How SBS works

Sector budget support favours true partnerships, in which the EU works with its partner countries as equals. The EU accompanies them in their reform process towards achieving development goals, through balanced and open policy dialogue, and rewards their performance when results are met.

Budget support fosters partner countries’ ownership of development policies and reforms. It relies on transparency, mutual respect, accountability, performance, and risk management, with the aim of increasing the effectiveness of our development cooperation.

To benefit from budget support, partner countries must have:

  • relevant and credible national or sector strategies, policies, and/or reforms
  • stability-focused economic policies
  • a relevant and credible plan to improve public financial management and domestic revenue mobilisation
  • budget oversight and publicly available budget information

Beneficiary governments also need to adhere to EU fundamental values of human rights, democracy, and the rule of law.

Financial transfers under budget support are tied to performance. If a partner country does not meet the agreed-upon conditions for results, payments will be withheld until they do. The use of a variable tranche based on indicators also allows for partial payment in case of partial performance. Payment is thus based not on reporting particular expenditure but on meeting agreed targets, instead.

Particular rules are agreed in SRPC and related financial agreement, but in general, countries present annual disbursement request accompanied by (self)assessment report of annual progress against agreed indicators. The report contains a description of each met target, providing ‘verification’ (e.g. statistic data). After the report is approved by the European Commission (EC) payment is provided directly to the ministry of finance.

Even if sector budget support represents a kind of ‘success fee’ and doesn’t cover particular costs, it’s obvious that implementation of sectoral reforms is usually related to some kind of investment (e.g. modernization of schools, procurement of latest health care technologies, development of new training programmes and methods, or simply training of specialists or entrepreneurs). Before SRPC is signed, EC experts and local government experts assumed the total costs of the planned investment. The total amount of SBS then represents half or even more of the calculated sum to fulfil tasks of ‘incentive’ to achieve SRPC targets.

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