Poverty reduction budget support (PRBS)
Definition
Poverty reduction budget support (PRBS) is when a donor provides funds directly to a partner government's central exchequer in support of their programmes, to assist poverty reduction.
Why is it important?
- PRBS brings several benefits:
- In the short-term, it can promote increased engagement by partner countries in the development agenda, improved policy dialogue between donors and partner countries on poverty reduction, and better coordination among donors
- In the medium-term, it can lead to increased efficiency and better allocation of public expenditure in support of poverty reduction, and lower transaction costs between partners and donors
- In the long-term, it can lead to improved service delivery, and stronger domestic accountability between partner countries and their citizens
Facts and figures
- DFID's spending on PRBS averaged around £250 million per year between
2000/01 - 2002/03 in 20 countries (15% of bilateral expenditure). This
increased to around £345 million in 2003/04 and is projected to rise to
around £600 million by 2005/06. In some countries, this represents up to 75%
of DFID's bilateral programme. PRBS is projected to double to around £1.2
billion by 2007/08.
In 2004/5, DFID gave PRBS to the following countries:- Ethiopia, Ghana, Malawi, Mozambique, Rwanda, Sierra Leone, Tanzania, Uganda, Zambia
- Vietnam, India (Andhra Pradesh), Bangladesh, Pakistan (sector support)
- Afghanistan, Bolivia, Palestinian Authority, East Timor (channelled
through World Bank Trust Fund)
DFID/UK position
- DFID’s PRBS Policy Paper - May
2004
(115
kb) was based on its 2000 White Paper on International Development - Eliminating
World Poverty: Making Globalisation Work for the Poor (647
kb), and commits the UK to channelling "more of our support through
developing country budgetary systems, where governments have a strong
commitment to poverty reduction". - When circumstances are appropriate, DFID believes PRBS is the aid instrument most likely to support a positive relationship between donor and developing country partners on poverty reduction, and most likely to help build the accountability and capability of the state.
- To assess whether PRBS is an appropriate way of giving aid to a partner country, DFID considers the partner government’s planned budget priorities in support of poverty reduction; administrative, technical and financial capacity; and costs and benefits of PRBS compared to other types of aid.
International perspectives
- The World Bank and International Monetary Fund (IMF) are very supportive of PRBS. The IMF’s Poverty Reduction and Growth Facility (PRGF) programmes, and World Bank’s Poverty Reduction Support Credit (PRSC) are both given in support of partner countries’ poverty reduction strategies, and operate alongside DFID's PRBS in many countries.
- The African Development Bank uses a similar instrument of Development Budget Support Lending (DBSL), and is working to align with other donors, in Benin, Uganda, Sierra Leone and Ghana.
- The European Commission (EC)’s use of PRBS is closely aligned with the UK in several African countries, although it uses a two-tranche approach, in which it guarantees core budget support plus a variable tranche which is given on a sliding scale depending on partner country performance against pre-agreed targets.
- Norway and Sweden have similar approaches to the UK on PRBS. The US and
Japan are less keen on budget support, although the US uses some non-project
‘cash transfers’ (for example in Pakistan and Turkey) and its
Millennium Challenge Account
(set up to distribute aid to good performing developing countries) has
increased interest in this approach. - Some developing countries, such as Uganda and Tanzania have declared that budget support is their preferred aid instrument. A recent joint evaluation in Tanzania concluded that PRBS had made a major contribution to good macro economic management, with low inflation and solid economic growth. There had been a large increase in discretionary resources available to the budget, allowing stabilisation of domestic debt; expanded services for education, health, water and road maintenance; consistent improvement and modernisation of public financial management systems.
Issues to Address
- More evidence is needed on medium to longer term benefits of PRBS. TheDevelopment
Assistance Committee (DAC) evaluation of GBS has studied GBS in 7
country cases and will produce a final synthesis report of findings,
conclusions and recommendations in May 2006
- As PRBS may be used by partner governments for recurrent expenditure such as health and education sector salaries, disrupting its provision can have a serious impact. The Predictability of PRBS is therefore critical, especially in countries that are aid-dependent.
- PRBS is rarely a sufficient aid instrument on its own, and usually needs complementing with other forms of assistance, for example the provision of technical cooperation.
- There is scope for better Co-ordination with other donors giving PRBS, particularly the international financial institutions such as the World Bank. This would improve impact and help reduce transaction costs for government partners. DFID is already seeking to tackle this through contributing to Budget Support Working Groups in some countries.
Further information
- Managing Fiduciary Risk when Providing Budget Support - March 2002
Last updated: 3 February 2006
