfam’s research also suggests that this aid does help to make a change inpoor people’s lives. Government spending on education has increased bynearly a third (31 per cent) in eight of the countries that receive some of thelargest amounts of the Commission’s general budget support. In all but onecountry (Rwanda), this has resulted in an increase in the number of childrenenrolled in primary school. In Madagascar, the proportion of childrenenrolled in primary school increased from 69 per cent in the period 2001 to2002, to 92 per cent in 2005. Of course the Commission is not exclusivelyresponsible for these positive results, but the evidence does show thatwhere it is giving large amounts of budget support, headway is being madein reducing poverty.By tying budget support to outcomes in health and education, theCommission stands in contrast with some of the other providers of budgetsupport, such as the World Bank, which include many economic policyconditions in their aid packages. Oxfam believes aid should not be tied topotentially harmful economic policy conditions, such as privatisation ofcompanies and services or trade liberalisation. These conditions, frequentlyapplied by the World Bank and the International Monetary Fund (IMF),reduce policy space and often do more harm than good. In Mali, forexample, the World Bank and IMF tied their aid to conditions calling forliberalisation of the cotton sector despite World Bankresearch indicating thatthis could actually increase poverty by 4.6 per cent.
The third advantage of the EC’s budget support is that it is fairly long-term.At present, it is usually provided for a period of three years. Furthermore, theCommission is working on a proposal for ‘MDG contracts’ which it aims tointroduce in spring this year. It is likely that up to ten African countries willget these contracts, which will deliver general budget support for a period ofsix years, with just one mid-term assessment. This ambitious proposal couldbe a major step forward in terms of increasing long-term predictability of aid.But while there are several positive aspects to the EC’s budget support, it isstill far from perfect. First, it is not fully free from harmful conditions. It isparticulary problematic that – like most other providers of aid – theCommission generally only gives budget support if countries have an IMFprogramme in place. Such programmes can limit a government’s ability toinvest in development by setting unneccessarily stringent targets on inflationand budget deficits.Second, even though the Commission is doing well in providing long-termbudget support it needs to improve on the short term predictability of its aid.
, Oxfam Briefing Paper, May 2008