Budget support critical to development in the Pacific

A vendor at a market in Gerehu, Papua New Guinea. Pacific island nations heavily rely on bilateral and multilateral as part of their annual revenue. Photo by: Ness Kerton / Australian Department of Foreign Affairs / CC BY

Budget support makes up 17 percent of total aid to the Pacific, double the global average.

The statistic surprised attendees at Thursday’s 2015 Pacific Update conference in Fiji, revealing the staggering reliance the Pacific now has on bilateral and multilateral arrangements as part of their annual revenue.

Matthew Dornan, research fellow at the Australian National University’s Development Policy Center, told the audience that in some parts of the Pacific, this reliance on budget support is more significant than others — budget support accounts for 36 percent of Tonga’s budget, for instance, and 30 percent of Tuvalu’s.

Stephen Howes, director of the Development Policy Center, said it appeared budget support in the Pacific was “here to stay for a while” and was the lone voice of concern on a panel that was largely supportive.

Howes said he was surprised by this increased reliance after previous failures in the region. In the past, 100 percent of Australian aid to Papua New Guinea came in the form of budget support, which has since been considered a policy failure. Budget support, Howes warned, has a tendency to fail, particularly when reforming governments lose power or donors become so ambitious with their reforms that governments can’t deliver them.

“It requires deep country knowledge to be successful,” he said.

But there is evidence suggesting budget support can create long-term sustainable development solutions, according to Jerome Pons from the Delegation of the European Union for the Pacific. He said budget support accounts for 25 percent of total EU development aid, and their research showed it was more successful than other aid approaches in delivering permanent change.

It was also a better way to do business.

“We are more predictable in the budget support we are giving countries,” he said. “Countries have asked for us to do it this way and we are happy to deliver.”

Lily-Anne Homasi, Australia’s Department of Foreign Affairs and Trade senior program manager for Tuvalu, said the Pacific island nation is one example where budget support had been successful, due in part to the country having both a need and appetite for reform.

“It empowers governments to drive reform which can be tough, but essential,” she said.

Homasi believed the key to success is clarity — both parties need clearly articulated goals for the change, a clear idea of what success will look like, and clear governance and monitoring arrangements from the start. Money is provided when the outcome is achieved.

“Once a country has achieved their policy reform, we provide budget support,” Homasi said, and the country is then able to determine how and where that money will be spent.

And while there are donors that had pushed for initiatives that shouldn’t be included, such as construction of runways, Dornan said budget support is proving to be a very successful aid approach in the Pacific.

The Asian Development Bank agrees.

“From our perspective, budget support is here to stay,” Laisiasa Tora, economist at ADB’s Pacific Subregional Office, said.

He said ADB is moving toward increased budget support, which for the Pacific in particular would continue to be critical in meeting the financial needs of nations at risk of natural disasters.

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About the author

  • Lisa Cornish

    Lisa Cornish is a freelance data journalist based in Canberra, Australia. Lisa formerly worked with News Corp Australia as a data journalist for the national network and was published throughout Australia in major metropolitan and regional newspapers, including the Daily Telegraph in Melbourne, Herald Sun in Melbourne, Courier-Mail in Brisbane and online through news.com.au. Lisa has recently been awarded the 2014 Journalist of the Year by the New South Wales Institute of Surveyors.